Legislature(2013 - 2014)SENATE FINANCE 532

04/12/2013 01:30 PM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 90 SCHOOL DISTRICT EMPLOYEE HEALTH INSURANCE TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 129 OIL & GAS EXPLORATION/DEVELOPMENT AREAS TELECONFERENCED
Moved CSHB 129(FIN) Out of Committee
+= HB 23 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Heard & Held
+= SB 13 KNIK ARM BRIDGE AND TOLL AUTHORITY TELECONFERENCED
Heard & Held
+= HB 76 UNEMPLOYMENT; ELEC. FILING OF LABOR INFO TELECONFERENCED
Moved CSHB 76(FIN) Out of Committee
                 SENATE FINANCE COMMITTEE                                                                                       
                      April 12, 2013                                                                                            
                         1:42 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:42:48 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer  called the Senate Finance  Committee meeting                                                                    
to order at 1:42 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Kevin Meyer, Co-Chair                                                                                                   
Senator Anna Fairclough, Vice-Chair                                                                                             
Senator Click Bishop                                                                                                            
Senator Mike Dunleavy                                                                                                           
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Greg  Cashen, Assistant  Commissioner,  Department of  Labor                                                                    
and Workforce  Development; Paul Dick,  Director, Employment                                                                    
Security  Division,   Department  of  Labor   and  Workforce                                                                    
Development; Michael  Foster, Chairman, Knik Arm  Bridge and                                                                    
Toll Authority;  Judy Dougherty, Deputy  Executive Director,                                                                    
Knik  Arm  Bridge  and  Toll  Authority;  Michael  Barnhill,                                                                    
Deputy Commissioner, Department of Administration                                                                               
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Aesha  Pallesen,   Assistant  Attorney  General,   State  of                                                                    
Alaska, Anchorage                                                                                                               
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB  13    KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                                    
                                                                                                                                
          SB 13 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
SB  90    SCHOOL DISTRICT EMPLOYEE HEALTH INSURANCE                                                                             
                                                                                                                                
          SB 90 was HEARD and  HELD in committee for further                                                                    
          consideration.                                                                                                        
                                                                                                                                
2d CS HB 23(RLS)                                                                                                                
          KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                                    
                                                                                                                                
          2d CS HB  23(RLS) was HEARD and  HELD in committee                                                                    
          for further consideration.                                                                                            
                                                                                                                                
CS HB 76(FIN)                                                                                                                   
         UNEMPLOYMENT; ELEC. FILING OF LABOR INFO                                                                               
                                                                                                                                
          CS HB  76(FIN) was REPORTED out  of committee with                                                                    
          a  "do pass"  recommendation  and with  previously                                                                    
          published  fiscal  impact  note:  FN4  (LWF);  and                                                                    
          previously published zero fiscal note: FN3 (LWF).                                                                     
                                                                                                                                
CS HB 129(FIN)                                                                                                                  
          OIL & GAS EXPLORATION/DEVELOPMENT AREAS                                                                               
                                                                                                                                
          CS HB 129(FIN) was  REPORTED out of committee with                                                                    
          a  "do pass"  recommendation  and with  previously                                                                    
         published fiscal impact note: FN2 (DNR).                                                                               
                                                                                                                                
CS FOR HOUSE BILL NO. 129(FIN)                                                                                                
                                                                                                                                
     "An Act relating to approval for oil and gas or gas                                                                        
     only exploration and development in a geographical                                                                         
     area; and providing for an effective date."                                                                                
                                                                                                                                
1:44:11 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough discussed the fiscal note attached to                                                                     
the bill. She shared that the FY14 request was $134                                                                             
thousand in General Fund dollars.                                                                                               
                                                                                                                                
Vice-Chair Fairclough MOVED to REPORT CS HB 129(FIN) out of                                                                     
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
                                                                                                                                
CS HB 129(FIN) was REPORTED out of committee with a "do                                                                         
pass" recommendation and with previously published fiscal                                                                       
impact note: FN2 (DNR).                                                                                                         
1:44:50 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
1:45:54 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Meyer welcomed Senator Olson to the table.                                                                             
                                                                                                                                
CS FOR HOUSE BILL NO. 76(FIN)                                                                                                 
                                                                                                                                
     "An  Act  relating  to  electronic  filing  of  certain                                                                    
     information with the Department  of Labor and Workforce                                                                    
     Development;  relating  to fund  solvency  adjustments,                                                                    
     rate increase  reduction, prohibition on the  relief of                                                                    
     certain charges,  the unemployment trust  fund account,                                                                    
     and  the offset  of  certain unemployment  compensation                                                                    
     debt   under  the   Alaska  Employment   Security  Act;                                                                    
     relating  to the  definition  of 'covered  unemployment                                                                    
     compensation  debt' in  the Alaska  Employment Security                                                                    
     Act; and providing for an effective date."                                                                                 
                                                                                                                                
1:47:52 PM                                                                                                                    
                                                                                                                                
GREG CASHEN, ASSISTANT COMMISIONER, DEPARTMENT OF LABOR AND                                                                     
WORKFORCE DEVELOPMENT, testified that HB 76 would do four                                                                       
things:                                                                                                                         
                                                                                                                                
   · allow for electronic filing of reports                                                                                     
   · improve the department's ability to recoup fraudulent                                                                      
     unemployment insurance payments                                                                                            
   · adopt minor changes to bring the department into                                                                           
     compliance with federal law                                                                                                
   · change how unemployment tax rates are set in an effort                                                                     
     to keep money in the  hands of employers and employees;                                                                    
     keeping  money circulating  through  the economy  while                                                                    
     protecting the integrity of the trust fund                                                                                 
                                                                                                                                
1:49:09 PM                                                                                                                    
                                                                                                                                
PAUL   DICK,   DIRECTOR,   EMPLOYMENT   SECURITY   DIVISION,                                                                    
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, highlighted                                                                      
the sections of the bill.                                                                                                       
                                                                                                                                
     Section   1  adds   a   new   section,  AS   23.05.055,                                                                    
     authorizing  the  commissioner  to  allow  the  use  of                                                                    
    electronic filing methods in place of paper filing.                                                                         
                                                                                                                                
     Section   2  adds   a   new   section,  AS   23.20.021,                                                                    
     authorizing the  legislature to appropriate  money into                                                                    
     the unemployment trust fund account.                                                                                       
                                                                                                                                
     Section 3  adds a new  section, AS 23.20.279,  to bring                                                                    
     the state into conformity  with federal law, Public Law                                                                    
     112-40,  by  prohibiting  the   relief  of  charges  to                                                                    
     employers  when an  erroneous  payment of  unemployment                                                                    
     insurance  benefits  is  made  due  to  an  established                                                                    
     pattern of the  employer, or an agent  of the employer,                                                                    
     for  failing  to  respond timely  or  adequately  to  a                                                                    
     documented request for information  relating to a claim                                                                    
     for  unemployment  compensation. This  section  defines                                                                    
     "erroneous payment"  as a payment  made that  would not                                                                    
     have otherwise  been paid, but  was due to  the failure                                                                    
     of the  employer to respond timely  or adequately. This                                                                    
     section  also defines  "pattern of  failing" as  two or                                                                    
     more times or 2% or  more of all requests, whichever is                                                                    
     greater, during the prior year.                                                                                            
                                                                                                                                
Mr. Dick  noted that conforming to  the federal requirements                                                                    
was necessary  for the state  to qualify for the  90 percent                                                                    
Federal  Unemployment Tax  Act (FUTA)  credit. He  said that                                                                    
the  tax credit  was 6  percent and  that Alaskan  employers                                                                    
received a 90 percent credit.  He shared that employers paid                                                                    
10 percent  of the tax, .6  percent, rather than the  full 6                                                                    
percent. He  warned that losing  the credit would  result in                                                                    
an additional  yearly payment total  of $378,  per employee,                                                                    
collectively  resulting in  a $115  million hit  to Alaska's                                                                    
economy. He  said that an  additional benefit of  the credit                                                                    
was  that it  required the  state to  deposit 30  percent of                                                                    
penalty  collections into  the unemployment  insurance trust                                                                    
fund.  He  explained  that currently,  100  percent  of  the                                                                    
penalties  went  into  the  General  Fund;  the  30  percent                                                                    
provision   would  result   in   more   money  in   Alaska's                                                                    
unemployment  insurance trust  fund, which  would ultimately                                                                    
help employers.                                                                                                                 
                                                                                                                                
Mr. Dick continued with the sectional analysis:                                                                                 
                                                                                                                                
     Section  4 amends  AS 23.20.290(c)  by adding  the word                                                                    
     "surcharge"   following   the  words   "fund   solvency                                                                    
     adjustment".                                                                                                               
                                                                                                                                
Mr. Dick  explained that  when calculating  the unemployment                                                                    
insurance  checks the  department  used  a base  calculation                                                                    
that  examined the  state's benefits  over  the prior  three                                                                    
years.  He  said  that there  was  additional  provision  in                                                                    
statue that had  a target of 3 to 3.3  percent for the trust                                                                    
fund.  He relayed  that the  two  components added  together                                                                    
determined  the  unemployment  insurance tax  rate  for  the                                                                    
state. He continued:                                                                                                            
                                                                                                                                
     Section  5   repeals  and  reenacts   AS  23.20.290(f),                                                                    
     replacing a table method  for determining fund solvency                                                                    
     adjustment surcharges  with a more  precise calculation                                                                    
     method. It  also eliminates the 0.3  limitation on fund                                                                    
     solvency  adjustment surcharge  decreases  in a  single                                                                    
     year.                                                                                                                      
                                                                                                                                
Mr. Dick relayed that the  section removed a table currently                                                                    
in  statute   and  replaced  it   with  verbiage   took  the                                                                    
calculation of  the solvency adjustment  for .10  percent to                                                                    
.100  percent.  He  said  that would  make  the  trust  fund                                                                    
solvency  adjustment  consistent  with   the  base  rate  as                                                                    
calculated to the .100 percent.  He added that it would make                                                                    
for more  precise calculations and would  remove the current                                                                    
0.3 decrease  limitation. He shared  that Alaska was  one of                                                                    
three states where  the employee and the  employer paid into                                                                    
the unemployment  trust fund. He  underscored that  the bill                                                                    
would  not affect  the amount  of training  funds that  went                                                                    
into the  Statewide Training  and Employment  Program (STEP)                                                                    
and  the  Technical   Vocational  Education  Program  (TVEP)                                                                    
training funds.                                                                                                                 
                                                                                                                                
Mr. Dick continued with the sectional analysis:                                                                                 
                                                                                                                                
     Section   6  adds   a   new   section,  AS   23.20.291,                                                                    
     authorizing the  commissioner to  suspend, in  whole or                                                                    
     in part,  increases in unemployment tax  rates when the                                                                    
     "average  high cost  multiple," a  measure of  solvency                                                                    
     calculated by the U.S.  Department of Labor, Employment                                                                    
     and  Training Administration,  is  0.8  or greater  and                                                                    
     after consultation with the department's actuary.                                                                          
                                                                                                                                
Mr.  Dick  explained  that  the   suspension  would  not  be                                                                    
automatic and  would require the action  of the commissioner                                                                    
to suspend the  increase. He said that this  would allow for                                                                    
flexibility  to  adjust  rates   when  the  trust  fund  was                                                                    
healthy.  He  said  that  the fund  was  currently  at  $251                                                                    
million. He noted the sunset date in Section 10.                                                                                
                                                                                                                                
Mr. Dick continued with the sectional analysis:                                                                                 
                                                                                                                                
     Section  7 amends  AS 23.20.390(f)  to bring  the state                                                                    
     into conformity  with federal  law, Public  Law 112-40,                                                                    
     by  removing the  department's authority  to waive  the                                                                    
     collection   of   a    penalty   established   due   to                                                                    
     misrepresentation and  requires that  a minimum  of 30%                                                                    
     of the  unemployment insurance penalties  collected due                                                                    
     to  misrepresentation  be  deposited into  the  state's                                                                    
     unemployment trust fund account.                                                                                           
                                                                                                                                
     Section 8  adds new section, AS  23.20.486 to authorize                                                                    
     the  department  to  offset  unemployment  compensation                                                                    
     debt against  a claimant's  federal income  tax refund.                                                                    
     This section  would allow the  state to  participate in                                                                    
     the federal treasury offset program.                                                                                       
                                                                                                                                
Mr.  Dick said  that the  change  would allow  the state  to                                                                    
offset federal  tax income tax returns  against unemployment                                                                    
insurance  liabilities.   He  shared  that   the  department                                                                    
estimated $500,000 in additional collections.                                                                                   
                                                                                                                                
Mr. Dick stated that the remaining sections pertained to                                                                        
effective dates:                                                                                                                
                                                                                                                                
     Section  9  amends  AS  23.20.520,   by  adding  a  new                                                                    
     paragraph to define  "covered unemployment compensation                                                                    
     debt"   in  accordance   with  the   federal  statutory                                                                    
     definition.                                                                                                                
                                                                                                                                
     Section   10  effective   July  1,   2016  repeals   AS                                                                    
     23.20.291, added by section 6 of this bill.                                                                                
                                                                                                                                
     Section 11  amends state  uncodified law  by specifying                                                                    
     that AS  23.20.279, added  by section  3 of  this bill,                                                                    
     applies to overpaid  benefits established after October                                                                    
     21, 2013.                                                                                                                  
                                                                                                                                
     Section  12 specifies  that the  department will  adopt                                                                    
     necessary    regulations    to    implement    changes.                                                                    
     Regulations  will not  be effective  prior  to July  1,                                                                    
     2013.                                                                                                                      
                                                                                                                                
     Section  13 establishes  that section  12 takes  effect                                                                    
     immediately.                                                                                                               
                                                                                                                                
     Section  14  establishes  the effective  date  for  the                                                                    
     remaining sections of this Act as July 1, 2013.                                                                            
                                                                                                                                
1:59:32 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  asked whether the  30 percent  deposit into                                                                    
the unemployment insurance was fixed.                                                                                           
                                                                                                                                
Mr.  Dick  replied that  federal  law  required a  least  30                                                                    
percent.                                                                                                                        
                                                                                                                                
2:00:11 PM                                                                                                                    
                                                                                                                                
Senator   Hoffman   wondered   whether  other   states   had                                                                    
contemplated a higher percentage.                                                                                               
                                                                                                                                
Mr. Dick responded  that he was not aware  what other states                                                                    
were doing.                                                                                                                     
                                                                                                                                
2:00:18 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  queried why the  minimum of 30  percent had                                                                    
been chosen.                                                                                                                    
                                                                                                                                
Mr. Dick deferred the question to Ms. Pallesen.                                                                                 
                                                                                                                                
2:00:44 PM                                                                                                                    
                                                                                                                                
AESHA  PALLESEN,   ASSISTANT  ATTORNEY  GENERAL,   STATE  OF                                                                    
ALASKA, ANCHORAGE (via  teleconference), understood that the                                                                    
30 percent  amount was  chosen because  that was  the number                                                                    
necessary to  meet federal requirements.  She said  that she                                                                    
had advised the department to  choose 30 percent in order to                                                                    
meet federal compliance.                                                                                                        
                                                                                                                                
2:01:52 PM                                                                                                                    
                                                                                                                                
Senator Hoffman probed the additional  benefits if the state                                                                    
paid a higher percentage.                                                                                                       
                                                                                                                                
Ms. Pallesen was unsure that  increasing the percentage rate                                                                    
of what went  into the trust fund would result  in the state                                                                    
receiving additional federal monetary benefits.                                                                                 
                                                                                                                                
2:02:28 PM                                                                                                                    
                                                                                                                                
Senator  Hoffman thought  that if  the funds  went into  the                                                                    
trust fund,  rather than  the general  fund, there  could be                                                                    
more dollars for the STEP and TVEP programs.                                                                                    
Ms. Pallesen  responded that  under the  federal regulations                                                                    
the 30 percent of penalties  collected could not go into the                                                                    
general fund.                                                                                                                   
                                                                                                                                
2:03:28 PM                                                                                                                    
                                                                                                                                
Senator Hoffman  responded that  he understood.  He believed                                                                    
that it  the percentage were  to be raised then  there would                                                                    
be more  money to  invest in  training programs,  instead of                                                                    
going  into  the  General  Fund,  which  would  benefit  the                                                                    
state's workforce.                                                                                                              
                                                                                                                                
Ms.  Pallesen deferred  the question  to  the Department  of                                                                    
Labor and Workforce Development.                                                                                                
                                                                                                                                
2:04:09 PM                                                                                                                    
                                                                                                                                
Senator Hoffman restated his question.                                                                                          
                                                                                                                                
Mr. Dick  stated that the  training program funds  came from                                                                    
the  employee  contributions  and   that  the  monies  under                                                                    
discussion were penalty funds.                                                                                                  
                                                                                                                                
Senator Hoffman asked where the 30 percent would go.                                                                            
                                                                                                                                
Mr. Dick replied that currently,  all of the money collected                                                                    
just on the penalties went  into the General Fund. Under the                                                                    
legislation,  30 percent  of the  collections would  go into                                                                    
the unemployment insurance trust  fund, and 70 percent would                                                                    
go to the General Fund.                                                                                                         
                                                                                                                                
Senator Hoffman asked if employer rates could be reduced.                                                                       
                                                                                                                                
2:05:36 PM                                                                                                                    
                                                                                                                                
Mr.  Dick responded  in  the affirmative.  He  said that  an                                                                    
increase in the rate would  increase revenues into the trust                                                                    
fund and mitigate the tax rates.                                                                                                
                                                                                                                                
2:06:03 PM                                                                                                                    
                                                                                                                                
Senator  Bishop   asked  which  section  of   the  bill  the                                                                    
department could live without.                                                                                                  
                                                                                                                                
Mr.  Dick responded  the  department felt  that  all of  the                                                                    
provisions of the bill were critical.                                                                                           
                                                                                                                                
2:07:10 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer asked  if there was a time  constraint on the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Mr.  Dick replied  that state  conformance  was required  by                                                                    
October 21, 2013.                                                                                                               
                                                                                                                                
2:07:35 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough asked how long  the state had been out                                                                    
of compliance.                                                                                                                  
                                                                                                                                
Mr. Dick  replied that the  state was not out  of compliance                                                                    
until  October   21,  2013.  He  stated   that  the  federal                                                                    
government  understood that  the  changes would  need to  go                                                                    
through the legislative  process and gave states  2 years to                                                                    
meet compliance.                                                                                                                
                                                                                                                                
2:08:29 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer wondered  what would happen if  the state did                                                                    
not comply.                                                                                                                     
                                                                                                                                
Mr. Dick  responded that the  state would lose the  FUTA tax                                                                    
credit, which was 90 percent of  the tax rate and equated to                                                                    
$378 per employee, per year.                                                                                                    
                                                                                                                                
2:09:30 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer OPENED public testimony.                                                                                         
                                                                                                                                
Co-Chair Meyer CLOSED public testimony.                                                                                         
                                                                                                                                
2:10:02 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough   discussed  the  two   fiscal  notes                                                                    
attached to  the bill.  She noted  the increase  in $500,000                                                                    
FY14  through  FY19. She  wondered  if  the note  should  be                                                                    
updated to reflect the changing of the sunset date to 2016.                                                                     
                                                                                                                                
Vice-chair Fairclough MOVED  to REPORT CS HB  76(FIN) out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CS  HB 76(FIN)  was REPORTED  out  of committee  with a  "do                                                                    
pass"  recommendation and  with previously  published fiscal                                                                    
impact  note:  FN4  (LWF);  and  previously  published  zero                                                                    
fiscal note: FN3 (LWF).                                                                                                         
                                                                                                                                
2:12:06 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:19:32 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 13                                                                                                            
                                                                                                                                
     "An Act  relating to bonds  of the Knik Arm  Bridge and                                                                    
     Toll  Authority;  relating  to  reserve  funds  of  the                                                                    
     authority;  relating  to  taxes and  assessments  on  a                                                                    
     person  that  is  a  party to  an  agreement  with  the                                                                    
     authority;  and  establishing  the  Knik  Arm  Crossing                                                                    
     fund."                                                                                                                     
                                                                                                                                
2d CS FOR HOUSE BILL NO. 23(RLS)                                                                                              
                                                                                                                                
     "An   Act  creating   the  Knik   Crossing  Development                                                                    
     Corporation as  a subsidiary corporation of  the Alaska                                                                    
     Housing Finance  Corporation and  relating to  bonds of                                                                    
     the Knik Crossing Development Corporation."                                                                                
                                                                                                                                
2:21:07 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Fairclough  noted   that  there   were  varying                                                                    
opinions on  the audit  that was  before the  committee. She                                                                    
stated  that the  Division of  Legislative  Audit (DLA)  had                                                                    
full  support  from  legislative  auditors  and  had  worked                                                                    
within  the  parameters  that  had  been  requested  by  the                                                                    
legislature. She relayed  that the Knik Arm  Bridge and Toll                                                                    
Authority (KABATA)  board had worked diligently  to move the                                                                    
project  forward. She  offered support  for the  legislation                                                                    
and expressed an obligation to  protect the audit staff that                                                                    
had been working on behalf of the legislature.                                                                                  
                                                                                                                                
2:22:43 PM                                                                                                                    
                                                                                                                                
MICHAEL  FOSTER,   CHAIRMAN,  KNIK   ARM  BRIDGE   AND  TOLL                                                                    
AUTHORITY, introduced  his support staff. He  recognized the                                                                    
work  that  had been  done  by  the  DLA committee  and  the                                                                    
legislature  on  the  audit.   He  stated  that  KABATA  had                                                                    
concerns with the  models that were used in  the findings to                                                                    
predict  population  and  social  economic  and  demographic                                                                    
numbers.                                                                                                                        
                                                                                                                                
2:23:54 PM                                                                                                                    
                                                                                                                                
JUDY DOUGHERTY,  DEPUTY EXECUTIVE DIRECTOR, KNIK  ARM BRIDGE                                                                    
AND   TOLL  AUTHORITY,   gave  a   brief  overview   of  her                                                                    
credentials. She  relayed that  the audit had  found nothing                                                                    
wrong  with  the  Knik   Arm  Crossing  project  development                                                                    
process  or  governance  and no  problems  with  contracting                                                                    
practices.  She  said  that  a  DLA  auditor  had  testified                                                                    
earlier in the  week that KABATA'a draft  document could not                                                                    
be  audited  because  they  were   a  "moving  target."  She                                                                    
explained   that  in   accordance  with   standard  auditing                                                                    
practices  a  scope change  was  identified  and KABATA  was                                                                    
informed.  She asserted  that a  balanced accounting  of the                                                                    
general   risk/reward  calculus   of  and   availability  P3                                                                    
agreement  could  and  should  have  been  included  in  the                                                                    
report.  She  addressed  the issue  of  reasonableness.  She                                                                    
offered  that reasonableness  was what  had blown  the audit                                                                    
out of proportion  and damaged the progress  of the project.                                                                    
She opined that the  auditors contended that the assumptions                                                                    
made   for  the   project  model   were  not   supported  by                                                                    
independent sources.                                                                                                            
                                                                                                                                
2:25:45 PM                                                                                                                    
                                                                                                                                
Ms.  Dougherty  asserted  that 6  different  traffic  demand                                                                    
models had been completed  since 2005 that predicted traffic                                                                    
on  the  Knik  Arm  Crossing.  She  referred  to  "Knik  Arm                                                                    
Crossing, Traffic  Study FAQs"  (copy on file).  She pointed                                                                    
out to the  committee that Page 2 of  the document contained                                                                    
a table detailing the studies.  She relayed that the studies                                                                    
were performed for DOT's Highway  to Highway project and the                                                                    
AMATS  Metropolitan  Transportation   Plan  in  addition  to                                                                    
KABATA.  She asserted  that each  study had  been done  with                                                                    
their  own  set  of underlying  assumptions,  variables  and                                                                    
limitations;  each study  had indicated  that 4  lanes would                                                                    
likely be necessary on the  crossing on later than 2035. She                                                                    
said that each study had  study boundaries that included the                                                                    
crossing location  and assumed economic growth  in the lower                                                                    
Mat-Su  borough as  a result  of economic  "spill-over" from                                                                    
Anchorage  once the  crossing  was  constructed. She  shared                                                                    
that 3  of the studies could  have been used as  a basis for                                                                    
comparison analysis  by DLA or  a qualified  consultant. She                                                                    
felt that  the auditors  had dismissed  the studies  and had                                                                    
based their  conclusions on a  traffic model prepared  for a                                                                    
DOT project  located near Wasilla;  more than 30  miles from                                                                    
the  crossing location,  and the  study  boundaries did  not                                                                    
include the crossing location. She  said that the population                                                                    
and variables  used in  DLA's selected  model were  based on                                                                    
the  assumption  that  there  would  be  no  change  to  the                                                                    
traditional  population and  economic  growth  in the  lower                                                                    
Mat-Su  borough  as a  result  of  the bridge  opening.  She                                                                    
furthered that DLA's assumption  made no consideration for a                                                                    
change in  job growth or  population growth, and had  used a                                                                    
model that  predicted that there  would be 30  percent fewer                                                                    
jobs  in Port  Mackenzie than  ISER had  predicted would  be                                                                    
generated by  providing ferry service alone  at the crossing                                                                    
site.  She  contended that the audit findings  did not sound                                                                    
reasonable.  She  said that  the  crossing  project had  had                                                                    
traffic studies performed by 2  separate consultants who had                                                                    
arrived at similar  traffic volumes on the  bridge, but that                                                                    
the  information had  been  dismissed by  DLA  as not  being                                                                    
independent.  She thought  that varying  definitions between                                                                    
auditing   standards   and  professional   standards   among                                                                    
engineers  of  how  "independent  information"  was  defined                                                                    
could have  catered to  the problem.  She stressed  that the                                                                    
professional  engineering firms  that performed  the studies                                                                    
were  independent   and  had  no   reason  to   stake  their                                                                    
professional integrity  for the benefit of  KABATA. She said                                                                    
that the concerns  of the DLA auditor had  been addressed in                                                                    
one-on-one correspondence with  KABATA's traffic and revenue                                                                    
consultant who  provided insight to local  conditions of the                                                                    
project site and variances in population projections.                                                                           
                                                                                                                                
2:31:05 PM                                                                                                                    
                                                                                                                                
Ms. Dougherty cited Page 257  of the "Legislative Budget and                                                                    
Audit Committee  Report of the Department  of Transportation                                                                    
and  Public Facilities  Knik Arm  Bridge and  Toll Authority                                                                    
Knik Arm Crossing Project" (copy on file):                                                                                      
                                                                                                                                
     Since both  the transportation model and  the financial                                                                    
     model are computer based,  performing "what if" changes                                                                    
     in  underlying  assumptions  and data,  and  evaluating                                                                    
     their  effect   on  outcomes   should  not   be  overly                                                                    
     burdensome.                                                                                                                
                                                                                                                                
Ms.   Dougherty  relayed   that  KABATA   agreed  with   the                                                                    
statement.  She  said that  over  2,000  simulations of  key                                                                    
traffic control  revenue variables  had been performed  in 5                                                                    
year  increments and  used as  input to  the financial  risk                                                                    
analysis previously  presented by David Livingstone  of CITI                                                                    
Bank.  She  furthered that.  She  opined  that the  auditors                                                                    
failed to  recognize that the  traffic volumes  projected by                                                                    
DLA's  "what if"  scenario  had been  accounted  for in  the                                                                    
range  of   risk  analysis  when   the  risk   analysis  was                                                                    
evaluated.   She   asserted    that   KABATA's   consultants                                                                    
represented  the industry's  "who's  who" in  transportation                                                                    
engineering,   financing,    traffic   and    toll   revenue                                                                    
forecasting and  contract development legal support  and had                                                                    
been involved  in nearly  every successfully  delivered toll                                                                    
road financing P3 project in the country.                                                                                       
                                                                                                                                
2:33:39 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough remarked  that she  was Chair  of the                                                                    
Legislative Budget and Audit  (LB&A) Committee. She informed                                                                    
the  committee that  the  audit had  been  requested by  the                                                                    
previous LB&A chair.                                                                                                            
                                                                                                                                
2:34:30 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer wondered  when  the  auditors had  contacted                                                                    
KABATA for information about the project.                                                                                       
                                                                                                                                
Ms.  Dougherty replied  that she  was not  sure. She  stated                                                                    
that  management  letter  number  1  had  been  received  on                                                                    
February 1, 2013. She said  that the strong language used in                                                                    
the response to  the report was due to the  fact that KABATA                                                                    
had been rushed  in their response; they had  been given ten                                                                    
days  to respond  and the  legislative  session was  already                                                                    
underway. She  felt that there  was a lack  of understanding                                                                    
between KABATA and DLA.                                                                                                         
                                                                                                                                
2:35:39 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough  felt that  the lack  of understanding                                                                    
stemmed from a different understanding of the P3 agreement.                                                                     
                                                                                                                                
Ms.  Dougherty thought  that there  was a  concern regarding                                                                    
"toll friction."  She said that  toll friction  could reduce                                                                    
the  traffic count  on a  bridge  because people  had to  be                                                                    
willing to  pay the  toll. She stated  that a  community was                                                                    
going to develop in the  Mat-Su quickly and that the borough                                                                    
had establish several pound sites in anticipation.                                                                              
                                                                                                                                
2:36:59 PM                                                                                                                    
Vice-Chair Fairclough  wondered if  the auditors  had access                                                                    
to the  P3 agreement.  She understood that  it had  not been                                                                    
finalized yet  and imagined that  it would be  difficult for                                                                    
an auditor  to audit  something that  was not  complete. She                                                                    
wondered what  additional information would have  been found                                                                    
by the auditor had the P3 agreement been complete.                                                                              
                                                                                                                                
2:37:35 PM                                                                                                                    
                                                                                                                                
Mr. Foster responded that KABATA  had provided the draft RFP                                                                    
and  draft  PPA  to  the   auditor.  He  relayed  that  both                                                                    
documents  had yet  to go  through final  review. He  shared                                                                    
that  the  governor  had  legal  consultants  reviewing  the                                                                    
document. He  said that he  told auditors that  the document                                                                    
was  confidential  because  KABATA was  engaged  in  ongoing                                                                    
procurement.                                                                                                                    
                                                                                                                                
2:39:02 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.                                                                       
                                                                                                                                
Vice-Chair   Fairclough    noted   that   the    draft   was                                                                    
confidential. She  was unsure  whether the  contractor would                                                                    
have been  provided anything in  the P3 agreement  that they                                                                    
could consider  as they  moved forward  with the  audit. She                                                                    
said that  the auditors  had returned  to the  committee and                                                                    
amended  the framework  of how  they would  go forward  with                                                                    
the audit.                                                                                                                      
                                                                                                                                
Mr.  Foster deferred  legal questions  to the  Department of                                                                    
Law.                                                                                                                            
                                                                                                                                
2:40:18 PM                                                                                                                    
                                                                                                                                
Ms. Dougherty  added that  there were  a number  of benefits                                                                    
and  risks associated  with the  general structure  of a  P3                                                                    
agreement that had not been reflected in the report.                                                                            
                                                                                                                                
2:40:43 PM                                                                                                                    
                                                                                                                                
Senator Olson noted several projects  that had been invested                                                                    
with millions  of dollars  and then  had been  abandoned. He                                                                    
wondered  how the  crossing project  differed. He  expressed                                                                    
concern that  if the  numbers were wrong  that the  State of                                                                    
Alaska would be left footing the bill.                                                                                          
                                                                                                                                
Mr.   Foster   responded  that   there   was   a  need   for                                                                    
infrastructure  in  the  area.  He  stated  that  the  Point                                                                    
Mackenzie area was  looking to incorporate and  would be the                                                                    
4th largest city in the state.  He said that the increase in                                                                    
traffic in  the area reflected  the real need  for increased                                                                    
infrastructure in the area. He  warned that not building the                                                                    
bridge could result in an  estimated $3 billion plus in Glen                                                                    
Highway improvements. He stressed that  all the areas in the                                                                    
Mat-Su were  expected to  grow in  population in  the future                                                                    
and that the crossing would  be the best plan to accommodate                                                                    
the increase.                                                                                                                   
                                                                                                                                
2:47:38 PM                                                                                                                    
                                                                                                                                
Senator Olson remarked  that the money for  the bridge could                                                                    
be going towards  education. He argued that  people who were                                                                    
independent of the audit and  the legislature were coming up                                                                    
with  numbers  that  were  one-third   of  what  KABATA  had                                                                    
presented. He  noted that on  April 2, 2013, Mr.  Foster had                                                                    
testified  that the  Highland Area  in 1985  was 33,000;  in                                                                    
2010 the number  increased to 53,000. He pointed  out to the                                                                    
committee that that  was not a doubling of  the numbers, but                                                                    
was 63 percent  more. He furthered that  the numbers offered                                                                    
by KABATA  for 2035  showed the area  at 110,000,  which was                                                                    
more than double  the current number. He  felt that KABATA's                                                                    
projections  presented serious  problems. He  said that  the                                                                    
people contracted by KABATA to  come up with the numbers had                                                                    
a reputation of being overly optimistic in their estimates.                                                                     
                                                                                                                                
Mr. Foster  rebutted that he  did not believe that  that was                                                                    
true.                                                                                                                           
                                                                                                                                
2:49:49 PM                                                                                                                    
                                                                                                                                
Senator  Dunleavy believed  that  this was  one  of the  few                                                                    
projects  that   he  could   guarantee,  with   100  percent                                                                    
certainty, that once  completed would be used.  He said that                                                                    
the use would be continual and  growing. He quoted Page 1 of                                                                    
the audit:                                                                                                                      
                                                                                                                                
     The risks  and rewards in  totality as outlined  in the                                                                    
     P3  agreement  could  not   be  evaluated  because  the                                                                    
     agreement  has not  been finalized  and  is subject  to                                                                    
     further changes.                                                                                                           
                                                                                                                                
Senator Dunleavy relayed that he  did not fault the auditors                                                                    
for their methodology.  He did not believe  that the project                                                                    
should  be  likened  to the  failed  projects  mentioned  by                                                                    
Senator Olson. He  wondered what could be  otherwise done to                                                                    
serve the growing  area; would it be more  cost effective to                                                                    
build more lanes instead. He  did not believe that there was                                                                    
any question  about whether  there would  be traffic  on the                                                                    
bridge.                                                                                                                         
                                                                                                                                
2:52:53 PM                                                                                                                    
                                                                                                                                
Senator Hoffman directed attention to Page 19:                                                                                  
                                                                                                                                
     In  August 2012,  KABATA management  submitted a  TIFIA                                                                    
     loan  request   for  $500  million  at   a  49  percent                                                                    
     participation rate  in eligible  costs. In a  letter to                                                                    
     KABATA, dated  September 25, 2012, the  Federal Highway                                                                    
     Administration  (FHWA)  pended  reviewing  the  request                                                                    
     stating that:                                                                                                              
                                                                                                                                
                                                                                                                                
          compelling     justification"    for     providing                                                                    
          assistance  above   a  33   percent  participation                                                                    
          level.                                                                                                                
                                                                                                                                
Senator  Hoffman   continued  to  Page  27,   "Findings  and                                                                    
Recommendations."  He  felt   that  the  legislature  should                                                                    
address  the  findings.  He wondered  whether  KABATA  would                                                                    
address the findings as the  project moved forward. He noted                                                                    
that there was one recommendation:                                                                                              
                                                                                                                                
     Recommendation No. 1                                                                                                       
                                                                                                                                
     Knik Arm Bridge and  Toll Authority (KABATA) management                                                                  
     should revise  traffic and toll revenue  projections to                                                                  
     address deficiencies.                                                                                                    
                                                                                                                                
     The  audit  of  key  assumptions  and  inputs  used  in                                                                    
     KABATA's  transportation  modeling  process  identified                                                                    
     several   deficiencies   regarding  the   validity   of                                                                    
     assumptions and  inputs used as a  basis for projecting                                                                    
     toll revenues. Deficiencies are as follows.                                                                                
                                                                                                                                
                                                                                                                                
          projected  for 2035  were  overly optimistic  when                                                                    
          compared to the household  growth rates and levels                                                                    
          projected by  University of Alaska's  Institute of                                                                    
          Social  and  Economic  Research  and  the  State's                                                                    
          Department  of  Labor and  Workforce  Development.                                                                    
          The  discrepancy  stems   from  KABATA's  economic                                                                    
          growth  rate projections  in  the Point  MacKenzie                                                                    
          region, specifically in  the Port MacKenzie (Port)                                                                    
          area.                                                                                                                 
                                                                                                                                
                                                                                                                                
          percent  is significantly  higher than  the actual                                                                    
          growth   rate  of   2.5  percent   based  on   the                                                                    
          Department    of    Transportation   and    Public                                                                    
          Facilities'  traffic counts.  The differences  are                                                                    
          partially  caused  by  the anticipated  growth  in                                                                    
          population and  employment in the  Point MacKenzie                                                                    
          area.                                                                                                                 
                                                                                                                                
                                                                                                                                
          traffic is unsupported.                                                                                               
                                                                                                                                
                                                                                                                                
          commercial  vehicle traffic  for the  KAC is  high                                                                    
          compared  to actual  traffic  count  data for  the                                                                    
         Glenn Highway which indicates a split of                                                                               
          4.9 to  6.6 percent. KABATA's 12  percent split is                                                                    
          based on  DOTPF's 2003 through 2006  traffic data.                                                                    
          Since then,  DOTPF has  improved its  traffic data                                                                    
          collection methodology and  now reports much lower                                                                    
          traffic  count  splits  that  better  reflect  the                                                                    
          actual  count  between   personal  and  commercial                                                                    
          vehicles.                                                                                                             
                                                                                                                                
                                                                                                                                
          employment  level   of  14,337   is  significantly                                                                    
          higher  than the  level  noted  in the  Matanuska-                                                                    
          Susitna  Borough  plan  of 4,515.  A  majority  of                                                                    
          KABATA's   employment   (13,828)   is   based   on                                                                    
          projected  Port  economic   development  which  is                                                                    
          inconsistent  with  the  Port's  master  plan  and                                                                    
          regulations.                                                                                                          
                                                                                                                                
     All  of   the  above   concerns  have  the   effect  of                                                                    
     overstating traffic  volume. Overstated  traffic volume                                                                    
     in  KABATA's   modeling  process  has  the   effect  of                                                                    
     overstating projected toll revenues.                                                                                       
                                                                                                                                
Senator Hoffman highlighted:                                                                                                    
                                                                                                                                
     The Federal Highway Administration's (FHWA) guidelines                                                                     
     for P3s20 state:                                                                                                           
          Inaccurate    or    overly   optimistic    traffic                                                                    
          projections and  underestimated project  costs can                                                                    
          lead to  the development  of pro  forma financials                                                                    
          that  appear to  justify the  investment decision,                                                                    
          but  that  do  not reflect  the  project's  actual                                                                    
          ability   to  repay   debt  or   to  meet   equity                                                                    
          investor's return requirements.                                                                                       
                                                                                                                                
     Under  KABATA's  planned  P3  arrangement,  lower  than                                                                    
     expected toll  revenues would necessitate the  need for                                                                    
     additional  funding as  availability  payments must  be                                                                    
     paid to the private partner  regardless of how much the                                                                    
     bridge is used.                                                                                                            
                                                                                                                                
     In  recognition  of  the   risk  that  overstated  toll                                                                    
     revenues  pose  to  the   State,  we  recommend  KABATA                                                                    
     management   revise  the   traffic  and   toll  revenue                                                                    
     projections to address noted concerns.                                                                                     
                                                                                                                                
Senator Hoffman  stated that  as a  legislator he  could not                                                                    
ignore the recommendations of DLA.  He queried the timeframe                                                                    
for the KABATA board to  address the deficiencies as pointed                                                                    
out by the audit.                                                                                                               
                                                                                                                                
Ms.  Dougherty responded  that the  bullet  points had  been                                                                    
addressed in  the KABATA response  to the  preliminary audit                                                                    
report.  She noted  that three  of the  bullets specifically                                                                    
referenced  the Point  Mackenzie  area she  did not  believe                                                                    
that the model  used by the auditor addressed  the influx of                                                                    
traffic and economic  growth that would be  generated by the                                                                    
project.                                                                                                                        
                                                                                                                                
2:57:46 PM                                                                                                                    
                                                                                                                                
Mr.  Foster   furthered  that   KABATA's  response   to  the                                                                    
preliminary report could be found on Page 211 of the audit.                                                                     
                                                                                                                                
2:58:28 PM                                                                                                                    
                                                                                                                                
Senator Bishop echoed the comments  made by Senator Hoffman.                                                                    
He believed  that all  involved parties  needed to  agree on                                                                    
the  cost scheduling  numbers in  order for  the project  to                                                                    
move forward.                                                                                                                   
                                                                                                                                
2:59:18 PM                                                                                                                    
                                                                                                                                
Senator  Olson  remarked  that the  proposed  area  for  the                                                                    
project had a  history of expensive and  unused projects. He                                                                    
noted  that  the audit  had  highlighted  that if  the  toll                                                                    
revenues  were  lower  than expected,  the  state  would  be                                                                    
required   to  make   payments  to   the  private   partners                                                                    
regardless of how much the bridge was used.                                                                                     
                                                                                                                                
Mr. Foster replied in the affirmative.                                                                                          
                                                                                                                                
Senator Olson contended that there  was no reason to support                                                                    
a project that  was driven by suspect numbers.  He asked Mr.                                                                    
Foster  if  the  speculation   concerning  the  numbers  was                                                                    
reasonable.                                                                                                                     
                                                                                                                                
Mr.  Foster  agreed  that the  residents  of  Alaska  should                                                                    
evaluate  every proposed  project.  He  denied any  ulterior                                                                    
motive on behalf  of KABATA to move the  project forward. He                                                                    
offered that  the decision about  whether the  project would                                                                    
move forward should be made  by the state. He explained that                                                                    
KABATA's job was to provide information to the legislature.                                                                     
                                                                                                                                
3:02:10 PM                                                                                                                    
                                                                                                                                
Mr. Foster  referred to Page  37 of the audit  report, which                                                                    
contained  a table  that compared  the LB&A  numbers to  the                                                                    
KABATA population/traffic financial  model. He asserted that                                                                    
the  auditor's model  did not  consider the  impacts of  the                                                                    
crossing.                                                                                                                       
                                                                                                                                
3:04:28 PM                                                                                                                    
                                                                                                                                
Senator Olson stated  the state did not  have the population                                                                    
to generate  the tolls  that would pay  for the  project. He                                                                    
understood  that KABATA  had been  turned down  4 times  for                                                                    
low-interest federal loans.                                                                                                     
                                                                                                                                
Mr.  Foster  replied  that  letters  of  interest  had  been                                                                    
submitted 4 times.  He said that at the  time of application                                                                    
the project  had not been a  mature as it was  currently. He                                                                    
stated that  there were now  more federal  dollars available                                                                    
and the  chances of some  of them reaching the  project were                                                                    
improved.                                                                                                                       
                                                                                                                                
3:06:58 PM                                                                                                                    
                                                                                                                                
Senator  Dunleavy   commented  that   approximately  360,000                                                                    
people were  using the  one major  road in  the area  of the                                                                    
proposed  project. He  reiterated that  the bridge  would be                                                                    
used immediately  upon completion.  He stated that  having a                                                                    
large project that paid for  itself was a worthwhile concept                                                                    
to  explore. He  suggested that  all of  the major  projects                                                                    
executed by the state should pay for themselves.                                                                                
                                                                                                                                
3:08:46 PM                                                                                                                    
                                                                                                                                
Senator  Olson  reiterated that  if  there  were lower  than                                                                    
expected toll  revenues then  the state  would have  to make                                                                    
the inevitability payments to  private partners, leaving the                                                                    
state on the hook for billions of dollars.                                                                                      
                                                                                                                                
Mr.  Foster  replied  that  there  were  sideboards  on  the                                                                    
project which would keep the cost to the state down.                                                                            
                                                                                                                                
3:10:48 PM                                                                                                                    
                                                                                                                                
Vice-Chair Fairclough quoted Pages 19 - 20 of the audit:                                                                        
                                                                                                                                
                                                                                                                                
     justification" for providing assistance above a 33                                                                         
     percent participation level                                                                                                
                                                                                                                                
                                                                                                                                
     $150 million reserve fund is  appropriated by the State                                                                    
     or  it becomes  clear that  the funding  is "reasonably                                                                    
     likely" to be appropriated.                                                                                                
                                                                                                                                
                                                                                                                                
She  noted  that  the auditors  had  attempted  to  provided                                                                    
checks  and  balances  to guide  the  project  forward.  She                                                                    
queried the consequence of not  acting on the project during                                                                    
the current legislative session.                                                                                                
                                                                                                                                
Mr. Foster  responded that KABATA  would still  move forward                                                                    
with the  RFP process and  the PPA agreement. He  added that                                                                    
there  were permits  that were  being  finalized. He  shared                                                                    
that if the legislation did  not pass the project would fall                                                                    
further down  the Transportation Infrastructure  Finance and                                                                    
Innovation  Act (TIFIA)  list. He  thought that  the project                                                                    
could be  viable for the federal  funds in a year,  but that                                                                    
would be  dependent on how  much of the money  was allocated                                                                    
within the  next year. He  said that there was  no guarantee                                                                    
that  the legislation  would put  us in  the TIFIA  pot, but                                                                    
that  it could  move the  state  closer. He  noted that  the                                                                    
state  had  been invited  to  submit  the application  which                                                                    
meant that Alaska was in line for the federal funding.                                                                          
                                                                                                                                
3:14:41 PM                                                                                                                    
                                                                                                                                
Mr. Foster  shared that  if the  legislation was  not passed                                                                    
KABATA would continue to move forward.                                                                                          
                                                                                                                                
3:16:35 PM                                                                                                                    
                                                                                                                                
Senator Dunleavy  wondered about plans to  upgrade the Glenn                                                                    
Highway.                                                                                                                        
                                                                                                                                
Mr.  Foster  replied that  there  was  three mile  expansion                                                                    
currently occurring, funded by a general obligation bond.                                                                       
                                                                                                                                
3:16:59 PM                                                                                                                    
                                                                                                                                
Senator Dunleavy asked  if a toll was being  charged for the                                                                    
Glenn Highway expansion.                                                                                                        
                                                                                                                                
Mr.  Foster  replied  that  a toll  could  not  be  required                                                                    
because the road  was built using federal  highway money. He                                                                    
said that  the Glenn  Highway could be  tolled but  it would                                                                    
require a dedicated  lane; the commuter must  have an option                                                                    
if the road is constructed with federal dollars.                                                                                
                                                                                                                                
Vice-Chair Fairclough returned the gavel to Co-Chair Meyer.                                                                     
                                                                                                                                
3:17:37 PM                                                                                                                    
                                                                                                                                
SB  13  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2d  CS HB  23  (RLS) was  HEARD and  HELD  in committee  for                                                                    
further consideration.                                                                                                          
                                                                                                                                
3:19:00 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:30:15 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
SENATE BILL NO. 90                                                                                                            
                                                                                                                                
     "An Act relating to group  insurance coverage and self-                                                                    
     insurance coverage  for school district  employees; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
3:30:53 PM                                                                                                                    
                                                                                                                                
Senator  Dunleavy invited  the Department  of Administration                                                                    
to explain  the fiscal notes.  He felt that the  bill should                                                                    
be  held  through the  interim  for  further discussion  and                                                                    
better understanding.                                                                                                           
                                                                                                                                
3:31:51 PM                                                                                                                    
                                                                                                                                
MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF                                                                            
ADMINISTRATION, offered an analysis of FN#2:                                                                                    
                                                                                                                                
     SB  90  introduces  a  new  section  to  AS  14.20,  AS                                                                    
     14.20.137,  which  extends   group  insurance  coverage                                                                    
     under  AS39.30.090  to  school district  employees.  It                                                                    
     also  amends  AS39.30.090(a)(2) extending  coverage  to                                                                    
     dependents   of  school   district  employees.   It  is                                                                    
     estimated  that 18,300  school  district employees  and                                                                    
     29,000   dependents   will   become  members   of   the                                                                    
     AlaskaCare Employee Health Plan.  The addition of these                                                                    
     47,300   new  members   will   quadruple  the   overall                                                                    
    population of the AlaskaCare Employee Health Plan.                                                                          
                                                                                                                                
     PUBLIC EDUCATION FUND -                                                                                                    
     How the  bill works: starting  on July 1,  2014, school                                                                    
     districts would begin to enroll their employees in the                                                                     
     AlaskaCare  active employee  health plan.  That process                                                                    
     must be complete no later  than July 1, 2015. There are                                                                    
     approximately  18,300  school district  employees  that                                                                    
     would  likely enroll  over FY15-FY16.  With dependents,                                                                    
     the  total population  is approximately  47,300 covered                                                                    
     lives.                                                                                                                     
                                                                                                                                
     Self-funded insurance pools tend  to maintain a reserve                                                                    
     of 3-4 months of claim  costs. The reserve is available                                                                    
     to  pay  claims  in  times  of  claim  spikes  so  that                                                                    
     recourse  to  external   funding  sources  or  mid-year                                                                    
     premium increases is unnecessary.                                                                                          
                                                                                                                                
     We estimate that such a  reserve for the 47,000 inbound                                                                    
     covered  lives would  be  approximately $100mm.  Having                                                                    
     such a reserve  in place on July 1,  2014 is important,                                                                    
     because  this population  will  begin  to incur  health                                                                    
     claims immediately, and we need  to have funds in place                                                                    
     to  pay them.  The  bill contemplates  that the  $100mm                                                                    
     would be  drawn from the  Public Education Fund  over a                                                                    
     10  year period.  The withdrawn  funds would  be repaid                                                                    
     over a 10 year period.  The source of the repayment for                                                                    
     withdrawn   funds  would   be  school   districts.  The                                                                    
     Department  would send  them  a bill  for  the first  4                                                                    
     months of claims paid; the  bill would be repaid over a                                                                    
     10 year period.                                                                                                            
                                                                                                                                
     The  bill   contemplates  that  the   health  insurance                                                                    
     benefit credit  the state pays  on behalf of  all State                                                                    
     of Alaska  employees ($1330/mo/ee in  FY13; $1389/mo/ee                                                                    
     in FY14)  would be paid  by school districts  on behalf                                                                    
     of  school  district   employees.  The  benefit  credit                                                                    
     equates  to  the  premium for  the  AlaskaCare  Economy                                                                    
     level plan  plus the premium for  the Preventive Dental                                                                    
     plan.  The  Department  would  send  monthly  bills  to                                                                    
     school districts  to collect the benefit  credit. These                                                                    
     sums would  be deposited in  the Group Health  and Life                                                                    
     Benefits  fund (AS  36.30.095) and  used to  pay claims                                                                    
     and administer the system.                                                                                                 
                                                                                                                                
Mr. Barnhill shared that during  a discussion with the Texas                                                                    
Teacher's Retirement  System he  had learned that  Texas had                                                                    
done  a similar  consolidation  several years  ago. He  said                                                                    
that  in that  case the  state  had received  access to  $25                                                                    
million for transitional cash flow  purposes and had paid it                                                                    
back without a problem.                                                                                                         
                                                                                                                                
3:36:05 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer queried  why the  Public Education  Fund was                                                                    
being used.                                                                                                                     
                                                                                                                                
Mr. Barnhill  asserted that  the department  was indifferent                                                                    
to where the  funds came from, but that money  was needed in                                                                    
order to pay the claims.                                                                                                        
                                                                                                                                
Co-Chair Meyer though that a different fund should be used.                                                                     
                                                                                                                                
Mr.  Barnhill replied  that the  department  had no  problem                                                                    
with the legislature identifying some other fund source.                                                                        
                                                                                                                                
3:37:14 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough remarked  that some  schools did  not                                                                    
have the tax base in order to payback the funds.                                                                                
                                                                                                                                
Mr.  Barnhill responded  that  BSA funds  would  be used  in                                                                    
order to  make the payback. He  said that the intent  of the                                                                    
circulating  funds was  to hold  the  Public Education  Fund                                                                    
harmless.                                                                                                                       
                                                                                                                                
3:38:31 PM                                                                                                                    
                                                                                                                                
Senator Olson  wondered how  long the  payback had  taken in                                                                    
the Texas scenario.                                                                                                             
                                                                                                                                
Mr. Barnhill understood that it  had not taken very long. He                                                                    
said that the  state had premiums coming in  from the school                                                                    
districts and  that that  cash flow  had been  sufficient to                                                                    
manage the transition.                                                                                                          
                                                                                                                                
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.                                                                       
                                                                                                                                
Senator  Olson wondered  if the  same model  could work  for                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Mr. Barnhill replied  that it would be  imprudent to suggest                                                                    
that  the  requested transitional  cash  flow  would not  be                                                                    
needed.                                                                                                                         
                                                                                                                                
3:40:49 PM                                                                                                                    
                                                                                                                                
Senator  Dunleavy believed  that  a  considerable amount  of                                                                    
time should be taken developing the legislation.                                                                                
                                                                                                                                
Mr.   Barnhill  stated   that   the   department  had   been                                                                    
researching the  subject in  depth. He  refused to  state if                                                                    
there  was  a  causal  link between  state  healthcare  plan                                                                    
pooling and lower benefit credits.                                                                                              
                                                                                                                                
3:42:32 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough wondered  how other  trusts would  be                                                                    
affected by a state change in pooling.                                                                                          
                                                                                                                                
Mr. Barnhill  responded that the  legislation would  lead to                                                                    
the  eventual closure  of  the trusts.  He  said that  there                                                                    
would need  to be an  additional time period  because health                                                                    
insurance claims to be incurred  in one fiscal year and then                                                                    
not resolved  until the following fiscal  year. Other trusts                                                                    
would need to maintain sufficient  funds in order to pay the                                                                    
incurred  claims  until  they   were  finally  resolved.  He                                                                    
reiterated  that  the  bill called  for  all  employees  and                                                                    
dependents that were currently being  served by those trusts                                                                    
into the State of Alaska's active pool.                                                                                         
                                                                                                                                
3:43:50 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough  remarked   that  there  were  assets                                                                    
currently  in the  trusts that  were  drawing interest  that                                                                    
benefit  the  participants of  the  plan.  She wondered  who                                                                    
would have claim to the assets.                                                                                                 
                                                                                                                                
Mr.  Barnhill  responded  that  the  bill  did  not  address                                                                    
private  trust funds  and what  would happen  to the  trusts                                                                    
once  the  beneficiaries moved  into  the  state's plan.  He                                                                    
suspected  that the  trust  assets would  be  drawn down  in                                                                    
their entirety  prior to transition.  He said that  the bill                                                                    
did address the  trust assets of school  districts that were                                                                    
self-insured. He  relayed that  any unencumbered  balance at                                                                    
the point of  transition would be transferred  to the claims                                                                    
fund.                                                                                                                           
                                                                                                                                
3:46:44 PM                                                                                                                    
                                                                                                                                
Senator  Olson thought  that  the NEA  Trust  was a  private                                                                    
trust.                                                                                                                          
                                                                                                                                
Mr. Barnhill responded that it  was a private trust. He said                                                                    
that some  self-funded health plans were  funded and managed                                                                    
by union trust plans.                                                                                                           
                                                                                                                                
3:47:21 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough requested  further conversation  with                                                                    
the trust to gain their  perspective on the assets that they                                                                    
held. She  said that where  there was a  contract negotiated                                                                    
that the  state had  been pay  for 100  percent of  the cost                                                                    
then  the  state  should  have  the  right  to  assert  some                                                                    
ownership of  some of  the assets. But  in was  unclear what                                                                    
the  state's right  were concerning  the interest  \that was                                                                    
managed in a private entity.                                                                                                    
                                                                                                                                
3:48:06 PM                                                                                                                    
                                                                                                                                
Mr.  Barnhill interjected  that there  were two  more fiscal                                                                    
notes to  be discussed. He  spoke to FN#3, which  listed the                                                                    
start-up costs  for FY14 at $237,700  to reprogram computers                                                                    
to  accommodate a  quadrupling of  the pool.  He highlighted                                                                    
that every inbound  member was already and  active member of                                                                    
PERS or TRS.  He said that running across  the services line                                                                    
was  the contractual  costs that  would be  paid to  a third                                                                    
party administrator  and other vendors. The  per member, per                                                                    
month charge would  grow by the rate of 4  percent per year.                                                                    
He shared  that that  the final  fiscal note  for Retirement                                                                    
and Benefits  indicated that 12  new staff members  would be                                                                    
needed  and  would cost  $482  thousand  in FY14,  and  $964                                                                    
thousand in FY15 through FY19.                                                                                                  
                                                                                                                                
3:50:34 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer wondered  how  many  other state  bargaining                                                                    
units had their own trusts.                                                                                                     
                                                                                                                                
Mr.  Barnhill  responded that  there  was  the Alaska  State                                                                    
Employees  Association   (ASEA)  Health  Trust,   which  was                                                                    
comprised of  8,800 general  governmental unit  employees of                                                                    
the state and was the largest  piece of the health trust for                                                                    
the   state.  He   added   that   Public  Safety   Employees                                                                    
Association  (PSEA) had  opted  out of  state insurance  and                                                                    
were  fully insured  by ETNA.  He  said that  the state  was                                                                    
fragmented  in   how  health  insurance  was   delivered  to                                                                    
employees.                                                                                                                      
                                                                                                                                
3:51:23 PM                                                                                                                    
                                                                                                                                
Co-Chair  Meyer understood  that  the  issue reached  beyond                                                                    
healthcare for teachers.                                                                                                        
                                                                                                                                
Mr. Barnhill replied in the affirmative.                                                                                        
                                                                                                                                
3:51:27 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Fairclough thought  that the  rate of  return on                                                                    
the assets of the different  entities could be examined over                                                                    
the interim.                                                                                                                    
                                                                                                                                
Senator  Dunleavy   replied  that  he  would   research  any                                                                    
outstanding issues.                                                                                                             
                                                                                                                                
3:52:22 PM                                                                                                                    
                                                                                                                                
Senator Olson wondered asked about  the number of dependents                                                                    
for the school district employees.                                                                                              
Mr. Barnhill responded that there were 29,000 dependents.                                                                       
                                                                                                                                
SB 90 was HEARD and HELD in committee for further                                                                               
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
3:55:48 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:55 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
SB 13 30068 - DOTPF KABATA Final Digest.pdf SFIN 4/12/2013 1:30:00 PM
SB 13
SB 13 KABATA Audit Conclusions Findings and Recommendations.pdf SFIN 4/12/2013 1:30:00 PM
SB 13
SB 13 KABATA Audit.pdf SFIN 4/12/2013 1:30:00 PM
SB 13
SB 13 Traffic Study FAQ April 2013 (2)1.pdf SFIN 4/12/2013 1:30:00 PM
SB 13