Legislature(2003 - 2004)
05/08/2003 09:00 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 08, 2003
8:56 AM
TAPES
SFC-03 # 82, Side A
SFC 03 # 82, Side B
SFC 03 # 83, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 8:56 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Ben Stevens
Senator Donny Olson
Senator Robin Taylor
Senator Lyman Hoffman
Also Attending: SENATOR FRED DYSON; SENATOR KIM ELTON; SENATOR
HOLLIS FRENCH; REPRESENTATIVE MIKE HAWKER; MIKE BARRY, Chair, Board
of Directors, Alaska Industrial Development and Export Authority;
SARA FISHER-GOAD, Alaska Industrial Development and Export
Authority; PORTIA PARKER, Assistant Commissioner, Department of
Corrections; LAURIE HUGONIN, Alaska Network on Domestic Violence
and Sexual Assault;
Attending via Teleconference: From off net locations: DON JOHNSON;
BARBARA BRINK, Director, Public Defender Agency, Department of
Administration; From Ketchikan: JULIE BENSON;
SUMMARY INFORMATION
HB 11-DEPOSITS TO THE PERMANENT FUND
The bill was reported from Committee.
SB 73-AIDEA: BONDS & MUNICIPAL TAX EXEMPTION
The Committee heard from the Alaska Industrial Development and
Export Authority. A committee substitute was adopted and a motion
to adopt an amendment was placed on the table. The bill was held in
Committee.
HB 203-AIDEA DIVIDENDS TO STATE
The Committee heard from the sponsor and the Alaska Industrial
Development and Export Authority. The bill moved from Committee.
SB 56-SPORT FISHING FEES FOR YUKON RESIDENTS
The Committee heard from the sponsor and a member of the public. An
amendment was adopted and the bill moved from Committee.
SB 26-STATE EMPLOYEES CALLED TO MILITARY DUTY
The Committee heard from the sponsor and a member of the public.
The bill was held in Committee.
SB 85-REPEAT SERIOUS SEX OFFENSES/VICTIM COMP.
The Committee heard from the sponsor, the Department of
Corrections, the Public Defenders Agency and the Alaska Network of
Domestic Violence and Sexual Assault. The bill moved from
Committee.
HOUSE BILL NO. 11
"An Act relating to deposits to the Alaska permanent fund from
mineral lease rentals, royalties, royalty sale proceeds, net
profit shares under AS 38.05.180(f) and (g), federal mineral
revenue sharing payments received by the state from mineral
leases, and bonuses received by the state from mineral leases,
and limiting deposits from those sources to the 25 percent
required under art. IX, sec. 15, Constitution of the State of
Alaska; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Senator Bunde offered a motion to report the bill from Committee
with individual recommendations and accompanying fiscal note.
There was no objection and HB 11 MOVED from Committee with
accompanying Department of Revenue fiscal notes: #1 for the
Permanent Fund Dividend component, #2 for the Permanent Fund
Corporation component, and #3 for the Tax Division component.
SENATE BILL NO. 73
"An Act relating to the authority of the Alaska Industrial
Development and Export Authority to issue bonds; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken referenced a letter to himself dated May 1, 2003
from Mike Barry, Chairman of the Board and Ron Miller, Executive
Director of the Alaska Industrial Development and Export Authority
(AIDEA)/Alaska Energy Authority (AEA). [Copy on file.] Co-Chair
Wilken this letter provides answers to questions posed at the
previous hearing on the issue of AIDEA bonds.
Co-Chair Wilken stated that this bill "makes several changes to the
AIDEA loan participation program and secondly, authorizes the
Alaska Energy Authority to acquire the Healy Clean Coal project
from AIDEA." He reminded the Members that AIDEA brought additional
matters to his attention, which is reflected in a proposed
committee substitute.
Senator Bunde moved for adoption of CS SB 73, 23-GS1018\D, as a
working draft.
Senator Olson objected for an explanation.
Co-Chair Wilken pointed out that page 2 lines 23 through 28 of the
committee substitute contain the language of the original bill. The
remaining language, he stated, is new.
AT EASE 9:00 AM \ 9:01 AM
MIKE BARRY, Chair, Board of Directors, Alaska Industrial
Development and Export Authority, testified that this legislation
is "for the good of the State." He reported that interest rates are
lower then they have been in approximately 50 years, and because
AIDEA holds a significant portion of its assets in government
securities, as interest rates begin to increase, a "minus earnings"
could occur for a period of time. He learned that loan
participation with banks has historically provided the largest
earnings for AIDEA and also directly relates to the AIDEA mission
to diversify the State's economy and providing employment. He
remarked that the loan participation program affects every region
of the State and involves all financial institutions in the State.
As a result of this situation, he expressed intent to expand the
loan participation program and create more earning assets in the
program. To accomplish this he offered suggestions, which he cited
from the May 1, 2003 letter as follows.
The proposed changes will enhance the loan program, bring a
greater benefit to Alaskan businesses, increase AIDEA
revenues, and increase the AIDEA dividend paid to the state.
Specifically, the amendment proposes the following changes to
the program.
1. Increases the percentage in loan participants by AIDEA from
80% to 90%. This provides a greater benefit for the
borrower by allowing a larger portion of the loan to be
amortized over a longer term than provided by the banks,
thereby reducing debt service.
2. Increases the maximum dollar amount AIDEA can purchase per
loan transaction from $10 million to $20 million, allowing
AIDEA the opportunity to participate in larger financial
transactions to the benefit of Alaska banks and businesses.
3. Allows for equity extractions to finance other business
activities in Alaska that are not necessarily connected to
the financed project. Many Alaskan entrepreneurs are
involved in multiple businesses. Allowing a person to
refinance an established business and extract equity for
use in a new business will benefit the state economy
immensely.
4. In order to resolve lending limit problems of financial
institutions, the amendment allows AIDEA to purchase
participations in existing qualified loans held by
financial institutions. This change will provide an in-
state solution for Alaska banks to resolve lending limit
problems. Effectively, this frees up lending capacity so
the banks can continue to extend short-term loans and lines
of credit to their customers.
5. Allows for the establishment of a minimum interest rate
regardless of AIDEA's funding source for loan
participation, which is either bond proceeds or AIDEA
funds. Currently, the funding source dictates the method of
establishing an interest rate on the loan participation. If
bond proceeds are used the interest rate is set in statue
as AIDEA's cost to borrow plus an additional percentage to
cover the loan servicing costs. If AIDEA uses its own funds
the interest rate is determined by adopting the regulations
and may be no less than the interest rate used if AIDEA
were to issue bonds.
Mr. Barry pointed out that the provision outlined in the first
paragraph of the letter would be a reversion to the original
statutes and initial method of operation. He informed that AIDEA
performs independent underwriting investigation on all loans it
purchases in addition to the underwriting performed by the issuing
bank and therefore, AIDEA does not "simply rubber stamp" the loans.
Because of these assurances, he stated that AIDEA should acquire a
larger portion of those loans identified as "good credit", and
beneficial to the AIDEA portfolio. He qualified that banks do not
always offer a greater portion of the loans, although changes to
statute would allow borrowers to request the more favorable terms
that AIDEA is able to offer. He emphasized this would not change
the loan to value, but rather the maximum allocation between the
bank and AIDEA.
Mr. Barry stated that the $10 million limitation has been in place
for several years and he assured the increased limit would not be
"used widely". He exampled the history of the loan participation
program in which only two credits were acquired in the amount of
$10 million.
Senator Bunde asked if any pending projects would be impacted by
this change.
Mr. Barry knew of none.
Mr. Barry continued with the third item listed in the letter and
qualified that the loan extractions should be allowed so long as
the investment is made into another Alaska business. He found in
many smaller communities a "lack" on entrepreneurs and that one or
two entrepreneurs could be operating several businesses.
Senator Olson asked about any negative experiences with loan
extractions.
Mr. Barry responded that banks have informed AIDEA of "serious
problems" without the loan extraction option, in attempting to
service customers who own more than one business.
Mr. Barry explained the forth item, which proposes to allow AIDEA
to purchase loans from a financial institution in the event that
institution reaches a limit in the amount of lending it could
provide. He gave an example of a business with an existing loan
from a bank plus an application for additional financing, which
would exceed the credit amount the bank has established for each
customer. He stated that in this instance the bank could "sell" a
portion of the existing loan to either AIDEA or another lending
institution, and that this usually occurs with "the very best
customers" with good credit ratings and is called an "override".
However, he informed that AIDEA is not getting many of these
overrides to banks outside Alaska because current statute requires
the banks to rewrite the loan before it could be sold to AIDEA. He
stated that refinancing these loans is expensive for the Alaskan
business and involve payment of fees, an appraisal, title insurance
and other costs. This statutory change, he said, would allow AIDEA
to purchase existing loans in addition to new loans. He relayed
opposition to this proposal was voiced by one bank concerned that
this change would allow its smaller competitors to be more
competitive with them. He noted this is the only proposed change to
AIDEA that has received opposition from a bank and that other banks
have either abstained from commenting or fully support the changes.
Mr. Barry explained the fifth item listed in the overview relates
to changing the interest rate criteria. Currently, he stated that
AIDEA prices its loans "on a very simple basis" for either a
variable rate or a fixed rate, and the term of that fixed rate. He
proposed to allow "risk based pricing" and described that AIDEA
could charge a "slightly higher" rate for a loan offered at a 90
percent participation than a loan offered at an 80 percent
participation because AIDEA would be involved in that loan for a
longer term than the financial institution and subsequently
increase the risk to AIDEA. He stressed that this proposal is
different than the method that banks apply risk based pricing in
grading an applicant's credit against another's credit. He
predicted this would be discriminatory against residents of rural
communities.
Co-Chair Wilken pointed out the provision proposed in item two is
also contained in Section 1 of SB 112; however, that legislation
also includes language relating to the Red Dog Mine.
Senator Olson asked if the third proposal could be implemented to
subsequently allow Cominco to secure funding for some of its "less
than profitable" ventures.
Mr. Berry clarified this statutory change applies to the loan
participation program of loans originated by banks, and that the
equity would be extracted on behalf of the borrower, i.e. the
bank's customer. He stated that AIDEA has no mechanism through the
loan participation program to extract any equity from a borrower.
Co-Chair Wilken referenced a letter dated April 24, 2003 from Marc
Langland, President of Northrim Bank addressed to AIDEA [copy on
file] requesting that AIDEA increase approval authority of the in-
house credit committee from $3 million to $6 million. He asked if
this matter was considered and whether it is addressed in the
aforementioned five items.
Mr. Barry clarified this is a regulatory issue, not requiring
statutory changes, and that the board of directors would address
the matter.
Co-Chair Wilken relayed concern expressed by Wells Fargo in a
letter dated April 25, 2003 from Executive Vice President James L.
Cloud to AIDEA [copy on file] relating to item five and the need
for an understanding of the proposal's intent.
Mr. Barry reiterated that another bank opposed this proposal and
that Wells Fargo "chose to take no stand" on the matter.
Senator Olson removed his objection to the motion and the committee
substitute Version "D" was ADOPTED.
Senator Taylor requested the record reflect that he joined the
meeting at 9:04 am.
Co-Chair Wilken noted this legislation also addressed the Healy
Clean Coal project.
Mr. Barry explained the committee substitute would provide
statutory authority for the Alaska Energy Authority (AEA) to
acquire the Healy Clean Coal asset. He informed that the transfer
of AEA to AIDEA did not include authority for AEA to initiate new
projects without legislative consent. He stated that the AIDEA
Board of Directors also acts as the board of directors for AEA,
although AIEDA and AEA are separate companies with separated
accounting. He stated that AIDEA owns Healy Clean Coal, a
generating asset located along the Railbelt, and that AEA owns
another generating asset, called Bradley Lake, and a transmission
asset, called the Alaska Intertie, both also located on the
Railbelt. He expressed intent to transfer Healy Clean Coal from
AIDEA to AEA in the future so all State-owned energy assets located
along the Railbelt would be in the same company. He indicated a
potential conflict of interest of the board of directors in
addressing these assets separately and noted possible "flexibility"
in locating all the assets within one company. He assured that if
the transfer were arranged, AIDEA would present the proposal to the
Legislature for approval and that the change in this legislation
would provide advanced notice of intent.
Co-Chair Wilken asked the extent of the "distress" of the Healy
Clean Coal project in the intent to transfer the asset to AEA.
Mr. Barry replied that as a new chair of AIDEA, he would not have
perceived a conflict with the board of directors if the Healy Clean
Coal project were not in distress. He qualified that no conflict
has been identified to date; however, precautions should be taken
against future conflict.
Co-Chair Wilken announced intent to hold the bill in Committee at
this hearing.
SARA FISHER-GOAD, AIDEA, testified that Brenda Applegate,
Controller, AIDEA and Sue Weimer of the AIDEA Credit Department
were available on teleconference to answer questions.
Senator Olson asked if any implications resulted from the transfer
of AEA to AIDEA. He recalled a letter of intent drafted by parties
involved in the Healy Clean Coal Project [copy not provided].
Mr. Barry stressed that some "serous issues" must be resolved
before a transfer of the Clean Coal project could occur. He listed
permits issued to AIDEA for operation of the project that may or
may not be transferable, and an outstanding agreement with Golden
Valley Electric Association. He remarked that no transfer would be
attempted without input from the Association and noted a meeting
was planned between the boards of both organizations.
Senator Olson asked the relationship between Golden Valley Electric
Association and the Healy Clean Coal project.
Mr. Barry told of a power sales agreement reached in 1991, which
was terminated in April 2003 by the Golden Valley Electric
Association; however, a settlement agreement resulting from
litigation filed in 1999 is still valid. He assured that neither
AIDEA nor the Golden Valley Electric Association is attempting to
avoid their obligations.
Senator Hoffman commented that the language of Section 2 appears
"broad and open ended" and asserted he would not support this
provision unless he knew specifically if a purchase or lease were
under consideration and the conditions of that proposal. The
language of Section 2 reads as follows.
Sec. 2. AS 44.83.080 is amended by adding a new paragraph to
read:
(16) to acquire, by purchase or lease, a coal-fired
electric generation project owned by the Alaska Industrial
Development and Export Authority that qualified for federal
financial participation under P.L. 99-190, as amended.
Senator Hoffman understood that the Healy Clean Coal project was
not earning a profit, in part because of high operating costs. He
expressed the need to know of the conditions of an AIDEA purchase
to identify the State's obligation and whether further debt would
be incurred. He wanted to know if AIDEA would "cut it's losses" if
the project were unprofitable and subsequently write down those
losses. He also informed that federal legislation related to the
project is unresolved.
Mr. Barry responded that the provision in Section 2 does not
actually request the transfer, but rather notifying "the world"
that such an acquisition could occur. He assured that legislative
authority would be required for such a purchase. He furthered that
feasibility studies to determine such matters as whether the
permits could be transferred, have not been conducted to date.
Mr. Barry asserted that the fact that the Healy coal project is not
a profitable operation is not in dispute. During the previous year
and in 1999, he stated that AIDEA "took a very significant write
down on impairment of assets" to account for the losses. He
emphasized the board of directors' intent to make every effort to
determine whether this resource generating capability could be
utilized for the benefit of the State of Alaska.
Senator Hoffman asked the amounts of the two write-downs.
Mr. Barry replied that he joined the Board in January and was not
familiar with the details. He estimated the first write down was
$131 million and the second was approximately $66 million.
Senator Hoffman opined that a decision must be made quickly and
that conducting studies would be "prolonging the agony". He
stressed the need for AIDEA and the Legislature to act as "prudent
business people", noting that Golden Valley Electric Association is
"already cutting their losses" and that the State should do the
same.
Co-Chair Wilken announced intent to hold this bill in Committee.
Amendment #1: This amendment inserts "and to a municipal tax
exemption for certain assets and projects of the Alaska Industrial
Development and Export Authority" to the title of the bill. The
amended language reads as follows.
"An Act relating to powers of the Alaska Energy Authority to
acquire a coal-fired electric generation project from the
Alaska Industrial Development and Export Authority, to
exemption from the State Procurement Code for contracts
related to a coal-fired electric generation project that the
Alaska Energy Authority acquires from the Alaska Industrial
Development and Export Authority, to regulations of the Alaska
Industrial Development and Export Authority, to the authority
of the Alaska Industrial Development and Export Authority to
issue bonds, and to a municipal tax exemption for certain
assets and projects of the Alaska Industrial Development and
Export Authority; and providing for an effective date."
This amendment also inserts a new bill section on page 6, line 5 to
read as follows.
Sec. 11. Section 19, ch. 117 SLA 2000, is amended to read:
Section 19. Section 3 of this act takes effect July 1,
2012 [2004].
New Text Underlined [DELETED TEXT BRACKETED]
Senator B. Stevens moved for adoption.
Co-Chair Wilken objected for clarification.
Senator B. Stevens explained this amendment relates to changes made
to the companion bill, HB 112, which imposed a repeal of the sunset
date. He stated this amendment represents a compromise in that it
would not repeal the exemption of the DeLong Mountain
transportation system, but rather extend the exemption to the year
2012. He noted this date also marks the end of the pilot agreement
between the Northwest Arctic Borough and Cominco in which payments
are made to the Borough in lieu of taxes. He expressed that he
disagrees with the State tax assessor's position that the
transportation system is not a State-owned asset, held by AIDEA.
Co-Chair Wilken objected to this amendment on the grounds that it
"brings before this Committee, some significant policy calls and we
can deal with those in House Bill 112. If we bring it into this
bill, it adds nothing to the bill; in fact detracts from the bill
and detracts from the discussion and the benefit that this bill
provides." He assured he was committed to addressing HB 112.
Senator Taylor thanked the sponsor of the amendment, expressing
that he shares the concerns. He recalled the Legislature reaching
the initial agreement and remarked that a "deal was a deal,"
whether or not he supported it at the time.
Senator Hoffman supported the amendment as well. He shared that
AIDEA reports the single largest revenue producer of this project
is Cominco Alaska Red Dog Mine and that Cominco has a nonexclusive
priority right to use the DeLong Mountain transportation system. He
commented that the Legislature must consider how its actions affect
the corporation and the bond ratings.
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator B. Stevens, Senator Taylor, and
Senator Hoffman
OPPOSED: Senator Bunde, Co-Chair Green, and Co-Chair Wilken
The motion PASSED (4-3)
The amendment was ADOPTED.
Senator Taylor stated that the extension of the exemption date
reflects only one portion of the provisions in HB 112. The
definition of a roadway and the purposes of a transportation
corridor, he noted are not addressed in the committee substitute to
SB 73.
Co-Chair Wilken announced the matter would be addressed at a later
date.
Co-Chair Wilken ordered the bill HELD in Committee.
HOUSE BILL NO. 203
"An Act relating to the definitions of 'net income' and
'unrestricted net income' for purposes of calculating the
dividends to be paid to the state by the Alaska Industrial
Development and Export Authority; and providing for an
effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken reminded that questions were posed at the previous
hearing and answers were provided in a letter dated May 7, 2003
from Ron Miller, Executive Director, AIDEA.
REPRESENTATIVE MIKE HAWKER, sponsor of the bill, deferred to AIDEA
to expound on the information.
SARA FISHER-GOAD, AIDEA, testified she was available to provide
further detail if necessary.
AT EASE 9:35 AM / 9:37 AM
Senator Taylor offered a motion to report HB 203 from Committee
with individual recommendations and accompanying fiscal note.
[Note: although the motion indicated a Senate committee substitute
existed, no committee substitute was presented for this bill.]
There was no objection and HB 203, with zero fiscal note #1 from
the Department of Community and Economic Development, MOVED from
Committee.
CS FOR SENATE BILL NO. 56(FIN)
"An Act relating to sport fishing license fees and anadromous
king salmon tag fees for residents of Yukon, Canada; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill would "allow residents of the
Yukon Territory to purchase fishing licenses at the in-State rate."
SENATOR FRED DYSON, sponsor, recalled similar efforts were made
several years prior. He stated that the Yukon Territory "has a lot
in common" with Alaska, particularly the interior regions of the
State and that the Territory has been experiencing significant
financial reverses and declining population. He opined that Yukon
Territory residents "are amongst our very best friends" and that
efforts such as extension of the Alaska Railroad, a gas pipeline,
"circle tourism routes" and import-export activities, are occurring
between the State and the Territory.
Senator Dyson assured that Yukon residents would not be considered
Alaskan resident fishers under the provisions of this bill and
therefore their activities would be regulated in the manner of
other nonresident participants.
Senator Dyson remarked that the fiscal note should be in an
indeterminate amount, as the number of Yukon Territory residents
that would participate is unknown. He suggested the loss of revenue
could be insignificant if more Yukon Territory residents purchase
licenses and participate in Alaskan fisheries. He furthered that
several coastal Alaskan communities generate revenue from visiting
fishers.
Senator Dyson indicated a letter of endorsement for this bill from
the Alaska State Chamber of Commerce [copy on file.]
Senator Taylor offered a motion to move SB 56 from Committee with
individual recommendations and accompanying fiscal note.
Co-Chair Wilken indicated further discussion was necessary.
Senator Bunde objected to the motion and commented he "was not
interested in doing anything to help any Canadian at this point."
He questioned how the State could allow only certain foreign
nationals access to Alaska resources.
DON JOHNSON testified via teleconference from an off net location
in Soldotna, that if the State would going to provide lower license
fees to Canadians, United States residents from the Lower 48 should
receive the same benefits. He disagreed with giving rights to
aliens that are denied to U.S. citizens.
Co-Chair Wilken asked whether the sponsor would prefer an effective
date to allow this legislation to be in effect for the upcoming
summer fishing season.
SFC 03 # 82, Side B 09:45 AM
Senator Dyson affirmed.
Senator Taylor WITHDREW his motion to report the bill from
Committee without objection.
Amendment #1: This conceptual amendment would add a new Section 2
to the bill to make the provisions of this Act effective
immediately.
Co-Chair Wilken moved for adoption.
The amendment was ADOPTED without objection.
Senator Taylor requested the sponsor respond to the witness'
comments.
Senator Dyson appreciated the point and spoke to the close
proximity of the Yukon Territory and the cooperative management of
shared resources, including fisheries. He stressed that building a
relationship is important.
Senator Dyson pointed out that the language of the bill is
"permissive" in that it allows the commissioner of the Department
of Fish and Game to determine whether to extend the resident rate.
Senator Olson furthered that although he has opposed the Canadian
government on various issues, this legislation would encourage
Yukon fishers to catch fish on the Alaskan side of the border,
rather than waiting until the salmon migrated upstream, and thus
capitalize on their efforts.
Co-Chair Green commented that her children were born in Alaska;
however, when they visit the State, they must pay the higher
nonresident license fees. She stated that extending resident
license fees to Canadians and not to former Alaskan residents "is
not right".
Senator Bunde asserted that Canadians should amend their laws
relating to guns to be "friendlier" to Alaskans.
Senator Dyson commented that Yukon residents feel as alienated from
their national government as Alaskan residents do with relation to
gun laws. He relayed that at a conference he and Senator Olson
attended, he learned that the residents of the Yukon Territory are
"diametrically in opposition" to their federal government's
position on this and other matters.
Senator Bunde told of an opportunity he had to attend a conference
in Canada and that he refused based on that nation's policies.
Senator Dyson opined that while it is "appropriate to punish the
guilty," it would be "immoral and unethical" to punish the
innocent.
Senator Taylor offered a motion to move SB 56, as amended, from
Committee with individual recommendations and accompanying fiscal
note.
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator B. Stevens, Senator Taylor, Co-
Chair Green and Co-Chair Wilken
OPPOSED: Senator Hoffman and Senator Bunde
The motion PASSED (5-2)
CS SB 56 (FIN) with zero fiscal note #1 from the Department of Fish
and Game was REPORTED from Committee.
CS FOR SENATE BILL NO. 26(STA)
"An Act relating to state employees who are called to active
duty as reserve or auxiliary members of the armed forces of
the United States; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill "allows State employees who
are members of a reserve military unit and who are called to active
duty, to receive their previous salary and some or all of their
State benefits. This provision in law is triggered only by an order
of the Governor and is retroactive to September 11, 2001."
SENATOR KIM ELTON, co-sponsor of the bill with Senator Taylor, gave
two examples of the benefits of this legislation. First, he told of
Master Sergeant Steve Fernandez who was called from reserve status
to serve in the Persian Gulf. Senator Elton informed that Master
Sergeant Fernandez received backfill pay and benefits from his
civilian employer Williams Petroleum in North Pole, Alaska.
Senator Elton then described the situation of an Alaska State
Trooper stationed in Ketchikan, who was also called from reserve
status, and the inability for the State to provide salary
compensation and benefits for this employee.
Senator Elton pointed out this legislation would not require the
State to pay these salaries and benefits, but rather would
authorize the governor to do so through the issuance of an
administrative order. He also indicated that the Governor could
determine the extent of the backfill pay and benefits provided.
Senator Elton listed 43 State employees enlisted in the Army
National Guard, 83 enlisted in the Air National Guard, and 12
enlisted in the State Defense Force.
Senator Elton noted the Committee considered SB 177, sponsored by
Senator B. Stevens that extended similar benefits to State
retirees.
Senator Elton also informed that if this legislation were in effect
during the previous year and the Governor had issued a pertinent
administrative order, the maximum cost to the State would have been
approximately $80,000 for the eight State employees called to
active military duty.
Senator Taylor clarified "backfill" pay as the difference in the
State employee's regular salary and the military salary paid to
that employee while called to active duty. He remarked that the
State would incur a savings, as only a portion of the employee's
regular salary would be paid.
Co-Chair Wilken expressed his only concern relates to the fiscal
impact of this legislation and that more effort is necessary.
Co-Chair Green clarified that the Governor may implement this
option and asked if a provision exists that would allow the
Governor to rescind or modify the administrative order in the event
that a conflict continued for an extended period of time.
Senator Elton assured such action would be authorized through the
issuance of another administrative order.
Senator Olson wanted to ensure no "double dipping" would occur with
State employees collecting a salary from both the military and the
State.
Senator Elton assured this would not occur and furthered that some
State employees called to active military duty actually earn a
higher salary for their military service. He stated that the
backfill pay portion of this legislation would therefore not apply
to these employees.
Senator Bunde requested a listing of those State employees who
actually earn a higher salary in military service.
Co-Chair Wilken suspected pilots, colonels, and other military
positions pay wages higher than those paid for many State
positions.
Senator Elton gave an example of a custodian working in the State
Capitol Building, who was called to active military duty and paid a
higher salary. Senator Elton emphasized that although a cost would
be incurred from this legislation, another value must be
considered. He intended some State employees would be encouraged to
join the military reserves and "serve their country".
Co-Chair Wilken noted a letter in support of this legislation from
Julie Benson [copy on file].
JULIE BENSON testified via teleconference from Ketchikan about the
importance of this legislation to herself and her husband, an
Alaska State Trooper and military reservist called to active duty
in 2002 for six months. She informed that once called for military
service, her husband's State benefits were immediately
discontinued, resulting in a loss of retirement contributions as
well as salary increases he would have received if he remained
employed by the State. She furthered that when her husband returned
to State service, his annual salary increase was denied on that
basis that he "failed to demonstrate a greater value to the State."
She challenged that this failure was due to his deployment to the
Middle East to support for Operation Enduring Freedom. She pointed
out that her husband's military salary is not comparable to his
salary as an Alaska State Trooper and qualified that they
understood this when he enlisted. However, she stated they were
unaware that he would not receive State salary advancements during
his absence.
Ms. Benson remarked that State employees serving in the military
reserves should not be penalized in this manner, particularly
during a time of "significant national crisis." She commented that
under current policy, those State employees "almost feel punished",
adding to the difficulties of being separated from family.
Senator Taylor thanked the witness for her efforts in bringing this
matter to the Legislature's attention.
Co-Chair Wilken thanked the witness and her husband for their
service to the nation.
Co-Chair Wilken announced he has requested further detail from the
Division of Personnel, Department of Administration regarding the
fiscal impacts of this legislation.
Senator B. Stevens reminded the Committee of similar legislation
relating to benefits for retired State employees. He also supported
this bill.
Co-Chair Wilken also supported the legislation, but stressed a need
to understand the fiscal implications.
Co-Chair Green referenced an article dated February 23, 2003 from
the Associated Press regarding the State of Tennessee extending
similar backfill pay benefits for its State employees called to
active military service [copy on file]. She noted the provision in
this program limiting the amount of payments to $1,000 per month
for each affected employee. She suggested this provision could be
implemented in Alaska as well if necessary.
Co-Chair Wilken told of a married couple, both of whom are State
employees called to active military service, and the impacts of
this deployment on the family.
Senator Bunde informed he has family members who serve in the
reserves, one of whom has been called to active duty. Senator Bunde
remarked that for 20 years, this relative has also received a
salary for his military service and therefore, the temporary loss
of State salary is compensated.
Co-Chair Wilken ordered the bill HELD in Committee.
CS FOR SENATE BILL NO. 85(STA)
"An Act relating to sentencing and to the earning of good time
deductions for certain sexual offenses."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill "increases the penalties for
repeat sex offenders. In addition repeat sex offenders are not
eligible to reduce their prison time for good time behavior."
Co-Chair Wilken noted new fiscal notes were submitted for this
legislation.
SENATOR HOLLIS FRENCH, sponsor, testified that Alaska has "long
held the unfortunate position as leading the nation in per capita
reported rapes." He asserted that a small portion of the population
create a majority of this problem and therefore, this legislation
addresses repeat sex offenders.
Senator French explained that upon conviction of a second sex
offense, this bill imposes a separate and more stringent category
of presumptive sentencing and removes the "good time". He remarked
that this bill is punitive and designed to treat repeat offenders
in a "more serious manner" by sentencing them to longer terms and
keeping them in prison longer. He noted the provisions would affect
unclassified, A, B and C felony classification.
Senator French qualified that this bill would result in increased
costs to the State; however, he asserted that these repeat sex
offenders "cycle through the system" at a significant rate. He
exampled that of the over 700 sex offenders currently incarcerated,
over half have been incarcerated ten or more times. He suggested
that some savings could therefore occur in the "transaction costs"
of releasing and the reincarceration of these offenders.
Senator Bunde noted he was involved in a previous effort of
drafting Alaska's "three strikes" statutes. He asked if the sponsor
had reviewed these statutes and whether they could be applied to
repeat sex offenders.
Senator French replied that the statutes would address the more
serious cases of sexual assault; however, the qualifying previous
conviction criterion is stringent and therefore difficult to apply.
He stated that the proposed legislation specifically relating to
sexual offenders would avoid the sentencing other offenders to a
40-year term upon conviction of a C felony.
Senator Bunde wanted to work with the sponsor to readdress this
issue.
Senator French assured the Committee of his willingness to do so.
BARBARA BRINK, Director, Public Defender Agency, Department of
Administration, testified via teleconference from an off net
location in Anchorage, in favor of efforts to reduce repeat sex
offences. However, she expressed concerns with the bill,
particularly with the elimination of the good time credit. She
questioned the rationalization of holding certain offenders in
prison for longer terms because of concern of future crimes they
might commit. She suggested that this could be in violation of
equal protection rights because it singles out a particular offense
rather than a class of offenses.
Ms. Brink cautioned that although the Public Defender Agency (PDA)
fiscal note is in an indeterminate amount, she stressed that costs
would be incurred. She predicted increased litigation would result
due to the more serious consequences and the removal of discretion
for the prosecution to negotiate sentencing. She pointed out that
many clients of the PDA are rural indigent Natives, and that many
of the offenses include serious substance abuse issues that are not
addressed in this legislation.
Senator French acquiesced that the prospect of additional trials is
possible; however by increasing the severity of all classifications
of repeat sex offenses, the bill would allow the prosecution to
negotiate a lesser offense. He informed that sexual abuse of a
minor cases are "notoriously" difficult to prosecute because
typically the only witness is a child who usually has some type of
relationship with the accused. In such cases with other convincing
evidence, he stated that the offender could be convicted of an
unclassified felony and receive a maximum sentence of 30 years.
However, he continued that in cases with an incentive to avoid
trial, such as extensive trauma to the child, or difficulty with
other witnesses or evidence, the prosecutor could negotiate a
lesser charge. He stated that although the offender would receive
"an enormous break" with regard to the potential prison sentence,
the actual sentence would still be significant. He therefore
predicted more cases would be settled.
Senator Bunde commented that similar arguments of increased trials
were made in opposition to the three strikes legislation; however
the court system has not been overloaded.
Senator Taylor clarified that the standards of the three strikes
statutes is high and subsequently difficult for prosecutors to
invoke.
Senator French agreed and detailed that to invoke this provision,
an offender must be convicted of three unclassified or Class A
felonies in separate cases. He noted that upon a second conviction,
an offender would receive a significant jail term and probably not
be out of prison to commit a third major crime. He pointed out that
this provision is normally reserved for the most serious offenders,
those who commit homicide, first-degree rape, etc.
Senator Taylor commented that Alaska historically imposes longer
sentences than most other states for comparable crimes and
therefore the three strikes statute is not often invoked.
PORTIA PARKER, Assistant Commissioner, Department of Corrections,
described the Department fiscal note, which was calculated based on
the high recidivism rate of sex offenders. She listed that of the
727 sex offenders currently interned, 581 or 80 percent have been
"through the State system" at least once before, with an average
recidivism rate of 6.24 times. Of the 80 percent, she furthered, 52
percent of the inmates have been previously incarcerated ten or
more times. She informed that bookings, inmate transfers and other
costs related to processing inmates in and out of custody are the
highest costs to the Department. She pointed out this does not
include other costs to the judicial system, including arrests,
court time, prosecutors and public defenders. Therefore, she stated
this legislation would reduce those expenses and result in minimal
increases.
Senator Taylor noted the significant recidivism rates of sex
offenders. He asked if data was available to predict the number of
offenders who would be impacted by this legislation within a given
period of time.
Ms. Parker replied that upon further research, an estimate could be
produced. She noted that many current inmates serving sentences for
sex offenses had committed different crimes resulting in their
previous convictions. She stated that 15 percent of the 727 inmates
serving time for a sex offence have a prior sex offense conviction.
Senator Taylor clarified that 15 percent is serving a second
sentence for a sexual crime.
Ms. Parker affirmed.
Senator Taylor asked the length of sentence these inmates received
for their second sex offense.
Ms. Parker did not have this information.
Senator Taylor requested this information, commenting that before
changes are made to the current process, it should be determined
whether changes are necessary. He suggested that these offenders
could already be receiving comparable sentencing.
Senator Taylor did not oppose the legislation and did not want it
delayed, however he expressed concern with the argument that this
could result in violations of equal protection.
Senator French noted similar legislation has been adopted in six
other states and is under consideration in additional states. He
opined that the equal protection challenge would be "thwarted"
because other provisions are directed at repeat drunken driving
offenders. He explained that these provisions do not treat a
specific class unfairly, but rather demonstrate a rational basis
for the State's actions, that being high recidivism and significant
harm caused by these crimes.
Senator Taylor directed the record must reflect Senator French's
comments in the event this legislation is challenged in court. He
furthered that the provisions identify specific violations as well
as a unique character and personality type. He remarked that these
offenders could be treated as a "definable and a separate group"
without violating the equal protection clause of either the Alaska
or the US Constitution.
LAURIE HUGONIN, Alaska Network on Domestic Violence and Sexual
Assault, testified in Juneau that during fiscal year 2002
approximately 2,000 victims of sexual assault sought assistance
from various programs in Alaska. She cited the Child Welfare League
data that one in four girls and one is six boys would be sexually
assaulted before the age of 18. She furthered that sex offenders,
particularly child abusers, usually commit multiple violations
before entering the judicial system. While treatment is beneficial
to reduce recidivism, she stressed that the safest course of action
to prevent repeated sexual assaults is to keep offenders out of the
community. She referenced studies showing that treatment does not
completely change an offender's behavior, but rather delays the
amount of time before re-offending occurs.
Ms. Hugonin understood the benefits of encouraging inmates to
behave while serving their sentences; however, the safety of the
community is more important and repeat sex offenders should be
incarcerated for as long as possible.
Ms. Hugonin noted that other states that do not allow for good time
for sexual offenders despite extending good time provisions to
other classifications of prisoners. She listed Arizona, which
utilizes this provision for sex offenders; Tennessee requires
offenders convicted of child rapists and multiple rapists to serve
the entire sentence imposed by the court "undiminished by any
sentence reduction credits"; Oregon does not allow "earned time"
for a class of crimes including sexual assault and sexual assault
of a minor; and Illinois reduces the amount of "good time"
available for sex offenders. She also informed that this
legislation would not impose the strictest provisions, as the State
of Iowa requires offenders convicted more than once of a felony
sexual predatory offense to serve twice the maximum period of
incarceration.
Senator Taylor expressed that although he supports the concept of
this legislation, DNA evidence and other events have occurred
resulting in exoneration of convicts. He told of a case in the
State of Washington in which a group of people who operated a day
care center were, "persecuted by a zealous district attorney who
attempted to show a valid case of child sexual abuse." Senator
Taylor stated this situation, in which the defendants were cleared,
should be avoided in Alaska.
Senator Taylor charged that legislation relating to sex offender
registers and increased penalties for "sex oriented crimes", "and
to be blunt, it's a sexy thing to do for a Legislator because it
carries a lot of political hammer out there with the public." He
qualified that the public intends the Legislature to make every
effort to punish and reduce sexual offense, which he supported.
However, he cautioned that "responsibility and integrity" must be
invested in district attorneys and prosecutors.
SFC 03 # 83, Side A 10:33 AM
Senator Taylor continued that each time he has requested data on
child sexual abuse cases investigated by the Department of Health
and Social Services, the annual statistics indicate an average of
70 percent of all investigations found no "basis in fact". He
contended that during these investigations, children are removed
from families and "arrests are made." He was therefore concerned
with increased penalties and sex offender registration lists.
Senator Taylor offered a motion to report CS SB 85 (STA) from
Committee with individual recommendations and accompanying fiscal
notes.
Without objections CS SB 85 (STA) REPORTED from Committee with a
zero fiscal note #1 from the Department of Law, a zero fiscal note,
dated 4/29/03 from the Department of Corrections, and an
indeterminate fiscal note dated 4/29/03 from the Department of
Administration.
Co-Chair Wilken comment on need to keep tomorrows debate focused.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:37 AM
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