Legislature(2003 - 2004)
02/17/2004 09:08 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 17, 2004
9:08 AM
TAPES
SFC-04 # 11, Side A
SFC 04 # 11, Side B
SFC 04 # 12, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:08 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: SENATOR GENE THERRIAULT; JOEL GILBERTSON,
Commissioner, Department of Health and Social Services; DAVID TEAL,
Legislative Fiscal Analyst, Legislative Finance Division; MARIE
DARLIN, Coordinator, Capital City Task Force, AARP; DIANE BARRANS,
Executive Director, Postsecondary Education Commission, Department
of Education and Early Development and Executive Officer, Alaska
Student Loan Corporation
Attending via Teleconference: From Anchorage: HAROLD HEINZE, Chief
Executive Officer, Alaska Natural Gas Development Authority; STEVE
PORTER, Deputy Commissioner, Office of the Commissioner, Department
of Revenue
SUMMARY INFORMATION
HB 374-SENIORCARE
The Committee heard from the Department of Health and Social
Services, considered but failed to adopt one amendment, and
reported the bill from Committee.
SB 241-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY
The Committee heard testimony from the bill's sponsor, a
representative from the Alaska Natural Gas Development Authority,
and the Department of Natural Resources. The bill was held in
Committee.
SB 277-STUDENT LOAN PROGRAMS
The Committee heard testimony from the Department of Education and
Early Development. The bill was held in Committee.
CS FOR HOUSE BILL NO. 374(FIN) am
"An Act establishing the senior care program and relating to
that program; creating a new fund for the provision of senior
services; relating to aid to senior citizens; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken noted that this bill is similar to SB 259-
SENIORCARE, which the Committee had previously heard. He stated
that the bill would establish a senior care program within the
Department of Health and Social Services to provide either cash
assistance or a drug prescription benefit to Alaskans age 65 or
older. He specified that CS HB 374(FIN)am, Version 23-GH2123\W.A
and its accompanying fiscal notes are before the Committee.
JOEL GILBERTSON, Commissioner, the Department of Health and Social
Services reviewed that this legislation was proposed by Governor
Frank Murkowski in December 2003 as a method through which to
provide a prescription drug subsidy or cash assistance for the
purchase of prescription drugs to the State's seniors until the
federal prescription Medicare drug program becomes operational in
January, 2006. He specified that qualifying recipients of the
legislation would be senior citizens who are living at 135 percent
or less of the federal poverty level (FPL). He noted that this
level would equate to a single individual living at approximately
$15,000 a year or a couple living at $20,500 a year. He shared that
these individuals are currently eligible for the Department's
Senior Assistance Program that was established after the Longevity
Bonus Program was eliminated in the fall of FY 04. This program, he
commented, provides $120 per month cash assistance to its
recipients. Furthermore, he stressed that the recipients of the
Senior Assistance Program could, upon the enactment of the
SeniorCare program, elect to continue receiving the cash
assistance, which would amount to $1,440 annually, or elect a
prescription drug subsidy, which would equate to $1,600 annually.
Commissioner Gilbertson continued that the seniors who elect the
$1,600 prescription drug subsidy would additionally receive a $600
per month federal Medicare subsidy and a prescription drug discount
card which would provide an additional ten to twenty-five percent
savings on a prescription purchase. He stated therefore, that the
average senior would receive approximately $2,450 in prescription
drug assistance, if living at or below the FPL.
Commissioner Gilbertson continued that seniors living at 135 to 150
percent of the FPL would qualify for a $1,000 per year State
prescription drug subsidy. He noted that a single individual or a
couple in this category would be living at approximately $17,000 or
$23,000, respectfully. Furthermore, he stated that these
individuals would also receive the prescription drug discount card.
He reiterated that this legislation would terminate upon the
enactment of the federal Medicare drug prescription program.
Commissioner Gilbertson communicated that during the bill's
progress through the House of Representatives, the Legislative
Legal and Research Services, Legislative Affairs Agency made
"technical and stylist changes," that did not substantially change
the bill.
Co-Chair Wilken noted that the Members have been provided a summary
of the changes [copy on file] being referenced.
Commissioner Gilbertson continued that the House bill would
establish a SeniorCare Fund, which would be a front-funded sub-
account in the general fund to fund the SeniorCare Program during
its projected three fiscal year program. He noted that were this
legislation adopted "in short order," it could begin in April, 2004
and would, therefore, incur expenses in the last quarter of FY 04,
the full year of FY 05, and half of FY 06. He noted that any funds
remaining in the SeniorCare Fund would lapse into the general fund
upon its termination.
Commissioner Gilbertson noted that the House also amended the
manner through which a prescriber could prescribe brand name drugs
when a generic brand is available, in that, he explained, in this
situation, the prescriber must denote on the prescription that the
name brand drug is "medically necessary." He specified that the
prescriber would not be required to state the reason as was
required in the original bill.
Commissioner Gilbertson noted that language in the bill that would
have denied the prescription drug benefit to individuals residing
in public facilities or long-term care facilities was also amended
in the House. He communicated that the reason this language was
originally included was the understanding that these individuals
received prescription drug coverage through the rate that the State
paid the facility or that a process already existed to provide this
benefit to them. He also noted that to provide the SeniorCare
benefit to a senior in the Pioneer's Home, might, in affect,
increase their financial resources and result in their rent being
increased. He stated that the House change would allow individuals
residing in public facilities or long-term care facilities to
continue to receive the benefit for up to three months.
Senator Bunde ascertained therefore, that a senior residing in a
Pioneer's Home could, as a consequence, have their rent increased
for three months.
Commissioner Gilbertson affirmed that the rent could be affected.
However, he noted that the frequency of a rent payment review and
whether the individual had opted to receive the cash assistance
option of the SeniorCare program would be determining factors.
Senator Bunde worried that this might present a "Catch 22"
situation wherein the recipient would receive SeniorCare benefits
and at the same time is required to pay more rent as a result.
Commissioner Gilbertson expressed that "there would be no net harm"
to the recipient as the income would offset the rent increase. He
stated, however, that this situation would increase administrative
expenses related to the bill.
Senator Bunde surmised, therefore, that while two Pioneer Home
residents might be receiving the SeniorCare cash benefit, one
resident, as a result of a rent review, might pay more rent than
the other who had not undergone a rent review.
Commissioner Gilbertson responded that "theoretically" that might
occur.
Co-Chair Green asked whether changing the word "may" to "shall" as
was done in Section 1, subsection (a) on line 8, page 1 would be
characterized as a "stylist change" or a substantive change.
Commissioner Gilbertson responded that the referenced change was
the result of an [unspecified] amendment that was adopted in the
House Finance Committee.
Co-Chair Green inquired as to whether the change is acceptable to
the Department.
Commissioner Gilbertson responded in the affirmative.
Senator Bunde asked for further information regarding the
SeniorCare Fund; specifically, whether the unspent money in the
Fund would lapse back to the general funds at the end of the fiscal
year.
Commissioner Gilbertson responded that while the SeniorCare Fund is
expected to lapse in FY 06; the language is not specific to a
termination date because it is dependent upon when the federal
Medicare drug prescription program is implemented. He asserted that
this is a "complex program" with an indeterminable termination
date.
DAVID TEAL, Legislative Fiscal Analyst, Legislative Finance
Division, noted that rather than being required to appropriate
program funds each fiscal year, the House Finance Committee opted
to establish a single front-loaded SeniorCare Fund that would fund
the program's anticipated expenses in FY 04, FY 05, and FY 06. He
confirmed that upon the program's termination, the funding would
lapse.
Commissioner Gilbertson noted that the bill would allow seniors to
retain their prescription drug benefits provided they were not
absent from the State for more than 30 days for non-medical
purposes such as vacations or business trips.
Commissioner Gilbertson also noted that the House of
Representatives' version of the bill changed a portion of the
original bill to align its eligibility requirements to those of the
Permanent Fund Dividend program, which allows family members to
remain eligible when accompanying relatives receiving out-of-State
medical care.
MARIE DARLIN, Coordinator, AARP Capital City Task Force, voiced
support for all of the changes that have been proposed to the
SeniorCare program. She noted that AARP has submitted written
testimony [copy on file] in support of the program.
Amendment #1: This amendment replaces language on page one, line
five of the bill that reads "Section 1. The uncodified law of the
State of Alaska is amended by adding a new section to read:" with
new language that reads as follows.
Section 1. AS 47.65 is amended by adding a new section.
In addition, the Amendment deletes "SENIORCARE PROGRAM" on page 1,
line 7 and replaces it with the following language.
Article 4. Cash and Drug Benefit for Older Alaskans.
Sec. 47.65.300. Senior care program.
The amendment also deletes all material on page five, beginning on
line 26 through page six, line 3. This language reads as follows.
Sec. 4. (a) This Act is repealed on the date that the
Medicare Part D benefit under P.L. 101-173 for prescription
drugs for Medicare recipients is operational for recipients in
this state, as communicated to the commissioner of health and
social services by the United States Department of Health and
Social Services.
(b) The commissioner of health and social services shall
notify the revisor of statutes of the date described in (a) of
this section.
(c) Money in the fund established in sec. 2 of this Act
reverts to the unreserved general fund on June 30 in the
fiscal year in which this Act is repealed under (a) of this
section.
Senator Olson moved to adopt Amendment #1.
Co-Chair Green objected.
Senator Olson explained that this amendment would make this program
permanent in statutes rather than being temporary. He referenced
Commissioner Gilbertson's comments regarding the unpredictability
of when the federal program would be implemented. He also noted
that the State has no control regarding changes that might occur,
overtime, in the complex federal program. Therefore, he stated that
in order to assure that the State's seniors would be provided for;
this program should be permanent in State statute. In addition, he
noted that were the federal program to differ from the State's cash
supplement program, seniors who might have become dependent on it
to supplement their needs would be negatively impacted.
Commissioner Gilbertson summarized that this amendment would
eliminate the legislation's termination date. He reiterated that
the legislation was introduced to serve as "a bridge program" until
such time as the federal senior Medicare prescription drug benefit
program would become operational "in early 2006." He agreed with
Senator Olson's contention "that there are always delays when
programs begin;" however, he contended that the bill has been
drafted in such a manner as to continue the SeniorCare program
"until the full federal program is available to seniors."
Commissioner Gilbertson informed the Committee that seniors living
below 135 percent of FPL as well as those living between 135 and
150 percent of FPL would "receive preferential treatment under the
Medicare prescription drug benefit." He assured that, once the
federal Medicare prescription drug benefit program begins, seniors
living at below 135 percent of FPL "would have virtually no out-of-
pocket costs, including deductible for prescription drugs." He
continued that seniors living between 135 and 150 percent of FPL,
"would receive drastically lower deductibles, additional premium
support, and a reduced co-pay on prescription drugs" than the
general federal Medicare population. He declared that "a seamless
transition" would occur and that were the SeniorCare program to
continue, some of the federal and State services "would be
redundant."
Co-Chair Wilken surmised therefore, "that while the amendment is
well-intentioned," it is unnecessary.
Commissioner Gilbertson concurred. He replied, "that it is the
position of the Administration that it's not necessary" because the
Medicare drug benefit would be available "to essentially provide
every service that is going to be delivered" via the SeniorCare
program. He stressed that the SeniorCare program "was originally
designed to mirror the federal drug program benefits." Furthermore,
he noted that safety protocols are included in this legislation to
ensure that the SeniorCare program would continue until the full
federal Medicare drug benefit program is operational.
Senator Olson declared that rather than debating the particulars of
the program, the emphasis should be on providing the State's
seniors with "a lifeline" to assure them that they would be
provided for. He opined that the Legislature should establish a
State program tailored to the State's situation instead of relying
on a federal program developed by individuals who might have never
visited the State and who might not have a grasp on the complexity
of the State's needs. He urged the Committee to keep the program
simple and permanent and tailored to address the State's seniors'
needs.
Senator Bunde declared that regardless of the efforts or intent of
any Legislature, unless specific language is included in the
State's Constitution, "nothing binds" a future Legislature" from
changing a program. Therefore, he contended, were this amendment
adopted, there is no guarantee that it would not be changed.
Continuing, he shared that, were "the automatic repealer" not
included in this legislation, he could envision "the battle that
would ensue in 2006 "about another entitlement that we have
created" that people have become to depend upon that the
Legislature "could not take back." He concluded therefore, that he
could not support the amendment.
Senator Hoffman countered that no battle had erupted in the
Legislature regarding the funding of the Longevity Bonus Program,
which was eventually terminated by Governor Murkowski's veto.
Senator Hoffman noted that the Department of Health and Social
Services' fiscal note #9 analysis depicts that 90 percent of
eligible program recipients would elect the SeniorCare cash
program. He wondered whether the cash program would be one of the
duplicated services that the Commissioner had alluded to. To that
point, he inquired as to whether a similar prescription cash
prescription program would be available through the federal
prescription drug program.
Commissioner Gilbertson responded that it is "a high assumption"
that most seniors would elect the cash payment as, he noted, the
majority of the individuals currently enrolled in the Senior
Assistance Program receive money, because it is the only option
provided in that program. He stated therefore that the majority of
those individuals would choose "no change." He qualified that the
cash component of the SeniorCare bill was included "to continue the
benefit as currently constructed." He acknowledged that while the
receipt of cash is "more flexible," the Department believes that
"the majority of individuals in these income ranges use the cash
assistance" to purchase prescription drugs because that expense "is
very high." He pointed out that the Senior Cash Assistance program
is not the only cash assistance program offered by the Department
as another program, the Adult Public Assistance" program is also
available. He stressed that a total of $220 million worth of
programs are available directly to seniors through the Department.
He stated that the Adult Public Assistance (APA) program is an
entitlement program that is included in this $220 million, and
furthermore, he contended, while a number of seniors might qualify
for the APA, they have not applied.
Senator Hoffman reiterated that the question is whether there would
be a duplicative cash benefits program at the federal level. He
stated that this is the issue at "the heart of the amendment."
Commissioner Gilbertson responded that through the State APA
program, seniors would continue to receive cash assistance.
Senator Hoffman interjected that this program already exists at the
State level, and he continued, the question pertains to the
upcoming federal Medicare prescription drug assistance program.
Commissioner Gilbertson responded that the federal program, "once
instituted, will be health care insurance." Therefore, he
continued, the degree to which individuals are paying out of pocket
for prescription drugs" would be determined by the health care
insurance system. He declared that the recipients would not receive
a direct cash payment.
Senator Hoffman surmised therefore that the answer is no.
Commissioner Gilbertson affirmed that there would be no direct cash
payment by the federal government.
Senator Olson informed the Committee that the proposed amendment is
supported by the Pioneers of Alaska. He asked that AARP be provided
an opportunity to express their position on the amendment.
Ms. Darlin expressed that while AARP understands Senator Hoffman
and Senator Olson's concern regarding the program, and while AARP
does not object to the amendment, it has no "definite stand" on the
amendment, as, she reiterated, AARP's primary objective is to
assure that the SeniorCare prescription program be adopted this
Legislative Session. She noted however, that when the SeniorCare
cash assistance program terminates, seniors could participate in
the State's APA cash assistance program.
Senator Olson asked for clarification that AARP's position is the
desire "to get the bill through one way or another," regardless of
whether the amendment is adopted or not. He contended that this
desire rather than AARP being opposed to the amendment is the
primary objective.
Ms. Darlin concurred.
Senator Bunde stated that were the cash assistance program to
continue, some seniors might regard it as a welfare program, and in
that case, he contended, some seniors would refuse to apply.
A roll call was taken on the motion.
IN FAVOR: Senator Hoffman and Senator Olson
OPPOSED: Senator Bunde, Senator Dyson, Senator B. Stevens, Co-Chair
Green, and Co-Chair Wilken
The motion FAILED (2-5)
Amendment #1 FAILED to be adopted.
Co-Chair Green moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
There being no objection, CS HB 374(FIN)(am) was REPORTED from
Committee with five fiscal notes from the Department of Health and
Social Services: zero fiscal note #10; $14,649,600 fiscal note #9;
$7,100 fiscal note #8; $184,300 fiscal note #7; and $61,500 fiscal
note #6.
AT EASE: 9:46 AM / 9:46 AM
SENATE BILL NO. 241
"An Act making an appropriation to the Alaska Natural Gas
Development Authority; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that SB 241 would appropriate $2.15
million to the Alaska Natural Gas Development Authority (ANGDA) to
conduct an analysis regarding the development of an Alaska natural
gas pipeline. These funds, he shared, would lapse in the year 2009.
Continuing, he noted that a new Finance Committee committee
substitute has been provided for consideration that would: increase
the amount of the appropriation to $3 million; would appropriate
the funds to the Department of Revenue rather than ANGDA; and would
expand the scope of how the funds could be used.
Co-Chair Green moved to adopt the Finance Committee committee
substitute, Version 23-LS1279\H, as the working document.
There being no objection, Version "H" was adopted as the working
document.
SENATOR GENE THERRIAULT, the bill's sponsor, explained that the
original bill was introduced to support "the wishes of the public
to create" the Alaska Natural Gas Development Authority (ANGDA) "to
bring the natural gas on the North Slope to market via a pipeline
to tidewater in Valdez" in a liquefied form "to serve Pacific Rim
markets." He noted that the bill, as introduced, specified $2.15
million to support the project because that was the amount of money
that ANGDA had remaining in the previous year's appropriation, and
he had determined that that amount "would be a good starting point
for discussion." Continuing, he shared that he had clarified to the
ANGDA Board of Directors that they would be required to justify the
funding in order to receive the appropriation. He stated that the
ANGDA Board of Directors has been meeting with Governor Frank
Murkowski's Administration since the beginning of the second
session of the Twenty-third Legislature. He noted that the State
has received two applications, through the Stranded Gas Act, that
are also furthering the necessity to consider developing a natural
gas pipeline to deliver the gas via an overland route through
Canada to the Midwest or to Canadian markets.
Senator Therriault continued that the committee substitute, Version
"H," "is a blending of the two ideas" in that it focuses on
bringing the natural gas from the North Slope "to market" rather
than specifying that either an overland or tidewater pipeline be
furthered. Furthermore, he envisioned that the objectives of both
the ANGDA Board and the Administration's Stranded Gas Act
negotiations be combined to further the goal of bringing the gas to
market. He noted that routing the appropriation through the
Department of Revenue mirrors how the appropriation was previously
funneled to ANGDA from such entities as the Division of Legislative
Budget & Audit and the Administration. He stated that this routing
would also provide the ANGDA Board with the Department of Revenue's
auditing, contracting, and accounting mechanism resources. He
reiterated that questions seeking justification for the $3 million
appropriation amount should be directed at the ANGDA Board. He
noted that at the February 16, 2004 ANGDA meeting, the Board of
Directors passed a resolution in support of the language in Version
"H." He read a portion of that resolution as follows.
"The Alaska Natural Gas Development Authority supports the
appropriation of $3 million in the remainder of FY 04 to the
Department of Revenue for work related to bring the North
Slope natural gas to market."
Senator Hoffman inquired to the reason that ANGDA was eliminated
from the language in the committee substitute.
Senator Therriault responded that the reason that ANGDA was
eliminated was "the realization" that the efforts to further the
goal of getting natural gas to market would involve an overlapping
of various entities. He continued that "generic" rather than
specific legislation would be more beneficial to that end.
Senator Bunde noted that while he knows what LNG is, he is unsure
of the definition of "LPG."
Senator Therriault stated that the representative from ANGDA would
best explain LPG.
Co-Chair Green asked whether the Stranded Gas Act Application fee
of $1.5 million would be used to support this endeavor.
Senator Therriault responded that the $1.5 million fee is required
to fund the expenses associated with processing, negotiating, and
evaluating each proposal. He shared that while the fee would
provide funding for the process associated with the application,
the $3 million attached to this bill would support the State's
endeavor to be adequately prepared "to negotiate with some degree
of knowledge and strength." Furthermore, he noted that currently
the $1.5 million Stranded Gas Act applicant fee could not be used
to "cover any costs" associated with the ANGDA proposal. Therefore,
he continued, the generic terminology presented in the Version "H"
committee substitute would allow the Administration to use those
funds to prepare for negotiations relating to the Stranded Gas Act
and to help gather information pertinent to the ANGDA project. To
include, he continued, studies relating to spur pipelines, access
taps along the pipeline to serve local markets, and economic impact
studies.
Co-Chair Green asked which entities, in addition to ANGDA, might
request funding in this endeavor.
Senator Therriault responded that other State agencies, such as the
Department of Natural Resources, might need to "secure particular
expertise" or a consultant or funding for a Request for Proposal
(RFP) in order to develop an economic model.
Co-Chair Green asked whether the sponsor is comfortable with the
broadened language in Version "H;" specifically the language
pertaining to getting the product from the North Slope to market.
Senator Therriault responded that he is comfortable with the
"fairly broad language" because he is familiar with the multitude
of legislation that the Legislature has entertained regarding the
issue. In addition, he stressed the importance of the State being
"well-prepared and tough advocates on behalf of the citizens of
Alaska…." In order to accomplish that objective, he stated that
funding "for some preparation and some technical advice" would be
required.
Senator Therriault reiterated that he had introduced this
legislation to "jump start the discussions;" however, he advised
the Committee that as long as the funding issue "moved forward," he
would not object were other legislation submitted or another
funding mechanism or level of funding identified.
SFC 04 # 11, Side B 09:56 AM
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority, testified via teleconference from Anchorage
and referred the Committee to a graph that ANGDA had developed
titled "Alaska Natural Gas Development Authority FY 04 Funding
Plan" [copy on file]. This graph, he noted, depicts ANGDA's initial
funding; the $2.1 million that was added in FY 04; and the FY 04
Total Funding of $2.5 million.
Mr. Heinze reviewed that $150,000 initial funding was used to set
up the Corporation and conduct some Board of Directors meetings. He
stated that the outcome of those meetings was the determination
that a Liquid Natural Gas (LNG) project and the delivery of natural
gas in Alaska would "make sense" provided the State use its
financial abilities to support the project, as, he explained, it
might not attract private support due to the fact that there might
not be the potential for a high rate of return to commercial
investors or "high interest borrowers." He commented that the State
could participate via the Authority. He also noted that during the
initial meetings, the Authority identified some of the major issues
that would require addressing.
Mr. Heinze stated that the Board requested an additional $200,000
to fund the Business Contractors component depicted on the graph,
which includes such things as a Benefit Analysis, Market Insight,
and Tax Advice. He stated that the Authority determined that
previous Benefit Analysis studies of the project were narrow in
scope in that they were limited to such things as "a rate of return
type model for making decisions" or "how much money was flowing to
the State of Alaska in forms of government revenue." He continued
that the Authority recognized that "the benefit of bringing North
Slope gas to market were much more broader than that and had much
more value." He stated that the Tax Advice and Market Insight
followed the Benefit Analysis determination. He summarized that the
Current Spending Column on the graph reflects how the initial
$350,000 funding authorization was used.
Mr. Heinze continued that the graph also depicts that the
additional FY 04 funding authorization of $2.15 million was used to
fund the operations of the ANGDA Board and the Business Contracts.
Additionally, he specified that the funds were expanded to support
the Project Contract component. He stressed that identifying the
proper business structure is important as it would address how "to
lower the cost of service of transporting the gas" as that would
"increase the value at the wellhead, and that makes the project
better for both project proponents as well as increases the
revenues to the State of Alaska."
Mr. Heinze stressed the importance of getting Alaskans to
understand and support the concept of producing natural gas, as, he
contended, its development would lower residents' expenses. He
noted that people living in Anchorage are currently experiencing
low natural gas supplies and consequently, are paying high prices.
He stated that were a spur natural gas line provided, communities,
such as Anchorage, would benefit. In addition, he reminded the
Committee that the Authority was charged with addressing the basic
project, project design, and project scheduling in the Statewide
Ballet Measure 3 Initiative that established the Authority. He
shared that, early in the process, the Authority worked with the
Murkowski Administration to identify the types of contractors who
would be required to conduct the various jobs; the kinds of
expertise that would be required; questions and issues would
require answers; what internal resources were available; and what
kind of work had already been conducted. Therefore, he clarified
that the Project Contractors specified on the graph are those that
the State does not have expertise in.
Mr. Heinze noted that the fact that two Stranded Gas natural gas
applications have recently been received is important to the
Authority, as some of the work already conducted by the Authority
would contribute to the State's efforts in moving forward with the
applications. He avowed that the fact that the first 530 miles of
both the over-land and to tidewater routes are in common and thus
could "contribute toward each other's financial success."
Additionally, he attested, that while both the applicant's
"benefits to Alaska are weak," ANGDA "could help in that regard."
Mr. Heinze informed that ANGDA has responded favorably to Governor
Murkowski's Administration request that it "work as part of a team"
in the endeavor to bring Alaska's North Slope natural gas to
market, and in that regard, he mentioned that ANGDA has introduced
itself to both of the Stranded Gas applicants.
Senator Hoffman inquired as to whether ANGDA would be providing an
annual report of its expenditures to the Legislature and also
whether additional funding requests might be forthcoming.
Mr. Heinze replied that the Authority has been established as a
public corporation, and as public entity, convenes monthly Board of
Director's meetings and generates full monthly accountings of the
it's expenditures and contracts. Therefore, he stated that a full
accounting on a monthly or annual basis could be provided to the
Legislature.
Mr. Heinze communicated that while the two Stranded Gas Act
applications have caused an increase in activity, he is unsure of
the affect the applications would have on the Authority. However,
he shared that, in anticipation of further involvement, he has
developed alternate funding models for the corporation. He reminded
that the Authority is statutorily charged with providing a
development plan for the spur project by June 15, 2004; however, he
stated that were ANGDA directed to assist with the Stranded Gas
applications that requirement might be deferred. He mentioned that
while this might delay some of ANGDA's activities, he anticipated
the delay to be short term. He deferred to the Department of
Revenue to provide a more thorough analysis of ANGDA's budgetary
projections.
Senator B. Stevens commented that the cost of developing a LNG spur
line has been consistently estimated to cost $20 million. He voiced
that the amount is confusing in that other legislation and expanded
routing alternatives have been proposed that might have had some
affect on the spur line's expense.
Mr. Heinze corrected that rather than being $20 million, the amount
in question is $20,000. Continuing, he explained that the amount,
which is a "rough estimate," focuses on determining the feasibility
of a spur line rather than being inclusive to such things as design
work. Furthermore, he noted that the engineering and cost work
expenses are low because a lot of the expertise has been donated or
provided at no charge. He stated that were ANGDA to have fully paid
for all the components required, the expense would have been in
"the tens of millions of dollars." He stated that the goal of this
exercise is for the State to be able to make a decision based on
adequate information. He contended that there are numerous other
studies that must be conducted over time.
STEVE PORTER, Deputy Commissioner, Office of the Commissioner,
Department of Revenue, testified via teleconference from Anchorage
and explained that the $3 million funding request included in the
legislation would assist the State in addressing the two Stranded
Gas applications. He noted that per an agreement between the State
and each applicant, the applicant could be required to reimburse
the State for expenses associated with such things as independent
contractors. He noted that while the funding recipient was changed
from ANGDA to the Department of Revenue, the process has not
changed. Furthermore, he stated that were expertise available
within the Department of Revenue, the service and information would
be provided at no charge. However, he continued were the expertise
unavailable in house, or had been conducted by another entity, it
might require a purchase. He stated that either the Department of
Revenue or ANGDA could make the purchase, depending on, he
declared, how the information would be utilized. He stated that
were "the information to be kept confidential then ANGDA would not
be the proper forum to request or fund it." In addition, he stated
that were the expense to be a reimbursable expense, then the
Department of Revenue would be the proper forum. Therefore, he
concluded, in order to maximize efficiency, the most flexible
manner to address funding needs would be to allocate the funds to
the Department of Revenue.
Senator Hoffman stated that the backup material contains two
separate LNG Project schedules: one titled "ANGDA All-American LNG
Project Conceptual Schedule" amounting to $10 billion using Revenue
Bonds; and the other titled "ANGDA Project Concept & Cost"
amounting to $12 billion. He asked that the two schedules be
reconciled.
Mr. Heinze responded that the $2 billion difference is that two LNG
tankers would be leased rather than purchased.
Senator Hoffman noted that the information contained in the $10
billion project specifies that two Jones Act tankers would be
built.
Mr. Heinze clarified that the information is all encompassing in
that it reflects the major elements included in the project. He
clarified that the tankers would be built by another entity.
Senator Hoffman understood therefore that everything but the
tankers would be owned and operated by ANGDA.
Mr. Heinze pointed out that the term "conceptual" best describes
the plan as currently determined. He stated that such things as the
business structure, interest rates, and bonds are unconfirmed. He
stressed that the chart is designed to reflect components and
monies that might be supported by bonds. He stated that the
Authority might not be involved in all of the various aspects that
have been itemized; however, he continued it is charged with
developing a comprehensive plan in order to determine the
feasibility of the project. He exampled that while a treatment
plant to remove CO2 must be built on the North Slope, the producers
rather than the State might desire to own the plant. He stated that
the $2 million treatment plant is included in the itemization
because somebody would be required to build it, as part of the
project's operational needs.
Co-Chair Wilken asked regarding the "Alaska Natural Gas Development
Authority Alternate FY 04 Funding Strategies" chart that has been
provided.
Mr. Heinze responded that this chart was developed to reflect
alternate FY 04 funding strategies that might occur due to the
Authority's response and involvement in the recent Stranded Gas Act
applications. He noted that, in addition to providing the entities
with information regarding such things as tax write-offs, timelines
might require being revised as things develop.
Co-Chair Wilken referenced the letter from Mr. Heinze to the Vice
Presidents of ANS Gas Development, ConocoPhillips; Alaska Gas, BP
Exploration Alaska; and ExxonMobil Alaska Production, dated
February 13, 2004 [copy on file] that references an alternate route
to the Beaufort Sea. He asked that further information regarding
the reference to this route be provided, as that route is not
commonly considered to be an option.
Mr. Heinze responded that this letter and the letter to MidAmerican
Energy Holdings Company, dated February 12, 2004, [copy on file]
were generated in response to these entities' Stranded Gas Act
applications to the State. He continued that the application by the
producers: ConocoPhillips; BP Exploration Alaska; and ExxonMobil
Alaska Production, "made it very clear that in their minds, both
routes were on the table." He continued that Governor Murkowski
informed them that the Beaufort Sea route was not to be considered.
However, he stated that the Authority's desire to initiate a
relationship with the applicants is apparent in that it recognizes
"the fact the one of the producers" supports the Beaufort Sea
alternative. Overall though, he stated that the intent of the
letter is to offer assistance in a mutually beneficial manner to
both the applicant and to ANGDA.
Co-Chair Wilken thanked Mr. Porter for the explanation as he would
not desire "that sentence to become a lighting rod that affects"
other efforts.
Co-Chair Wilken stated that there are "two camps" in regard to the
gas pipeline: those who say "show me a customer and I'll show you a
gas line," or those who support building a gas line as the belief
is that the customer will come." He asked who potential customers
of the State's natural gas might be.
Mr. Heinze responded that the marketing question of whether the
pipeline or the customer occurs first "is one of the key questions"
and issues when seeking financing. He noted that while there is a
market for natural gas in the State, this intrastate market, while
important, is not large enough "to justify the project." Secondly,
he noted, that the process of transiting the natural gas to LNG
would allow the product to be shipped via tanker to the west coast
of North America or to Asian economies such as Japan, Taiwan and
Korea who are traditional LNG consumers. He assured that Alaska
natural gas could be competitive in all those markets; however, he
reiterated there being "no single customer at any single moment in
time" who would purchase the volume required to support the entire
project. Continuing, he shared that discussions are underway with a
"mega-company," Mitsubishi Corporation that acquires and
distributes LNG to customers worldwide.
Co-Chair Wilken stated that the conceptual schedule specifies that
the gas could be available for market as soon as 2010. Continuing,
he asked who the customers of that gas might be.
Mr. Heinze replied that those "potential customers would be a
mixture of the west coast of North America" as well as Japan,
Taiwan, and Korea.
Co-Chair Wilken asked whether conversations with specific
countries, which might be interested in purchasing Alaska gas in
2010, have occurred.
Mr. Heinze responded that the LNG market on the West Coast is
"rapidly evolving," and that a port in the Baja, Mexico area and
two or three other ports on the West Coast are moving forward. He
anticipated that the State would be able to provide LNG to one or
two of these ports. Additionally, he stated that a port in Korea is
possible and that the State has been encouraged by the response
from other Asian markets. He stated that, "being able to compete is
the essential ingredient," and therefore, the State "needs a
business structure that lowers our cost of service to the point
that we are competitive." He continued that this would require
long-term commercial transactions, and that the fact the Alaska is
part of the United States is a strong element in terms of
marketing. None-the-less, he stated that the project must be
"economic and competitive."
Senator Dyson voiced that it is "very difficult" to understand how
Alaska natural gas could be competitive with other worldly markets
on the Pacific Rim such as Qatar.
Mr. Heinze expressed that the proposed $12 billion investment in
Alaska LNG must have a high rate of return in order to advance. He
referenced the "Notional Cost of Service Comparison" calculation
chart [copy on file] that reads as follows.
Notional Cost of Service Comparison
Does not include Wellhead Purchase Price
High ROR Not Benefit Drive
Commercial Taxable Infrastructure
Pipeline $ 1.40 $ 1.00 0.75
LNG $ 1.50 $ 1.20 0.90
TOTAL COST $ 2.90 $ 2.20 $1.65
OF SERVICE
Mr. Heinze stated that, based on this calculation, the natural gas
target level should be $3.50. He shared that experts in the field
predict that long-term gas prices would range between $3.00 and
$3.50, and that some existing fields, such as the one in Qatar
ranges around $3.50. He pointed out that were the cost of the total
$12 billion Alaska natural gas project factored in, "the cost of
service becomes very low for our gas," and he continued, at a
wellhead value ranging between $3.00 and $3.50, the State could do
"very well," and "do more than service our debt on the project." He
noted that price factors would be affected by various factors such
as whether the pipeline follows the highway, is converted into LNG,
or distributed into the market in a number of different ways. He
noted the "Estimated Cost of Service Comparison to WCNA" (West
Coast North America) chart [copy on file] and stated that,
depending on how the State and the Authority use their "unique
financial structures," the cost of service could be reduced further
and the State could be competitive with any of its competitors.
Mr. Heinze explained, in response to an earlier question from
Senator Bunde, that LPG is things such as propane or butane. He
stated that natural gas liquids (NGL) are liquids that are derived
from gas that is being produced, and he continued that LPG is the
same as NGL except that it is derived from the gas after the gas
has been transported. He noted that LPG fuels are easy to use and
easy to transport.
Mr. Heinze stressed that the timing of the receipt of this funding
is very important to ANGDA, as the initial $350,000 funding has
been expended. Therefore, he urged the Committee to expedite this
legislation, as more funding would be required in order for further
work to be done.
Mr. Porter also voiced support for expediting the request, as there
are several AGNDA contract requests that are awaiting funding and
should be "executed."
Co-Chair Wilken ordered the bill HELD in Committee.
CS FOR SENATE BILL NO. 277(HES)
"An Act relating to the Alaska Commission on Postsecondary
Education; relating to the Alaska Student Loan Corporation;
relating to bonds of the corporation; relating to loan and
grant programs of the commission; relating to an exemption
from the State Procurement Code regarding certain contracts of
the commission or corporation; making conforming changes; 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 legislation pertains to the
student loan program and is sponsored by the Senate Rules Committee
at the request of the Governor. He noted that the legislation
"would allow the Alaska Student Loan Corporation to issue bonds and
use the proceeds for purposes other than funding student loans and
creates a mechanism for the Corporation to return money to the
State through the financing of capital projects." He stated that
$260 million is anticipated to become available over a three year
period beginning in FY 04 as a result of this bond issuance. He
noted that a sectional analysis of CS FOR SENATE BILL NO. 277(HES)
is included in the Members packets.
SFC 04 # 12, Side A 10:44 AM
DIANE BARRANS, Executive Director, Postsecondary Education
Commission and Executive Officer, Alaska Student Loan Corporation,
read her testimony as follows.
Co-chair Wilken, Co-chair Green, committee members, my name is
Diane Barrans and I am the executive director of the Alaska
Commission on Postsecondary Education as well as the executive
officer of the Alaska Student loan Corporation. Thank you for
hearing the legislation before you today.
Appearing with me today are Sheila King, commission and
corporation finance officer and by teleconference, Ken Vassar,
Wolforth, Vassar, Johnson, and Brecht.
Over the past decade I have appeared before you several times
seeking your support for agency initiatives.
First, the Commission asked to be given the tools and
administrative latitude to modify our processes so that we
could operate as a self-sustaining enterprise agency of the
state. The next step was putting in place a mechanism for the
corporation to begin paying to the state some portion of its
annual net income, as a return on the state's original
investment in the corporation.
Most recently, in 2001, our organization requested your
approval to redefine its role-becoming Alaska's full service
financial aid assistance and postsecondary education planning
agency.
On each of these occasions, you and your fellow legislators
consistently exhibited strong, bipartisan support for the
mission of this agency, to promote postsecondary participation
and success by Alaskans, and you unanimously passed this
series of bills.
I am extremely pleased to sit before you today and commend for
your approval CSSB 277. The commission and corporation, having
successfully implemented the AlaskAdvantage suite of programs
and services for Alaskans, now seek your support for the next
step of our organizational growth.
The objectives of Senate Bill 277 which are five-fold:
1) To broaden the scope of the Corporation's bonding authority
to include the ability to bond for the general benefit of the
state. To contribute to statewide efforts to use state assets
as efficiently as possible, the corporation has developed a
plan to return a substantial portion of the capital the state
original gave the corporation. The change in corporation
statue is requested to insure that, as ASLC has capacity to
return contributed capital back to the state, it will have a
variety of means to do so and will be able to select the most
beneficial way of doing so;
2) To reconstitute the state student grant program to better
focus on Alaska's workforce needs and to enhance the
Commission's current outreach and early awareness initiatives;
our proposal redesigns the grant program to clearly have an
Alaska-centered focus.
3) To provide the Commission with greater flexibility in
offering loan consolidation options to borrowers. Current
statutes limit the way in which the Commission can offer
consolidation and certain customers, who have borrowed from
both the discontinued loan program and the AlaskAdvantage
loans, cannot currently be served through consolidation.
4) At the recommendation of the Department of Law, this bill
will clarify the Commission's ability to administratively
issue liens in the collection of defaulted education loans and
set out the due process for appealing such an action by the
Commission; and
5) Lastly, to provide an exemption from the State Procurement
Code for certain services related to guaranteeing and
disbursing education loans. Under the current business
structure for education loans, a lender must be prepared to
conduct business with the guarantors and disbursing agents
preferred by the schools participating in the loan programs.
In the Sectional analysis in your bill packet these
changes, as well as several minor or conforming changes are
identified. I would be happy to respond to specific questions
or provide a walk through of the bill, section by section.
Co-Chair Wilken asked Ms. Barrens to review the changes to the bill
that were made in the Senate Health, Education, and Social Services
(HES) Committee.
Ms. Barrans stated that one change, included in Section 5 of the
bill, specifies that an aggregate limit be placed on the amount of
bonds that the Corporation could issue.
Sec. 5. AS 14.4.220 is amended by adding a new subsection to
read:
(g) The corporation may not issue bonds to finance
projects under (a)(3) or this section in an aggregate amount
that exceeds $280,000,000.
Ms. Barrans stated that the HES Committee determined that while it
is anticipated that the program "could return a substantial amount
of the contributed capital to the State, that in the future the
Student Loan Corporation not be looked to, to bond itself in
perpetuity beyond what it could afford to do." Therefore, she
continued, this aggregate limit was designated to finance State
projects.
Ms. Barrans continued that the second change "is relevant to the
prioritization for the awarding of State grants" in that the
original version of the bill allowed individuals "enrolled in
programs of study leading to employment" in specific workforce
shortage areas. She shared that the Senate HES Committee determined
that these specification "were too narrow and did not provide for
the advent of emerging workforce needs," and therefore, she noted,
that language was eliminated.
Co-Chair Wilken pointed out that an additional change is located in
Section 23, subsection (2) on page 11, line 24, in which "ten
percent" was changed to 15 percent as follows.
(2) "severe shortage" means a current or recurring job
vacancy rate of 15 percent of greater, as determined by the
Department of Labor and Workforce Development or by another
workforce data source determined reliable by the commission.
Ms. Barrans affirmed. She noted that this change is the result of
the aforementioned broadening of the workforce area shortage needs.
Senator Hoffman asked why the bill's language limits the amount of
bonds that could be available to finance projects to $280 million
as opposed to Ms. Barrens' testimony specifying that $260 million
would be available for this purpose over a three-year period.
Ms. Barrans responded that the bill's language would deliberately
establish the amount at $280 million in order to allow the
associated costs of bond issuance to be paid for from the bond
proceeds. Furthermore, she noted that it would be beneficial to be
able to finance the minimal reserve fund from the bond proceeds
rather than requiring the Corporation to utilize other resources to
fund either the cost of issuance or the reserve fund.
Senator Hoffman surmised therefore that the bond issuance expense
and the reserve fund expenses would amount to approximately $20
million.
Ms. Barrans concurred. She shared that it is typical for a Bond
Reserve Fund to be approximately ten percent and the cost of
issuance to be approximately two percent of the bond amount.
Senator Bunde asked that further information be provided in regards
to the grant program, specifically the definition of financial
need. He additionally asked whether a student could be eligible for
both a grant and a student loan.
Ms. Barrans responded that the Commission would like to work with
"financial aid officers at Alaskan institutions to develop a
formula that would best serve this constituency." Typically, she
noted, the Commission "would rely on a needs analysis that is based
on a federal free form for student financial aid, which is a
standard calculation for financial need." However she noted that,
"one point of discussion…is whether we should use…a standard cost
of education in order to level the playing field " in a situation
where a student might elect to attend a more expensive institution
as opposed to a less expensive institution. She voiced the
understanding that, in order to efficiently utilize grant funds,
"the standard cost of education would be considered in that mix."
Senator Bunde understood that the grants would be limited to
students who chose to attend college in the State.
Ms. Barrans replied that this is true, however, she noted that
while the standard cost of education to attend the University of
Alaska might range between $8,000 and $12,000, the cost of
attending another institution such as Sheldon Jackson College or
Alaska Pacific University "might be considerably higher." She noted
that students could be recipients of both the grant and loan
program.
Senator Bunde opined that a student might require both funding
sources.
Ms. Barrans agreed.
Senator Olson stated whether some schools might not qualify for
some of the eligibility and priority specifications that are
identified in Section 23 of the bill beginning on page ten and
continuing through page eleven; specifically in subsection (2) (A)
that reads as follows.
(2) enrolled or about to be enrolled
(A) at an institution approved to participate in federal
financial aid programs under 20 U.S.C. 1070 - 1099c-2, as
amended, located in this state; and
Ms. Barrans responded yes, "some very small vocational schools" in
the State "are not regionally or nationally accredited."
Senator Olson asked whether the Kotzebue Technical Center in
Kotzebue or the Ilisagvik College in Barrow are accredited and
therefore would qualify for the grant money.
Ms. Barrans responded that the Ilisagvik College and the Alaska
Vocational Technical Center in Kotzebue are accredited; however,
she was unsure of the status of the Kotzebue Technical Center and
would supply that information to him.
Co-Chair Wilken asked for confirmation that the money that would be
available from the sale of bonds would be separate from the
Corporation's dividend program that has been contributing funds to
the State's general funds for the past four years.
Ms. Barrans affirmed that, "it is a separate initiative."
Co-Chair Wilken concluded, therefore, that the State would continue
to receive "the dividend in addition to the payback." He voiced the
understanding that proceeds from the bond dividend must be used for
capital projects.
Ms. Barrans clarified that the Internal Revenue Service specifies
that the proceeds from tax-exempt bonds are federally limited to
specific types of projects and that typically a capital project
would qualify. She noted that "principle payments on outstanding
debt service" is also an approved use of the funds.
Co-Chair Wilken noted that the Corporation has provided additional
information, titled "Alaska Student Loan Corporation Return of
Contributed Assets to State" [copy on file], that could supply
Committee members with further information.
Senator Bunde asked the current status of the Commission's student
loan default rate as compared to the rate a decade earlier.
Ms. Barrans responded that the most recent year's default rate is
approximately four percent and is approximately 13 percent lower
that the default rate of ten years prior.
Co-Chair Wilken shared that when he had served on the Commission in
the late 1990's, it was determined that the State could garnish an
individual's permanent fund dividend (PFD) check when their loan
was outstanding. He asked how much the Commission garnishes in this
manner each year.
Ms. Barrans responded that approximately $6.8 million was recently
collected in this manner.
Co-Chair Wilken recalled that during the first two years that the
garnishing of one's PFD was allowed, the State collected $13
million and $12 million, respectively.
Ms. Barrans agreed that being able to garnish PFD's is "an
effective tool."
Co-Chair Wilken noted that the State's Student Loan Corporation is
fairly unique in the nation.
Ms. Barrans agreed that while there are similar programs operating
in the country, the Corporation's programs and services are unique.
Senator Hoffman informed the Committee that he would be developing
an amendment to this legislation that would allocate ten percent of
the funds to support maintenance needs of the University of Alaska,
another ten percent to support major maintenance of schools, and
the remaining 80 percent would be retained by the State.
Co-Chair Wilken noted therefore, that the bill would be held
pending drafting of the amendment.
Senator Olson voiced concern regarding the fact that the intent of
this legislation is to fund State capital projects now, via the
student loan program's issuance of bonds that "might encumber
future generations of students." He questioned whether trying to
solve a problem by using these bonds is the best option, and
therefore, he asked whether "there are other loan type corporations
that are also contributing to the State's general fund."
Co-Chair Green opined that each of the programs that have been
funded with State general fund dollars "have the obligation, when
they can, to pay a dividend." Therefore, she stated that she
recognizes this proposal "to be a dividend back to the State."
Senator Olson responded that the Corporation is already paying a
dividend. Continuing, he restated that his concern is that it would
"encumber future generations."
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 11:03 AM
| Document Name | Date/Time | Subjects |
|---|