Legislature(2003 - 2004)
03/10/2004 09:05 AM Senate FIN
| Audio | Topic |
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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
March 10, 2004
9:05 AM
TAPES
SFC-04 # 35, Side A
SFC 04 # 35, Side B
SFC 04 # 36, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:05 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: SENATOR GARY STEVENS; CRAIG GORMAN, Vice President
of Research, University of Alaska Statewide; SCOTT GOLDSMITH,
Institute of Social and Economic Research, University of Alaska,
Anchorage; THOMAS CASE, Dean, College of Business and Public
Policy, University of Alaska, Anchorage; JOE BALASH, Staff to
Senator Gene Therriault; PAUL FUHS, Backbone2
Attending via Teleconference: From Anchorage: STEVEN PORTER,
Deputy Commissioner, Department of Revenue; HAROLD HEINZE, Chief
Executive Officer, Alaska Natural Gas Development Authority
SUMMARY INFORMATION
SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS
The Committee heard from the sponsor. The bill was held in
Committee.
SB 241-APPROP: NORTH SLOPE NATURAL GAS
The Committee heard from the sponsor, the Department of Revenue,
the Alaska Natural Gas Development Authority and an advocacy
organization. Two amendments were adopted and the bill was reported
from Committee.
SB 271-NATURAL GAS DEVEL AUTHORITY PROJECTS
This bill was scheduled but not heard.
Presentation by the University of Alaska
"Economics of UA Research"
Co-Chair Wilken prefaced the presentation by stating that research
activities bring "new dollars into our State".
CRAIG GORMAN, Vice President of Research, University of Alaska
Statewide, stated that each of the presenters would discuss the
role of research and development within the State.
SCOTT GOLDSMITH, Director of the Institute of Social and Economic
Research, College of Business and Public Policy, University of
Alaska, Anchorage, gave a presentation titled, "The Economic
Importance of University Research" [copy on file] as follows.
Page 1
Research is a $264 Billion Industry
[Pie chart demonstrating the distribution of the research
conducted in the United States between industry, universities
($36 billion), the federal government, and other non-profit
organizations.]
Mr. Goldsmith stated that research is a $250 billion industry,
accounting for approximately 2.5 percent of the gross national
product. The majority of research is funded by industry, but the
federal government and non-profit organizations also fund research.
Universities fund approximately 15 percent of total research, which
in 2001 was approximately $36 billion. Industry understands
research, as it increases productivity growth, is "one of three
legs" that drive the economy. Increased capital expenditures, and
increased quality of the labor force are the other two "legs" of
the economy.
Page 1
Top Research States
State Rank in 1999
Amount Share of GSP
(Billion $) (Percent)
1. California $48.0 New Mexico 6.40%
2. Michigan 18.8 Michigan 6.10%
3. New York 14.1 Rhode Island 5.10%
4. Texas 12.4 Massachusetts 4.60%
5. Massachusetts 12.2 Maryland 4.60%
Page 2
Research in Alaska: How We Compare
Alaska R&D Profile rank amount % US avg data
Total R&D (million $) 47 $196 2000
Industry R&D (million $) 50 $9 2000
Academic R&D (million $) 42 $116 2001
Population (% US) 48 0.22% 2002
Total R&D ($ per capita) 32 $467 49% 2001
R&D Intensity (R&D/GSP) 41 1.04% 38% 2001
Federal R&D ($ per capita)13 $335 116% 2001
Fed R&D/Total Fed $ 22 3.30% 72% 2001
Mr. Goldsmith stated that Alaska's research and development ranks
just below the median of states in per capita terms, and as a
percentage of the gross State product. Alaska ranks even lower in
research and development as a percentage of the U.S. average.
Page 2
Funding for University Research is Growing 8% per Year
[Graph showing the increases of federal, institutional and
other sources of funding from 1980 through 2002 in billions of
dollars]
Mr. Goldsmith noted that "other sources" includes non-profit
organizations and private industry. He informed that the growth
rate of university research, at over eight-percent annually, is
faster than the overall growth rate of the economy.
Page 3
Top Research Universities
University R&D Spending: 2002
Rank Institution Budget
(Million $)
1 Johns Hopkins $999
2 UCLA $693
3 U of Wisconsin $604
4 U of Michigan $601
5 U of Washington $590
95 UAF $110
Page 3
University Research in Alaska: How We Compare
UAF R&D Profile in 2001 Rank Amount US Avg
(Million $)
Total R&D 95 $110.0
Math and Computer Science 12 $16.3
Atmospheric, Earth, Oceanography 16 $30.5
Physical 54 $13.6
Life Science 150 $16.6
Federal Funding 105 $55.3
Institutional Funding na $23.6
Total/Institutional Funding na 4.58% 4.99%
Total R&D - All Campuses 68 $115.0
Mr. Goldsmith commented that most of University of Alaska research
is conducted at the Fairbanks campus.
Page 4
University Research as an Enterprise -
New Money into the Economy
· Import Substitution
o Arctic Basic Research
o Applied Research on Alaska Problems
· Adding to the Export Base
o Footloose Research
Mr. Goldsmith pointed out that almost all funds appropriated to
research activities are "new money". Economists characterize two
methods of economic growth: import substitution and increasing the
export base. A "surprising amount" of arctic research is conducted
in other parts of the country rather than in Alaska. Similarly
applied research performed on Alaska's problems, such as the
engineering of highways and oil and gas production techniques, are
also conducted out of the State. Import substitution could be
achieved by redirecting more Alaska-related research to be
conducted in the State. University research also acts as an
enterprise by adding directly to the export base. He added that
research is not tied to a specific location and could be conducted
anywhere.
Page 4
University Research as an Enterprise:
Direct Economic Impact 2003 (Million $)
$121.6 Total UA Research*
$45.2 Wages
$17.5 Benefits
$33.6 Contracted Services
$8.4 Capital Equipment
$8.1 Commodities
$5.7 Travel
$2.0 Student Aid
$1.0 Miscellaneous
$??? Visiting Scientists
Mr. Goldsmith emphasized that research is very labor-intensive, and
most of the money spent on wages and benefits remains in the State
and is re-circulated through the economy. Contracted services
consist of maintenance, professional, business and other services
that are often provided locally. Much of the funding expended for
capital equipment leaves the State with one exception being
construction costs. The commodities component includes items such
as paper and fuel, which are mainly purchased by local businesses.
The travel funds include travel within and outside of Alaska,
supporting both local and outside businesses. Additionally, several
facilities in Alaska provide opportunities for visiting scientists
to travel to the State to conduct research. These visitors provide
economic benefits through their research and as tourists. In
summary, much of the costs expended for university research remain
in the State where they foster economic activity in a wide variety
of local businesses.
Page 5
University Research as an Enterprise:
Total Economic Impact
· Jobs
o 2,310 Total
o 1,228 University-full and part time
o 1,082 Private
· Payroll
o $80.3 Million-Total
o $45.2 Million-University
o $35.0 Million-Private
· Private Business Sales
o $106.8 Million-Total
o $42 Million-Direct Procurement
o $64.8 Million-Indirect
Page 5
University Research as an Enterprise:
Characteristics of Jobs & Industry
· Labor Intensive
· High Wage
· Year Round Jobs (not Seasonal)
· Diverse Job Mix
· High Resident Share
· Stable Industry
· Footloose
· Environmentally Benign
· Low Burden on Government Services
· Tax Base
· Backward Linkages
· Forward Linkages
· "Value Added" Spinoffs
Mr. Goldsmith overviewed these points and added that research
activities are less subject to market fluctuations than resource-
intensive industries. Research activities also do not compete for
government services to the level of other enterprises. The high
labor intensity of university research indirectly generates a tax
base through support for businesses and establishment of
households. Research is primarily located in urban areas with
developed economic infrastructures where backward and forward
linkages can easily occur.
Senator Bunde requested a definition of backward and forward
linkages.
Mr. Goldsmith explained that a backward linkage occurs when the
University of Alaska purchases goods or services from a local
business. Forward linkages are sales generated as a result of
University research activities.
Page 6
University Research as an Enterprise:
Comparison to Metal Mining
· Operating Size
o $823 Million in Production Value in 2002
o $77 Million in Payroll
o 1,153 Average Annual Employment
o $67,000 Average Annual Wage
o Local Procurement
· Characteristics
o Capital Intensive
o Resource Dependent
o Resident Share
o Stability
o Environmental Impact
o Competition with other Activities
o Cost Burden on Government
o Tax Base
o Enclave
· Benefit/Cost
o Jobs
o Income
o Tax Base
o "Value Added" Spinoffs
Page 6
University Research as an Enterprise:
A Role in Future Growth of Alaska
[Bar graph demonstrating the following:]
Projected Alaska Job Growth 2000-2010
Health/Social Services 23,400
Trade 7,900
Transportation 4,700
Business/Eng/Acct Services 4,200
Other Services 3,400
Lodging 2,100
Construction 800
Government 700
Mining 500
Manufacturing 0
Page 7
University Research as an Enterprise:
Industries for Alaska's Future
· Oil and Gas
· Tourism
· Seafood
· Mining
· Air Cargo
· Timber
· University Research
Mr. Goldsmith pointed out that the industries with high projected
job growth are the services and trade industries. The average wages
for new jobs in those industries is less than that of existing
jobs. This information suggests that every opportunity must be made
to build "base industries" that can drive the economy by providing
solid jobs; university research is one of those industries.
Page 7
University Research as an Enterprise:
Growth Potential
· Import Substitution
o Increase Share of Nationally Funded Research About
Alaska
o Increase Share Locally Funded Research
· Export Growth
o Maintain Overall Share of Growing Market for
Federal Research
o Increase Share of Nationally Funded Arctic Research
o Increase Presence in Under Represented Fields
Mr. Goldsmith explained that University research has significant
growth potential for two reasons. First, the research budget is
growing faster than the overall economy. Second, Alaska has the
ability to capture a larger share of research currently being
conducted in other parts of the country.
Page 8
University Research as an Enterprise:
Benefit/Cost Analysis
· Cost
o General Fund Appropriation (FY 03) = $16.6 Million
· Benefits
o Economic Impact Return per $1 Million of GF
ΠJobs = 139
ΠPayroll = $4.8 million
o "Value Added" Spinoff Returns for Alaska
Page 8
University Research as a Tool for Economic Development
· New Business Creation - ABR Inc.
· Business Innovation - Geoducks
· Information for Business Decisions - Ice Roads
· Public Infrastructure Efficiency - Telemedicine
· Maximize Value of Public Assets - Fisheries Management
· Professional Workforce Development - Engineers
· Resident Expertise Creation - Fisheries
Mr. Goldsmith highlighted one of the significant contributions of
university research: the "value added spinoff". In other industries
value added refers to profits, but in the university research
industry the value added is productivity gains for the entire
economy.
Senator Olson referred to the slide titled "Research is a $264
Billion Industry" and noted that 75-percent of the nationwide
research industry, some $250 billion, is funded by industry. He
asked why the majority of Alaska's research funding comes from the
federal government.
Mr. Gorman responded that the nature of research conducted in
Alaska is associated with the environment, and the special
characteristics of the arctic. In addition, Alaska has a small
industrial and manufacturing base. The University of Alaska funds
57-percent of the State's research, and only 7-percent is funded by
industry. From a research standpoint, the State is unique in that
it is more reflective of a developing country, than of the rest of
the U.S.
Mr. Goldsmith added that an important aspect of university research
is the student. The federal government considers university
research a method to "capture the next generation". Undergraduate
and graduate students play an integral role in university research
causing it to become "an intrinsic part" of the educational
environment.
Mr. Gorman then gave a presentation titled, "Research at the
University of Alaska, Role in the State Revenue, Organization,
Priorities, Plans" [copy on file] as follows.
Page 1
Some Perspectives
Nationally, Industry conducts 74 % of
R&D, Universities conduct 14%
In Alaska, UA conducts 57% of R&D
and Industries 7%
Average State investment in R&D =
2.5% GSP; Alaska Invests 0.5%
Page 1
UA total research revenue
FY 03: $133M
Good growth pattern:
· FY 98: $77M
· FY 99: $81M
· FY 00: $91M
· FY 01: $109M
· FY 02: $120M
Most $ currently at UAF - growing at all MAUs
Traditionally "academic" - becoming more applied
Mr. Gorman reemphasized the growth of the research industry in
Alaska. Traditionally, the majority of University research has
taken place at the University of Fairbanks, but it is also
occurring in Anchorage and Southeast Alaska. Much of the research
conducted in the State is academic or basic research, which studies
fundamental processes and characteristics; however, the State is
becoming increasingly focused on applied and industrial research.
University research is growing and changing in the State of Alaska.
Page 2
UA Revenue by Different Sources
1996 - 2003
[bar graph indicates the following data]
2003
$211,100 - State Appropriated Funds
$133,082 - Externally Funded as a Result of Research
$59,749 - Tuition
$141,509 - Other
1999
$168,963 - State Appropriated Funds
$81,500 - Externally Funded as a Result of Research
$48,685 - Tuition
$104,747 - Other
1996
$171,580 - State Appropriated Funds
$63,816 - Externally Funded as a Result of Research
$48,965 - Tuition
$90,340 - Other
Page 2
UA Revenue by Different Sources
1996 - 2003
[bar graph indicates the following data]
2003
39% - State Appropriated Funds
24% - Externally Funded as a Result of Research
11% - Tuition
26% - Other
1999
42% - State Appropriated Funds
20% - Externally Funded as a Result of Research
12% - Tuition
26% - Other
1996
46% - State Appropriated Funds
17% - Externally Funded as a Result of Research
13% - Tuition
24% - Other
Mr. Gorman commented on the growth of the University of Alaska in
comparison to other institutions receiving State appropriated
funds. He acknowledged the increase in State appropriation funds to
the University, and highlighted the increase in tuition the
University implemented.
Mr. Gorman continued that the healthy research environment at the
University of Alaska is partially responsible for its ability to
attract more students from within the State. Furthermore, a
significant amount of University funding is provided by research
activities.
Page 3
UAF Funding Sources
(03 Research Expenditures - $m)
Direct Federal 72.8
DOD 5.9
NIH 5.6
Interior 3.9
Ag 5.1
Commerce 9.1
NASA 14.6
NSF 18.9
State Agencies 2.2
Direct 1.4
From Federal .8
Private (Univ, Corp, Found'n) 22.1
Direct 7.6
Federal Indirect 14.4
General Fund 14.3
(UAA: 3.9, 1.9, 2.8, 2.2)
Mr. Gorman pointed out the diverse sources of the University of
Alaska, Fairbanks research funding, but clarified that the federal
government contributes the majority of funding. Most federal
research appropriations come from the National Science Foundation,
which is a very competitive funding source. Increasing efforts are
underway to secure additional funds from the National Institute of
Health (NIH), as this is the largest federal research funding
source and Alaska has been the least successful state in securing
NIH funds.
Co-Chair Wilken asked the significance of the numbers following the
letters "UAA" at the bottom of the "UAF Funding Sources" slide.
Mr. Gorman explained that those numbers represent the funding
sources of research funds for the Anchorage campus of the
University of Alaska. He noted that there is a significant
difference in the federal funding provided the Anchorage campus
versus the Fairbanks campus; however, contributions from State
agencies are comparable between the two campuses. The Anchorage
campus has historically been well supported by the State. The
funding variance between the University of Alaska's Fairbanks and
Anchorage campuses demonstrates their unique styles and histories.
Page 3
Large sums from small pieces:
Diversity
864 Active Research Grants and Contracts
340 New awards annually - 120% increase over FY 99
Legislative Performance Measures:
215 Awards in Specified Areas
222 Graduate Students Funded
267 Active Applied Research Projects
Mr. Gorman stated that research funding does not come in large
sums, though a few exceptions exist. For example, Alaska receives a
sizable amount of computational science research funding, the vast
majority of which goes to the Arctic Region Supercomputing Center
with an annual budget of approximately $15 million. The
Supercomputing Center is funded by the U.S. Department of Defense.
The University of Alaska is attempting to increase its utilization
of the Supercomputing Center. Currently, approximately 30-percent
of the Supercomputing Center's capacity is used by the University,
and the other 70-percent is utilized by the Department of Defense.
Page 4
Organized Research Units
Independent:
Geophysical Institute
Institute of Arctic Biology
International Arctic Research Center
Arctic Region Supercomputing Center
UAF Museum
Within Schools and Colleges (examples)
Business Enterprise Institute
Institute for Social and Economic Research
Environmental and Natural Resources Institute
Institute for Circumpolar Health Studies
Institute of Northern Engineering
Institute of Marine Science
Arctic Energy Technology Development Lab
Alaska Native Language Center
Minerals Industries Research Lab
Center for Nanosensor Technology
Agriculture and Forestry Experiment Station
Mr. Gorman explained that research is conducted by individual
faculties or by research centers. Within the University of Alaska
there are bi-partite faculties who are active in service and
teaching, and tri-partite faculties who participate in service,
teaching and research. The majority of the University of Alaska's
tenure-track faculty is tri-partite. When a coalescence of
interest, or a federal interest exists, research centers are formed
to conduct research. The largest, most famous research center in
the State is the Geophysical Institute, which was established by
the federal government in 1948. The State is playing an extremely
important role in both the national and the international research
scene.
Page 4
BOR Strategic Plan
Areas of Statewide Leadership
Anchorage
Social, Economic Policy
Health delivery
Logistics
Community Engagement
Complexity
Finance, Business
Fairbanks
Biomedical Science
Engineering
Fisheries, Marine Science
Geophysics
Remote Sensing
Climate
Natural Resources
Native Languages, Culture
Arctic Research
Wildlife Biology
Energy Technology
Computational Science
Cold Regions Infrastructure
Southeast
Government
Education
Marine Biology
Environmental Technology
The University of Alaska's Board of Regents has identified, as part
of its strategic plan, areas of leadership within various
administrative units. The University cannot afford to be
"duplicitous" in its research. At the University of Alaska's
Anchorage campus the research focus is on the community, social
economics, business and logistics. At the University of Alaska's
Fairbanks campus, the research focus is on physical scientists and
the arctic. The Southeast campus of the University of Alaska is
primarily an undergraduate institution, but research is occurring
there as well.
Page 5
SJR 44 (2nd Session, 22nd Legislature)
Draft State R&D Plan (2/03)
Lead Participants: UA, NPRB, Arctic Research Commission,
IARPC, ASTF
Objectives:
· Expand and Diversify Alaska's Economy
· Protect Health of Alaskans and Alaska's Environment
· Strengthen State Research Institutions
· Identify ways for Federal and State Governments to work
together
Conclusions and Recommendations:
· Value in its own right; strategic tool for economic
development
· Establish mechanism for planning and Agency
accountability
· Maintain excellence and build competitive capacity
· Establish monitoring networks coupled to analytical
capacity
· Improve flow of information to decision makers, public
Key Organizing Principle:
· Alaska Resource Assessment Network
Mr. Gorman informed that the State legislature asked the University
to participate with other agencies to develop the State's research
and development plan. A draft report was produced, though the State
agencies did not participate to the level expected by the
University. In the draft report the value of research "in its own
right" and as a "strategic tool" was identified. A major conclusion
of the draft report was that the State needed a mechanism for
planning and developing "enhanced agency accountability" for the
State agency's research priorities.
Page 5
Alaska Resource Assessment Network
[Flow chart demonstrating the process of different types of
research reaching agencies, decision makers and the public]
Mr. Gorman stressed that the observation of data is important as is
disseminating that data. The University needs improved systems for
collecting, collating and using data to provide better information
to federal and State agencies, decision makers, and the public. He
identified a few of the successful observation systems that are in
place such as the Alaska Ocean Observing System. A national effort
titled the Integrated Ocean Observing System may identify
significant funding which the University of Alaska could compete
for to make another observing system available.
Page 6
UA SJR 44 Follow-on
Areas for building capacity at UA:
· Marine Sciences and Fisheries, Land Resource Management,
Cold Regions Engineering and Infrastructure (esp. energy
technologies), Health and Biomedicine, Education, Coupled
Human and Natural Ecosystems
· Improve Competitiveness, Facilities
· Cross - MAU Transportation Research Center, Engineering
Reorganization, BEI and Logistics Center, CNT PDDC, NIH
Roadmap projects, Computational strategy, AOOS…
Enhance attention to State needs, applied research
Focus business, social, economic researchers on strategies for
wealth generation and economic development (UAA CBPP Dean Tom
Case will address)
Establish mechanism for continued R&D Planning:
From EPSCoR to SCoR
Mr. Gorman informed that the University would be building capacity
in research areas such as health and biomedicine, and marine
science and fisheries. The University would be receiving over $80
million from the federal government for FY 06 and FY 07 for an
Alaska region research vessel to replace the existing Alpha Helix
research vessel. The University intends to increase its
competitiveness in the research industry. Committing to high
quality research facilities is one technique the University would
use to foster research competition.
Mr. Gorman continued that Alaska is an EPSCoR state. EPSCoR is a
national program for states that receive less than a certain
percentage of National Science Foundation funds. EPSCoR is an
experimental program designed to stimulate competitive research. As
a participant of the federal Experimental Program to Stimulate
Competitive Research (EPSCoR) Alaska is required to form a State
committee that coordinates research efforts. The president of the
University of Alaska, Mark Hamilton, and the Lieutenant Governor
will co-chair the research committee. The committee will attempt to
illicit statewide guidance from the State agencies and State
government to direct the University's future research.
Co-Chair Wilken asked how long the University has been a
participant in EPSCoR.
Mr. Gorman answered the University has been actively involved in
EPSCoR for three or four years.
Co-Chair Wilken asked whether digressing from the EPSCoR program
would allow the University to qualify for additional funding.
Mr. Gorman affirmed and explained that EPSCoR has specific capacity
building programs that generate an average of $3 million dollars
from the National Science Foundation and comparable amounts from
the National Institutes of Health. Subsequently, the University has
focused its research efforts on health and biomedicine, and on cold
regions engineering. The University has gained significant capacity
in both of these research areas.
Co-Chair Wilken recalled University of Alaska president, Mark
Hamilton, addressing EPSCoR when it was just beginning in the
State, and detailing how it would grow.
Mr. Gorman detailed that the University of Alaska has successfully
completed its "second round" of funding with EPSCoR through the
National Science Foundation and is expecting comparable success
with the National Institutes of Health. The goals of EPSCoR are to
encourage the hiring of new research staff, new facilities, and the
promotion of competitive research. The University of Alaska has
achieved these goals.
Senator Bunde questioned if researchers are tri-partite by
definition, and whether bi-partite faculty play a role in
university research.
Mr. Gorman replied that bi-partite faculty are typically not
involved in research. The research is conducted by tri-partite
faculty, or by special faculty who exclusively participate in
research.
Mr. Bunde asked for further clarification of bi-partite faculty.
Mr. Gorman clarified that bi-partite faculty are teachers; their
tenure is not based on research.
THOMAS CASE, Dean, College of Business and Public Policy,
University of Alaska, Anchorage, gave a presentation titled,
"Economic Development and Wealth Generation, Role of the University
of Alaska" [copy on file] as follows.
Mr. Case highlighted some of the subjects he would be presenting
such as the balance between industry research funding and State and
federal research funding. In addition, he stated his intent to
discuss the University of Alaska's statewide strategy for providing
linkages between research and its application in order to drive
economic development.
Page 1
Economic Development and Wealth Generation
· Our Strategy:
· Growing business opportunities for Alaska through
excellence in business education
Mr. Case explained that excellence in business education is the
linkage between research and its application. Research is an
economic activity, which contributes to advancing knowledge.
Research must be applied through business education to produce
economic development and wealth generation.
Page 2
Strategies for Wealth Generation
Making Alaska attractive for investment
1. Increase productivity
2. Add value through technology applications
3. Build international connections
4. Expand local business capability
Mr. Case commented that the University of Alaska's Anchorage campus
has a logistics program that provides education through special
application courses, beginning with certificate courses and
continuing to graduate level courses.
Page 2
Wealth Generation
1. Increase Productivity
· Example: Supply chain research for productivity
improvements in Alaska business environment
· 10 - 15% improvement in productivity can result from
supply chain management optimization
· Current collaborators Mat Maid, Horizon and TOTE
· 10% improvement in material movement within Alaska would
be significant for the economy
Page 3
Wealth Generation
2. Add value through technology applications
· Data security and information management requirements
since 9-11 increased cost of business by $billions
nationwide.
· Business privacy and data security concerns from
Sarbannes-Oxley Act and National Security Administration
cost $ billions.
· What we teach can save money in Alaska
Mr. Case listed several sectors of need and opportunity such as
data security, and specifically software security. The University
of Alaska's Computer Information Systems Department faculty within
the College of Business and Public Policy have begun a two-year
effort to increase the Department's focus on software security. The
potential exists for a Masters of Computer and Information Security
degree to be offered by the University in partnership with a
program offered by the National Security Agency. This degree
program would "meet a great need in Alaska."
Senator Bunde asked what profit margin the University receives when
research conducted by the University is used to increase the
productivity of a business.
Mr. Case replied that he is advocating an increased partnership
between the University and local businesses. He referenced a book
sponsored by the National Science Foundation titled, "Managing the
Industry: University Cooperative Research Center" that gives
examples of how universities could better structure their industry
partnerships to produce university revenue. The first phase in
increasing partnerships is to make the local business community
aware of the economic value the University has to offer. The
University is not yet receiving profit margins, but as partnerships
and a structure for those partnerships are developed in the future,
the University will begin to receive financial support for their
contribution.
Senator Bunde responded that the University is "obviously an asset
for business."
Page 3
Wealth Generation
2. Add value through technology applications
· Master of Computer and Information Security - proposed
for Spring 2005 - one of first in US to address this
issue for Information Security Professional training
· Results directly from CIS Department research $1,692,650
on cyber-terrorism, internet data security systems, and
wireless security
Example:
Chenega/UAA "DoD Data Management Enterprise Systems"
Project
Mr. Case informed that Chenega Technical Services received a task
from the federal Department of Defense involving logistics data
management. Chenega approached the University asking for assistance
with the project, and a partnership was formed.
SFC 04 # 35, Side B 09:52 AM
Mr. Case explained that two University faculty members are
conducting research for the Chenega project. The faculty members
have brought eight research students into the Chenega-University
partnership. The students are participating in research
application, and gaining industry experience while continuing their
education. One of the students has begun a small business in
response to his interaction with the Chenega project. This business
start-up is an example of the "spin-offs" University and industry
partnerships are capable of producing.
Co-Chair Wilken asked if Chenega is a "local" company.
Mr. Case replied that Chenega Technical Services is an Alaska
Native corporation.
Page 4
Wealth Generation
3. Build international connections
· Value of Alaska exports (2001): $2.45B
· Chief trading partners: Japan, Korea, Canada, Germany,
China, Mexico, Belgium, Russia
· International Trade 10% of Alaska's GSP (2001)
· International R&D investment in UAA:
o $17M Federal (American Russian Center)
o 49,000 SME owners and business leaders trained
o 160 trained in oil/gas project/logistics
Mr. Case detailed the specifics of the American Russian Center. He
informed that the American Russian Center was established after the
fall of the Soviet Union. Individuals who had lived under a
communist regime for 80 years were expected to suddenly adopt and
comprehend a free-market economy. The American Russian Center
addresses this difficult transition from communism to a free-market
economy. The Center has impacted 49,000 Russian owners and business
leaders. These individuals have been enabled to enter productive
business arrangements with Alaskans and others. An additional 160
Russian individuals were trained in oil and gas projects and
logistics education in order to work with Alaskan oil and gas
enterprises.
Senator Bunde told of individuals traveling to Russia at the
University's expense, who proceeded to use their Russian experience
for private business endeavors. He asked about the policy to
protect the intellectual property and products developed at the
University's expense.
Mr. Case responded that University protection policies must be
closely examined. State ethics laws contain restrictions against
certain policy protections; however the ethics laws could be
reexamined. The intellectual property rights of the University need
to be protected. Other states have developed procedures to foster
economic development while protecting their universities.
Legislation is currently pending that would amend existing State
university policy protection language.
Co-Chair Wilken stated that the Senate Health, Education and Social
Services Committee had recently heard the legislation referenced,
and that committee passed the legislation.
Page 4
Wealth Generation
4. Build Local Business Capability
· SBDC helped 10,500 clients statewide in 2003
· Generated Small Business Innovative Research awards
valued at $768,465 in 2003, and
· A total of $4,265,734 in federal research and development
funds to Alaska businesses
· Average 12 interns in businesses per semester
Mr. Case spoke of the activities of the Alaska Small Business
Development Center (SBDC). The SBDC is a partner of the
University's College of Business and Public Policy.
Page 5
Strategies for Economic Development
1. Build Alaska's skilled labor pool
2. Meet business and community needs
3. Business applications of research
4. Create Alaska's economic opportunity
Page 5
Economic Development
1. Build Alaska's skilled labor pool
· 60% of CBPP graduates are employed in Alaska, 75% remain
in Alaska
· 71.5% of CBPP alumni are residents of Alaska
· CBPP graduates earned a total of $42.0 million in 2002
Mr. Case spoke of the achievements of the College of Business and
Public Policy
Page 6
Economic Development
2. Meet Business and Community Needs
· Accounting research on IRS tax violation problems in
rural Alaska let to Volunteer Tax and Loan Program
· Garnered $2,838,318 in refunds for 5,574 people in
villages throughout Alaska
Mr. Case detailed the voluntary income tax preparation program
conducted by the College of Business and Public Policy's Accounting
Department. The program is the product of a research partnership
with the federal Internal Revenue Service. The program research
discovered that tax preparation in Alaska's rural villages was
problematic, and presented an opportunity for improvement.
University faculty and students travel to these rural villages and
prepare income tax returns on a voluntary basis.
Page 6
Economic Development
2. Meet Business and Community Needs
· RFID Tag applications for Alaska business to tap into
rapidly growing $ billion industry
· Marketing research regarding e-commerce, customer
satisfaction and internet marketing
Mr. Case told of Radio Frequency Identification (RFID) tag
technology. In October 2003, the federal Department of Defense
directed the Department to begin transferring logistics and supply
chain management to RFID tag technology. Wal-Mart has since
required its primary suppliers to adopt the RFID system. RFID tag
technology consists of a small computer chip, which transmits an
active signal identifying the tagged object. RFID allows sensors
that have the ability to monitor the condition of the object to be
embedded into the tag. An example of RFID tag technology is
exhibited by tagging Copper River salmon. RFID can determine the
temperature and vibrations the salmon has been exposed to
throughout the shipping process, and could identify and prohibit
counterfeit salmon. Thousands of commercial applications exist for
RFID tag technology. In addition, many significant national
security applications exist.
Senator Bunde asked how this product is purchased, and if any
protections exist to hinder an outside party from tracking the RFID
tags.
Mr. Case replied that this product is in the early stages of
development. The University needs to become involved with this
project early to ensure that the defense uses would be compatible
with commercial use. Many ethical, moral and safety considerations
are introduced with the use of this product. .
Page 7
Economic Development
3. Business applications of research
· Experimental Economics Laboratory through Rasmussen
Foundation and corporate support for empirical economic
research
· Nobel laureate Vernon L. Smith working with faculty and
industry to address problems of interest in resource
management and property valuation
Mr. Case detailed the University's experimental economics research.
The University has extended its relationship with Nobel laureate
Vernon L. Smith through funding from the Rasmussen Foundation. The
University is also in the process of establishing an experimental
economics laboratory.
Page 7
Economic Development
3. Business applications of research
· Business Enterprise Institute partners with businesses to
commercialize technology and meet business training and
research needs.
· Provided opportunities for student research and spin-off
business development
Mr. Case restated the importance of forming University partnerships
with local businesses, and highlighted the central role business
education plays in achieving those connections.
Mr. Case thanked the State legislature for supporting University
programs.
Senator Olson asked the significance of the administrative costs of
conducting research in the State of Alaska.
Mr. Gorman explained that the University negotiates an indirect
cost rate with the federal government. This rate is added onto the
cost of research. Currently the rate established with the State is
25-percent, and the rate for federal research is approximately
twice the State rate, or 50-percent.
Senator Olson understood that requests for State conducted research
have been inhibited because of high administrative costs in excess
of 25-percent. The administrative costs of research in the private
industry are as low as ten-percent.
Mr. Gorman clarified that administrative research costs are
comparable between the State and the private sector. The ten-
percent referenced is typically a fee, not an administrative cost.
The University does not require fees for research. The indirect
cost rates the University establishes with the State and federal
governments are no different than the administrative costs of
private industry.
Senator Olson asked if a representative from the private sector
would agree with Mr. Gorman's statements.
Mr. Gorman answered, "If he was an honest man he would."
Co-Chair Wilken commented that natural resources such as oil and
gas, gold and coal, are commonly identified as strong revenue
sources, but University research as an economic enterprise is often
forgotten.
AT EASE 10:07 AM / 10:13 AM
SENATE BILL NO. 273
"An Act relating to the Alaska Seafood Marketing Institute,
the seafood marketing assessment, the seafood marketing tax,
and the seafood product tax; and providing for an effective
date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill, sponsored by Senator Gary
Stevens, "reduces the size of the Alaska Seafood Marketing
Institute (ASMI) Board of Directors from 25 members to nine, and
changes ASMI's tax structure to raise approximately $2.8 million."
Co-Chair Green moved for adoption of CS SB 273, 23-LS1366\E as a
working document.
Without objection the committee substitute was ADOPTED as a working
document.
SENATOR GARY STEVENS stated that the Joint Salmon Task Force
discussed the issues in this bill. The two main issues that need to
be addressed within ASMI are the size of the ASMI Board of
Directors and the tax structure. This legislation brings ASMI "into
the 21st century". This bill would reduce the Board of Directors to
seven or nine members. A taxing structure must be established to
pay for industry marketing. ASMI is the only organization that
broadly markets Alaskan seafood products. A trigger mechanism
exists within this bill, which would allow the fishing industry to
determine the level of taxation they are willing to accept to fund
ASMI. Currently, a one-percent salmon fisherman tax and a
processors' tax are in place. This bill would require a vote of the
processors, based on their value, to determine the tax; a majority
vote would be required to implement a tax rate. The processors
could decide to impose a 0.5-percent tax, maintain the current 0.3-
percent tax, or they could opt out of the tax entirely. If the 0.5-
percent tax were adopted the Board of Directors would have seven
members, and if the 0.5-percent tax were rejected two fishermen
would be added to the Board of Directors bringing the total
membership to nine.
[Note: in this paragraph Senator G. Stevens' references to ASMI
relate specifically to the seafood marketing assessment component
of ASMI.] Senator G. Stevens furthered that a determination must be
made whether rational exists to continue ASMI. He expressed his
support of ASMI, but emphasized that the processors should be given
the opportunity to determine whether they want ASMI to continue.
The processors would then be given the opportunity to decide if
they want to keep the current 0.3-percent tax, terminate the tax,
or increase the tax to 0.5-percent.
Senator G. Stevens indicated that with the adoption of the
committee substitute, the fiscal note would become zero.
Co-Chair Green asked if a revised fiscal note has been prepared to
the committee substitute.
Senator G. Stevens answered an updated fiscal note has not been
prepared, but noted a representative of the Department of Revenue
is present to address the matter.
Co-Chair Wilken shared that members of the Committee have requested
that this legislation be held in Committee until they can fully
review the committee substitute. An updated fiscal note could be
presented at the next Committee hearing of this bill.
Co-Chair Green also requested an updated sectional analysis of the
committee substitute.
Senator G. Stevens clarified that significant changes were made to
this legislation in the committee substitute.
Co-Chair Green cited the original sectional analysis and asked if
the committee substitute would require that an appropriation from
seafood marketing tax receipts not be made using unrestricted
general funds.
Senator G. Stevens replied that the committee substitute would
involve no general fund spending.
Senator B. Stevens thanked Senator G. Stevens for his efforts on
this issue.
Senator B. Stevens emphasized the need to inform industry
participants that while the election would determine the amount of
the landing tax, revenues from the tax would be utilized for
marketing the entire seafood industry, and not just salmon. Concern
existed that the a few processors would dictate the tax structure
for the entire seafood industry. This concern is unwarranted
because though there are a limited number of salmon processors, a
large number of other seafood processors exist.
Co-Chair Wilken addressed Senator Hoffman and Senator Olson, and
asked them when they would be prepared to take action on this
legislation.
Senator Olson replied they would be prepared to take action by the
next regularly scheduled Committee meeting in approximately two
weeks.
Co-Chair Wilken ordered the bill HELD in Committee.
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 second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill "makes an appropriation to the
Department of Revenue for the analysis and design of a natural gas
pipeline."
JOE BALASH, Staff to Senator Gene Therriault, recalled discussions
at the previous hearing about the language of Section 1 of this
bill. Senator Therriault had asked that the language be relatively
broad to allow the Department of Revenue the flexibility to work on
gas line issues extending beyond the Alaska Natural Gas Development
Authority (ANGDA). In a previous hearing the Committee had
questioned the appropriation lapse date of 2009. Senator Therriault
is willing to adjusting the lapse date to 2005, as it is expected
that the Department of Revenue would complete the analysis provided
for in this bill by FY 05.
Mr. Balash stated for the record that the ANGDA Board of Directors
endorsed the appropriation this bill would provide the Department
of Revenue and passed a resolution, which reads the following.
The Board of the Alaska Natural Gas Development Authority
supports the appropriation of three million dollars in the
remainder of FY 04 to the Department of Revenue for work
related to bringing North Slope gas to market.
STEVEN PORTER, Deputy Commissioner, Department of Revenue,
testified via teleconference from Anchorage and referenced a
spreadsheet titled, "Projected Gas Budget for FY 04 and 05" [copy
on file]. He reviewed the spreadsheet. He explained that even
though the spreadsheet outlines total project costs of $3.7
million, the Department of Revenue is only requesting three million
dollars because certain contracts may not occur, and reimbursement
agreements may be obtained for the remaining contracts. The
Stranded Gas Act contemplates the possibility of negotiating a
reimbursement agreement with a party, but does not require a
reimbursement. In addition, certain aspects of the contracts, such
as in-state gas use, certain State research, and social impacts may
be standard in all three contracts. ANGDA would benefit from much
of the study work completed on the applications.
Senator Hoffman asked why the lapse date for this legislation is
2009 instead of 2005 considering the appropriation to the
Department of Revenue would be expended in FY 05.
Mr. Porter expressed willingness to shorten the lapse date to the
year 2005, although the speed in which the negotiations would occur
could not be predicted. The intent is to complete negotiations by
the end of fiscal year 2005.
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority, testified via teleconference from Anchorage
that this legislation has evolved to combine funds to address all
natural gas projects and issues. The funds requested through this
legislation would be utilized to accomplish all the goals of the
Authority; the work to be completed by ANGDA would focus on ANGDA's
business structure, financial structure and tax status. This effort
is important because ANGDA might play a roll in working with the
projects detailed in this legislation, and become an aggregator for
local utilities in the State. ANGDA must have an understanding of
its business standing and structure because it could be handling
large financial transactions in the future.
Mr. Heinze added that ANGDA has requested funds in the FY 05
operating budget for the ANGDA staff, the Board of Directors and
other administrative functions totaling approximately $200,000 to
$250,000. The majority of the projects ANGDA has contemplated are
included in the comparative analysis provided for in this
legislation. The State has a series of important issues to consider
in negotiating a gas pipeline project such as cost estimates,
tariff calculations, benefits and markets. This analysis would
provide ANGDA with information vital to the feasibility
determination, and would determine what interaction ANGDA might
have with the other applicants. Lastly, this analysis would aide
ANGDA in documenting the benefits North Slope gas would provide to
the State.
Mr. Heinze indicated that the ANGDA Board was aware ANGDA would be
considered with three other applicants in the analysis this
legislation would provide. Though this analysis would not grant
ANGDA an ideal level of funding; by participating, ANGDA would
obtain information necessary to fulfill the role intended by
voters.
Senator B. Stevens asked if the port authority contract is a valid
proposal.
Mr. Porter replied that the State is still making that
determination.
Senator B. Stevens referenced the "Projected Gas Budget for FY 04
and 05" spreadsheet and asked why no expenses are planned for the
negotiation of a contract with the MidAmerican Energy Holdings
Company in FY 05. He asked if the Department anticipates
reimbursement for expenses incurred in this effort.
Mr. Porter responded that MidAmerican's intent is to complete a
contract before the end of FY 04.
Senator B. Stevens suggested that the funds requested for FY 04
expenditures be included in a supplemental appropriation and the
funds requested for FY 05 expenditures be included in the FY 05
operating budget.
Amendment #1: This amendment reduces the general fund appropriation
from $3 million to $2 million to the Department of Revenue for work
related to bringing natural gas from the North Slope to market, on
page 1, line 4 of the committee substitute.
Senator B. Stevens moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator B. Stevens affirmed that there is an immediate need for an
appropriation of one million dollars to the Department of Revenue,
but there is not an immediate need for the FY 05 appropriation.
Including the FY 05 expenditures in the FY 05 operating budget
would allow the State time to determine whether the port authority
contract is valid and provide a more complete explanation of the
expenditures outlined in the "Comparative Analysis/Energy Bill and
Other Proposals/Issues" spreadsheet. Ample time exists to address
these appropriations, and include them in the standard government
budget process.
Senator Hoffman asked if Senator B. Stevens would also change
Section 2 of the committee substitute.
Senator B. Stevens stated that if Amendment #1 were adopted he
would consider offering an amendment to change the lapse date of
the appropriation from 2009 to 2005.
Co-Chair Wilken clarified that if Amendment #1 passes one million
dollars would be offered as a supplemental amendment to the FY 04
operating budget.
Senator B. Stevens replied that if this legislation is adopted it
would take affect immediately. Sufficient time exists to include
the FY 04 expenditures in the supplemental amendment to the FY 04
operating budget and make that funding available upon passage of
this bill. Additionally, if this amendment passes the lapse date of
this appropriation would need to be adjusted to 2005 to coordinate
with the second and last appropriation in FY 05.
Co-Chair Wilken asked how the additional $2.7 million would be
appropriated if it were considered necessary.
Senator B. Stevens responded that an allocation would be included
in the FY 05 operating budget.
Co-Chair Wilken clarified that these funds would need to be
included in the calculations of the existing FY 05 operating budget
draft.
Senator B. Stevens remarked that the Department of Revenue would be
required to justify the need for the expenditure and the funds
would then be appropriated through the FY 05 operating budget. In
using the traditional budget process to appropriate funds the
legislature would be following the directives of the Office of the
Governor.
Senator Bunde spoke in favor of the amendment. He acknowledged the
legitimacy of ANGDA, but noted that for twelve years people have
complained of "too much government, too much bureaucracy and too
much spending". The State has put significant amounts of money into
the promotion of private enterprise without receiving any positive
return. The amount of funds expended for this effort should be
minimized because a positive return is unlikely. An FY 05 operating
budget allocation should not be granted.
Senator Hoffman also supported the amendment because it would allow
time for additional scrutiny of the appropriation. The
documentation is minimal, and a discrepancy exists between the
costs projected by the Department of Revenue and the requested
appropriation. One million dollars should be adequate to meet
ANGDA's need for immediate funding.
A roll call was taken on the motion.
IN FAVOR: Senator Olson, Senator B. Stevens, Senator Bunde, Senator
Hoffman, and Co-Chair Green
OPPOSED: Co-Chair Wilken
ABSENT: Senator Dyson
The motion PASSED (5-1-1)
The amendment was ADOPTED.
Amendment #2: This amendment changes the lapse date of the
appropriation made in this legislation from June 30, 2009 to June
30, 2005, in Section 2 on page 1, line 7 of the committee
substitute.
Senator B. Stevens moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator B. Stevens asserted that 16 to 18 months is an adequate
amount of time to complete negotiations. Furthermore, the Authority
would have an opportunity to request additional funds if necessary.
SFC 04 # 36, Side A 10:46 AM
Senator B. Stevens continued that this project might be ongoing.
Rather than making a fund source available for five years, the
legislature should review and appropriate funds as needed on an
annual basis.
Co-Chair Wilken withdrew his objection.
The amendment was ADOPTED without objection.
PAUL FUHS, Backbone2, explained the organization he represents.
Backbone2 is the continuation of Backbone1, which was a group of
Alaskan citizens that spoke against BP's efforts to take over
ARCO's assets in Alaska, and of the concerns over the monopoly that
that takeover would create. Backbone2 is a nonpartisan organization
whose membership includes former governors, former legislators,
current legislators, and Alaskan citizens who are in support of the
"expeditious development" of a gas pipeline. Backbone2 is in
support of SB 241. Mr. Fuhs thanked Senator Therriault for his
political leadership and for respecting the gas pipeline issues the
voters supported in the last statewide election.
Mr. Fuhs asserted that decisions made on gas pipeline development
are very important to the economy of the State. He referred to a
document prepared by Backbone2 titled, "Alaska's Strategic
Interests in North Slope Gas Development" [copy on file], and
defined it as a fair, and complex statement of the State's gas
pipeline issues. He stated that much economic misinformation has
been intentionally disseminated regarding the gas pipeline project
proposals. In conducting the proposed gas pipeline contract
analysis ANGDA and the Department of Revenue would confirm the
actual economic impacts of the various gas pipeline contracts. The
gas pipeline would be "the long term fiscal plan for Alaska." The
State revenues Governor Murkowski envisioned as result of resource
development can only be achieved through the construction of a gas
pipeline; there are no resource development projects that could
produce greater State revenue. Two independent investment-banking
firms have determined that ANGDA's gas pipeline project could
produce annual revenues of up to one billion dollars for the State
of Alaska. ANGDA's gas pipeline proposal takes the best interest of
the State and its citizens into consideration, whereas other
project applicants are asking for more concessions from the State.
Mr. Fuhs asserted that the "government should only do things when
the private sector cannot." The State has waited for the private
sector to build a gas pipeline for thirty years, and it is time
that the government takes action, especially given the
"dysfunctional" relationships that have developed between the
companies operating on the North Slope. MidAmerican has offered a
serious gas pipeline project proposal; a partnership between ANGDA
and MidAmerican could prove successful.
Mr. Fuhs emphasized the organization's support of this legislation
and Amendment #1.
Mr. Porter informed that the Department of Revenue frequently
authorizes projects one year before the necessary funding would be
available. However, these gas pipeline contracts could not be
authorized until funding is received. Amendment #1 would delay the
Department in granting contracts. He requested that additional
funds be made available to the Department of Revenue in FY 04.
Co-Chair Wilken pointed out that further consideration of this
matter could be undertaken when this bill is heard in the House of
Representatives. He clarified that Senator B. Stevens' intent in
proposing Amendment #1 was to isolate FY 04 expenditures, both
expenses and encumbrances.
Mr. Porter replied he would provide the necessary information to
Senator B. Stevens.
Co-Chair Green offered a motion to report the bill from Committee
as amended with individual recommendations.
There was no objection and CS SB 241 (FIN) MOVED from Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:57 AM
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