Legislature(2003 - 2004)
04/28/2004 09:06 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
April 28, 2004
9:06 AM
TAPES
SFC-04 # 98, Side A
SFC 04 # 98, Side B
SFC 04 # 99, Side A
SFC 04 # 99, Side B
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:06 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice-Chair
Senator Fred Dyson
Senator Lyman Hoffman
Senator Donny Olson
Senator Ben Stevens
Also Attending: RICHARD SCHMITZ, Staff to Senator Cowdery; DEBORAH
FINK, Cash Alaska; TOM LAWSON, Director, Division of Administrative
Services, Department of Community and Economic Development; JANET
CLARKE, Director, Division of Administrative Services, Department
of Health and Social Services; ERNESTA BALLARD, Commissioner,
Department of Environmental Conservation; STEVE PORTER, Deputy
Commissioner, Department of Revenue; CHERYL FRASCA, Director,
Office of Management and Budget; KAREN REHFELD, Deputy
Commissioner, Department of Education and Early Development; JANE
ALBERT, staff to Senator Bunde; PAT LUBY, Advocacy Director,
American Association of Retired Persons (AARP), Alaska
Attending via Teleconference: From Anchorage: ED SNIFFEN,
Assistant Attorney General, Commercial / Fair Business Section,
Civil Division, Department of Law; ALEX SWIDERSKI, Assistant
Attorney General, Environmental Section, Civil Division, Department
of Law; From offnet locations: MARK DAVIS, Director, Division of
Banking, Department of Community and Economic Development; DANIEL
PATRICK O'TIERNEY, Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division, Department of
Law; ELISE HSIEH, Assistant Attorney General, Environmental
Section, Civil Division, Department of Law
SUMMARY INFORMATION
SB 272-DEFERRED DEPOSIT ADVANCES (PAYDAY LOANS)
The Committee heard from the sponsor, the Department of Law, the
Department of Community and Economic Development, and an industry
representative. Three amendments were considered and one was
adopted. The bill was reported from Committee.
SB 313-FIRST SUPPLEMENTAL APPROPRIATION
The Committee heard from the Department of Community and Economic
Development, the Department of Law, the Department of Revenue, the
Office of the Governor, the Department of Health and Social
Services and the Department of Education and Early Development.
Four amendments were adopted. The bill was held in Committee.
SB 392-REGULATORY COMMISSION OF ALASKA
The Committee heard from the sponsor, the Department of Law, and
the AARP. The bill was reported from Committee.
SB 65-CORRECTIONAL FACILITIES/PERSONNEL
The Committee heard from the sponsor and a committee substitute was
adopted. The bill was held in Committee.
SB 281-GENETICALLY MODIFIED FISH
The Committee heard from the sponsor and the Department of Law. The
bill was held in Committee.
SB 282-RESTAURANTS ETC DISCLOSE WILD/FARMED FISH
This bill was scheduled but not heard.
HB 486-MINING RECLAMATION ASSURANCES/FUND
This bill was scheduled but not heard.
CS FOR SENATE BILL NO. 272(L&C)
"An Act relating to certain monetary advances in which the
deposit or other negotiation of checks to pay the advances is
delayed until a later date; 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, sponsored by the Senate Rules
Committee, "requires the Division of Banking Securities and
Corporations to license and supervise Alaska's payday lending
establishments."
RICHARD SCHMITZ, Staff to Senator Cowdery, indicated he had nothing
to add to his testimony given at the previous hearing.
ED SNIFFEN, Assistant Attorney General, Commercial/Fair Business
Section, Civil Division, Department of Law, testified via
teleconference from Anchorage to respond to testimony presented at
the prior hearing. A representative of Alaska Legal Services had
testified that Permanent Fund Dividend loan advances were found to
be illegal by the Alaska Supreme Court. Mr. Sniffen clarified that
the case referenced was the Berger case. Mr. Berger was advancing
money to Alaskan residents against future receipt of their
Permanent Fund Dividend payment. The State challenged the
transactions, and the Supreme Court determined that the
transactions were legal under Alaska's usury statute. Following the
Berger decision, legislation was passed that made advances based on
the Permanent Fund Dividend illegal. The Department of Law does not
fully agree with the outcome of the Berger case; however, the
ruling established precedent for financial transactions. This case
evidences that financial advances would be legal in the State even
if they were not regulated.
Mr. Sniffen then referenced testimony from the American Association
of Retired People (AARP) that recommended a partial payment option
be included in the bill. This suggestion was considered, but was
determined to be too problematic for multiple reasons. Partial
payments would create some procedural difficulties. Advances
currently operate under a system where the consumer leaves a post-
dated check with the lending institution to be cashed after a two-
week period. If partial payments were allowed, the consumer would
need to provide the lender with a new check, and the interest rate
information would have to be changed. In addition, a partial
payment would be allowable under the proposed legislation if a
consumer's advance goes into default. Under the payment plan a
consumer would be able to make partial payments, and no additional
fees would be required.
Mr. Sniffen continued that the Department of Law has been
communicating with various groups, not exclusively lenders, to
consider issues surrounding this legislation. The Department
considered the concerns expressed in the earlier Committee hearing
of this bill and concluded that this version of the legislation
addresses those concerns in a "reasonable manner".
Amendment #1: This amendment deletes "$2,000" and inserts "$3,000"
in subsection (b) of Sec. 06.50.030. Application., in Section 3 of
the committee substitute, which amends AS 06 by adding a new
Chapter 50. Deferred Deposit Advances. The amended language in
Article 1. Licensing., on page 4 line 4 reads as follows.
(b) The applicant shall submit with the application the bond
required by AS 06.50.040 and a nonrefundable application fee
in an amount that is established by the department by
regulation and that does not exceed $3,000. The application
fee for the initial license may not be prorated.
Senator Bunde announced this amendment would be NOT OFFERED and
deferred to Amendment #3.
Amendment #2: This amendment deletes "14" and inserts "30" on page
10, line 10, in Article 4. Licensee Practices and Recipient
Rescission and Payment., of Chapter 50. Deferred Deposit Advances.,
created by Section 3 of the committee substitute. The amended
language reads as follows.
Sec. 06.50.440. Duration of advances. The minimum
duration of an advance is 30 days.
This amendment also deletes "14" and inserts "30" and deletes "two
consecutive times" and inserts "once" on page 10, lines 27 and 28,
in Chapter 50, Article 4, created by Section 3. The amended
language reads as follows.
Sec. 06.50.470. Renewal of advance. (a) The minimum term
of a renewal of an advance is 30 days.
(b) A licensee may not renew an advance more than once,
after which the licensee shall require the advance recipient
to repay the advance in full.
This amendment also deletes "as an annual percentage rate for 14
days for each $100, and" on page 11, lines 11 and 12, in Chapter
50, Article 4, created by Section 3. The amended language reads as
follows.
Sec. 06.50.500. Posted fee notice. A licensee shall post a
notice in each business location that discloses the fees that
the licensee charges for advances. The fees in the notice must
be expressed as a dollar amount, and as an annual percentage
rate for 30 days for each $100. The notice must also contain
any other reasonably necessary information required by the
department by regulation. The notice shall be posted so that
it is conspicuous to an advance recipient or a potential
advance recipient. The lettering in the notice must be legible
and at least one inch in height.
Senator Hoffman moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator Hoffman explained this amendment addresses the concern
expressed at the earlier Committee hearing of this bill that the
14-day minimum advance should be changed to a 30-day minimum
advance.
Senator Hoffman explained that this bill would allow a $15 fee per
$100 advance to be required for each 14-day renewal with a maximum
of two renewals. The 14-day renewal would target military personnel
who might only be paid every 30 days. The 14-day renewal period
would allow a lender to charge a consumer two $15 fees, in addition
to the five-dollar origination fee for a combined fee of $35 for a
$100 advance. He considered this amount too high for such a short
borrowing period. This amendment would allow two 30-day renewals
requiring a $15 fee per $100 advance.
Senator Hoffman detailed that if a consumer accepted a $100 advance
for the required minimum advance period of 14 days, and extended it
twice for a total of 45 days, the individual would pay three $15
renewal fees and one $5 origination fee for a total of $50. This
amendment would allow only one 30-day renewal.
Co-Chair Wilken asked if the maximum length of an advance under
Amendment #2 would be 60 days.
Senator Hoffman affirmed.
Mr. Schmitz stated that the sponsor would oppose Amendment #2. He
deferred to Mr. Sniffen and the representative from Cash Alaska to
address the sponsor's opposition to this amendment.
Mr. Sniffen surmised that the extension of loans from 14 to 30 days
could effectively "drive business away". Some states that regulate
this industry allow more than two extensions, while others allow
only one. He also deferred to the industry to testify to the
effects of this amendment.
DEBORAH FINK, Cash Alaska, testified that if the minimum loan term
were extended to 30 days, the industry would not "survive". She
qualified that because this industry is not currently regulated in
Alaska, financial data does not exist. Using data from states with
regulated industries she informed that lenders are making
approximately ten percent on fees. The overhead of the advance does
not change due to fixed costs; however income would be reduced by
half if the 30-day extension were implemented. The payday industry
could no longer support the payroll advance loan program in Alaska.
She further predicted that Internet-based businesses located out of
state and the "loan by phone industry" would thrive with the
absence of Alaska companies offering these loans.
Senator Olson anticipated that this amendment could decrease
businesses' viability, but disputed that the companies would go out
of business.
Ms. Fink argued that some businesses would fail if required to
extend the loans for a minimum of 30 days. She informed that her
businesses start "in the hole" each year because the amount of fees
collected by her businesses is equal to the amount of checks
written from accounts with non-sufficient funds. The payday loan
business is really a collection agency. The 30-day minimum would
reduce these businesses' income by half. No other state imposes a
30-day minimum, and only four states have instituted a 14-day
minimum. The majority of states do not have a minimum advance term,
and many are issuing five, six and seven-day advances.
Senator B. Stevens asked whether Internet companies offering
payroll advance loans and "loan-by-phone" companies are
unregulated.
Ms. Fink affirmed and explained these businesses operate from
states with no usury regulations. Approximately 60 payroll advance
companies operate on the Internet, and their fees range from $19.88
to $60 per $100 advance, with a one-day minimum. These businesses
especially flourish in the six states that do not allow payroll
advances.
Senator Hoffman asked Ms. Fink to comment on the rollover changes
proposed in Amendment #1.
Ms. Fink replied that the payroll advance companies could comply
with a single rollover, although customers often utilize rollovers.
This provision would eliminate an option for customers.
Co-Chair Wilken commented that currently there are no restrictions
on rollovers.
Ms. Fink affirmed.
Senator Bunde pointed out that consumers could simply have a new
loan issued after utilizing the maximum number of rollovers on
their previous loan. He asked if having a new loan issued is more
expensive than a loan renewal.
Ms. Fink replied that a rollover is less expensive for the customer
due to the five-dollar origination fee for each new loan.
Senator Bunde understood that Ms. Fink's businesses make
approximately $1.50 per $100 loan.
Ms. Fink responded that a $1.50 profit per $100 loan is an
industry-wide average based on the data collected in states that
regulate the payroll loan industry. Ms. Fink added that her
businesses average a profit between $1.50 and $2 per $100 loan.
Senator Bunde inquired if the passage of this legislation would
provide the State with more information about the payroll loan
industry in future years.
Ms. Fink replied that the State would know "everything" about the
payroll loan industry's volume and profits if this bill were
implemented.
Senator Bunde understood the presence of significant opposition to
this service and suggested that instead of offering this amendment,
Senator Hoffman could sponsor other legislation to eliminate the
industry. Senator Bunde emphasized that while the payroll loan
industry is operating in Alaska it should be regulated so that
industry information can be compiled.
Senator Hoffman clarified his concerns relating to the rollover
provision given that the cost of a $500 loan is $80. When the term
of the loan is due, customers are forced to rollover the loan if
they do not have the finances to pay for the original amount of the
loan and the fees incurred. Forced renewals could be avoided if
this legislation offered a partial payment provision. The extension
of the minimum loan term to 30 days would accommodate those
customers who are paid on a monthly basis. Currently, customers
borrowing $500 for a 30-day period consisting of two renewals would
pay $150 in renewal fees and a $5 origination fee for a total of
$155. Amendment #2 would reduce the fees by the amount of a second
rollover, or $75, and would allow the customer up to 60-days to pay
for the loan and fees.
Senator Bunde commented that if the consumer cannot repay the loan
and fees after one renewal, it is unlikely they could repay the
loan after a second renewal.
Senator Hoffman defended Amendment #2 by stating that under the
current version of this bill the consumer would have more
difficulty paying the loan because after the first 14-day period an
additional $75 renewal fee would be incurred.
Senator Bunde agreed that the consumer would likely be unable to
pay the loan and fees after an additional $75 fee were incurred,
resulting in "bad debt".
Senator Hoffman moved to divide the amendment. Amendment #2a
pertains to the extension of the minimum loan term from 14 to 30
days. Amendment #2b pertains to reducing the number of renewals
from two to one.
Senator B. Stevens referred to the chart provided by Cash Alaska
titled "State Law Governing Deferred Deposit Services/Payday
Advance" [copy on file] and commented that the states with liberal
laws and political representatives, such as Wisconsin and Oregon,
have $25,000 and $50,000 payday loan limits with no interest
guidelines and minimal loan terms. In contrast, traditionally
conservative states have more regulations. He emphasized the
"unique" nature of the statewide regulatory patterns on this
industry.
Senator Dyson referenced Senator B. Stevens's comments and surmised
that the political leaders in the states with strict regulations on
this industry have realized, "how stupid their constituencies are,
and how much they need to be protected." He continued that his
constituents do not need protections on this industry because they
have the ability to make rational decisions.
Senator Dyson asked Ms. Fink to clarify if the payroll loan
industry's profits would actually be reduced by one-half if the
minimum advance terms were increased to 30 days. He understood that
the profits would not be reduced by one-half unless all of the
consumers waited to repay their advances until the last day of
their 30-day term. In earlier testimony Ms. Fink had mentioned that
many consumers pay their loans back in seven to nine days, well
before the 14-day loan expires.
Ms. Fink explained that the gross income would be reduced by one-
half and that profits would be negative were the loan terms
extended to 30 days. She referred the Committee to a document
titled "Where do fees for Deferred Deposit Advance Services go"
[copy on file] to view the expenses of a payroll advance business.
She predicted that consumers would not repay their loans as rapidly
if the minimum advance term were increased to 30 days. She asserted
that members of the military do not need a 30-day minimum as
Senator Hoffman suggested because most consumers take out loans
between paydays and repay the loan on their payday.
Ms. Fink continued that lenders try to ensure the repayment of
loans they issue. Consumers who renew loans are likely to become
consumers who do not repay their loans. The industry's preferred
consumers are those who pay their loan as soon as possible. The
industry attempts to avoid consumers who regard the advances as
"loans", and attempts to attract consumers who regard the advance
as "a little something" to assist them until payday. If the 30-day
term is implemented, consumers will no longer view the advance as a
"stopgap measure", but as a loan. She predicted that if the 30-day
term were instituted fewer consumers would repay their loans.
Ms. Fink relayed that while reviewing the transactions her
businesses conducted in 2003, she discovered that many transactions
were on behalf of repeat customers. She estimated that 30-day terms
would reduce the number of loans issued by 30-percent, consequently
reducing her businesses' income by 30 percent. She added that her
profits are approximately five-percent, meaning that a 30 percent
reduction in income would produce a negative balance.
Co-Chair Green stated her assumption that this legislation has
"come together as a package" including rates, fees, percentages,
terms and other factors regulating the payroll advance industry. If
certain changes were made to this bill, other changes would be
required to balance the package. She expressed concern that if this
legislation is not properly balanced it could be detrimental to the
payroll advance industry and result in the industry "going
underground".
Senator Hoffman countered that Cash Alaska, not the legislative
finance committees or the Murkowski Administration submitted this
legislation and the supporting documentation. The industry could
not expect to determine all of the regulations pertaining to it.
Senator Hoffman requested that the Committee consider that none of
those who testified at this bill's previous hearing, except the
industry, were in support of this legislation. The testifiers
requested changes to this bill in response to certain concerns, and
Amendment #2 would implement those changes.
Co-Chair Wilken asked for an explanation of the portion of
Amendment #2b that would delete the following language on page 11
lines 11-12: " as an annual percentage rate for 14 days for each
$100, and".
Senator Hoffman replied that this deletion would be a conforming
change to reflect the establishment of a 30-day minimum loan term.
A roll call was taken on the motion to adopt Amendment #2a.
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 #2a FAILED to be adopted.
A roll call was taken on the motion to adopt Amendment #2b.
IN FAVOR: Senator Hoffman and Senator Olson
OPPOSED: Senator Dyson, Senator B. Stevens, Senator Bunde, Co-Chair
Green and Co-Chair Wilken
The motion FAILED (2-5)
Amendment #2b FAILED to be adopted.
AT EASE 9:44 AM / 9:49 AM
Amendment #3: This amendment deletes "$2,000" and inserts "$3,000"
in subsection (b) of Sec. 06.50.030. Application., and Sec.
06.50.080. Renewal of license., in Section 3 of the committee
substitute, which amends AS 06 by adding a new Chapter 50. Deferred
Deposit Advances. The amended language in Article 1. Licensing., on
page 4 lines 2 - 5 reads as follows.
(b) The applicant shall submit with the application the bond
required by AS 06.50.040 and a nonrefundable application fee
in an amount that is established by the department by
regulation and that does not exceed $3,000. The application
fee for the initial license may not be prorated.
The amended language on page 5, lines 12 - 16 reads as follows.
Sec. 06.50.080. Renewal of license. A license issued
under this chapter shall be renewed on or before the date set
by the department by submitting to the department a completed
renewal application on a form established by the department
and paying a nonrefundable renewal fee established by the
department, which may not exceed $3,000.
Senator Bunde stated that a discrepancy existed in this legislation
regarding the license fee. He noted a new draft fiscal note to
reflect the impact of this amendment.
MARK DAVIS, Director, Division of Banking, Securities and
Corporations, Department of Community and Economic Development,
testified via teleconference from an offnet location that the
increased license fee would produce significant revenue. However,
he understood from correspondence with Senator Bunde that the
intent is that the program be revenue neutral in the first few
years of operation, which the Division determined would require a
$5,000 fee annually. Mr. Davis expressed concern that the proposed
fee would be too high because it might cause industry members to
decide to conduct business illegally in order to avoid the fee.
This amendment would require a biannual fee of $3,000. The Division
would prefer that the licensing fee be as revenue neutral as
possible, and will adopt the highest fee the industry would be
willing to accept.
Senator Bunde remarked that the cost to administer the program, and
not the preferences of the industry, should be considered to
determine the licensing fee. If the Division calculates that the
cost to administer the program is higher than the industry would
voluntarily support with fees, efforts should be taken to reduce
expenses.
Mr. Davis outlined that the Division is attempting to cut
administrative expenses related to the regulations proposed in this
legislation by reducing contractual services such as legal
services. He explained that if this bill were adopted, a bank
examiner position would be statutorily required to oversee and
address potential litigation. The administrative costs would also
include a clerk to handle increased correspondence; however, the
clerk position could possibly be eliminated to further reduce
costs.
Senator Bunde acknowledged the high workload of the Division and
the increased demands this legislation would create. He asserted
that despite this workload, the full-time bank examiner would not
need to be exclusively devoted to the payroll loan businesses; the
examiner could also serve other businesses. The payroll loan
industry should not pay for all of the expenses related to the bank
examiner, but rather the costs should be distributed amongst all
the businesses the examiner would serve.
Co-Chair Wilken explained that the options before the Committee
regarding the application fee are threefold: leave the language as
is, which would require a fee not to exceed $2,000; adopt Amendment
#3, which would require a fee not to exceed $3,000; or raise the
fee to $5,000 to reflect the fee recommended by the Division of
Banking.
Senator Bunde moved for adoption of Amendment #3.
Senator Bunde offered an amendment to the amendment to increase the
licensure fees to $5,000. Because the sponsor of the amendment made
the motion, no further action was necessary and the amendment was
AMENDED.
Co-Chair Green asked whether every industry was responsible for
administrative costs incurred by the State during the first year of
governmental oversight. She stated that a $5,000 application fee
would be too high.
Mr. Davis informed that the Division is solvent because it has an
annual budget of approximately $2.1 million, and should generate
revenues of approximately $14 million. Fees collected from the
banking industry are used to pay most of the Division's costs. The
Division initially supported the establishment of the licensing fee
amounts for payroll advance loan businesses through the regulatory
process. This amendment would allow the Division to impose fees up
to $5,000.
Senator Bunde pointed out that license fees have been increased for
existing industries to provide adequate funding to support the
administrative costs to the State in order that State subsidies can
be eliminated.
SFC 04 # 98, Side B 09:59 AM
Senator Olson asked the bill's sponsor to comment on the proposed
amended amendment.
Mr. Schmitz responded that the sponsor supports the amendment in
its original form. He added that the sponsor does not want to raise
fees to the extent that the industry is eliminated, forcing
Alaskans to use out-of-state payday loan businesses.
Senator Olson referenced Mr. Davis' suggestion that if the license
fees were too high, some operators would "go underground". Senator
Olson asked how many underground payday loan operations are
currently active.
Mr. Davis replied that because the industry is currently
unregulated in Alaska the Division is aware of only those
businesses that advertise. He confirmed that underground operations
exist.
A roll call was taken on the motion to adopt Amendment #3 as
amended.
IN FAVOR: Senator Olson, Senator Bunde and Co-Chair Wilken
OPPOSED: Senator B. Stevens, Senator Dyson, Senator Hoffman and Co-
Chair Green
The motion FAILED (3-4)
The amendment as amended FAILED to be adopted.
Amendment #4: This amendment is identical to the original version
of Amendment #3. It increases the license fees from $2,000 to
$3,000.
Senator Bunde moved for adoption.
Without objection the amendment was ADOPTED.
Co-Chair Green offered a motion to report SB 272 as amended from
Committee with individual recommendations and a forthcoming fiscal
note.
Senator Hoffman noted that this legislation should not be brought
forth by the legislature because it would negatively affect the
court's determination.
There was no objection and CS SB 272 (FIN) MOVED from Committee
with a forthcoming fiscal note dated 4/28/04 for $130,500 from the
Department of Community and Economic Development.
SENATE BILL NO. 313
"An Act making supplemental and other appropriations; amending
appropriations; making an appropriation to capitalize a fund;
and providing for an effective date."
Co-Chair Green chaired this portion of the meeting.
This was the second hearing for this bill in the Senate Finance
Committee.
Senator Dyson moved to adopt CS SB 313, 23-GS2153\I, as a working
document. [Note: this committee substitute was adopted at the
previous hearing of this bill.]
There was no objection and the committee substitute version "I" was
again ADOPTED.
ALEX SWIDERSKI, Assistant Attorney General, Environmental Section,
Civil Division, Department of Law, testified via teleconference
from Anchorage that he was available to answer questions.
Co-Chair Green noted additional supplemental requests had been
received after the committee substitute was produced. Potential
conceptual amendments addressing those requests would be presented,
and a Committee member could choose to sponsor an amendment.
Amendment#1: This amendment increases the allocation in Section 11.
JUDGEMENT AND CLAIMS. of the committee substitute on page 17, lines
3 - 5 to the Department of Law to $3,862,300.
This adds $1,300 to the appropriation from the general fund to
the Department of Law to pay judgments and claims against the
state for the fiscal year ending June 30, 2004.
Co-Chair Green moved for adoption.
Without objection the amendment was ADOPTED.
TOM LAWSON, Director, Division of Administrative Services,
Department of Community and Economic Development, testified that
the Department is attempting to amend an FY 03 capital budget
appropriation by adding $100,000 to the appropriation. The
additional appropriation would allow the Department to purchase an
imaging system for the Division of Banking, Securities and
Corporations. The imaging system would work with the corporations'
database to modernize the processing of corporation applications.
The Department expects the imaging system to increase revenue over
time.
Co-Chair Green clarified that the current FY 05 appropriation to
the Department of Community and Economic Development is $1.25
million, and the request asks for an additional $100,000. She asked
Mr. Lawson to restate the Department's need for the additional
appropriation.
Mr. Lawson reviewed his earlier testimony and added that the
imaging system is used in eight other states, and its cost is
$600,000. This additional appropriation, in combination with the
existing FY 05 appropriation, would enable the Department to
purchase the imaging system.
Co-Chair Green specified that the appropriation would be allocated
from receipt supported services funds.
Senator B. Stevens asked if a balance existed in the receipt-
supported services fund of the Division of Banking, Securities and
Corporations, or if the receipts would be accrued in the future.
Mr. Lawson replied that the Division's revenues are approximately
$14 million annually, and the Division's costs are approximately
two million dollars annually. Sufficient funds exist each year for
appropriations.
Senator B. Stevens clarified funds were currently available for
appropriation.
Co-Chair Green asked if any member chose to sponsor this amendment
to address the Department's request.
Amendment #2: This amendment would amend Section 3. DEPARTMENT OF
COMMUNITY AND ECONOMIC DEVELOPMENT., on page 2, lines 13 - 23 of
the committee substitute by adding a new subsection to provide for
an increase of the appropriation in Section 1, ch. 1, SSSLA 2002,
page 3, lines 25-27, for the Electronic Document Imaging, Storage
and Retrieval System (ED99) from $1,125,000 to $1,225,000.
Accompanying explanatory language reads as follows.
This adds $100,000 of receipt supported services from the
Division of Banking and Securities to the project.
Co-Chair Wilken moved for adoption.
Without objection the amendment was ADOPTED.
Amendment #3: This amendment increases the appropriation made in
Section 10(n) of the committee substitute on page 12, lines 1 - 4,
to the Department of Health and Social Services, Senior and
Disabilities Services Budget Request Unit (BRU) to $237,290,200
other funds, and subsequently increases the allocation to the
Senior/Disabilities Medicaid Services component to $217,556,500.
This amendment also inserts intent language following line 4 to
read as follows.
It is the intent of the legislature that the Department of
Health and Social Services address escalating growth in the
Personal Care Attendant program. Changes to reduce costs
should consider eligibility, reduction in rates and hours of
service. It is also the intent of the legislature that the
department implements a process for recovery of costs where an
audit or quality assurance review determines abuse of the
personal care attendant program
This amendment also increases the appropriation to the Senior
and Disabilities Medicaid Services component made in Section
10(w) from $6,930,400 to $11,760,800. The amended language on
page 16, lines 5 - 10 reads as follows.
(w) The sum of $11,760,800 is appropriated to the
Department of Health and Social Services, senior and
disabilities Medicaid services, for the fiscal year ending
June 30, 2004, from the following sources:
General fund/mental health $11,202,400
Alcohol and other drug abuse treatment 558,400
And prevention fund (AS 43.60.050)
Accompanying explanatory language reads as follows.
Explanation:
The Department of Health and Social Services has updated their
Medicaid projections based on activity through March, and is
projecting an additional deficit of $14,700 million for the
Senior and Disabilities Medicaid program. Letter from Janet
Clarke is attached [copy on file.]
JANET CLARKE, Director, Division of Administrative Services,
Department of Health and Social Services, apologized for the
"lateness" of this request. While conducting quarterly financial
reviews and considering the federal Medicaid Disabilities Services'
Personal Care Attendant (PCA) program, the Department discovered
that the cost for this program has accelerated and increased to
approximately six million dollars monthly. She referenced a
memorandum dated April 28, 2004 from Ms. Clarke to the Office of
Management and Budget [copy on file], which explains that the costs
of the Personal Care Attendant program in FY 03 was $39 million.
The estimated cost for this program in FY 04 is $65 million. The
Department has proposed regulations that would allow cost
containment efforts to be taken. The regulations are now being
processed, and are in the final adoption stages in the Department
of Law. The regulations would put a "soft cap" on the number of
hours that could be authorized without preauthorization of 35
hours. The regulations would also allow the Department to conduct
independent assessments of the PCA program. This "startling growth"
would require drastic cost containment measures to "get this
program under control." To address the remaining FY 04, the
Department requesting that the Committee amend the supplemental
request by $14.7 million, including $4.8 million of general funds,
and $9.9 million of federal authority funds. The Department's
supplemental request had previously been $31 million total funds;
with the adoption of this amendment the overall request would
increase to $45.8 million total funds. The Department's original
request involved a reallocation of general funds within the
Department. The Department could not reallocate the funds needed to
fulfill the costs of the PCA program. Ms. Clarke emphasized the
Department's commitment to more closely monitor and control this
program.
Co-Chair Green asked what affect this supplemental appropriation
would have on the FY 05 operating budget appropriation, which would
soon be heard by a conference committee. She asked if the
Department has the ability to address these program cost increases
for FY 05.
Ms. Clarke asserted that the Department would have to "move very
rapidly" to adjust the regulations Medicaid is governed by because
the regulatory process is lengthy. The Department had planned for
additional regulation changes in FY 05 to increase control over the
PCA program. Currently the Department is auditing the providers in
this program. The audit would assist the Department in determining
where program changes need to be made because "clearly something is
wrong with this program." The Department has determined that some
parties are receiving unexpected and significant funds through the
PCA program. Additional staff, and contracts may have to be funded
to ensure greater control over this program, but the Department is
not asking to amend the FY 05 budget.
Co-Chair Green asked if this program was included in the Medicaid
fraud legislation of the previous year.
Ms. Clarke replied that this program had never been audited prior
to this review.
Co-Chair Green inquired if legislation was needed to increase the
Department's control over this program.
Ms. Clarke responded that she had just recently explored the
financial aspects of this program, and has not had the opportunity
to determine if legislation is needed. The Department has the
controls in place to better manage this program; however,
regulations must be changed and the regulatory process is not
expedient.
Co-Chair Green moved for adoption of the amendment.
Senator B. Stevens commented on the growth rate of this program. He
referenced the memorandum to the Office of Management and Budget,
and noted that the cost of the PCA program had grown from $8.3
million in FY 01 to a projected $65 million in FY 04. He asked how
many program recipients were receiving funds, and the growth rate
of those funds.
Ms. Clarke directed Senator B. Stevens to the second page of the
memorandum where the number of recipients is detailed. She
continued that in October 2002 the previous gubernatorial
administration adopted regulations that expanded the hourly rate of
personal care attendants from $14 to $21 per hour. The regulations
also allowed consumer directed attendants to be hired. Other
program changes were made that had "unintended consequences of
growth." For example, typically to meet Medicaid eligibility an
individual must have medical necessity and meet an institutional
level of care, yet certain individuals taking advantage of
activities of daily living and chore services offered by the PCA
program may not meet be eligible. Audits are being conducted and
reviews would be conducted that ensure the program is available to
those individuals who need it. The Department has not made the
changes needed to control this program.
Ms. Clarke referred to the data in the memorandum and commented
that the costs of the PCA program have grown exponentially, but the
number of program recipients has not.
Senator B. Stevens responded that the data in the memorandum does
not include data from FY 01 and earlier, but data from those years
is probably similar to the rates of change exhibited in the
memorandum.
Ms. Clarke informed that earlier data shows that recipients were
increasing, but not to the extent of the expenditures. These
disproportional rates of change are a result of people using more
services while hourly employee rates increase.
Senator B. Stevens stated that his concerns regarding this program
"mirror" those of Ms. Clarke and the Department. Specifically, he
expressed unease about the "astronomical" rate of change between FY
02 and FY 03.
Co-Chair Wilken noted that three months prior, Ms. Clarke had
presented the Committee with a chart containing the PCA growth
rates as well as the growth rates of other Department programs. All
of the programs were growing at exponential rates from 80 percent
to 180 percent per year. He expressed his suspicion that "this
[program growth] really wasn't a surprise". He predicted that the
other programs experiencing extreme growth would also be brought
before the legislature for appropriations.
Ms. Clarke stated that the Department has identified the areas of
extreme growth. These programs include the PCA program, pharmacy
costs and residential psychiatric treatment center costs. The
Department has developed strategies for each of those high-cost and
high-growth programs. Adequate cost containment requires time and
commitment.
Co-Chair Green recalled past legislation in the Senate Health and
Social Services Committee and on the Senate floor that had been
"hotly debated" and addressed issues similar to this amendment. The
legislature typically gets distracted and rejects needed reforms.
Legislatures become "fragmented" and decide that they do not want
to "disadvantage" others. The consequence of a lack of reform is a
situation like that before the Committee now, which requires the
legislature to "come to the rescue" in the "eleventh hour".
Legislatures need to make difficult decisions, and to identify
their intention to make programs available for deserving people
while hindering abuse of these programs.
Senator Hoffman pointed out that the appropriation included in the
amendment reflected a ten percent increase in the amount requested
from the general fund in comparison to the total allocation. He
asked Ms. Clarke for the reason for this increase. Additionally, he
asked why such a significant increase is being brought to the
attention of the legislature near the end of the fiscal year. He
stated that such a late request suggests possible problems within
the program and the Department.
Ms. Clarke responded that the first supplemental amendment
appropriation reflected reallocations within the Department, which
explains the difference in the ratio between the first
appropriation and that proposed in this amendment.
Ms. Clarke addressed Senator Hoffman's second question and informed
that the Department currently has access to nine months of data for
FY 04. The Department noticed PCA program expense increases in
February and March 2004 data, but the regression model used to
determine projections suppressed the supplemental projection. Ms.
Clarke suggested that a different projection methodology should
have been used for this program given its significant growth.
Co-Chair Green added that the legislature had the opportunity to
take action to hinder the cost increases, but chose not to. She
emphasized that the legislature has the ability to assist in
"stemming the tide" in future years, but it would require difficult
decisions.
The amendment was ADOPTED without objection.
Senator B. Stevens stated that he did not object to the amendment.
He emphasized that the program increases are the result of
regulations adopted in 2002 and not legislation, yet the
legislature is responsible for funding these increases.
Senator Dyson responded that during the interim legislatures should
consider the functions of the various State departments, and
determine the type of reporting mechanisms that need to be
implemented to avoid financial "surprises". Retirement should be a
specific area of focus. Mechanisms need to be put in place so that
regular reports are produced.
Co-Chair Green did not disagree.
Co-Chair Green noted language included in the supplemental
appropriation that allows for more timely payment of certain funds
the Department of Health and Social Services has requested. The
supplemental must be expedited in order to allow the Department to
make payments to certain vendors.
Ms. Clarke referred to a letter from the Department to the House
and Senate Finance Committees dated April 20, in which the
Department explained that it would be out of "expenditure
authority" in the PAC Medicaid program. At the end of April, the
Department would not have the ability to pay any vendors in the
senior and disability services area, which encompasses nursing
homes, waiver clients, assisted living clients, and Personal Care
Attendant program clients. The Department urges the passage of the
supplemental appropriation legislation.
Co-Chair Green clarified that this issue reflects a potential delay
in payment, and not a failure to pay.
Senator Dyson asked for a review of the differences between the
fast track supplemental and the regular track supplemental.
Co-Chair Green replied that it is not uncommon for the fast track
and regular track supplemental budgets to pass at the same time as
the capital budget. The supplemental allows funds to be
appropriated for FY 04 expenditures after the FY 04 operating
budget has been passed. Supplemental requests have not been
received quickly this year as evidenced by the receipt of
additional supplemental amendments this morning.
Senator Dyson understood that the fast track supplemental should
have been completed earlier in the session. He clarified that the
fast track supplemental and the regular track supplemental are now
being considered together.
Co-Chair Green noted that the Exxon Valdez Oil Spill (EVOS) Trustee
Council request was not included in this bill.
ERNESTA BALLARD, Commissioner, Department of Environmental
Conservation, explained that she was testifying in her capacity as
one of the State trustees on the EVOS Trustee Council. She
continued to testify as follows.
I am here to request your consideration of restoring the $1.5
million that was requested by the Council for appropriation to
the Department of Law. This funding will be used by the
Department to directly support information needs for final
resolution of the civil settlement between Exxon and the two
governments: the United States government and the State of
Alaska. This work may include preparation for litigation and I
would be happy to arrange with the Department of Law to
provide to you, in executive session, a briefing about the
details of that preparation if you would like that to occur.
The studies that have been conducted over the years since the
oil spill by Trustees' scientists have suggested that the
coastal and marine ecosystems in the oil spill region may not
have fully recovered, and that some populations of species may
remain impaired, and the continued exposure to the Exxon
Valdez oil might at least be partially responsible. As you may
know, these findings are not without scientific or public
controversy. Most recently, for example, Exxon-funded
scientists published data suggesting that in their opinion
their oil, the Exxon Valdez oil, was neither bio-available nor
toxic. Exxon scientists challenged the methods that were used,
and the conclusions reached by NOAA (National Oceanic and
Atmospheric Administration) researchers in their lingering oil
studies. A full and complete understanding of these issues is
necessary for the State to determine what course of action
best to pursue to complete the requirements of the civil
settlement.
This work is time-sensitive and should be completed as soon as
possible, and that is the reason that we requested it in the
supplemental budget. The supplemental request moves funds at
the direction of the Exxon Valdez Oil Spill Trustee Council,
moves funds that would be spent otherwise in 2005 and 2006
into the current budget to take advantage of the current field
season so that work can be completed before the civil
settlement deadlines, the deadline of September 6th in the
civil settlement documents for deciding whether a re-opener of
the terms of the agreement is warranted. The work will be
executed under the direction of the Department of Law in
cooperation with attorneys for the federal Trustees and the
United States' Justice Department. The work is essential to
develop the information needs of the Department of Law to
support the civil settlement. I urge your reconsideration.
Co-Chair Wilken referred to a request that was raised in February
for $1.5 million for "studies and analysis related to oil remaining
in the environment from the Exxon Valdez oil spill." He emphasized,
as he had in February, "Enough is enough." Another study used to
discuss the damage of the oil spill on the Prince William Sound is
not necessary. He stated, " I used that Sound in the summer, and I
don't think it is damaged."
Co-Chair Wilken furthered that the State continues to contribute
funds to take land off of the market and to provide a jobs program.
In February he asked what the $1.5 million would be used to fund.
He referenced a letter dated April 8, 2004, which contained the
response to his question. The letter detailed that the funds would
be spent on five new projects and one existing project; however no
reference was made to the Department of Law. He questioned the
involvement of the Department of Law and the reference to a civil
settlement. He further asked exactly what this $1.5 million request
would fund besides another study.
Ms. Ballard responded by testifying the following.
The money is going to be used, not to generate new information
about damages or injuries, which may have occurred. The money
is going to be used to determine the strength of the evidence
and the nature of arguments that might be made on behalf of
either resolving completely the settlement as it is written in
the settlement documents, or proceeding forward to assert that
there are additional claims, which might be made.
The money will be used at the direction of the Department of
Law because the Department of Law necessarily represents the
State of Alaska. The provisions of the settlement agreement
distinguish between the responsibilities of the Trustee
Council, which have been conducted over the years since the
spill to fulfill the restoration requirements, distinguishes
between those responsibilities and the responsibilities of the
separate governments, the United States government and the
State of Alaska, to determine whether or not, by September
2006, a case might be made that there is remaining oil or
remaining injury from oil. There are provisions in the
settlement agreement that would need to be addressed by the
governments, not by the Trustee Council, but by the
governments. The Trustee Council, all six members of the
Trustee Council, have agreed this winter that it is
appropriate that the attorneys direct a synthesis and an
assessment of the information that has been gathered over the
many years of the studies which you are describing, not to
conduct new studies.
Ms. Ballard continued that she had not had the opportunity to
review the letter referenced by Co-Chair Wilken.
Co-Chair Green suggested that this discussion be set-aside until
the Committee met in executive session because inconsistencies must
be addressed before the appropriation is considered further.
Senator Hoffman asked if the EVOS Trustee Council unanimously
approved this request.
Senator Bunde commented on his past interaction with the areas
affected by the Exxon Valdez oil spill. He informed that an area of
Prince William Sound has been intentionally untreated for purposes
of a comparison study, and many individuals who seek to "drag out
this issue" of the damage created by the oil spill wrongly use that
untreated area as an example of continued damages.
Co-Chair Green stated that the EVOS issue would be discussed at a
later time. She informed that the Department of Revenue's requested
gas pipeline risk assessment appropriation is not included in this
bill.
Senator B. Stevens stated that funds for the gas pipeline risk
assessment that would be expended in FY 05 should be incorporated
into the 2005 operating budget rather than included in the FY 04
supplemental request.
Co-Chair Green clarified that the Department of Revenue's
appropriation would consist of $1.5 million from statutorily
designated program receipts and $9.8 million from either
unrestricted federal receipts or the general fund.
Senator B. Stevens stated that if further expenses for the gas
pipeline analysis would be required in fiscal years 2006, 2007,
2008 and 2009 than the appropriations should become an annual
operating expense factored into the operating budget in those
years. He asked if the requested appropriation would be a one-time
expense.
SFC 04 # 99, Side A 10:46 AM
STEVE PORTER, Deputy Commissioner, Department of Revenue, testified
that the Department expects to expend two-thirds, or approximately
six million dollars, of the requested appropriation in 2004, and
the additional one-third in 2005. The State departments could not
conduct negotiations until the Stranded Gas Act applications were
received. The amount of the appropriation would enable those
negotiations to become a project. After the project is established,
the permitting process has begun, and ongoing operations begin, the
State departments should be able to include these expenses in their
operating budgets.
CHERYL FRASCA, Director, Office of Management and Budget, Office of
the Governor, clarified that this request was submitted as a
capital appropriation effective in FY 04 to address the multi-year
expenditures this legislation would approve. Capital projects have
longer lives than operating expenses; thus this appropriation would
not lapse in FY 04. The gas pipeline analysis is a project, and not
an ongoing operating expense.
Co-Chair Green asked if this appropriation could be shifted into
the capital budget.
Ms. Frasca replied that this bill identifies this appropriation as
a capital budget appropriation.
Co-Chair Green asked if this appropriation could have multiple
effective dates as a capital appropriation.
Ms. Frasca responded that multiple effective dates could be
established, but they are already allowed for in the capital
budget.
Co-Chair Green mentioned that some Committee members have expressed
concern about the ANGDA bill and the accuracy of the projected
costs of the analysis.
Senator B. Stevens referenced the spreadsheet titled "FY 2004/2005
Gasline Funding Request" dated April 8, 2004 [copy on file]. He
asked if the one million dollars appropriated to the Stranded Gas
Act working group to "negotiate contracts with other applicants"
would be used in negotiations with any of the three contracts
currently submitted.
Mr. Porter replied that he had ten minutes of testimony prepared
that would respond to that question and detail the remainder of the
expenditures.
Co-Chair Green informed that the Committee needed to recess. She
expressed the importance and necessity of having the gas pipeline
analysis appropriation fully explained.
Senator Hoffman asked Mr. Porter when the Department expected the
legislature to approve a gas pipeline contract.
Mr. Porter responded that the State would spend five to six months
gathering and reviewing data related to the contracts; an executed
contract is not expected before the fourth quarter of 2004.
AT EASE 10:53 AM / 1:48 PM
Co-Chair Wilken moved to convene an executive session under Uniform
Rule 22(b)(1) for discussion of matters, the immediate knowledge of
which would adversely affect the finances of a government unit.
Without objection the motion PASSED.
Co-Chair Wilken then announced that the following individuals would
be allowed to attend the executive session: Ernesta Ballard,
Commissioner, Department of Environmental Conservation; Greg
Renkes, Attorney General, Department of Law; Kurt Fredriksson,
Deputy Commissioner, Department of Environmental Conservation;
Kathryn Daughhetee, Director, Division of Administrative Services,
Department of Law; and Kevin Duffy, Commissioner, Department of
Fish and Game.
EXECUTIVE SESSION 1:50 PM / 2:15 PM
Co-Chair Wilken moved to adjourn the Executive Session and resume
the regular meeting of the Senate Finance Committee.
There were no objections and the Executive Session was ADJOURNED.
Co-Chair Green asked Mr. Porter to begin his presentation on the
risk analysis of the gas line project.
Mr. Porter stated that bringing the gas line to market is a high
priority of Governor Frank Murkowski. The Governor would request
that all of the necessary resources be made available to the
Stranded Gas Act working group in order that they can complete
their task.
Mr. Porter outlined his presentation and proceeded to testify as
follows.
On March 26, 2003 the House passed HB 16, which amended the
Alaska Stranded Gas Development Act: 40 yeas and 0 nays,
followed by the Senate on April 4th with 19 yeas and 0 nays
and one excused. On April 7th the Governor promptly signed the
bill into law and it became effective April 8th. During that
same time Governor Murkowski was already dealing with and
discussing a Stranded Gas [Act] application with the senior
management officials from Conoco Philips, BP and Exxon, where
they discussed the filing application of the Stranded Gas Act
and the plan to conclude negotiations by the end of the year.
Obviously that didn't occur, but that was the hope at the
time. By April 11th, just a few days later, the State had
established its Stranded Gas [Act] working group, and they had
actually produced their first product in the initial overview
of the issues to be addressed under the Act. At that point
there was a long period of silence in the public, but the
Stranded Gas [Act] working group was working hard at
identifying the issues and preparing for negotiations, and
from time to time having discussions and clarification
discussions with the majors. Finally, on January 13, 2004 of
this year Conoco Philips and BP submitted an application under
the Stranded Gas Act. The application was admitted one week
later, [on] January 20th, to include Exxon. A couple of days
after that, [on] January 22nd, MidAmerican Energy Holding
Company and MidAmerican Holding Company Alaska Gas
Transmission Company submitted an application under the Act.
The next day the State determined that Conoco Philips, BP and
Exxon were qualified sponsors, and submitted a qualified
project under the Act and approved their application, allowing
the contract negotiations to commence. So things were moving
quickly, [and there was] a lot of activity. On January 28th,
just one week later, the State determined that the MidAmerican
application, that they were, qualified sponsors, and they had
submitted a qualified project. The next day the Department of
Revenue established the municipal advisory committee that is
required under the Stranded Gas Act to provide input to the
contractual negotiations. The advisory group is made up of
potentially economically and revenue impacted municipalities.
On February 4th, just a few days later, Conoco Philips, BP,
and Exxon did enter into a reimbursement agreement with the
State for $1.5 million. The State has continued to negotiate
with the reimbursement agreement with MidAmerican, and
ultimately MidAmerican never signed a reimbursement agreement
prior to withdrawing their application. On February 27th, the
Alaska Gas Line Port Authority submitted an application, and
then on March 25th, MidAmerican withdrew their application.
Then on the first of the beginning of this month Governor
Murkowski announced that Enbridge, a Calgary-based energy
transportation company, intended to file a Stranded Gas
application. [This was] followed on April 8th by Governor
Murkowski signing into law SB 241, which appropriated $1.65
million to the Department of Revenue for costs associated with
bringing Alaska North Slope gas to market. We do appreciate
the Senate and House's allocation of that money.
We immediately executed a couple of contracts and moved some
of our projects forward. On April 19th the Governor announced
the signing of an MOU (memorandum of understanding) with
Trans-Canada, which provided that Trans-Canada would submit an
application under the Stranded Gas Act, and the state would
resume processing Trans-Canada's right-of-way application.
So what this kind of presents to you [is] what I am going to
call a very dynamic environment. We have had companies come;
we have had companies go. We've had a number of other
companies come in; we've had additional companies express
interest. The current status, at that point, is we have one
approved application and a signed reimbursement agreement
Conoco Philips, BP and Exxon. We have one approved and
withdrawn application with MidAmerican. We have one submitted
application not yet approved with no reimbursement agreement
from the Alaska Gas Pipeline Authority, and we are waiting on
two additional applications from Trans-Canada and Enbridge.
That is the context in which we find ourselves doing research
on behalf of stranded gas, and bringing North Slope gas to
market.
In addition to that we have the Alaska Natural Gas Development
Authority, created by the people of the State through the
passage of proposition three. Through intent language $650,000
of that $1.5 million is allocated to them for research
supporting their project.
With that context in mind I would like to discuss our
additional funding requests, but first I would like to address
the $1.65 million, which I think was a request from the
Committee. The State recognizes that there are many ways to
share risks through financial structures and otherwise. We
also recognize that we need additional expertise to work with
us to identify the various options available to us. We plan to
hire, for a limited amount of money, a number of experts to
assist us in really expanding the options we have available to
us at the present time. And we have allocated $100,000 to
$150,00 in that effort. The intent here is to really
understand the financial ways in which we can share, identify
how to spread risk, and also substantive ways the State can
examine. So write now we are looking at expanding, you might
say, our options that are available to us on the table and we
plan on hiring a number of experts in the community whether
its Syrah, or Morgan Stanley, Merrill Lynch, Golden Sacks.
There are a number of companies we will basically go to and
ask them for ideas for ways to expand the options the State
may have available to it. We recognize the importance of
understanding what others are predicting for gas prices: oil
and gas price forecast. And there are only a few companies who
make price projections, but we know that is an important
element as we look at the overall project. We have basically
allocated up to $100,000 for research on price forecasting.
Several parties have suggested the possibility of down stream
markets taking a significant risk position on the project. We
need to understand the possibility of the regulated markets
and the unregulated markets for taking significant risk
positions on the project. We have estimated that that would
cost up to $300,000 just to do that evaluation and process. We
have allocated $650,000, as I have said before, for the Alaska
Natural Gas Development Authority for research in supporting
their project.
Now the possibility of a tax-exempt structure, like the one
ANGDA provides, could bring substantial benefit to the
project, and they should not be overlooked. I think that there
has been a lot of discussion in the public arena about the
Alaska Natural Gas Development Authority and the Port
Authority: whether they are viable, whether we need to be
spending effort on them or not. And the key is a lot of the
statements made in the public are people's assumptions of what
is true, and the State's responsibility is to verify the
information and verify the accuracy of the feasibility issues
that ANGDA has presented. If they are assumptions that benefit
the State, we have to find a way to capitalize on them. If
they don't benefit that State, than that information we have
provided to ANGDA, at that point an oil and gas line would no
longer be feasible. Those are decisions that need to be made
based on substance, not on political arguments out of the
daily news or any other organization that is posturing for or
against them. And that is the State's intent.
We spent a substantial amount of money on contractors
supporting the MidAmerican negotiation so we have allocated
basically a couple hundred thousand dollars to the division
for that effort as well. We budgeted $250,000 for the socio-
economic analysis being conducted to determine impacts to the
municipalities. This contract may increase to include the spur
lines to Cook Inlet and Valdez. The total contract could cost
up to $300,000.
The Stranded Gas [Act] working group is also consulting with
the Alberta government, and we are looking for ways we can
assist each other in supporting the development of the gas
pipeline. [For] that negotiations and discussion, we have
budgeted approximately $50,000 for that effort.
Senator Bunde understood that the Department has proposed to spend
an excess of $100,000 in processing the MidAmerican Stranded Gas
Act application. He inquired about the status of that amount
considering the withdrawal of MidAmerican's application.
Mr. Porter responded that over a two-month period between January
and March 2004, substantial efforts to negotiate the MidAmerican
contract occurred. These efforts required hiring multiple
consultants, and costs reached approximately $200,000. After the
MidAmerican application was withdrawn, all related project efforts
were terminated.
Senator Bunde summarized that the State spent $200,000 to "drive
them [MidAmerican] away".
Mr. Porter would not agree with Senator Bunde's exact statement,
but confirmed the amount spent.
Mr. Porter continued that the Department has allocated an
additional $50,000 for contingencies. Expenses would total between
$1.65 million and $1.75 million depending on the results of the
contracts.
Senator Bunde commented that very primary, basic disagreements
existed regarding the MidAmerican contract, and the disagreements
were not changed by the $200,000 costs incurred. He asked what
assurances would be provided to ensure that funds are not spent
negotiating future applicants until some sort of agreement is
reached between the State and the applicant.
Mr. Porter informed that the State's approach to the MidAmerican
contract was unique because MidAmerican was attempting to arrive at
an agreement within a short period of time. MidAmerican attempted
to require the State to adopt an exclusivity clause; however,
MidAmerican would not commit to expend funds or construct the
pipeline. The clause would have required the State to accept
MidAmerican as the exclusive pipeline builder for a five-year
period, and would have hindered the State from conducting any due
diligence measures during that period. The State considered
MidAmerican's requests inappropriate.
Senator Bunde asserted that MidAmerican had stated their intentions
to require an exclusivity clause from the onset of their
application submission. The State disregarded the incompatibility,
and proceeded to invest $200,000 to negotiate the MidAmerican
contract.
Mr. Porter replied, "In hindsight, you are absolutely correct." He
continued that the State clearly stated their position on the
exclusivity clause throughout negotiations with MidAmerican. The
State continued to move forward with the negotiations assuming that
a resolution on exclusivity could be reached. MidAmerican
emphasized that if they were to invest in Alaska, they wanted their
asset base to be protected. The State was trying to find ways of
assuring that protection. Ultimately, MidAmerican decided that the
exclusivity clause was the specific method they wanted to implement
to ensure asset protection; their decision terminated negotiations.
Senator Bunde restated his concern that large funds are spent
without assurances.
Mr. Porter emphasized that the State must have enough information
to make a "good decision on behalf of the State" as required by
statute, especially when negotiating multi-billion dollar
contracts. This information gathering process has to be pursued
even if nine million dollars is spent, and a contract is not
produced.
Co-Chair Wilken clarified that the State's negotiations with
MidAmerican were underway beginning in August, and continued for
six months.
Mr. Porter affirmed.
Co-Chair Green asked if expenditures could specifically focus on
the evaluation of a particular contract, or if general evaluations
are conducted that realize information affecting the overall
contract process.
Mr. Porter responded that evaluations deliver both specific and
general information. In certain situations contractors are required
to identify the specific contract they are working on. However, in
other situations work conducted by the contractors benefits all of
the contracts in which case the State would pay for the evaluation
costs, or the principals holding reimbursement agreements would
allocate the costs among the applicants.
Mr. Porter informed that he would be discussing three different
areas of the Department's supplemental request: the contractual and
other support for ongoing stranded gas negotiations, the risk
analysis portion, and the State gas line right-of-way portion.
AT EASE 2:35 PM / 2:35 PM
Amendment #4: This amendment adds a new subsection to Section 12.
DEPARTMENT OF LAW., on page 17, line 6 of the committee substitute
to read as follows.
(_) The sum of $1,500,000 is appropriated from receipts
from the Exxon Valdez Oil Spill Trustee Council, to the
Department of Law, environmental law, for studies and analysis
related to oil remaining in the environment from the Exxon
Valdez oil spill and to injury resulting from that spill for
the fiscal years ending June 30, 2004 and June 30, 2005.
Co-Chair Wilken moved for adoption
The amendment was ADOPTED without objection.
Mr. Porter stated that he would first be addressing the contractual
and other support for ongoing stranded gas negotiations portion of
the amendment. He testified the following.
We have allocated up to $700,000 to negotiate with the Alaska
Gas Line Port Authority outside of the Stranded Gas Act. The
Port Authority may determine that the Stranded Gas Act is not
the right vehicle to proceed ahead with negotiations with the
State. Much of what the Act has to offer, the Port Authority
basically does not need. That does not mean that we will not
sit down and talk to them or work with them. The Stranded Gas
Act is one vehicle to bring a pipeline board; they are not the
only vehicle. But there are parties that can actually build
the pipeline without going through the Stranded Gas Act and we
should consult with them, deal with them, and there is a part
of that we may end up expending money [for] outside the
Stranded Gas Act, and the $700,000 is that allocation.
We have allocated $2.6 million to negotiate with Conoco
Philips, BP, and Exxon, of which $1.5 million is reimbursable.
Our costs on these could increase substantially depending on
the duration of the negotiations and on the number of issues
needing to be resolved. We project up to an additional [one]
million dollars could be spent on these negotiations depending
on those issues.
We have projected an additional $250,000 to $500,000 to be
spent on answering feasibility questions surrounding the
Alaska Natural Gas Development Authority, and we would expect
to spend at least $250,000 answering those questions.
We have allocated an additional $300,000 for the State's
supportive passage of the energy bill in [U.S.] Congress and
subsequent FERC (Federal Energy Regulatory Commission)
regulation process. If the energy bill actually passes, there
will be a substantial amount of work on behalf of the State to
make sure that those FERC regulations and other processes
actually meet the needs of the State.
An additional $250,000 has been allocated for working on
regulatory and legislative issues between the State of Alaska
and the Alberta government.
One of the most important issues surrounding the Stranded Gas
Act is in-State gas use and benefits: understanding the
capacity of the people of the State of Alaska to participate
in major pipeline projects, developing the business expertise
and keeping the contracts in-State, examining the potential to
expand the capacity of the people of Alaska to meet the needs
of the project. We have basically allocated $550,000 to this
effort. Research in this arena could actually easily double to
$1.1 million depending on how committed the State is to
ensuring the maximum benefit to the people of the State.
Somebody asked me 'what in the world is capacity' and I use it
all the time so I didn't' think about it until somebody asked
me that this morning. Capacity to the people is basically
looking at your community and saying, 'how many of these
people are going to have jobs? How many of these people are
qualified to bid on projects, and could obtain employment
through that project?' The other element of capacity is really
understanding what capacity you can build in an environment:
if you've got two or three years before a project comes down,
is there thorough training or development of local businesses?
Can those businesses achieve the capacity to be able to
participate in the project? Those are the elements that are
really tied to this particular issue, and we think it is very
important, and we have allocated a substantial sum to
basically support that.
Next we have recognized that the process of negotiations under
the Stranded Gas Act is dynamic. We have seen a substantial
number of changes to the parties we are negotiating with.
There is some evidence that this process is stabilizing, but
there have been inquiries by others that suggest that we may
not be finished yet in defining all of the applicants. The Act
itself requires all applicants to file an application no later
than March 31, 2005 so there is a deadline. We have allocated
an additional $450,000 for negotiations with applicants that
have yet to be filed. The total cost of this portion of the
request is $3.6 million to $5.3 million. This portion of the
request goes to the Department of Revenue.
The second section of this analysis is the risk analysis
portion of the project. It is actually four phases, and I will
walk through each phase. Phase one is really defining the
boundaries: capitalizing on the information provided by the
consultants in the analysis mentioned earlier. We would expect
to utilize the information obtained and the ideas created to
develop an understanding of how much risk the state can
tolerate. We have projected a budget of $200,000 for this
portion of the project.
In phase two of the risk assessment phase, this phase will
determine the role of the drivers of risk, and develop a
structural model for price risk that incorporates the role of
the drivers, define the project and identify the construction
costs risk, and identify the tariff risk [involved in
transporting gas] from Alberta to the lower 48 [states]. This
is a substantial and important portion of the project. We have
allocated $780,000 for this phase of the risk analysis.
In phase three, the risk benefit sharing alternatives, this
phase will identify ways to share risk between the producers,
the State of Alaska, the federal government, the pipeline
companies, potential shippers and the Canadian provinces.
[This phase will work] to construct a risk analysis assessment
model using a real-time options framework to evaluate costs,
benefits and effectiveness of different options the State
might create. The budget for this portion of the risk analysis
is $500,000, but because of the complexity of dealing with the
risks among the parties, the budget for this phase could
easily increase to up to $800,000.
Phase four, which is the final phase of the project, is the
proposal by the State. Once the policymakers determine a
preferred approach, a white paper will be developed that
presents a proposal or way forward from the State's standpoint
to encourage development of a gas project within the near-term
time frame. The budget for this phase is $100,000 to $200,000.
The total budget for the risk analysis project is $1.58
million to about $1.98 million. This portion of the request is
allocated to the Department of Natural Resources.
And the third, and final, portion of the supplemental request
is basically the State gas line right-of-way. We have
allocated a total of $3.9 million to the Department of Natural
Resources for the application of the permitting process
associated with the completion of the State right-of-way. The
goal of this is to accelerate the gas line project by
completing one of the critical permits in advance of knowing
who will be building the pipeline. We would utilize the State
entity to apply for the permit. The State entity could then
assign their rights to the right-of-way to the builder of the
pipeline. This was once again approximately $3.9 million.
The total cost of this [project] including the $1.5 million
from the producers is $10.58 million; less reimbursement it is
$9.08 million.
Co-Chair Green referenced the "FY 2004/2005 Gasline Funding
Request" spreadsheet dated April 8, 2004. She commented that the
layout of the spreadsheet was misleading. She clarified that the
legislature was not presented with this appropriation request at
the beginning of the year. She inquired as to how best this
appropriation could be presented to ensure that 2004 expenditures
be distinguished from 2005 expenditures. She also asked for
confirmation that this appropriation would be included in the
capital budget.
Ms. Frasca stated that if this supplemental request is adopted it
would be assigned to the capital budget.
Co-Chair Green asked if this appropriation request is appropriate
as an amendment to the FY 04 supplemental budget.
Ms. Frasca emphasized that this appropriation would be considered
as a capital project associated with the Stranded Gas Act. The
intention is not to build this appropriation into the operating
budget where it would be treated as an ongoing expense. The
Department of Revenue could divide the appropriation into 2004
expenditures and 2005 expenditures if necessary.
Mr. Porter commented that he regards this appropriation as a
capital project, and does not consider the fiscal year expenditure
distinction important.
Co-Chair Green replied that the fiscal year distinction is
important to the legislature this year. She added that the
Committee would allocate the Department of Revenue the needed
project funding using the best possible fiscal method.
Ms. Frasca asked Mr. Porter if he has the information needed to
separate the project expenditures for FY 04 and FY 05.
Mr. Porter responded that the separation would not be a "contract
by contract split". The separation would involve determining which
contracts would be allocated and committed by June 30, 2004. The
Department has a "strong interest" in delivering the contract data
to the State by August or September 2004, requiring a significant
portion of the contracts to be committed by June 30, 2004. The
Department suggests two-thirds of the total appropriation, or six
million dollars, be available in FY 04, and one-third available in
FY 05.
Co-Chair Green asked if the State gas line right-of-way portion of
the amendment would be implemented in 2005.
Ms. Frasca responded that two-thirds of the total appropriation
would be needed in FY 04.
Co-Chair Green asked if another fund source could be used to
satisfy the appropriation.
Ms. Frasca asked Co-Chair Green to clarify if she was referring to
the general fund.
Co-Chair Green affirmed.
Mr. Porter highlighted that the State's intent is to capture as
much funding possible through reimbursement agreements with any
party to minimize the State's expenditures. The Department would
spend the appropriation only as necessary, and would return any
remaining funds to the legislature for reappropriation.
Co-Chair Green emphasized the State's ability to require the
Stranded Gas Act applicants to share costs associated with the gas
pipeline negotiations. She noted that this is a large
appropriation, "that you [the Department of Revenue] hopefully will
not use."
Mr. Porter affirmed.
Co-Chair Green stated that the amendment addressing this
appropriation request would be adjusted and brought back to the
Committee.
AT EASE 2:49 PM / 2:49 PM
Co-Chair Green informed that the Mt. Edgecumbe High School
supplemental request was the next request being considered. This
proposed amendment is not included in the committee substitute.
KAREN REHFELD, Deputy Commissioner, Department of Education and
Early Development, stated that the Department's supplemental
request consisted of two parts: one part of the request would be an
operating appropriation and the second part would be a capital
appropriation. Due to the joining of the fast track supplemental
and the regular track supplemental, the legislature might prefer
that the capital appropriation section be "broken out" of the
supplemental budget.
Ms. Rehfeld explained that this appropriation request would enable
Mt. Edgecumbe High School to accommodate thirty additional students
in the 2004/2005 school year and during the expansion of dormitory
and classroom facilities. If the Mt. Edgecumbe High School
expansion were to begin this fall, the Department of Education and
Early Development would need to renovate classroom space and have
operating funds available to hire staff and amend the current
dormitory and food services contracts to accommodate the additional
students. The Department and Mt. Edgecumbe High School staff
members are concerned about their ability to serve students without
the necessary capacity and resources. This appropriation is a
priority of Governor Frank Murkowski. An ongoing demand exists for
spaces at Mt. Edgecumbe High School: an average of 250 applications
are received each year and since reopening, the school could only
accept approximately 140 students.
Senator Olson asked if the additional 30 students have already been
accepted for the next school year.
Ms. Rehfeld responded that the deadline had passed for receiving
applications. The Mt. Edgecumbe High School staff members are
currently reviewing the applications, and would be prepared to
offer the 30 spaces to students.
Co-Chair Wilken expressed concern regarding the construction
timeline, and its scheduled 2004 opening. He clarified that an
earlier amendment had requested two million dollars to utilize the
Sitka Pioneers' Home for Mt. Edgecumbe High School students in
order that construction could begin on the current dormitory. Sitka
residents have expressed that the Mt. Edgecumbe High School
construction project would not be completed in 2004 even if
additional funding were received. He asked if authorizing the funds
now would serve any productive purpose. He expressed surprise that
after numerous appropriations, funds are still being requested for
this project.
Ms. Rehfeld responded that the Department of Transportation (DOTPF)
is the project manager for the construction: the dorm renovation,
the work on the classroom space and the academic building. The cost
of utilizing the Sitka Pioneers' Home for the temporary housing for
Mt. Edgecumbe High School students would be the cost of utilities,
and not construction costs. The Deputy Commissioner of the DOTPF
has traveled to Sitka multiple times, and has begun working with
the architect and those processing the bid documents, both of which
are confident that this construction project would be completed in
the fall of 2004. Bid documents would be sent out May 14th for bid
openings beginning on June 4, 2004.
SFC 04 # 99, Side B 02:55 PM
Ms. Rehfeld continued that the academic expansion would not be
completed by fall of 2004; however, the use of an additional four
classrooms would be sufficient until the renovations are completed.
The Department is hearing concerns from the Mt. Edgecumbe High
School staff because the additional operating funds requested in
this amendment are needed to provide for the residential capacity
and the instruction of the additional 30 students.
Co-Chair Wilken asked what factors have changed since the October
and December appropriation requests that now require an additional
two million dollars.
Ms. Rehfeld responded that the Department of Education and Early
Development had not intended the dormitory and classroom renovation
projects to be completed by fall of 2004 when they requested the
original $7.5 million from the legislature for the renovations.
However, Governor Murkowski toured the facility, and determined
that the renovations could be completed by fall of 2004, allowing
additional students to attend Mt. Edgecumbe High School in the
2004/2005 school years.
Ms. Rehfeld continued that the need for this additional
appropriation arises because the academic facility would not be
completed by fall of 2004, thus requiring the renovation of certain
classrooms to provide a temporary learning environment for Mt.
Edgecumbe High School students until the academic facility
renovation is completed. In summary, timing has required this
additional appropriation.
Co-Chair Wilken asked if the two million dollar appropriation would
essentially allow for 30 additional students to attend Mt.
Edgecumbe High School for four months before the classroom
renovation is complete.
Ms. Rehfeld replied that one million dollars of the appropriation
would cover the annual operating costs of the expansion of Mt.
Edgecumbe High School, and the remaining one million dollars would
fund the construction of the temporary classrooms.
Co-Chair Wilken stated that he had spoken with a resident of Sitka
who would be in a position to bid on a Mt. Edgecumbe High School
construction contract. This individual informed Co-Chair Wilken
that the no bids had been declared, and the Sitka construction
force does not have the capacity to complete the immense amount of
construction work remaining. Even if a sufficient labor force could
be provided, it would be at a high cost to the State because the
project would need to be rushed. He restated his concern regarding
this two million dollar appropriation and contrasted it with the
original Mt. Edgecumbe High School renovation appropriation, which
"seemed logical and efficient".
Co-Chair Green asked the amount of the original Mt. Edgecumbe High
School renovation appropriation that was approved by the
Legislative Budget and Audit Committee.
Co-Chair Wilken responded that the first Revised Program -
Legislative (RPL) was $1.65 million, and in December 2003
approximately $6 million was appropriated for fall renovations
allowing for a 2005 completion.
Co-Chair Green confirmed that the total appropriation was $7.65
million.
Ms. Rehfeld informed that the Department of Education and Early
Development has received comments from Sitka residents emphasizing
that the local construction companies are "very anxious" to begin
bidding on the Mt. Edgecumbe High School renovation project.
Co-Chair Wilken thanked Ms. Rehfeld for her comment.
Co-Chair Green emphasized the unique priority Mt. Edgecumbe High
School has been given in receiving first, a capital appropriation
of nearly eight million dollars, and second, a potential additional
two million dollar appropriation. Mt. Edgecumbe High School
probably has one of the highest per-student allocations in the
State. She asserted that she is "lukewarm" regarding this
appropriation request.
Co-Chair Green announced an updated committee substitute would be
prepared to reflect the adopted amendments.
Co-Chair Green ordered bill HELD in Committee.
Co-Chair Wilken chaired the remainder of the meeting.
AT EASE 3:03 PM / 3:06 PM
SENATE BILL NO. 392
"An Act relating to the expenses of investigation, hearing, or
public advocacy before the Regulatory Commission of Alaska, to
calculation of the regulatory cost charge for public utilities
and pipeline carriers to include the Department of Law's costs
of its public advocacy function, to inspection of certain
books and records by the attorney general when participating
as a party in a matter before the Regulatory Commission of
Alaska; 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 the Senate Labor and
Commerce Committee, "clarifies that the general cost of public
advocacy for utility and pipeline matters before the RCA
(Regulatory Commission of Alaska) would be paid by receipts from
the regulatory cost charge and not from the general fund."
JANE ALBERT, staff to Senator Bunde, presented the bill. The
previous year the legislature passed Executive Order #111, which
transferred the public advocacy responsibility regarding utility
matters from the Regulatory Commission of Alaska to the Office of
the Attorney General within the Department of Law. She continued to
testify as follows.
[Note: in this paragraph the references to the Department of
Labor are intended to refer to the Department of Law.] This
bill, SB 392, is a follow-up bill that provides the Department
of Labor reasonable access to records, and clarifies
regulatory cost charges, and not the general fund, will
continue to pay for the costs relating to providing these
public advocacy services. SB 392 also adjusts the regulatory
cost charge ceiling, giving the RCA and Department of Labor
separate and fixed percentages of total cost charge receipts
under the adjusted ceiling. And a final item for SB 392 is
that it exempts State agencies from paying the allocated costs
of RCA proceedings when it is in an involved party. And that
is the basic introduction, and that is pretty much what I
think Senator Bunde would have done in introducing this bill,
and we have Daniel Patrick O'Tierney from the Department of
Law available for specifics.
DANIEL PATRICK O'TIERNEY, Senior Assistant Attorney General,
Commercial/Fair Business Section, Civil Division, Department of
Law, testified that this bill is a completion of the intent
expressed in Executive Order #111. Specifically, this legislation
clarifies the authority given the RCA in Executive Order #111, and
provides independence between the RCA and the public advocate. The
fiscal notes are based upon regulatory cost charge receipts, and
not general funds. The Department of Law, the industry, consumer
groups, and the RCA have all worked to produce this legislation. He
continued to testify as follows.
The benefits of this bill are that it completes the
consolidation of public advocacy within the Department of Law.
It gives this function budgetary independence from the RCA. It
provides the Department of Law qualified access to utility
records for economical investigation, and it eliminates the
inefficiency involved with one establishment cost allocating
another in proceedings before the RCA.
Co-Chair Wilken asked if any other State regulatory agency employs
similar procedures or whether this legislation would implement a
new process.
Mr. O'Tierney responded that Executive Order #111 implemented the
transfer of authority between the RCA and the Department of Law.
Prior to the Executive Order #111 public advocacy had been
performed by a subset of the Regulatory Commission of Alaska. The
industry indicated little confidence in the integrity of the past
approach. In at least one-third of states public advocacy is the
responsibility of the Department of Law.
PAT LUBY, Advocacy Director, American Association of Retired
Persons (AARP), Alaska, testified that the AARP strongly supports
this legislation and recommends a yes vote.
Senator Dyson offered a motion to report the bill from Committee
with individual recommendations and new fiscal note.
Without objection SB 392 MOVED from Committee with a new fiscal
note of $300,000 dated 4/22/04 from the Department of Law.
AT EASE 3:17 PM / 3:17 PM
SENATE BILL NO. 65
"An Act authorizing the Department of Corrections to enter
into agreements with municipalities for new or expanded public
correctional facilities in the Fairbanks North Star Borough,
the Matanuska-Susitna Borough, Bethel, and the Municipality of
Anchorage."
This was the third hearing for this bill in the Senate Finance
Committee.
Co-Chair Green overviewed the proposed committee substitute Version
"E". She noted it incorporates the amendments adopted by the
Committee at the previous hearing. In addition, new language has
been added intending to assure bond ratings by stipulating that
"the commission may not enter into the agreement if any bonds
issued for the project are rated below investment grade" on page 5
lines 10 and 11 and also on page 3 lines 23 and 24. Further bond
assurance language has been added on page 6 lines 5-7 and 10-14.
Co-Chair Green stated the intent of the committee substitute is to
authorize the Commissioner of the Department of Corrections to
review multiple correctional facility location options, and to
increase participant bids in the State with the purpose of bringing
prisoner's being housed in out-of-state facilities back into
Alaska. The high costs and inefficiencies incurred by transferring
prisoners should be avoided. These prisoner transfers have
especially inconvenienced the communities of Bethel, Anchorage, and
the Matanuska-Susitna Borough. The occupancy levels of Alaska's
correctional facilities are only getting worse; prison capacity
must be increased. She urged continued discussion on strategies to
increase correctional facility capacity within the State.
Co-Chair Green moved for adoption of CS SB 65, 23-LS0392\E as a
working document.
There was no objection and the committee substitute, Version "E"
was ADOPTED as a working document.
Co-Chair Wilken ordered the bill HELD in Committee.
SENATE BILL NO. 281
"An Act relating to labeling and identification of genetically
modified fish and fish products."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill is sponsored by Senator Elton.
Senator Elton testified this legislation would require genetically
modified fish to be labeled. The federal Food and Drug
Administration (FDA) has not approved any transgenetic fish for the
marketplace, but the FDA does have a pending application for the
approval of the 'Frankenfish', which is a farmed salmon that would
grow at a much greater rate than presently farmed fish. This
legislation is similar to legislation passed in Oregon and
California, and is unanimously supported by the State legislature's
Salmon Industry Task Force. The Senate Resources Committee also
unanimously passed this legislation.
Senator Olson asked whether any fish currently available in the
marketplace has been genetically altered.
Senator Elton replied, "no", that the only genetically altered fish
approved for sale is the neon blinking aquarium fish sold in pet
stores. His concern is related to a pending FDA application that
would approve genetic alteration of salmon fish. This alteration
would cause the fish to grow at very fast rates, and would
subsequently increase the profitability of the industrial fish
makers.
ELISE HSIEH, Assistant Attorney General, Environmental Section,
Civil Division, Department of Law, testified via teleconference
from an offnet location to the uncertainty of whether this law
would be valid when the Food and Drug Administration grants the
pending application. The FDA would not likely approve the label
proposed in this legislation because there are no known health
risks associated with transgenic fish. The State would have to
prove the necessity of labeling transgenic fish, and a threat to
State commerce would not be an acceptable reason.
Ms. Hsieh continued that the State of Vermont passed legislation
requiring that hormone-produced milk be labeled, and created a
label that specified that the milk did not have adverse health
affects. The State of Alaska may have to make a similar compromise
in order to require a label for transgenic fish.
Senator Olson questioned how the states of Oregon and California
have justified the passage of similar legislation.
Ms. Hsieh was not familiar with the laws adopted by those states.
She noted that several states are passing food-labeling laws with
the knowledge that the FDA may challenge their laws.
Senator Elton informed that this legislation is proposing a
"consumer notice", and not a health warning. He gave examples of
similar labeling, such as country of origin labeling and the
labeling of farmed and wild salmon at the grocery level. This
legislation would not necessarily pre-empt the actions of federal
Food and Drug Administration.
Ms. Hsieh countered that existing law regarding labeling and
advertisement of halibut and salmon does not require such labeling,
but rather allows it. Because interstate commerce product would not
be required to label, fish harvesters could easily opt out of
labeling.
Senator Bunde referenced the zero fiscal note for this legislation
and asked the fiscal impact to retail businesses. He remarked that
imported products would have to be labeled at the grocery stores.
Senator Elton was unsure but referred to the required labeling at
the grocery level of wild and farmed salmon, and stated that he did
not hear any grocer comment on negative economic impacts related to
the labeling.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 03:31 PM
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