Legislature(2013 - 2014)SENATE FINANCE 532
04/12/2013 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB129 | |
| HB76 | |
| HB23 | |
| SB90 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 90 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 129 | TELECONFERENCED | |
| += | HB 23 | TELECONFERENCED | |
| += | SB 13 | TELECONFERENCED | |
| += | HB 76 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
April 12, 2013
1:42 p.m.
1:42:48 PM
CALL TO ORDER
Co-Chair Meyer called the Senate Finance Committee meeting
to order at 1:42 p.m.
MEMBERS PRESENT
Senator Pete Kelly, Co-Chair
Senator Kevin Meyer, Co-Chair
Senator Anna Fairclough, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Greg Cashen, Assistant Commissioner, Department of Labor
and Workforce Development; Paul Dick, Director, Employment
Security Division, Department of Labor and Workforce
Development; Michael Foster, Chairman, Knik Arm Bridge and
Toll Authority; Judy Dougherty, Deputy Executive Director,
Knik Arm Bridge and Toll Authority; Michael Barnhill,
Deputy Commissioner, Department of Administration
PRESENT VIA TELECONFERENCE
Aesha Pallesen, Assistant Attorney General, State of
Alaska, Anchorage
SUMMARY
SB 13 KNIK ARM BRIDGE AND TOLL AUTHORITY
SB 13 was HEARD and HELD in committee for further
consideration.
SB 90 SCHOOL DISTRICT EMPLOYEE HEALTH INSURANCE
SB 90 was HEARD and HELD in committee for further
consideration.
2d CS HB 23(RLS)
KNIK ARM BRIDGE AND TOLL AUTHORITY
2d CS HB 23(RLS) was HEARD and HELD in committee
for further consideration.
CS HB 76(FIN)
UNEMPLOYMENT; ELEC. FILING OF LABOR INFO
CS HB 76(FIN) was REPORTED out of committee with
a "do pass" recommendation and with previously
published fiscal impact note: FN4 (LWF); and
previously published zero fiscal note: FN3 (LWF).
CS HB 129(FIN)
OIL & GAS EXPLORATION/DEVELOPMENT AREAS
CS HB 129(FIN) was REPORTED out of committee with
a "do pass" recommendation and with previously
published fiscal impact note: FN2 (DNR).
CS FOR HOUSE BILL NO. 129(FIN)
"An Act relating to approval for oil and gas or gas
only exploration and development in a geographical
area; and providing for an effective date."
1:44:11 PM
Vice-Chair Fairclough discussed the fiscal note attached to
the bill. She shared that the FY14 request was $134
thousand in General Fund dollars.
Vice-Chair Fairclough MOVED to REPORT CS HB 129(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
CS HB 129(FIN) was REPORTED out of committee with a "do
pass" recommendation and with previously published fiscal
impact note: FN2 (DNR).
1:44:50 PM
AT EASE
1:45:54 PM
RECONVENED
Co-Chair Meyer welcomed Senator Olson to the table.
CS FOR HOUSE BILL NO. 76(FIN)
"An Act relating to electronic filing of certain
information with the Department of Labor and Workforce
Development; relating to fund solvency adjustments,
rate increase reduction, prohibition on the relief of
certain charges, the unemployment trust fund account,
and the offset of certain unemployment compensation
debt under the Alaska Employment Security Act;
relating to the definition of 'covered unemployment
compensation debt' in the Alaska Employment Security
Act; and providing for an effective date."
1:47:52 PM
GREG CASHEN, ASSISTANT COMMISIONER, DEPARTMENT OF LABOR AND
WORKFORCE DEVELOPMENT, testified that HB 76 would do four
things:
· allow for electronic filing of reports
· improve the department's ability to recoup fraudulent
unemployment insurance payments
· adopt minor changes to bring the department into
compliance with federal law
· change how unemployment tax rates are set in an effort
to keep money in the hands of employers and employees;
keeping money circulating through the economy while
protecting the integrity of the trust fund
1:49:09 PM
PAUL DICK, DIRECTOR, EMPLOYMENT SECURITY DIVISION,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, highlighted
the sections of the bill.
Section 1 adds a new section, AS 23.05.055,
authorizing the commissioner to allow the use of
electronic filing methods in place of paper filing.
Section 2 adds a new section, AS 23.20.021,
authorizing the legislature to appropriate money into
the unemployment trust fund account.
Section 3 adds a new section, AS 23.20.279, to bring
the state into conformity with federal law, Public Law
112-40, by prohibiting the relief of charges to
employers when an erroneous payment of unemployment
insurance benefits is made due to an established
pattern of the employer, or an agent of the employer,
for failing to respond timely or adequately to a
documented request for information relating to a claim
for unemployment compensation. This section defines
"erroneous payment" as a payment made that would not
have otherwise been paid, but was due to the failure
of the employer to respond timely or adequately. This
section also defines "pattern of failing" as two or
more times or 2% or more of all requests, whichever is
greater, during the prior year.
Mr. Dick noted that conforming to the federal requirements
was necessary for the state to qualify for the 90 percent
Federal Unemployment Tax Act (FUTA) credit. He said that
the tax credit was 6 percent and that Alaskan employers
received a 90 percent credit. He shared that employers paid
10 percent of the tax, .6 percent, rather than the full 6
percent. He warned that losing the credit would result in
an additional yearly payment total of $378, per employee,
collectively resulting in a $115 million hit to Alaska's
economy. He said that an additional benefit of the credit
was that it required the state to deposit 30 percent of
penalty collections into the unemployment insurance trust
fund. He explained that currently, 100 percent of the
penalties went into the General Fund; the 30 percent
provision would result in more money in Alaska's
unemployment insurance trust fund, which would ultimately
help employers.
Mr. Dick continued with the sectional analysis:
Section 4 amends AS 23.20.290(c) by adding the word
"surcharge" following the words "fund solvency
adjustment".
Mr. Dick explained that when calculating the unemployment
insurance checks the department used a base calculation
that examined the state's benefits over the prior three
years. He said that there was additional provision in
statue that had a target of 3 to 3.3 percent for the trust
fund. He relayed that the two components added together
determined the unemployment insurance tax rate for the
state. He continued:
Section 5 repeals and reenacts AS 23.20.290(f),
replacing a table method for determining fund solvency
adjustment surcharges with a more precise calculation
method. It also eliminates the 0.3 limitation on fund
solvency adjustment surcharge decreases in a single
year.
Mr. Dick relayed that the section removed a table currently
in statute and replaced it with verbiage took the
calculation of the solvency adjustment for .10 percent to
.100 percent. He said that would make the trust fund
solvency adjustment consistent with the base rate as
calculated to the .100 percent. He added that it would make
for more precise calculations and would remove the current
0.3 decrease limitation. He shared that Alaska was one of
three states where the employee and the employer paid into
the unemployment trust fund. He underscored that the bill
would not affect the amount of training funds that went
into the Statewide Training and Employment Program (STEP)
and the Technical Vocational Education Program (TVEP)
training funds.
Mr. Dick continued with the sectional analysis:
Section 6 adds a new section, AS 23.20.291,
authorizing the commissioner to suspend, in whole or
in part, increases in unemployment tax rates when the
"average high cost multiple," a measure of solvency
calculated by the U.S. Department of Labor, Employment
and Training Administration, is 0.8 or greater and
after consultation with the department's actuary.
Mr. Dick explained that the suspension would not be
automatic and would require the action of the commissioner
to suspend the increase. He said that this would allow for
flexibility to adjust rates when the trust fund was
healthy. He said that the fund was currently at $251
million. He noted the sunset date in Section 10.
Mr. Dick continued with the sectional analysis:
Section 7 amends AS 23.20.390(f) to bring the state
into conformity with federal law, Public Law 112-40,
by removing the department's authority to waive the
collection of a penalty established due to
misrepresentation and requires that a minimum of 30%
of the unemployment insurance penalties collected due
to misrepresentation be deposited into the state's
unemployment trust fund account.
Section 8 adds new section, AS 23.20.486 to authorize
the department to offset unemployment compensation
debt against a claimant's federal income tax refund.
This section would allow the state to participate in
the federal treasury offset program.
Mr. Dick said that the change would allow the state to
offset federal tax income tax returns against unemployment
insurance liabilities. He shared that the department
estimated $500,000 in additional collections.
Mr. Dick stated that the remaining sections pertained to
effective dates:
Section 9 amends AS 23.20.520, by adding a new
paragraph to define "covered unemployment compensation
debt" in accordance with the federal statutory
definition.
Section 10 effective July 1, 2016 repeals AS
23.20.291, added by section 6 of this bill.
Section 11 amends state uncodified law by specifying
that AS 23.20.279, added by section 3 of this bill,
applies to overpaid benefits established after October
21, 2013.
Section 12 specifies that the department will adopt
necessary regulations to implement changes.
Regulations will not be effective prior to July 1,
2013.
Section 13 establishes that section 12 takes effect
immediately.
Section 14 establishes the effective date for the
remaining sections of this Act as July 1, 2013.
1:59:32 PM
Senator Hoffman asked whether the 30 percent deposit into
the unemployment insurance was fixed.
Mr. Dick replied that federal law required a least 30
percent.
2:00:11 PM
Senator Hoffman wondered whether other states had
contemplated a higher percentage.
Mr. Dick responded that he was not aware what other states
were doing.
2:00:18 PM
Senator Hoffman queried why the minimum of 30 percent had
been chosen.
Mr. Dick deferred the question to Ms. Pallesen.
2:00:44 PM
AESHA PALLESEN, ASSISTANT ATTORNEY GENERAL, STATE OF
ALASKA, ANCHORAGE (via teleconference), understood that the
30 percent amount was chosen because that was the number
necessary to meet federal requirements. She said that she
had advised the department to choose 30 percent in order to
meet federal compliance.
2:01:52 PM
Senator Hoffman probed the additional benefits if the state
paid a higher percentage.
Ms. Pallesen was unsure that increasing the percentage rate
of what went into the trust fund would result in the state
receiving additional federal monetary benefits.
2:02:28 PM
Senator Hoffman thought that if the funds went into the
trust fund, rather than the general fund, there could be
more dollars for the STEP and TVEP programs.
Ms. Pallesen responded that under the federal regulations
the 30 percent of penalties collected could not go into the
general fund.
2:03:28 PM
Senator Hoffman responded that he understood. He believed
that it the percentage were to be raised then there would
be more money to invest in training programs, instead of
going into the General Fund, which would benefit the
state's workforce.
Ms. Pallesen deferred the question to the Department of
Labor and Workforce Development.
2:04:09 PM
Senator Hoffman restated his question.
Mr. Dick stated that the training program funds came from
the employee contributions and that the monies under
discussion were penalty funds.
Senator Hoffman asked where the 30 percent would go.
Mr. Dick replied that currently, all of the money collected
just on the penalties went into the General Fund. Under the
legislation, 30 percent of the collections would go into
the unemployment insurance trust fund, and 70 percent would
go to the General Fund.
Senator Hoffman asked if employer rates could be reduced.
2:05:36 PM
Mr. Dick responded in the affirmative. He said that an
increase in the rate would increase revenues into the trust
fund and mitigate the tax rates.
2:06:03 PM
Senator Bishop asked which section of the bill the
department could live without.
Mr. Dick responded the department felt that all of the
provisions of the bill were critical.
2:07:10 PM
Co-Chair Meyer asked if there was a time constraint on the
legislation.
Mr. Dick replied that state conformance was required by
October 21, 2013.
2:07:35 PM
Vice-Chair Fairclough asked how long the state had been out
of compliance.
Mr. Dick replied that the state was not out of compliance
until October 21, 2013. He stated that the federal
government understood that the changes would need to go
through the legislative process and gave states 2 years to
meet compliance.
2:08:29 PM
Co-Chair Meyer wondered what would happen if the state did
not comply.
Mr. Dick responded that the state would lose the FUTA tax
credit, which was 90 percent of the tax rate and equated to
$378 per employee, per year.
2:09:30 PM
Co-Chair Meyer OPENED public testimony.
Co-Chair Meyer CLOSED public testimony.
2:10:02 PM
Vice-Chair Fairclough discussed the two fiscal notes
attached to the bill. She noted the increase in $500,000
FY14 through FY19. She wondered if the note should be
updated to reflect the changing of the sunset date to 2016.
Vice-chair Fairclough MOVED to REPORT CS HB 76(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CS HB 76(FIN) was REPORTED out of committee with a "do
pass" recommendation and with previously published fiscal
impact note: FN4 (LWF); and previously published zero
fiscal note: FN3 (LWF).
2:12:06 PM
AT EASE
2:19:32 PM
RECONVENED
SENATE BILL NO. 13
"An Act relating to bonds of the Knik Arm Bridge and
Toll Authority; relating to reserve funds of the
authority; relating to taxes and assessments on a
person that is a party to an agreement with the
authority; and establishing the Knik Arm Crossing
fund."
2d CS FOR HOUSE BILL NO. 23(RLS)
"An Act creating the Knik Crossing Development
Corporation as a subsidiary corporation of the Alaska
Housing Finance Corporation and relating to bonds of
the Knik Crossing Development Corporation."
2:21:07 PM
Vice-Chair Fairclough noted that there were varying
opinions on the audit that was before the committee. She
stated that the Division of Legislative Audit (DLA) had
full support from legislative auditors and had worked
within the parameters that had been requested by the
legislature. She relayed that the Knik Arm Bridge and Toll
Authority (KABATA) board had worked diligently to move the
project forward. She offered support for the legislation
and expressed an obligation to protect the audit staff that
had been working on behalf of the legislature.
2:22:43 PM
MICHAEL FOSTER, CHAIRMAN, KNIK ARM BRIDGE AND TOLL
AUTHORITY, introduced his support staff. He recognized the
work that had been done by the DLA committee and the
legislature on the audit. He stated that KABATA had
concerns with the models that were used in the findings to
predict population and social economic and demographic
numbers.
2:23:54 PM
JUDY DOUGHERTY, DEPUTY EXECUTIVE DIRECTOR, KNIK ARM BRIDGE
AND TOLL AUTHORITY, gave a brief overview of her
credentials. She relayed that the audit had found nothing
wrong with the Knik Arm Crossing project development
process or governance and no problems with contracting
practices. She said that a DLA auditor had testified
earlier in the week that KABATA'a draft document could not
be audited because they were a "moving target." She
explained that in accordance with standard auditing
practices a scope change was identified and KABATA was
informed. She asserted that a balanced accounting of the
general risk/reward calculus of and availability P3
agreement could and should have been included in the
report. She addressed the issue of reasonableness. She
offered that reasonableness was what had blown the audit
out of proportion and damaged the progress of the project.
She opined that the auditors contended that the assumptions
made for the project model were not supported by
independent sources.
2:25:45 PM
Ms. Dougherty asserted that 6 different traffic demand
models had been completed since 2005 that predicted traffic
on the Knik Arm Crossing. She referred to "Knik Arm
Crossing, Traffic Study FAQs" (copy on file). She pointed
out to the committee that Page 2 of the document contained
a table detailing the studies. She relayed that the studies
were performed for DOT's Highway to Highway project and the
AMATS Metropolitan Transportation Plan in addition to
KABATA. She asserted that each study had been done with
their own set of underlying assumptions, variables and
limitations; each study had indicated that 4 lanes would
likely be necessary on the crossing on later than 2035. She
said that each study had study boundaries that included the
crossing location and assumed economic growth in the lower
Mat-Su borough as a result of economic "spill-over" from
Anchorage once the crossing was constructed. She shared
that 3 of the studies could have been used as a basis for
comparison analysis by DLA or a qualified consultant. She
felt that the auditors had dismissed the studies and had
based their conclusions on a traffic model prepared for a
DOT project located near Wasilla; more than 30 miles from
the crossing location, and the study boundaries did not
include the crossing location. She said that the population
and variables used in DLA's selected model were based on
the assumption that there would be no change to the
traditional population and economic growth in the lower
Mat-Su borough as a result of the bridge opening. She
furthered that DLA's assumption made no consideration for a
change in job growth or population growth, and had used a
model that predicted that there would be 30 percent fewer
jobs in Port Mackenzie than ISER had predicted would be
generated by providing ferry service alone at the crossing
site. She contended that the audit findings did not sound
reasonable. She said that the crossing project had had
traffic studies performed by 2 separate consultants who had
arrived at similar traffic volumes on the bridge, but that
the information had been dismissed by DLA as not being
independent. She thought that varying definitions between
auditing standards and professional standards among
engineers of how "independent information" was defined
could have catered to the problem. She stressed that the
professional engineering firms that performed the studies
were independent and had no reason to stake their
professional integrity for the benefit of KABATA. She said
that the concerns of the DLA auditor had been addressed in
one-on-one correspondence with KABATA's traffic and revenue
consultant who provided insight to local conditions of the
project site and variances in population projections.
2:31:05 PM
Ms. Dougherty cited Page 257 of the "Legislative Budget and
Audit Committee Report of the Department of Transportation
and Public Facilities Knik Arm Bridge and Toll Authority
Knik Arm Crossing Project" (copy on file):
Since both the transportation model and the financial
model are computer based, performing "what if" changes
in underlying assumptions and data, and evaluating
their effect on outcomes should not be overly
burdensome.
Ms. Dougherty relayed that KABATA agreed with the
statement. She said that over 2,000 simulations of key
traffic control revenue variables had been performed in 5
year increments and used as input to the financial risk
analysis previously presented by David Livingstone of CITI
Bank. She furthered that. She opined that the auditors
failed to recognize that the traffic volumes projected by
DLA's "what if" scenario had been accounted for in the
range of risk analysis when the risk analysis was
evaluated. She asserted that KABATA's consultants
represented the industry's "who's who" in transportation
engineering, financing, traffic and toll revenue
forecasting and contract development legal support and had
been involved in nearly every successfully delivered toll
road financing P3 project in the country.
2:33:39 PM
Vice-Chair Fairclough remarked that she was Chair of the
Legislative Budget and Audit (LB&A) Committee. She informed
the committee that the audit had been requested by the
previous LB&A chair.
2:34:30 PM
Co-Chair Meyer wondered when the auditors had contacted
KABATA for information about the project.
Ms. Dougherty replied that she was not sure. She stated
that management letter number 1 had been received on
February 1, 2013. She said that the strong language used in
the response to the report was due to the fact that KABATA
had been rushed in their response; they had been given ten
days to respond and the legislative session was already
underway. She felt that there was a lack of understanding
between KABATA and DLA.
2:35:39 PM
Vice-Chair Fairclough felt that the lack of understanding
stemmed from a different understanding of the P3 agreement.
Ms. Dougherty thought that there was a concern regarding
"toll friction." She said that toll friction could reduce
the traffic count on a bridge because people had to be
willing to pay the toll. She stated that a community was
going to develop in the Mat-Su quickly and that the borough
had establish several pound sites in anticipation.
2:36:59 PM
Vice-Chair Fairclough wondered if the auditors had access
to the P3 agreement. She understood that it had not been
finalized yet and imagined that it would be difficult for
an auditor to audit something that was not complete. She
wondered what additional information would have been found
by the auditor had the P3 agreement been complete.
2:37:35 PM
Mr. Foster responded that KABATA had provided the draft RFP
and draft PPA to the auditor. He relayed that both
documents had yet to go through final review. He shared
that the governor had legal consultants reviewing the
document. He said that he told auditors that the document
was confidential because KABATA was engaged in ongoing
procurement.
2:39:02 PM
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.
Vice-Chair Fairclough noted that the draft was
confidential. She was unsure whether the contractor would
have been provided anything in the P3 agreement that they
could consider as they moved forward with the audit. She
said that the auditors had returned to the committee and
amended the framework of how they would go forward with
the audit.
Mr. Foster deferred legal questions to the Department of
Law.
2:40:18 PM
Ms. Dougherty added that there were a number of benefits
and risks associated with the general structure of a P3
agreement that had not been reflected in the report.
2:40:43 PM
Senator Olson noted several projects that had been invested
with millions of dollars and then had been abandoned. He
wondered how the crossing project differed. He expressed
concern that if the numbers were wrong that the State of
Alaska would be left footing the bill.
Mr. Foster responded that there was a need for
infrastructure in the area. He stated that the Point
Mackenzie area was looking to incorporate and would be the
4th largest city in the state. He said that the increase in
traffic in the area reflected the real need for increased
infrastructure in the area. He warned that not building the
bridge could result in an estimated $3 billion plus in Glen
Highway improvements. He stressed that all the areas in the
Mat-Su were expected to grow in population in the future
and that the crossing would be the best plan to accommodate
the increase.
2:47:38 PM
Senator Olson remarked that the money for the bridge could
be going towards education. He argued that people who were
independent of the audit and the legislature were coming up
with numbers that were one-third of what KABATA had
presented. He noted that on April 2, 2013, Mr. Foster had
testified that the Highland Area in 1985 was 33,000; in
2010 the number increased to 53,000. He pointed out to the
committee that that was not a doubling of the numbers, but
was 63 percent more. He furthered that the numbers offered
by KABATA for 2035 showed the area at 110,000, which was
more than double the current number. He felt that KABATA's
projections presented serious problems. He said that the
people contracted by KABATA to come up with the numbers had
a reputation of being overly optimistic in their estimates.
Mr. Foster rebutted that he did not believe that that was
true.
2:49:49 PM
Senator Dunleavy believed that this was one of the few
projects that he could guarantee, with 100 percent
certainty, that once completed would be used. He said that
the use would be continual and growing. He quoted Page 1 of
the audit:
The risks and rewards in totality as outlined in the
P3 agreement could not be evaluated because the
agreement has not been finalized and is subject to
further changes.
Senator Dunleavy relayed that he did not fault the auditors
for their methodology. He did not believe that the project
should be likened to the failed projects mentioned by
Senator Olson. He wondered what could be otherwise done to
serve the growing area; would it be more cost effective to
build more lanes instead. He did not believe that there was
any question about whether there would be traffic on the
bridge.
2:52:53 PM
Senator Hoffman directed attention to Page 19:
In August 2012, KABATA management submitted a TIFIA
loan request for $500 million at a 49 percent
participation rate in eligible costs. In a letter to
KABATA, dated September 25, 2012, the Federal Highway
Administration (FHWA) pended reviewing the request
stating that:
compelling justification" for providing
assistance above a 33 percent participation
level.
Senator Hoffman continued to Page 27, "Findings and
Recommendations." He felt that the legislature should
address the findings. He wondered whether KABATA would
address the findings as the project moved forward. He noted
that there was one recommendation:
Recommendation No. 1
Knik Arm Bridge and Toll Authority (KABATA) management
should revise traffic and toll revenue projections to
address deficiencies.
The audit of key assumptions and inputs used in
KABATA's transportation modeling process identified
several deficiencies regarding the validity of
assumptions and inputs used as a basis for projecting
toll revenues. Deficiencies are as follows.
projected for 2035 were overly optimistic when
compared to the household growth rates and levels
projected by University of Alaska's Institute of
Social and Economic Research and the State's
Department of Labor and Workforce Development.
The discrepancy stems from KABATA's economic
growth rate projections in the Point MacKenzie
region, specifically in the Port MacKenzie (Port)
area.
percent is significantly higher than the actual
growth rate of 2.5 percent based on the
Department of Transportation and Public
Facilities' traffic counts. The differences are
partially caused by the anticipated growth in
population and employment in the Point MacKenzie
area.
traffic is unsupported.
commercial vehicle traffic for the KAC is high
compared to actual traffic count data for the
Glenn Highway which indicates a split of
4.9 to 6.6 percent. KABATA's 12 percent split is
based on DOTPF's 2003 through 2006 traffic data.
Since then, DOTPF has improved its traffic data
collection methodology and now reports much lower
traffic count splits that better reflect the
actual count between personal and commercial
vehicles.
employment level of 14,337 is significantly
higher than the level noted in the Matanuska-
Susitna Borough plan of 4,515. A majority of
KABATA's employment (13,828) is based on
projected Port economic development which is
inconsistent with the Port's master plan and
regulations.
All of the above concerns have the effect of
overstating traffic volume. Overstated traffic volume
in KABATA's modeling process has the effect of
overstating projected toll revenues.
Senator Hoffman highlighted:
The Federal Highway Administration's (FHWA) guidelines
for P3s20 state:
Inaccurate or overly optimistic traffic
projections and underestimated project costs can
lead to the development of pro forma financials
that appear to justify the investment decision,
but that do not reflect the project's actual
ability to repay debt or to meet equity
investor's return requirements.
Under KABATA's planned P3 arrangement, lower than
expected toll revenues would necessitate the need for
additional funding as availability payments must be
paid to the private partner regardless of how much the
bridge is used.
In recognition of the risk that overstated toll
revenues pose to the State, we recommend KABATA
management revise the traffic and toll revenue
projections to address noted concerns.
Senator Hoffman stated that as a legislator he could not
ignore the recommendations of DLA. He queried the timeframe
for the KABATA board to address the deficiencies as pointed
out by the audit.
Ms. Dougherty responded that the bullet points had been
addressed in the KABATA response to the preliminary audit
report. She noted that three of the bullets specifically
referenced the Point Mackenzie area she did not believe
that the model used by the auditor addressed the influx of
traffic and economic growth that would be generated by the
project.
2:57:46 PM
Mr. Foster furthered that KABATA's response to the
preliminary report could be found on Page 211 of the audit.
2:58:28 PM
Senator Bishop echoed the comments made by Senator Hoffman.
He believed that all involved parties needed to agree on
the cost scheduling numbers in order for the project to
move forward.
2:59:18 PM
Senator Olson remarked that the proposed area for the
project had a history of expensive and unused projects. He
noted that the audit had highlighted that if the toll
revenues were lower than expected, the state would be
required to make payments to the private partners
regardless of how much the bridge was used.
Mr. Foster replied in the affirmative.
Senator Olson contended that there was no reason to support
a project that was driven by suspect numbers. He asked Mr.
Foster if the speculation concerning the numbers was
reasonable.
Mr. Foster agreed that the residents of Alaska should
evaluate every proposed project. He denied any ulterior
motive on behalf of KABATA to move the project forward. He
offered that the decision about whether the project would
move forward should be made by the state. He explained that
KABATA's job was to provide information to the legislature.
3:02:10 PM
Mr. Foster referred to Page 37 of the audit report, which
contained a table that compared the LB&A numbers to the
KABATA population/traffic financial model. He asserted that
the auditor's model did not consider the impacts of the
crossing.
3:04:28 PM
Senator Olson stated the state did not have the population
to generate the tolls that would pay for the project. He
understood that KABATA had been turned down 4 times for
low-interest federal loans.
Mr. Foster replied that letters of interest had been
submitted 4 times. He said that at the time of application
the project had not been a mature as it was currently. He
stated that there were now more federal dollars available
and the chances of some of them reaching the project were
improved.
3:06:58 PM
Senator Dunleavy commented that approximately 360,000
people were using the one major road in the area of the
proposed project. He reiterated that the bridge would be
used immediately upon completion. He stated that having a
large project that paid for itself was a worthwhile concept
to explore. He suggested that all of the major projects
executed by the state should pay for themselves.
3:08:46 PM
Senator Olson reiterated that if there were lower than
expected toll revenues then the state would have to make
the inevitability payments to private partners, leaving the
state on the hook for billions of dollars.
Mr. Foster replied that there were sideboards on the
project which would keep the cost to the state down.
3:10:48 PM
Vice-Chair Fairclough quoted Pages 19 - 20 of the audit:
justification" for providing assistance above a 33
percent participation level
$150 million reserve fund is appropriated by the State
or it becomes clear that the funding is "reasonably
likely" to be appropriated.
She noted that the auditors had attempted to provided
checks and balances to guide the project forward. She
queried the consequence of not acting on the project during
the current legislative session.
Mr. Foster responded that KABATA would still move forward
with the RFP process and the PPA agreement. He added that
there were permits that were being finalized. He shared
that if the legislation did not pass the project would fall
further down the Transportation Infrastructure Finance and
Innovation Act (TIFIA) list. He thought that the project
could be viable for the federal funds in a year, but that
would be dependent on how much of the money was allocated
within the next year. He said that there was no guarantee
that the legislation would put us in the TIFIA pot, but
that it could move the state closer. He noted that the
state had been invited to submit the application which
meant that Alaska was in line for the federal funding.
3:14:41 PM
Mr. Foster shared that if the legislation was not passed
KABATA would continue to move forward.
3:16:35 PM
Senator Dunleavy wondered about plans to upgrade the Glenn
Highway.
Mr. Foster replied that there was three mile expansion
currently occurring, funded by a general obligation bond.
3:16:59 PM
Senator Dunleavy asked if a toll was being charged for the
Glenn Highway expansion.
Mr. Foster replied that a toll could not be required
because the road was built using federal highway money. He
said that the Glenn Highway could be tolled but it would
require a dedicated lane; the commuter must have an option
if the road is constructed with federal dollars.
Vice-Chair Fairclough returned the gavel to Co-Chair Meyer.
3:17:37 PM
SB 13 was HEARD and HELD in committee for further
consideration.
2d CS HB 23 (RLS) was HEARD and HELD in committee for
further consideration.
3:19:00 PM
AT EASE
3:30:15 PM
RECONVENED
SENATE BILL NO. 90
"An Act relating to group insurance coverage and self-
insurance coverage for school district employees; and
providing for an effective date."
3:30:53 PM
Senator Dunleavy invited the Department of Administration
to explain the fiscal notes. He felt that the bill should
be held through the interim for further discussion and
better understanding.
3:31:51 PM
MICHAEL BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, offered an analysis of FN#2:
SB 90 introduces a new section to AS 14.20, AS
14.20.137, which extends group insurance coverage
under AS39.30.090 to school district employees. It
also amends AS39.30.090(a)(2) extending coverage to
dependents of school district employees. It is
estimated that 18,300 school district employees and
29,000 dependents will become members of the
AlaskaCare Employee Health Plan. The addition of these
47,300 new members will quadruple the overall
population of the AlaskaCare Employee Health Plan.
PUBLIC EDUCATION FUND -
How the bill works: starting on July 1, 2014, school
districts would begin to enroll their employees in the
AlaskaCare active employee health plan. That process
must be complete no later than July 1, 2015. There are
approximately 18,300 school district employees that
would likely enroll over FY15-FY16. With dependents,
the total population is approximately 47,300 covered
lives.
Self-funded insurance pools tend to maintain a reserve
of 3-4 months of claim costs. The reserve is available
to pay claims in times of claim spikes so that
recourse to external funding sources or mid-year
premium increases is unnecessary.
We estimate that such a reserve for the 47,000 inbound
covered lives would be approximately $100mm. Having
such a reserve in place on July 1, 2014 is important,
because this population will begin to incur health
claims immediately, and we need to have funds in place
to pay them. The bill contemplates that the $100mm
would be drawn from the Public Education Fund over a
10 year period. The withdrawn funds would be repaid
over a 10 year period. The source of the repayment for
withdrawn funds would be school districts. The
Department would send them a bill for the first 4
months of claims paid; the bill would be repaid over a
10 year period.
The bill contemplates that the health insurance
benefit credit the state pays on behalf of all State
of Alaska employees ($1330/mo/ee in FY13; $1389/mo/ee
in FY14) would be paid by school districts on behalf
of school district employees. The benefit credit
equates to the premium for the AlaskaCare Economy
level plan plus the premium for the Preventive Dental
plan. The Department would send monthly bills to
school districts to collect the benefit credit. These
sums would be deposited in the Group Health and Life
Benefits fund (AS 36.30.095) and used to pay claims
and administer the system.
Mr. Barnhill shared that during a discussion with the Texas
Teacher's Retirement System he had learned that Texas had
done a similar consolidation several years ago. He said
that in that case the state had received access to $25
million for transitional cash flow purposes and had paid it
back without a problem.
3:36:05 PM
Co-Chair Meyer queried why the Public Education Fund was
being used.
Mr. Barnhill asserted that the department was indifferent
to where the funds came from, but that money was needed in
order to pay the claims.
Co-Chair Meyer though that a different fund should be used.
Mr. Barnhill replied that the department had no problem
with the legislature identifying some other fund source.
3:37:14 PM
Vice-Chair Fairclough remarked that some schools did not
have the tax base in order to payback the funds.
Mr. Barnhill responded that BSA funds would be used in
order to make the payback. He said that the intent of the
circulating funds was to hold the Public Education Fund
harmless.
3:38:31 PM
Senator Olson wondered how long the payback had taken in
the Texas scenario.
Mr. Barnhill understood that it had not taken very long. He
said that the state had premiums coming in from the school
districts and that that cash flow had been sufficient to
manage the transition.
Co-Chair Meyer handed the gavel to Vice-Chair Fairclough.
Senator Olson wondered if the same model could work for
Alaska.
Mr. Barnhill replied that it would be imprudent to suggest
that the requested transitional cash flow would not be
needed.
3:40:49 PM
Senator Dunleavy believed that a considerable amount of
time should be taken developing the legislation.
Mr. Barnhill stated that the department had been
researching the subject in depth. He refused to state if
there was a causal link between state healthcare plan
pooling and lower benefit credits.
3:42:32 PM
Vice-Chair Fairclough wondered how other trusts would be
affected by a state change in pooling.
Mr. Barnhill responded that the legislation would lead to
the eventual closure of the trusts. He said that there
would need to be an additional time period because health
insurance claims to be incurred in one fiscal year and then
not resolved until the following fiscal year. Other trusts
would need to maintain sufficient funds in order to pay the
incurred claims until they were finally resolved. He
reiterated that the bill called for all employees and
dependents that were currently being served by those trusts
into the State of Alaska's active pool.
3:43:50 PM
Vice-Chair Fairclough remarked that there were assets
currently in the trusts that were drawing interest that
benefit the participants of the plan. She wondered who
would have claim to the assets.
Mr. Barnhill responded that the bill did not address
private trust funds and what would happen to the trusts
once the beneficiaries moved into the state's plan. He
suspected that the trust assets would be drawn down in
their entirety prior to transition. He said that the bill
did address the trust assets of school districts that were
self-insured. He relayed that any unencumbered balance at
the point of transition would be transferred to the claims
fund.
3:46:44 PM
Senator Olson thought that the NEA Trust was a private
trust.
Mr. Barnhill responded that it was a private trust. He said
that some self-funded health plans were funded and managed
by union trust plans.
3:47:21 PM
Vice-Chair Fairclough requested further conversation with
the trust to gain their perspective on the assets that they
held. She said that where there was a contract negotiated
that the state had been pay for 100 percent of the cost
then the state should have the right to assert some
ownership of some of the assets. But in was unclear what
the state's right were concerning the interest \that was
managed in a private entity.
3:48:06 PM
Mr. Barnhill interjected that there were two more fiscal
notes to be discussed. He spoke to FN#3, which listed the
start-up costs for FY14 at $237,700 to reprogram computers
to accommodate a quadrupling of the pool. He highlighted
that every inbound member was already and active member of
PERS or TRS. He said that running across the services line
was the contractual costs that would be paid to a third
party administrator and other vendors. The per member, per
month charge would grow by the rate of 4 percent per year.
He shared that that the final fiscal note for Retirement
and Benefits indicated that 12 new staff members would be
needed and would cost $482 thousand in FY14, and $964
thousand in FY15 through FY19.
3:50:34 PM
Co-Chair Meyer wondered how many other state bargaining
units had their own trusts.
Mr. Barnhill responded that there was the Alaska State
Employees Association (ASEA) Health Trust, which was
comprised of 8,800 general governmental unit employees of
the state and was the largest piece of the health trust for
the state. He added that Public Safety Employees
Association (PSEA) had opted out of state insurance and
were fully insured by ETNA. He said that the state was
fragmented in how health insurance was delivered to
employees.
3:51:23 PM
Co-Chair Meyer understood that the issue reached beyond
healthcare for teachers.
Mr. Barnhill replied in the affirmative.
3:51:27 PM
Vice-Chair Fairclough thought that the rate of return on
the assets of the different entities could be examined over
the interim.
Senator Dunleavy replied that he would research any
outstanding issues.
3:52:22 PM
Senator Olson wondered asked about the number of dependents
for the school district employees.
Mr. Barnhill responded that there were 29,000 dependents.
SB 90 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:55:48 PM
The meeting was adjourned at 3:55 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 13 30068 - DOTPF KABATA Final Digest.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 KABATA Audit Conclusions Findings and Recommendations.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 KABATA Audit.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |
| SB 13 Traffic Study FAQ April 2013 (2)1.pdf |
SFIN 4/12/2013 1:30:00 PM |
SB 13 |