Legislature(2017 - 2018)SENATE FINANCE 532
05/11/2018 10:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB79 | |
| HB119 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 119 | TELECONFERENCED | |
| += | HB 79 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
May 11, 2018
6:28 p.m.
6:28:56 PM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 6:28 p.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Anna MacKinnon, Co-Chair
Senator Click Bishop, Vice-Chair
Senator Peter Micciche
Senator Donny Olson
Senator Gary Stevens
Senator Natasha von Imhof
MEMBERS ABSENT
None.
ALSO PRESENT
Juli Lucky, Staff, Senator Anna MacKinnon; Heidi Drygas,
Commissioner, Department of Labor and Workforce
Development; Fred Parady, Deputy Commissioner, Department
of Commerce, Community, and Economic Development; Juli
Lucky, Staff, Senator Anna MacKinnon; Heather Carpenter,
Staff, Senator Pete Kelly; Representative John Lincoln;
Representative Dan Ortiz; Rynnieva Moss, Staff, Senator
John Coghill; Senator John Coghill; Representative Chuck
Kopp; Darwin Peterson, Legislative Director, Office of the
Governor.
PRESENT VIA TELECONFERENCE
Glenn Brown, Attorney for Ketchikan Gateway Borough,
Ketchikan.
SUMMARY
CSHB 79(FIN)
OMNIBUS WORKERS' COMPENSATION
SCS CSHB 79(FIN) was REPORTED out of committee with a
"do pass" recommendation and with three previously
published fiscal impact notes: FN5(ADM), FN7(LWF), and
FN8(LWF).
CSHB 119(FIN)
AIDEA:DIVIDEND;INCOME;VALUE;PROJECTS;TAX
SCS CSHB 119(FIN) was REPORTED out of committee with a
"do pass" recommendation and with three previously
published fiscal notes, one with fiscal impact:
FN4(EED/Fund Cap); and two zero notes: FN2(CED), and
FN3(EED).
CS FOR HOUSE BILL NO. 79(FIN)
"An Act relating to workers' compensation; relating to
the second injury fund; relating to service fees and
civil penalties for the workers' safety programs and
the workers' compensation program; relating to the
liability of business entities and certain persons for
payment of workers' compensation benefits and civil
penalties; relating to civil penalties for
underinsuring or failing to insure or provide security
for workers' compensation liability; relating to
preauthorization and timely payment for medical
treatment and services provided to injured employees;
relating to incorporation of reference materials in
workers' compensation regulations; relating to
proceedings before the Alaska Workers' Compensation
Board; relating to the authorization of the workers'
compensation benefits guaranty fund to claim a lien;
excluding independent contractors from workers'
compensation coverage; establishing the circumstances
under which certain nonemployee executive corporate
officers and members of limited liability companies
may obtain workers' compensation coverage; relating to
the duties of injured employees to report income or
work; relating to misclassification of employees and
deceptive leasing; defining 'employee'; relating to
the Alaska Workers' Compensation Board's approval of
attorney fees in a settlement agreement; and providing
for an effective date."
6:30:00 PM
Vice-Chair Bishop MOVED to ADOPT proposed committee
substitute for CSHB 79(FIN), Work Draft 30-GH1789\E
(Wallace, 5/11/18).
Co-Chair MacKinnon OBJECTED for discussion.
JULI LUCKY, STAFF, SENATOR ANNA MACKINNON, discussed the
changes to the bill. She explained that most of the changes
to the bill were removals. She referenced an Explanation of
Changes document (copy on file), and read sections of the
document:
The Senate Finance CS contains the sections of HB 79
that:
? Ensure Adequate Funding
? Reduce Administrative Costs
? Define Independent Contractors
The SCS also creates a Legislative Workers'
Compensation Working Group to act as an interim
committee to continue work and develop new legislation
for consideration during the 31st Alaska State
Legislature.
Ms. Lucky noted that the new Section 23 of the bill, which
formed the Legislative Workers' Compensation Working Group,
could be found on page 10, Line 12 of the bill. She relayed
that the committee had been concerned about making sure the
bill was balanced and ensuring there was legislative intent
to discuss the issues over the interim. The working group
would be comprised of six members, with three from each
body. The members would consult with stakeholders from the
Department of Commerce, Community and Economic Development
(DCCED); the Department of Labor and Workforce Development
(DLWD); the Medical Services Review Committee; organized
labor; school district administrators; and the state
business community.
Ms. Lucky continued discussing the legislative working
group proposed in the bill. The goal of the group would be
to recommend improvements to the laws relating to workers'
compensation and put forth a report that would be due on or
before December 1, 2018. The intent was to ensure that
there was adequate time for review and put forth
legislation in front of the next legislature. She noted
that the Explanation of Changes document showed items
removed from the bill with a strikethrough, and a
renumbering of those items that would remain in the bill.
Ms. Lucky relayed that she had conferred with the
department and there was no change to the fiscal notes.
Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO
further OBJECTION, it was so ordered. The CS for CSHB
79(FIN) was ADOPTED.
6:34:06 PM
AT EASE
6:38:58 PM
RECONVENED
Co-Chair MacKinnon informed that the Committee Substitute
(CS) for CSHB 79(FIN) was posted online.
Co-Chair MacKinnon thanked the commissioner of DLWD for all
of the work that had been done on the issue of workers'
compensation. She explained that the CS was a trimmed down
version of the bill. The committee had identified many
issues that were important to workers; and had learned of
issues to balance for employers before accommodating some
of the administration's requests. She understood that the
CS was not the complete package as proposed by the
administration.
6:40:58 PM
HEIDI DRYGAS, COMMISSIONER, DEPARTMENT OF LABOR AND
WORKFORCE DEVELOPMENT, thanked the committee for
consideration of the bill. She described the bill as an
"efficiencies bill." She mentioned provisions kept in the
CS including funding for the Division of Workers'
Compensation, electronic filing, and the definition of
independent contractor. She stated that there were several
things left out of the CS that would make the division work
better and hoped the items would be addressed by the
working group over the subsequent summer.
Commissioner Drygas remarked that there had been a lengthy
conversation between labor and industry about addressing
substantive benefits in the interim. She thought the
stakeholders were the best groups (rather than the
department) to address the issues. She stated that she was
eager to see how the working group came together, and that
the department was ready to assist in the endeavor. She
supported the bill with the understanding that there were
sections the department had not supported removing.
Co-Chair MacKinnon indicated that the committee understood
the sentiments of the department. She discussed the
challenge of passing legislation. She considered that if
elected officials could hear both sides of the proposals,
progress would be made. She referenced the work of
Representative Josephson in his proposed legislation
pertaining to damages for workers' compensation. She
emphasized the importance of understanding all sides of the
issue.
6:44:30 PM
Senator Olson referenced the working group as proposed in
the bill. He was pessimistic about making monumental
changes in age-old conflicts such as workers' compensation
and wondered how to make progress.
Commissioner Drygas stated that the bill language did not
come from the department, but she had reviewed it. She was
aware that it was an election year and thought work during
the interim might be difficult. She referenced a group
called The Workers Compensation Ad Hoc Committee, which
included stakeholders from organized labor and industry to
discuss substantive benefits and reform to workers'
compensation. She understood that the committee had worked
very well together for many years. She hoped that the
committee could be revived. She qualified that the group
came from the stakeholders rather from the department. She
noted that it had been 18 years since substantive benefits
had been increased for workers.
Co-Chair MacKinnon stated that the concept of the working
group had come from her office. She referenced a working
group on reducing sexual assault and noted that the
legislature had since implemented every single
recommendation. She referenced implementation of
recommendations from an oil and gas working group. The CS
proposed for the legislature to bring together stakeholders
to share perspectives and subsequently elected officials
would implement the recommendations. She emphasized the
need for accord.
Senator Olson understood that the ad hoc committee was
frustrated after its recommendations were not taken.
Commissioner Drygas could not recall the past actions of
the ad hoc committee and outcome of its recommendations.
She suspected that the work of the ad hoc committee halted
because legislation it worked on was passed over in favor
of legislation that did not include stakeholders. She
reiterated that the events in question took place long
before her tenure in the department.
6:49:24 PM
Vice-Chair Bishop discussed the fiscal notes. He addressed
FN 5 from the Department of Administration, a fiscal impact
note that showed a cost of $40,000 in the first year and
$12,900 in the out years. He read from the Analysis section
on page 2 of the fiscal note:
This bill will have a financial impact on the Division
of Risk Management (DRM).
This bill will clarify, amend, add and repeal several
statutes within workers' compensation. Changes that
will impact DRM include reporting changes to the
Alaska Workers Compensation Board. The Board will move
from a manual process to an Electronic Data Input
(EDI) process, with changes to the appropriate forms
used for reporting.
DRM anticipates a first year cost of $40.0 for the
initial implementation, including changes to the
software and costs related to submitting forms via
EDI. Costs are estimated at $12.9 annually in the out
years. Costs will be absorbed by agencies through the
annual rate process.
Vice-Chair Bishop addressed FN 8 from DLWD, which was a
fiscal impact note. There was an in increase the percent of
fees deposited into the Workers' Safety and Compensation
Administrative Account (WSCAA). The increase did not add to
any premiums from any employers but was built into what was
collected by the Division of Insurance.
Vice-Chair Bishop addressed FN 7 from DLWD, which was a
fiscal impact note. He read from the fiscal note Analysis
on page 2:
This legislation will sunset the Second Injury Fund
(AS 23.30.040). Future claim payments will only be
made on those claims accepted by the effective date.
There will be no reduction in the near future in the
staffing required to process these claim payments
because it will likely take decades for the Fund to
pay these ongoing claim obligations. Ninety-five
percent of these claims are categorized as permanent
total disability (PTD) benefits. PTD benefits are paid
until disability ends or until death.
The reduced Fund liability reflected in this fiscal
note assumes the average age of the claimant at
closure would be 80 years old and two to three cases
would be closed per year due to the death of the
claimants. The reduced revenue reflected in this
fiscal note is because employer and insurance carrier
contribution rates will decline over time as the
Fund's liability is exhausted as prescribed in
statute.
Revenue to the Second Injury Fund (SIF) comes from an
annual assessment on Workers' Compensation insurance
providers and self-insured employers through a
contribution rate that changes every year based on
statute designed to ensure sufficient revenue to cover
expenses. Insurance companies are able to pass this
assessment on to employers through premiums. As SIF
claims decline costs to insurance providers and
self-insured employers will decline, including the
State of Alaska through the Department of
Administration's Risk Management division.
In FY2017, the State of Alaska comprised 11.5 percent
of total SIF revenue ($343,150 of $2,984,507). The
State of Alaska could save as much as $46,000 if it
represented 11.5 percent of the projected total
savings of $400,000 starting FY2020, and this savings
would grow incrementally in the following years. This
cost savings will be passed on to all state agencies
through decreased personal services benefit costs and
included in future year budget salary and benefit
adjustments.
Vice-Chair Bishop noted that the reason that the Second
Injury Fund would sunset was due to the fact that it was no
longer legal to ask an employee if they had a disability.
6:54:31 PM
AT EASE
6:54:57 PM
RECONVENED
Vice-Chair Bishop MOVED to report SCS CSHB 79(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
SCS CSHB 79(FIN) was REPORTED out of committee with a "do
pass" recommendation and with three previously published
fiscal impact notes: FN5(ADM), FN7(LWF), and FN8(LWF).
6:55:36 PM
AT EASE
6:58:04 PM
RECONVENED
CS FOR HOUSE BILL NO. 119(FIN)
"An Act relating to a mandatory exemption from
municipal property taxes for certain assets of the
Alaska Industrial Development and Export Authority;
relating to dividends from the Alaska Industrial
Development and Export Authority; relating to the
meanings of 'mark-to-market fair value,' 'net income,'
'project or development,' and 'unrestricted net
income' for purposes of the Alaska Industrial
Development and Export Authority; and providing for an
effective date."
6:58:04 PM
Co-Chair MacKinnon informed that the committee had heard
the companion bill for HB 119 (SB 57) on March 2, 2017.
6:58:29 PM
AT EASE
6:58:43 PM
RECONVENED
Co-Chair MacKinnon asked for an overview of the bill from
the perspective of the department.
FRED PARADY, DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCE,
COMMUNITY, AND ECONOMIC DEVELOPMENT, explained that he had
served as the commissioner's delegate to the Alaska
Industrial Development and Export Authority (AIDEA) and the
Alaska Energy Authority (AEA) for the previous three and a
half years. He thought that the bill had major pieces that
were familiar. He thought the bill specifically addressed
concerns that AIDEA had with two issues in accounting for
purposes of dividend calculation for payment to the state.
The first issue pertained to market valuation adjustments.
Under current Governmental Accounting Standards Board
(GASB) rules it was required to estimate the value of an
asset on a particular day, which inflated or deflated
valuation and thereby impacted AIDEA's dividend
calculation. He stated that there was a solution contained
in the bill would take the non-cash adjustments out of
income calculations before dividend calculation to reflect
real neat income.
Mr. Parady discussed the second problem he had identified
with accounting, which was an AIDEA dividend penalty that
was triggered by non-AIDEA-based project funding. He
detailed that in 2002, the legislature instructed AIDEA to
disregard project funding from non-AIDEA sources when
calculating the dividend so as to not artificially inflate
net income. The legislation did not account for
circumstances when a project using non-AIDEA funds might be
cancelled and expenditures were written off. Without
correction, the periodic adjustments could artificially
decrease net income. The solution was the same as for the
first problem, which was to back out losses for projects
funded from non-AIDEA funding and return the dividend
calculation to real net income.
Mr. Parady informed that AIDEA had paid the state dividends
of approximately $380 million to since the early 1990s and
was working strongly to continue to do so. He asserted that
passage of the bill would make the yearly dividend amount
more predictable for planning purposes.
7:01:53 PM
Mr. Parady addressed the topic of the reestablishment of
the Red Dog Port and transportation valuation exemption as
proposed by the bill. The language would clarify some
reinstitutes the property tax exemption for the Red Dog
Port and the DeLong Mountain Transportation System. The
exemption was implemented for the structure during the
early 2000s but had sunset in 2017. The language also
clarified that the exemption applied to the AIDEA-owned
port. It had been assumed as such, but there had been a
reinterpretation. He wanted to ensure that the mine and
port were treated as a unit and were excluded from
taxation. He pointed out the retroactivity of the exemption
to November 2017.
Mr. Parady continued discussing the bill. He stated that
there was a revised fiscal note for the bill that did not
show an increase in state education aid for the Red Dog
Mine, because the funds were already contained in the base
education budget and would continue to be so. He stated
that although the Northwest Arctic Borough did not levy a
property tax; Teck, Alaska (Red Dog Mine owner) made
negotiated payments through a payment in lieu of taxes
(PILT) agreement. The PILT had been renegotiated and was
increasing to between $14 million and $18 million. In the
current year, the borough appropriated $4 million to its
school district, which exceeded any required local
contribution.
Mr. Parady addressed the issue of the Ketchikan Shipyard
valuation exemption. The bill would clarify that the
property tax exemption applied to the Ketchikan Shipyard,
which was owned by AIDEA. From 1997 until 2012 the shipyard
was considered to be covered by the existing statutory
property tax exemption; but in 2012 the state assessor's
office ruled that possessory interest of the agreement with
AIDEA did not qualify for the mandatory exemption. The
effect of the required local contribution under the change
was that Ketchikan Gateway Borough had been paying an
increased local contribution to education for a number of
years, including the shipyard. The increase would require
approximately $79,000 in increased education funding
starting in FY 20.
Mr. Parady asked Co-Chair MacKinnon if he should address
the Interior Energy Project (IEP) bond exception as
proposed in the CS.
Vice-Chair Bishop MOVED to ADOPT proposed committee
substitute for CSHB 119(FIN), Work Draft 30-GH1677\U
(Laffen/Nauman, 5/11/18).
Co-Chair MacKinnon OBJECTED for discussion.
Co-Chair MacKinnon explained that other bills had been
attached to the bill. She wanted to consider all the
proposed elements of the bill at once.
7:06:00 PM
JULI LUCKY, STAFF, SENATOR ANNA MACKINNON, addressed an
Explanation of Changes document (copy on file):
Adds language to AS 42.40.350 (a) that states that the
Alaska Railroad Corporation does not have authority
over any right, title, or interest in property
transferred under this subsection that was not vested
in the United States at the time of transfer. [Section
3]
Requires notification of adjacent landowners by
registered mail as part of the public notice process
before the Alaska Railroad Corporation sells land
under AS 42.40.352. [Section 5]
Adds language to AS 42.40.410 that states that land or
interest in land that is not conclusively owned by the
United States at the time of transfer is not available
and does not satisfy the exception from legislative
approval under AS 42.40.2085 (5)(C). [Section 6]
Repeals unnecessary and unused bond authority.
[Sections 7, 8, 13 & 14]
Extends the allowable time for the Alaska Industrial
Development and Energy Authority
(AIDEA) to issue bonds for the Interior Energy Project
(IEP) to June 30, 2023. [Section 12]
Authorizes transfer and exchange of real property from
the Alaska Railroad Corporation to various entities.
[Sections 15 22]
Requires the Alaska Railroad Corporation to annually
report on the land transfers and exchanges.
[Section 23]
Ms. Lucky pointed out that Section 1 of the bill had been
in HB 118 and pertained to the tax assessment previously
discussed by Mr. Parady. She detailed that Section 2 of the
bill contained the sunset for the same provisions. The
effective date of Section 2, which was included in HB 119
as it came to the committee, would be November 30, 2027.
She described that Section 3 of the bill was a technical
change and was made necessary by the inclusion of Section
6. She furthered that Section 4 was a new section sourced
from a bill related to railroad land disposals and had to
do with railroad ownership for corporations.
Ms. Lucky continued to discuss the changes to the bill. She
hoped that Section 5 would be familiar to members; it was a
provision put into the bill regarding railroad property
transfers. It required notification to adjacent landowners
when the railroad sold property. Section 6 was also new
language regarding the interest in land. Section 7 and
Section 8 removed some bond authority and had been in the
bill related to railroad property disposals. Section 9
correlated to Section 3 of the bill and related to mark to
market calculations. She continued that Section 10 was also
in HB 119 as it came to the committee; as well as Section
11, which was concerned with the definitions of mark to
market and project and developments.
Ms. Lucky stated that Section 12 of the bill, concerning
the IEP, which extended authorization bonds until June 30,
2023. If the bill were not to pass, authorization would
sunset on June 30, 2018. Section 13 and Section 14 removed
the unneeded bond authority that had been a provision of
the bill the committee passed that was related to railroad
land transfers.
Ms. Lucky elaborated that when the committee had passed the
bill related to railroad land transfers, it contained
authority for the Alaska Railroad Corporation to sell land
without legislative approval. Changes in the other body
proposed to give the corporation authority for certain
projects rather than a blanket authority. She detailed that
Sections 15 through Section 22 all pertained to various
projects for which the corporation had wanted to dispose of
the associated real estate.
Ms. Lucky explained that Section 23 contained a reporting
requirement, which had been added to provide understanding
for the legislature regarding selling land for commercial
interest. Section 24 was a retroactivity section and
referred back to Section 1. Section 25 was an immediate
effective date for the rest of the bill, and Section 26 was
a delayed effective date of November 30, 2027 for Section 2
(the repeal of the tax assessment sections).
7:12:09 PM
Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO
further OBJECTION, it was so ordered. The CS for HB 119 was
ADOPTED.
Mr. Parady stated that the IEP bond authorization would
extend the bond authorization for a five-year period. It
allowed for AIDEA (in working in conjunction locally with
the Interior Gas Utility) to access bond financing. There
was no other change to the bond financing previously
authorized. He noted that construction on the project was
underway, and the construction of the 5 million gallon
liquified natural gas storage tank was ongoing.
HEATHER CARPENTER, STAFF, SENATOR PETE KELLY, informed that
the IEP provision of the bill in Section 12 (originally in
SB 125) would extend the allowable time for AIDEA to issue
bonds for the energy project by five years to June 30,
2023. She reminded that the committee had heard the
associated legislation on Feb 12, 2018; and had passed it
out of committee on February 16, 2018. The bill had passed
the Senate unanimously.
Ms. Carpenter continued to discuss Section 12 of the bill.
She reminded that the interior suffered from the most
volatile energy costs of any community on the Railbelt.
Cold winters and high energy costs resulted in many
households that burned wood and coal, which exacerbated
high energy costs and air quality issues. There was an
existing gas distribution system in Fairbanks that did not
serve more than 1,200 customers. There was a lack of
sufficient local LNG storage that prevented the addition of
new residential customers. The IEP was developed to address
the issues and expand availability of clean and affordable
natural gas in the greater Fairbanks and North Pole areas.
She discussed the funding for the IEP, which had all been
spent or obligated.
Ms. Carpenter detailed that the AIDEA team had diligently
deployed its resources but needed to extend the
authorization for the bond component of financing. The
bonding was necessary for increasing production capacity
for the LNG plant at Point McKenzie and further expansion
of the gas distribution network in the Interior. She
discussed accomplishments by the IEP, including the passage
of the Property Assessed Clean Energy Project. She detailed
that on its present schedule, the project would provide its
first expanded gas availability was expected in the winter
of 2019. Further expansion of converting homes to gas would
occur in the construction season of 2020. She emphasized
that extending the sunset for AIDEA's bonding authority for
IEP would ensure continued success.
7:18:42 PM
REPRESENTATIVE JOHN LINCOLN, spoke to Section 1 of the
bill, which clarified and reauthorized a property tax
assessment exemption for the DeLong Mountain Transportation
System. The exemption was implemented in the early 2000's,
was reauthorized in 2012, and had expired in November 2017.
He relayed that the Northwest Arctic Borough did not have a
property tax, and most likely would not for some time. Much
of the property in the borough was tax exempt per federal
law. The region struggled with high costs and low
employment. He stated that a property tax would create a
significant inequity in the community. He stated that
despite not having a property tax, the state partially set
the state's funding for a school district and
municipality's local minimum contribution based on an
estimate of what a hypothetical property tax would generate
in revenue.
Representative Lincoln continued to address Section 1. He
stated that the transportation system was a tax-exempt
state-owned asset could not be taxed despite AIDEA
receiving millions of dollars per year for the use of the
facility. He detailed that the exemption would be
retroactive to November 2017 to provide seamless extension
for the facility. The fiscal note did not show a change
relative to the transportation system, because funds were
already budgeted and expected to be maintained in future
years.
7:21:45 PM
REPRESENTATIVE DAN ORTIZ, spoke to Section 1 of the bill,
which pertained to the Ketchikan Shipyard. The section
would clarify the question of whether the perceived value
of Vigor Alaska's long-term operating agreement for use of
the AIDEA-owned tax-exempt property should be included in
the state's calculation of the Ketchikan Gateway Borough's
minimum local contribution to schools. He referenced Mr.
Parady's explanation of when AIDEA took control of the
shipyard in 1997, there had been an exemption as a part of
the agreement for AIDEA's ownership. The exemption had
lasted until 2012, at which time state assessor's put a
different calculation forward. He stated that the bill
provision reestablished the exemption, based on the idea
that it was state-owned property and part of the initial
operating agreement when AIDEA took ownership in 1997.
Representative Ortiz continued discussing the Ketchikan
Shipyard, which serviced vessels for the Alaska Marine
Highway. He detailed that AIDEA owned the shipyard and
Vigor Alaska operated the facility based on a ten-year
contract with AIDEA that expired in 2025. The shipyard
employed 226 workers at an average salary of $80,000 per
year. He asserted that the shipyard served the needs of the
state and did a good job of recruiting workers from around
the state. He thought the facility did a good job
cooperating with other entities on workforce development
and recruitment including Northern Industrial Training,
Alaska Native corporations, high schools, and regional
training centers.
7:24:54 PM
GLENN BROWN, ATTORNEY FOR KETCHIKAN GATEWAY BOROUGH,
KETCHIKAN (via teleconference), added to the testimony of
Representative Ortiz. He stated that the operating
agreement in place had been negotiated in 2005 was premised
on an up to 30-year term, with the understanding that the
mandatory exemption was in place. It was only by virtue of
a change in the state assessor's view of the shipyard that
brought about the full assessment value increasing by $74
million. He stated that the change impacted the required
local contribution significantly. At the time of the change
the impact was $196,000 per year. Through litigation and
settlement the impact was $79,000 per year; which was
reflected in the fiscal impact statement.
Mr. Brown asserted that the commonality between the Delong
Mountain Transportation System and the shipyard were
poignant, in that they were both under operating agreements
rather than simply leased by AIDEA. Further, the facility
in Ketchikan primarily served as a maintenance facility for
the Alaska Marine Highway and had significant competition
from shipyards father south. It was only recently that the
shipyard began to produce profits. He asked the committee
to consider the exemption.
7:28:01 PM
RYNNIEVA MOSS, STAFF, SENATOR JOHN COGHILL, addressed
Section 15 of the bill, which pertained to properties sold
by the Alaska Railroad Corporation. Section 15 was a land
swap and exchange of cash (depending on the valuation of
both properties) between the Eklutna Native Corporation and
the railroad corporation. She explained that Eklutna wanted
to acquire property owned by the railroad to develop a
gravel excavation operation and other development in
conjunction with adjacent land already owned by Eklutna. In
return, there would be a swap of land in Birchwood, which
was adjacent to land already owned by the railroad.
Ms. Moss explained that Section 16 related to the railroad
selling approximately 20 acres of land to the Municipality
of Anchorage for $1.5 million, and the termination of a
102-acre long-term lease, freeing up over 80 acres to
revert back to the railroad's operations at the port
facility. The municipality was looking to obtain title to
allow for expansion of the port facilities. She relayed
that Section 17 of the bill sold land to the Usibelli Coal
Mine. In the early days of the mine, housing had been
provided for workers at the mine camp. As the camp grew,
the federal government told the mine to move workers and
workers' families from the mine property. Most of the land
in the surrounding area was owned by the railroad. The
railroad had leased property to provide residential and
related infrastructure including schools, churches, and a
community center. Usibelli subleased the land to
homeowners; as well as organizations such as the Denali
Borough, churches, and day cares. If Usibelli had the
opportunity to purchase the land, it would then go through
a process to make the lots available for purchase by
current subleases.
Ms. Moss addressed Section 18 of the bill, which pertained
to a two-phase subdivision across the Chena River from
Carlson Center. Phase 1 had already been subdivided, and
included the development of 23 lots into residential
housing. She continued that Section 19 of the bill
pertained to development of an area of almost 30 acres near
Otto Lake. Alaska Tourism Development had proposed to spend
$30 million constructing a tourist lodge and associated
resort facilities. Section 20 of the bill was the approval
of a transfer of rural property to NeighborWorks, Alaska; a
non-profit organization that sought to make improvements to
its housing. The organization was having difficulty getting
financing due to leasing rather than owning the property.
Ms. Moss addressed Section 21 and Section 22, which
pertained to approval of land sales in the Anchorage
terminal reserve. The approval had not been solicited by
the railroad, however Lynden had expressed interest in
negotiating with the railroad to purchase the long-term
leases it had with the Anchorage reserve.
7:32:56 PM
Vice-Chair Bishop asked if Ms. Moss' remarks were regarding
a lease purchase of land in Anchorage.
Ms. Moss answered in the affirmative.
Co-Chair MacKinnon noted that legislative approval did not
force the railroad to sell land it did not choose to sell.
Ms. Moss answered in the affirmative.
Co-Chair MacKinnon asked if all the different parcels for
which sales were in question were included in the bill.
Ms. Moss explained that there were five parcels for which
the railroad was interested in negotiating sales. The last
three parcels were those that lessees had been interested
in purchasing.
Senator von Imhof observed that the bill previously
considered had non-identification of exact parcels, and a
three-year sunset. She wondered if there was a time
limitation in the current bill.
Ms. Moss answered in the negative. She stated that five of
the projects had been in a long-term negotiation with the
lessees, with the exception of Chena Landing, which did not
have a lessee. The land was owned by the railroad, and it
had been subdivided and developed.
Co-Chair MacKinnon stated that the Senate (in a previous
bill it had passed) had authorized a general purchase
agreement with parameters to allow the railroad to go
forward with three years to do a test run of the proposed
land changes. The House had not accepted the structure of
the proposal and had proposed to approve individual
projects. She relayed that the language in HB 119 was
closer to what had been proposed by the House.
Ms. Moss referenced Ms. Lucky's testimony regarding a
provision of the bill that eliminated bonding authority and
approved public notice.
Co-Chair MacKinnon referenced approved notification to
adjacent land owners.
SENATOR JOHN COGHILL, reminded the committee that there was
a reporting mechanism in the bill that would inform the
legislature.
7:37:36 PM
REPRESENTATIVE CHUCK KOPP, spoke to Section 4 and Section 6
of the bill. He recounted that two years previously he
became aware that there were some contested land use issues
involving the railroad right-of-way extending from
Fairbanks to Seward. The issues in question all focused on
sections of the right-of-way that had to do with homestead
patent properties that had gone from the federal government
into state hands. Questions had been raised because land
owners started receiving invoices for sections of lawn and
gardens that were in the right of way. Land owners
questioned the invoice as homestead patents showed the
railroad was reserved a surface easement (right-of-way for
rail, telegraph, and telephone) but nothing more.
Representative Kopp continued discussing the contested land
use. Properties were affected in South Anchorage, Midtown
Anchorage, and up through Eagle River. The railroad agreed
that there was a question of legality and had stopped
invoicing people. He had realized that there was no long-
term legislative oversight to say the railroad should not
claim an interest in the right-of-way if the federal
government never owned the interest to give to the state in
the first place.
He had researched the matter with public lands lawyers and
the Alaska Congressional Delegation, he had received a
letter highlighting the legal opinion that the state was
correct in trying to pursue a correction. He referenced a
letter from United States Congressman Don Young (copy on
file). The letter suggested there was a clear direction
from congress to dutifully recognize basic tenets of due
process. the congressmen suggested that there had been a
failure by agencies which had resulted in a lack of
clarity. He read from the letter:
House Joint Resolution 38 outlines what can only be
described as a failure by the agencies to understand
clear direction from Congress and to dutifully
recognize basic tenets of due process, needlessly
resulting in a cloud on title for both the Alaska
Railroad and its neighbors along the right- of-way.
There is no way a bill quietly annexing private
property rights, especially without any notice or
compensation, would have passed Congress in 1982. You
only have to read the plain language of ARTA to know
that-the transfer of rail properties of the Alaska
Railroad" over privately-owned land only included the
"Federal interest" in those lands. If the federal
government did not own it, it was not included in the
transfer. There is no canon of statutory construction,
or even common-sense reading, that could argue an
unconstitutional taking of private property rights was
the intent of Congress.
The intent was to transfer the federally owned Alaska
Railroad's existing assets, which can be clearly noted
throughout the Act itself and the record. Where the
underlying estate was federally owned, as well, the
issue became how much of an interest to pass along in
the right-of-way over those lands, which is spelled
out in the Act. The federal government obviously had
sufficient proprietary interest in the transfer of
rail properties - defined in ARTA as federally held
rights, titles, and interests - which were directed to
be transferred; but, nowhere in ARTA did Congress
authorize the transfer of privately owned property
interests, nor could it do so in such a cavalier and
vague manner as is being suggested.
7:41:32 PM
Representative Kopp stated that the language in Section 4
had the legal effect of providing direction and
clarification in statute to prevent the railroad from
exercising perceived authority to continue to require
privately owned property interests in violation of federal
and state law. He used the example of a fence across
private property that required a land owner to drive 20
miles to a public crossing to access the other side of the
same property. He cited an example of an access issue for
holders of an original homestead patent North of Eagle
River. He emphasized that no part of the bill would
independently result in a change of ownership of any
property interest. The bill would not independently operate
to disclaim or restore any property rights. The railroad
would simply not make a claim unless the title recording
system showed that the claim was in the federal interest at
the time it was transferred.
Representative Kopp emphasized that the language in Section
4 used the phrase "to not have authority over real
property." The railroad corporation had been given its
authority to act in state law. The bill language clarified
that the authority did not include the ability to take
action or otherwise manage property if it was unlawfully
obtained. No determination of as to what was lawful or
unlawful was required for the direction to be appropriate
from the legislation.
Representative Kopp addressed Section 6 of the bill, which
included the terminology "conclusively owned," which was to
say that generally that any individual parcel's chain of
title clearly demonstrated that the federal government was
the fee owner of the right, title or interest, at the time
it was transferred to the state. The direction from the
legislature would come into play regarding the right-of-way
that crossed private property. Each parcel in the right-of-
way would need to be individually evaluated to determine
what the federal government owned when it transferred the
rail properties to the Alaska Railroad, which only included
what the United States owned. If it became reasonably clear
during the analysis that the railroad was only in
possession of the federal interest in the parcel, then the
amendments proposed in the bill would have no effect.
Co-Chair MacKinnon asked if the railroad was in favor of
the amendment.
Representative Kopp stated that the railroad was not in
favor of the change, because it provided oversight it was
not comfortable with. The railroad admitted that there was
a strong legal argument in favor of the bill and had seen
the letter from the congressional delegation.
7:46:01 PM
Co-Chair MacKinnon asked if the change to Section 4 and
Section 6 had the support of the administration.
Representative Kopp stated that the sections of the bill
had strong support of the administration. All the
governor's appointees on the railroad commission supported
the provisions, and the governor's office had conveyed
support for the language in the bill.
DARWIN PETERSON, LEGISLATIVE DIRECTOR, OFFICE OF THE
GOVERNOR, stated that the Department of Law had reviewed
the CS for HB 119. The administration did not have any
opposition to the bill.
Co-Chair MacKinnon OPENED public testimony.
Co-Chair MacKinnon CLOSED public testimony.
Vice-Chair Bishop addressed FN 2(CED), which was a zero
fiscal note. He read from the Analysis on page 2 of the
fiscal note:
A prediction of future market conditions, future
actuarial estimates, or potential impairments, an
thereby, their effect on AIDEA's dividend to the State
of Alaska cannot be made.
Vice-Chair Bishop addressed FN 3(EED), which was a zero
fiscal note. He read from the Analysis on page 2 of the
fiscal note:
The funding mechanism is a general fund transfer to
the Public Education Fund (PEF). The fiscal note
effect for FY2018 through FY2023 is reported in the
fiscal note for the PEF, as the funding is deposited
to the PEF not into the Foundation Program funding
component. The above analysis is presented here for
explanation purposes only.
Vice-Chair Bishop addressed FN 4 (GOV/Fund Cap), which had
fiscal impact. Starting in FY 20, there was a fiscal impact
of $79,600 per year. He read from the Analysis on page 2 of
the fiscal note:
Under the optional exemption, Ketchikan Gateway
Borough's annual Required Local Contribution (RLC)
payment for the possessory interest value of the
shipyard was $79,596 for 2017. For purposes of this
fiscal note the $79,596 per year represents the
current RLC which may change in the future. If the
bill as amended is adopted, the obligation for this
funding for the RLC for the Ketchikan Gateway School
District would shift and become the funding obligation
of the State of Alaska under AS 14.17.410 Public
School Funding program.
Additionally, the statutory exemption for the Red Dog
Mine sunset in November 2017. Under this bill, the
exemption for the Red Dog Mine would be retroactively
applied back to November 30, 2017 and continue the
prior exemption which would result in no fiscal impact
to the state.
It is understood the exemption for the Alaska Ship and
Drydock will begin with calendar year 2018. Since
there is a two year lag in the assessed full and true
values being applied to the public school funding
formula under AS 14.17.410, the cost to the state
would not be realized until FY2020.
Vice-Chair Bishop MOVED to report SCS CSHB 119(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes.
SCS CSHB 119(FIN) was REPORTED out of committee with a "do
pass" recommendation and with three previously published
fiscal notes, one with fiscal impact: FN4(EED/Fund Cap);
and two zero notes: FN2(CED), and FN3(EED).
7:51:36 PM
AT EASE
7:53:30 PM
RECONVENED
Co-Chair MacKinnon stated she would RECESS to the call of
the chair. She discussed the schedule for the following
day.
7:54:05 PM
RECESSED
[Note: This meeting was adjourned on 5/12/18 at 11:11:07
a.m., with no further action taken.]