Legislature(2003 - 2004)
05/17/2003 10:15 AM Senate JUD
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* first hearing in first committee of referral
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ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
May 17, 2003
10:15 a.m.
TAPE(S) 03-51,52
MEMBERS PRESENT
Senator Ralph Seekins, Chair
Senator Scott Ogan, Vice Chair
Senator Gene Therriault
Senator Johnny Ellis
Senator Hollis French
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE JOINT RESOLUTION NO. 19
Proposing amendments to the Constitution of the State of Alaska
relating to the Alaska permanent fund.
HEARD AND HELD
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 86(JUD) am
"An Act relating to state permitted projects; and providing for
an effective date."
MOVED SCS CSSSHB 86(JUD) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 245(JUD)(efd fld)
"An Act relating to certain suits and claims by members of the
military services; relating to certain suits and claims
regarding acts or omissions of the organized militia; relating
to workers' compensation and death benefits for members of the
organized militia; relating to liability arising out of certain
search and rescue, civil defense, fire management, and fire
fighting activities."
HEARD AND HELD
PREVIOUS ACTION
SJR 19 - See State Affairs minutes dated 5/13/03
HB 86 - See Judiciary minutes dated 5/7/03, 5/13/03, and 5/16/03
HB 245 - No previous action to record.
WITNESS REGISTER
Senator Georgiana Lincoln
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of SJR 19
Representative Eric Croft
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HJR 3 (House version of SJR 19)
Ms. Victoria Pate
Nikiski, AK
POSITION STATEMENT: Supports SJR 19
Mr. James Price
Nikiski, AK
POSITION STATEMENT: Supports SJR 19
Mr. Bill Arnold
Sterling, AK
POSITION STATEMENT: Stated appreciation that SJR 19 was
introduced and believes the taxation question is a states' right
issue.
Mr. Bob Bartholomew
Chief Operating Officer
Alaska Permanent Fund Corporation (APFC)
PO Box 25500
Juneau, AK 99802-5500
POSITION STATEMENT: Described problems of incompatibility
between the POMV method and SJR 19
Mr. Roger Shannon
Kenai, AK
POSITION STATEMENT: No position taken on SJR 19
Representative Hugh Fate
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 86
Mr. Jim Pound
Staff to Representative Fate
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Answered questions about CSSSHB 86(JUD)AM
Mr. Kyle Parker
Forest Oil Corporation
1600 Broadway, Suite 2200
Denver, Colorado 80202
POSITION STATEMENT: Answered questions about Amendment 2 to
CSSSHB 86(JUD) am
Mr. Joe Balash
Staff to Senator Therriault
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Explained the effect of Amendment 2 to
CSSSHB 86(JUD) am
Mr. Scott Nordstrand
Deputy Attorney General, Civil Division
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Answered questions about CSSSHB 86(JUD)am
Ms. Gail Voightlander
Chief Assistant Attorney General
Department of Law
PO Box 110300
Juneau, AK 99811-0300
POSITION STATEMENT: Described CSHB 245(JUD)(efd fld)
ACTION NARRATIVE
TAPE 03-51, SIDE A
10:15 a.m.
CHAIR RALPH SEEKINS called the Senate Judiciary Standing
Committee meeting to order at 10:15 a.m. Present at the call to
order were Senators Ellis, Ogan, French, and Chair Seekins.
Senator Therriault arrived shortly afterward. The committee took
up SJR 19.
SJR 19-CONST. AM: PERMANENT FUND INCOME
SENATOR GEORGIANA LINCOLN, sponsor of SJR 19, and Representative
Eric Croft, sponsor of HJR 3 (House companion legislation),
introduced themselves.
SENATOR LINCOLN told members that members' bill packets contain
a copy of SJR 19, its fiscal note, a sectional analysis, and a
letter from former Governor Jay Hammond. She described each
section of SJR 19 as follows.
· Section 1 requires that the income of the permanent fund be
deposited into the earnings reserve account and distributed
according to specific statutes as they read on July 1,
2002, which contains a statutory formula for the
distribution.
· Section 2 requires that the statutes referred to in Section
1 remain in effect as they were on July 1, 2002,
essentially freezing those statutes. That will allow future
Legislatures to appropriate funds from the earnings reserve
account only as authorized under the frozen statutes unless
the voters ratify a different appropriation.
· Section 3 suspends and repeals the [constitutional]
amendment if the IRS makes any adverse ruling on the
earnings reserve account regarding taxation of the fund.
SENATOR LINCOLN said the crux of the legislation is to protect
the permanent fund dividend. She noted that members of a House
committee met that morning and discussed implementing various
taxes to close the fiscal gap and using the permanent fund
earnings, which is frightening for constituents.
REPRESENTATIVE CROFT informed members that he introduced HJR 3
because he believes the public should weigh in on this very
important public policy decision. The public is very concerned
about the Legislature's ability to take away the dividend. The
Legislature has been a responsible steward of the dividend
throughout the permanent fund's history, but the public should
be involved in the decision of whether the Legislature is able
to use any portion of the earnings. He said this constitutional
amendment assures the public it will be involved in that
decision.
REPRESENTATIVE CROFT said, regarding the taxation issue, the
courts apply a number of tests to determine whether a public
fund should be taxable. The two tests of primary concern are
whether the fund is an integral part of the state and whether
its proceeds accrue to a private benefit. He does not believe
establishing the dividend in the Alaska Constitution, by
statute, or by regulation will change whether the fund is an
integral part of the state or whether it is a public or private
benefit. He maintained that the Michigan Educational Trust
ruling should provide the Legislature with solace regarding the
tax issue and said he does not believe this constitutional
change will create any new risk.
REPRESENTATIVE CROFT concluded:
We put on those provisions that Senator Lincoln talked
about at the end that give protection if my reading of
those cases is wrong. So, we've tried to protect it
two or three different ways to make sure that this is
not taxed, and if we can solve that problem, then the
fundamental policy question becomes is it appropriate
that we ask the people before we change the dividend
or use their earnings. We believe it is and that is
why we introduced this constitutional amendment.
SENATOR LINCOLN referred members to a 1998 letter from Morrison
& Foerster, a legal firm in Washington, D.C., that addresses the
tax issue. In the executive summary the author says that three
primary arguments support the position that the income of the
fund and the APFC are not subject to federal taxation. The first
argument is that the constitutional doctrine of implied immunity
of state instrumentality of federal taxation applies. The second
argument is that, according to the history of the IRS rulings,
income earned by a state or an integral part of a state is not
specifically subjected to taxation. The third argument, an
alternative, is that the income is excluded from Section 115 of
the IRS Code, which excludes gross income from any income that
is derived from the conduct of an essential government function
and accrues to the state or political subdivision.
SENATOR FRENCH thanked Senator Lincoln and Representative Croft
for introducing the resolutions and said, in his mind, this is
the central public policy question before the state for the next
several years. The issue is whether to let the people have a say
before the Legislature takes part of their dividends and spends
that money on government. He stated:
That is a train that's on the tracks and I think the
history of the permanent fund and the history of our
grappling with the fiscal issues in the state says
that the people expect to vote. The people expect a
say and the only way they're going to get a say is if
this or a very similar amendment gets in front of them
on the ballot soon so that this is subject to a public
vote.
He said he is not very concerned about the tax issue. He has
read the Morrison & Foerster letter twice and his reading is the
permanent fund is nothing but an integral part of the state. It
is made of Alaskan oil that has been transferred from
underground to a bank above ground. He thanked both sponsors for
the work they have done and stated full support for the
resolutions.
CHAIR SEEKINS said the Senate Judiciary Committee plans to hold
hearings during the interim to get public input on the POMV
issue. He intends to work in conjunction with APFC Board of
Trustees and to discuss SJR 19 and HJR 3 simultaneously. He said
his concern is that the legal opinion cited today was written in
1998 and he wants to make sure the Legislature is updated. He
feels it would be valid to ask for a legal opinion from the IRS.
He emphasized his intent is to make sure the public trust is
protected.
SENATOR THERRIAULT indicated he did not have a copy of the
letter from former Governor Hammond.
MR. BRIAN HOVE, committee aide, said he would be sure to
distribute copies of that letter to members.
SENATOR THERRIAULT then stated:
I really would like to take a look at that. Of course,
we saw a letter from a former Governor the other day
that suggested that to save the longevity bonus, we
just go back and ignore the Zobel case. I don't know
exactly how many times we have to lose that case
before it's clear that we can't do what the Governor
suggested. The other thing, Senator, I'm not sure this
letter from Mr. Martin - is this something that you
had included in the packet and had distributed?
SENATOR LINCOLN was not aware of the letter Senator Therriault
was referring to.
REPRESENTATIVE CROFT pointed out that Mr. Martin was available
to testify at the meeting scheduled the prior day, but because
that meeting was postponed until today, Mr. Martin sent in his
written testimony.
CHAIR SEEKINS repeated his intent is to include SJR 19 as part
of the committee's discussions on the permanent fund during the
interim.
SENATOR ELLIS said his personal preference is that the committee
take action on SJR 19 today and move it to the full body for
consideration.
CHAIR SEEKINS said he is concerned about the legal ramifications
and does not believe the committee can address those before the
end of session.
10:32 a.m.
SENATOR THERRIAULT indicated the Board of Trustees, at its next
meeting, plans to discuss the issue of who would have standing
to request an IRS ruling and the mechanics of that procedure.
CHAIR SEEKINS maintained that answers to those questions are
essential.
SENATOR FRENCH said his view differs. He stated the IRS is a
subsidiary of the U.S. Congress, which is where this battle will
be fought if it is to be fought decisively. If the IRS issues an
adverse ruling, the state will take the ruling to court. The
court will not look to previous IRS rulings; it will look to
Congress to determine whether Congress has written a law that
affects this fund. He noted that Congress has been enormously
reluctant to tax the state. He believes that in the absence of
clear direction from Congress, the court is highly unlikely to
say that the United States government can tax an integral part
of the state.
CHAIR SEEKINS responded that Senator French has much more faith
in the court system than he does.
10:35 a.m.
SENATOR THERRIAULT indicated that he is not concerned that the
permanent fund, in its current structure, will be deemed to be
taxable. He believes Congress would have to take action to
change that status. However, he is concerned that establishing
the payout mechanism in the Alaska Constitution instead of
keeping it completely within legislative control could trigger
the question of whether the fund is being used for a public
purpose; that is the question he would like the IRS to address.
He then said he does not understand the need to push this
legislation through now since the public could not vote on it
until next year. He believes it is important to take the time to
find out who has standing to make a request for a ruling from
the IRS.
SENATOR FRENCH maintained the particular genius of SJR 19 is
Section 3, which would revert the permanent fund to its pre-tax
status should Congress take action.
CHAIR SEEKINS maintained it is better to have a clear picture
ahead of time and reduce any risk.
REPRESENTATIVE CROFT asked if the committee would be taking
public testimony on SJR 19.
CHAIR SEEKINS said the committee would have ample opportunity to
take public testimony on SJR 19 at this time and during the
interim.
SENATOR LINCOLN said legal counsel from Legislative Legal and
Research Services does not believe the Morrison and Foerster
opinion needs to be updated. Director Tam Cook reiterated that
assets and income of the permanent fund are those of the state
and therefore are not subject to federal taxation. She
questioned opening Pandora's box when the resolution contains a
repeal clause.
CHAIR SEEKINS argued the committee should address the question
of who has standing to request an IRS opinion and how the POMV
proposal would work. He said he is not ready to determine
whether constitutional amendments for both SJR 19 and the POMV
proposal should be on the ballot simultaneously without giving
full consideration to both proposals first.
REPRESENTATIVE CROFT stated it is his understanding that the IRS
is reluctant to issue prospective rulings. He then informed
members:
The integral part of the state test, which the
Michigan Educational Trust, the Sixth Circuit in that
case determined, where private money went into
government hands and then was paid back out for
tuition, they ruled that was an integral part of the
state - that educational trust. This is government
money that started as government money and stays. And
the distinction between putting it in regulation,
statute or the Constitution, for example, Mr.
Chairman, the CBR is no less governmental by the fact
that we have a three-quarter vote on it. The fact that
you have made it through a different governmental
process - accessing it through a different
governmental process, sometimes with higher hurdles,
doesn't change its essential governmental character.
But to make doubly, triply sure, we put that Section 3
on.
I hope we don't let this taxation issue, which will
never conclusively be solved I believe, delay the
public right to have a constructive say in the
dividend and the future of the fund. I'm glad that
we're going to take it out to public hearing but as
long as the ultimate, complete power rests solely in
the legislature, I don't think you're going to get
broad public authority to use some of those funds. I
don't think you're going to get that public buy-in.
So, I understand what you're going to do. Obviously
I'm disappointed about it. I'll let you hear other
testimony or not as you will, but I appreciate you
hearing it here today.
CHAIR SEEKINS replied that every legislator should advocate for
his or her position. He believes, as a former permanent fund
trustee, that the Legislature should not hurry into a position.
He then took public testimony.
MS. VICTORIA PATE, a resident of Nikiski testifying on her own
behalf, stated strong support for SJR 19. She believes it will
guarantee for the permanent fund what 83 percent of the voters
supported in 1999. She said almost every candidate she heard in
November of 2002 promised not to touch the permanent fund
without a vote of the people. She believes SJR 19 will fulfill
that promise. She asked members to pass SJR 19 out of committee
so that all members of the Senate could vote on it. She believes
Section 3 provides a back door if the IRS does not rule
favorably.
10:46 a.m.
MR. JAMES PRICE, a resident of Nikiski testifying on his own
behalf, echoed Ms. Pate's testimony. He believes SJR 19 is
supported by an overwhelming majority of the citizens of Alaska.
He believes the threat of IRS taxation is real, however SJR 19
recognizes and addresses that threat. He strongly encouraged
legislators to give Alaskans the opportunity to vote on a
constitutional amendment.
MR. BILL ARNOLD, a resident of Sterling testifying on his own
behalf, thanked Representative Croft and Senator Lincoln for
introducing the resolutions. He said the Morrison & Foerster
1998 report boils down to two issues. First, the report says it
might be argued that the implied immunity of state
instrumentalities from federal taxation applies. Second, federal
taxation cannot reach income earned by an integral part of a
state. He said he has researched germane U.S. Supreme Court
cases and believes the argument boils down to states' rights.
The IRS promulgates regulations and interprets the code, but the
court would decide any conflict. However, it all begins in
Congress. [A portion of Mr. Arnold's testimony was inaudible.]
He said his desire is to protect future generations of Alaskans.
MR. BOB BARTHOLOMEW, Chief Operating Officer of the Alaska
Permanent Fund Corporation, told members the current board of
trustees has not deliberated SJR 19 and taken an official
position. He said many people have commented that the Morrison &
Foerster report supports the tax-exempt status of the permanent
fund as it is today. The executive summary and the final
paragraphs of the opinion focus on the proposed change. He said
the Board of Trustees has been concerned about understanding the
effects of that change and plans to focus on them, particularly
on the creation of a private benefit. He informed members the
Board of Trustees will consider its role in this issue, if any,
at its June meeting. The board needs to determine its role
versus the role of the executive branch versus the role of the
legislative branch.
MR. BARTHOLOMEW told members if the policy decision is to move
forward, he hopes two issues are considered. The first issue is
the Board of Trustees has proposed constitutional changes to the
permanent fund because the board deals with how much money comes
out of the permanent fund each year and desires to make the
rules that govern the permanent fund consistent with its current
investment strategy. The board believes that issue is critical,
regardless of the outcome of SJR 19. The second issue is that if
the Board of Trustees' percent of market value (POMV) proposal
is adopted, the mechanics of it would be inconsistent with SJR
19. Under SJR 19, the calculation of the dividend amount would
be based on existing statute, but the board believes that
calculation was designed for a fund that was created 26 years
ago and it no longer works in the same way. He said if the
dividend were enshrined in the Alaska Constitution, the board
would recommend that the Legislature look at using a dividend
calculation method that is compatible with the POMV. Mr.
Bartholomew noted that legal counsel to the APFC was available
to answer questions about the tax status.
10:55 a.m.
SENATOR THERRIAULT noted Mr. Storer said last week the trustees
are primarily interested in the POMV because they view their
highest goal as preserving the purchasing power of the fund over
time. He asked if the legislature takes what he considers to be
an overly simplistic step to ensure a dividend [SJR 19], it
would be inconsistent with the POMV proposal, which is designed
to preserve purchasing power. He stated the philosophy [of the
resolution] is not inconsistent but the methodology is.
MR. BARTHOLOMEW said if the citizens adopt the POMV payout, and
SJR 19 is also adopted, the mechanics would be incompatible.
Although the mechanics of SJR 19 are in use today, they are
problematic, and one motive behind the POMV proposal is to make
the payout strategy work with the investment strategy.
SENATOR THERRIAULT asked if the question of ensuring that a
percentage of the payout would be used for dividends and the
question of adopting the POMV methodology are compatible and
could be linked or whether the two issues would have to be posed
as separate questions.
MR. BARTHOLOMEW said they could be separate questions. The
trustees' POMV proposal allows [up to] 5 percent of the value of
the permanent fund to be made available annually for
distribution. He pointed out that a House bill attempts to
determine how that money would be distributed and provides a
mechanical set up that would work with the POMV. He said the
House bill would delineate the distribution in statute; SJR 19
sets a distribution method in the Constitution.
SENATOR THERRIAULT said he noted a previous testifier said if
the POMV methodology is adopted, and a percentage payout is
enacted to guarantee a dividend, that would smooth out the
swings in the dividend amount. He said that would benefit people
who build the dividend into their budget.
11:00 a.m.
MR. BARTHOLOMEW responded:
... To reiterate, the highest dividend that's been
paid was $1,950. We're projecting two years from now,
all things staying equal in the financial markets,
we'll have a dividend of $600. If you roll that up to
a statewide perspective, the total amount paid out for
a dividend at its largest was $1.1 billion. In two
years, we project the payout to be $400 million. Just
when you look at it in that scale, that is a huge
difference - $1.1 billion to $400 million - what comes
into the economy. What's available changes
significantly and it varies drastically. If you had a
percentage of market value and decided whatever amount
of that you wanted to go to the dividend, you would
not see those yearly swings. You'd have a much tighter
range. You would not have had a $1,950 dividend; it
would have been smaller. You would not have a $600
dividend; it would be larger. Again, everything
depending on what you pick, but if you tried to keep
the percentage that goes to the dividend the same, you
would have had a much narrower range.
But the more important issue that the percent of
market value proposal has is under the current
constitutional structure, you can go to zero, you can
have no distribution. So you can have a dividend
formula as we have today that says come this June 30,
our 5-year formula says pay to the citizens of Alaska
an $1100 dividend. If the stock market takes a dip or
there's an international event that drives the stock
market down before June 30, there could be zero
available. I think the second most significant change
that the percent of market value offers is it would
remove the floor that there would ever be zero
available. And that has as large an effect on future
payouts from the fund for dividends or any other
purpose.
So there's a formula issue. You could improve the
formula to make it smoother, more predictable, but you
could also have a policy decision of whether you want
to risk going to zero or whether there should be a
distribution every year. That's the second issue that
can really affect payouts in the future and we
believe, by making the change, you could achieve both.
A stable consistent payout is one policy issue. The
second one is how do you want to approach the
determination of the dividend.
SENATOR FRENCH said he is concerned about the effect of a
deflationary period on the POMV method. He asked that the
trustees analyze that scenario at great length because a 10-year
period of deflation could result in a loss of half of the fund's
value. He asked Mr. Bartholomew to take back to the trustees an
interesting example of a parallel to the permanent fund and
dividend in its current form. He referred to page 21 of the
Morrison & Foerster letter, and explained that another state
created a lifeline fund to subsidize utility bills of the poor.
The IRS concluded that use of the fund was an integral part of
the state. The funds came from a state ordered surcharge on
utility bills and were invested until paid out to needy
individuals.
TAPE 03-51, SIDE B
He asked that the trustees, as they examine the proposals, make
the point that the IRS has looked at state created funds that
pay dividends directly to individuals and found that use to be
an integral part of the state and the fund was thus shielded
from taxation.
MR. ROGER SHANNON, testifying from Kenai on his own behalf,
said, in regard to SJR 19, "The hens have been disturbed, the
fox is on the loose, the [indisc.] are aware."
CHAIR SEEKINS closed public testimony.
SENATOR ELLIS asked that the entire committee decide whether to
take action on SJR 19 at this time. He then moved SJR 19 to the
Senate Finance Committee with its accompanying fiscal note.
SENATOR THERRIAULT objected to the motion. He asked Senator
Lincoln if it was her intent when she introduced SJR 19 to
preclude public and legislative consideration of the POMV
methodology.
SENATOR LINCOLN replied the POMV issue is separate from SJR 19.
SENATOR THERRIAULT noted that the committee was just told that
the mechanics of SJR 19 are not compatible with the POMV. He
asked if it is her intention to cut off consideration of the
POMV proposal.
SENATOR LINCOLN said she is aware that folding SJR 19 and the
POMV together would create some complications, but she did not
explore those complications because she feels very strongly
about SJR 19.
SENATOR THERRIAULT maintained that guaranteeing a dividend via
SJR 19 would prevent passage of the POMV proposal. He pointed
out that Mr. Storer said if the Legislature wants to guarantee a
dividend, SJR 19 is a clumsy way of doing that. He asked Senator
Lincoln why she is not interested in looking at a methodology
that would mesh with the POMV proposal.
SENATOR LINCOLN said she has not concluded that SJR 19 is a
clumsy way of guaranteeing a dividend. She said she is not
prepared at this point to say whether the two are compatible.
She said right now, SJR 19 and the POMV are very separate issues
and she believes SJR 19 is very workable. She then thanked the
Chair for hearing SJR 19 at this time. She acknowledged that she
would be disappointed if the committee does not take action on
SJR 19 at this time. However, if that is the case, she hopes
that she and Representative Croft can be involved in the
discussion during the interim.
CHAIR SEEKINS said he hopes so too.
CHAIR SEEKINS announced the following result of a roll call
vote: Senators French and Ellis were in favor; Senators
Therriault and Seekins were opposed. Chair Seekins noted the
motion to move SJR 19 to the Senate Finance Committee failed.
The committee took a brief at-ease and, upon reconvening, took
up CSSSHB 86(JUD)am.
CSSSHB 86(JUD)am -INJUNCTIONS AGAINST PERMITTED PROJECTS
CHAIR SEEKINS reminded members they were contemplating Amendment
1 during the last discussion on CSSSHB 86(JUD)am.
SENATOR THERRIAULT moved to withdraw Amendment 1 and replace it
with corrected language.
CHAIR SEEKINS announced that without objection, Amendment 1 was
withdrawn.
SENATOR THERRIAULT moved to adopt Amendment 2. He explained to
members that he received a memo from legislative counsel who
expressed a few areas of concern. Amendment 2 contains
modifications that will address those concerns. The first
concern was about the separation of power between the
legislative and executive branches. To address that, language on
page 3, lines 9 and 10 has been removed. The second change is
to line 13 [page 3] where language was inserted to clarify that
an individual's right to challenge the activity will not be cut
off. He pointed out the counsel's concern was whether the courts
would always grant an individual citizen's constitutional
rights, despite what the Legislature did in statute.
SENATOR OGAN expressed confusion and asked if the bracketed
language on line 11 would remain in the legislation with
additional language added to it. He noted when language is
bracketed in a bill that usually signifies it is to be deleted.
CHAIR SEEKINS asked members if they had any objection to
rewriting Amendment 2 by removing the bracket at the beginning
of line 11 and the bracket after the word "review" on line 13,
and adding the phrase, "unless it is a claim based on the United
States Constitution or the Constitution of the State of Alaska"
for the purpose of clarity.
SENATOR OGAN agreed those changes will eliminate further
confusion. [No members objected.]
REPRESENTATIVE FATE asked if Section 3 had been deleted.
CHAIR SEEKINS said it was not.
SENATOR THERRIAULT noted that he provided information to address
Senator French's concerns.
SENATOR FRENCH referred to a document entitled, Oil and Gas
Projects in Cook Inlet, and noted it lists six projects. He
asked where the Osprey project by Forest Oil company falls in
that list.
SENATOR THERRIAULT indicated it would fall in the Redoubt unit.
SENATOR FRENCH asked if that is the only unit that has been
involved in 10 years of litigation.
CHAIR SEEKINS said he would not say the Redoubt unit is the only
one with a problematic process, but, "...it is the one ... we
have used as an example of the problem that exists."
MR. KYLE PARKER, general counsel, Forest Oil Company, told
members the project that Forest Oil spoke of yesterday that has
undergone 10 years of litigation dates back to the lease sale in
1978. He clarified that during that 10 year time period,
additional litigation over Cook Inlet lease sales has occurred,
but that litigation was not reflected in the chronology
presented to the committee. Other litigation regarding listing
the beluga whale as an endangered species also transpired. He
said some people would suggest that all of that litigation has
been geared toward stopping oil and gas development in Cook
Inlet.
SENATOR FRENCH said he was trying to set up a clear distinction
between this project and other projects in the Cook Inlet area.
He said an example of a project that is going forward without
too much difficulty is Conoco Phillips' Cosmopolitan exploration
drilling in the southern part of the [Kenai] Peninsula.
MR. PARKER said an important distinction between the
Cosmopolitan and Redoubt projects is that the Cosmopolitan
project is being drilled from shore. The Redoubt project brought
the first new exploration and development platform into the Cook
Inlet since the early 1980s. If the state is going to see
additional oil and gas development in Cook Inlet, additional
exploration and development platforms will have to be brought
into the Inlet. The offshore platforms appear to be the focus of
the litigation by the environmental groups.
SENATOR FRENCH maintained that is the beauty of waiting for
better technology and said the horizontal drilling that will be
used on the Cosmopolitan well is astounding. He noted Conoco
Phillips would be drilling several miles into the Inlet from on
shore.
CHAIR SEEKINS pointed out the permits that have been issued for
the Cosmopolitan project and the Redoubt project would be
grandfathered in under this legislation. He believes it is
incorrect to say this legislation is specific to any project
because it is not specific to Cook Inlet.
SENATOR FRENCH said he would feel far more comfortable dealing
with a clean copy of Amendment 2. He noted the legislation will
make a big change to the way Cook Inlet permits will be
addressed: it will freeze the permits in place and give them
legislative blessing. He said he would like to hear from
everyone who will be affected by this legislation, such as
fishermen. He said he shares the concern of other legislators
about passing legislation in the closing weeks of the session.
SENATOR THERRIAULT apologized for presenting an amendment that
had markings on it, but said it is clear. With regard to the
previous action [on SJR 19], the Senate was asked to take action
on a constitutional amendment that was introduced a few weeks
ago. He noted there is a big difference between a constitutional
amendment and a statute.
CHAIR SEEKINS said he has great faith in Senator French's
ability to understand Amendment 2.
SENATOR ELLIS indicated the adoption of this amendment and
passage of this legislation would end one court case. He said he
is unclear about which other court cases will cease as a result
of this legislation.
CHAIR SEEKINS said he has no idea and that he has not considered
that in this matter. He considers CSSSHB 86(JUD) am to be good
legislation.
MR. JOE BALASH, staff to Senator Therriault, said the language
in Section 1 of Amendment 2 deals with all authorizations and
permits up until the effective date of the law. He explained:
And as we move through whatever period of time there
will be between today and passage of the bill and
then, finally, being signed into law, it will then be
another 90 days before the new law is effective, which
would be new bill section 3 on page 2. So, in that
intervening time, there will be multiple permits and
authorizations issued, which will be subject to the
possibility of litigation throughout the summer and so
if we did not have sort of this forward looking
ability to say that there will not be an opportunity
beyond these sets of circumstances, we could wind up
with a very awkward situation with kind of a weird
window in the middle that doesn't accomplish what
we're setting out to do here. And so the potential is
there for additional projects to be litigated and so
we want to protect those additional projects, which
are the ones cited on this first page here on the
various exploration units and development units.
SENATOR THERRIAULT said he wants to make sure everyone
understands that getting a permit will still require applicants
to undergo a lengthy process and a project must adhere to the
requirements of the permit. He added:
We have given specific standing to the applicant in
case they're turned down - they can appeal. The
affected coastal resource district, which is the
entity that creates and shapes the local enforceable
policies - that's where areas of extra sensitivity in
a community - we allow the community to direct extra
attention, extra protection for those areas, that's
the coastal district. And individual Alaskans - we've
clarified to make sure that everybody understands
their right to due process - constitutional right - is
not in anyway abridged by this. I just want to make
sure that everybody understands we're not changing the
permit process. We're just saying when you get to the
end of the permit process, you're allowed to go
forward with your project.
SENATOR OGAN said when he first read this bill, he discussed
with legislative counsel his concern that due process be
provided. He said his concern was addressed. Amendment 2 will
limit who has standing. The affected coastal resource district
will be the place for due process for people who have problems.
If people feel their due process rights are compromised on a
constitutional basis by this legislation, they have standing to
challenge that. He said although this legislation deals with one
project involved in litigation, it also deals with all projects
on a broad regional basis.
MR. SCOTT NORDSTRAND, Deputy Attorney General for the Civil
Division of the Department of Law, told members he provided the
committee with a letter describing the department's concerns. He
said the committee should be aware the ongoing litigation has a
cost to the state as well as to Forest Oil Company. The state
has incurred about $300,000 in legal fees, either internally or
paid to the Trustees of Alaska.
SENATOR FRENCH referred to Section 3 of Amendment 2, on page 2,
and asked if that is specific to the Cook Inlet area or whether
it will be applicable to any coastal program.
MR. NORDSTRAND said the Department of Law has not undertaken a
formal review of Amendment 2 but he sees nothing in it to
suggest it is specific to Cook Inlet.
SENATOR FRENCH asked if the amendment makes a statewide change
to the Coastal Zone Management Plan.
SENATOR THERRIAULT explained the coastal zone management system
still operates the way it was set up: permit review, consistency
determination, and the ability to elevate decisions by permit
writers. However, [the amendment] will provide that when an
applicant comes out with a permit in hand, the applicant can
move forward and will not be subject to litigation unless the
litigation is a constitutional matter, or the applicant or
coastal resource district has specific standing.
SENATOR FRENCH asked if it would apply statewide.
SENATOR THERRIAULT affirmed that it would.
11:42 a.m.
SENATOR OGAN said he believes the intent of Amendment 2 is to
provide a linear process for people investing in Alaska. He said
he learned during his first year as a legislator that companies
do not mind having to jump through hoops during the application
process, but they need to know that when they've jumped through
"hoop Z," they do not have to go back to "hoop A." He said that
costs time and money and this state has driven away business
because it does not have a linear process.
CHAIR SEEKINS said he believes the public process is protected
with this legislation. He said once the public process is
completed and a permit has been issued, the cost of litigation
is not in the best interest of the State of Alaska in terms of
income, revenue, jobs, or local tax revenue. This legislation
will provide a point of finality in the permit process.
SENATOR FRENCH said he is aware the Legislature recently adopted
a fairly comprehensive change to the Coastal Zone Management
Plan; HB 191 is en route to the Governor for his signature. His
understanding is that law has its own subsection (i). He said it
is possible the legislature is sending two bills to the Governor
with identical language and he questioned the result.
MR. BALASH replied:
Unlikely as it may seem, the Governor has the ability
to veto HB 191, in which case we would need - the very
next section in statute - or subsection would be (i).
So, I think if you looked at 46.40.096 in HB 191, the
very first piece of that section of statute that's
been added is subsection (i). They both start with a
new (i). But in our revisor's powers, over in
[Legislative Legal and Research Services], they take a
look at all of the legislation passed and enacted
through the course of a session and the revisor is
given specific statutory authority to place the
sections and subsections where they belong in relation
to one another. And so, I'm not sure what the final
subsection was in 191. I think it went out to (q) or
(r) so this would then be the next letter in the
alphabet.
SENATOR THERRIAULT agreed that the legislative system
anticipates the need to mesh multiple laws together. He noted
that the Senate had a fairly good debate on HB 191. Its big
impact will be that the local enforceable policies will have to
meet some standards so that contractors are not confronted with
vague statements that do not describe what activity is entailed.
CHAIR SEEKINS noted that objection to the adoption of Amendment
2 was maintained. After a roll call vote was taken, he announced
that the motion carried with Senators Ogan, Therriault and
Seekins in favor, and Senators French and Ellis opposed.
SENATOR THERRIAULT moved SCS CSSSHB 86(JUD) from committee with
individual recommendations and its attached fiscal notes.
SENATOR FRENCH objected. He said he is still concerned with
language on the first page of Amendment 2, lines 7 and 8, which
basically says the legislature is putting its blessing on all
oil and gas projects that had, as of the effective date of this
act, a final authorization permit or other form of approval. He
expressed discomfort with the "other form of approval" phrase,
as it is vague and indeterminate.
He moved to strike "other form of approval" from lines 7 and 8
on page 1 of Amendment 2.
CHAIR SEEKINS noted that a motion was already on the floor.
SENATOR ELLIS asked if the sponsor of the motion would be
willing to withdraw his amendment to allow Senator French's
motion to be addressed.
SENATOR THERRIAULT agreed to do so and withdrew his motion.
SENATOR FRENCH made a motion to amend Amendment 2 of SCS CSSSHB
86(JUD) by striking the words, "or other form of approval" from
lines 7 and 8. He noted the punctuation would have to be cleaned
up and the word "or" would have to be inserted between
"authorization" and "permit."
SENATOR THERRIAULT objected and asked that Mr. Parker or the
former director of the Division of Oil and Gas provide an
example. He pointed out that the Legislature controls the
statutes that grant the approvals and permits.
MR. JIM EASON, former director for the Division of Oil and Gas,
Department of Natural Resources, and currently representing
Forest Oil Company, told members that other authorizations do
exist, one being best interest findings, another being letters
of non-objection for activities considered to be minimal, such
as collecting rock samples with a rock hammer.
SENATOR THERRIAULT maintained his objection to amending SCS
CSSSHB 86(JUD).
CHAIR SEEKINS called for a roll call vote. The motion to amend
Amendment 2 failed with Senators Ellis and French voting yes and
Senators Ogan, Therriault and Seekins voting no.
SENATOR THERRIAULT moved to pass SCS CSSSHB 86(JUD) from
committee with individual recommendations.
SENATOR ELLIS objected.
CHAIR SEEKINS called for a roll call vote and announced the
motion carried with Senators Ogan, Therriault, and Seekins in
favor, and Senators French and Ellis opposed. SCS CSSSHB 86(JUD)
moved from committee.
The committee took a brief at-ease.
CSHB 245(JUD)(efd fld)- SUITS & CLAIMS: MILITARY/FIRE/DEFENSE
MS. GAIL VOIGTLANDER, Chief Assistant Attorney General of the
Civil Division, Department of Law, provided the following
overview. CSHB 245(JUD)(efd fld) makes two very important
public policy changes. First, the bill provides immunity for
emergency services workers so that they can do their jobs
without the distraction of possible civil liability and civil
litigation while on the job and make important emergency-related
decisions. Second, the bill will save the state a substantial
amount of money in defense costs and in the payment of claims.
This bill brings Alaska into the norm with other jurisdictions
and with other statutes in terms of immunity. She added that the
emergency workers who will have immunity are workers who have
workers' compensation coverage through the State of Alaska. This
bill does not change that coverage at all so it does not change
the fact that when one receives workers' compensation benefits,
any ability to additionally recover for tort remedies from the
employer is waived. The workers' compensation system is a no-
fault system that provides more prompt payment to the injured
worker without formal litigation and without any need to prove
negligence.
MS. VOIGHTLANDER pointed out that the first subject area of the
bill addresses search and rescue operations. The Alaska State
Troopers are responsible for making decisions about initiating
and conducting search and rescue operations, although they rely
heavily on local governments and volunteer workers once a
decision is made to conduct a search and rescue. The Alaska
Supreme Court has ruled in a number of cases that police are not
exposed to civil liability in this area. This will bring search
and rescue within that gamut.
MS. VOIGHTLANDER explained the second subject area the bill
addresses is that of intra-military torts. This bill clarifies
what was muddied in a Supreme Court case in 2001, in which two
of the distinctions that had been followed and understood by
members of the military became blurred.
TAPE 03-52, SIDE A
12:00 p.m.
MS. VOIGHTLANDER said the law of the land in all but two
jurisdictions has been that the Feres doctrine prohibits members
of the military from suing one another for decisions that are
incident to military service. That doctrine is based upon two
public policies. The first policy acknowledges the importance to
the military command structure that an officer in charge not be
subject to civil liability when giving an order. The second
policy recognizes that it is not good public policy to have
civilian courts interject themselves into military orders and
decisions about military operations. CSHB 245(JUD)(efd fld)
would bring Alaska back into alignment with the other
jurisdictions that follow the Feres doctrine, which the military
believed was the operating law of the land in Alaska until the
2001 decision by the Alaska Supreme Court. The bill also
clarifies who is to pay for injuries to military members. When
military members are on state orders, they would be covered by
state workers' compensation; when on federal orders, they would
be covered by federal workers' compensation and benefits.
MS. VOIGHTLANDER said the third subject area covered by the
legislation is that of civil defense. This is simply an
amendment to Title 26, which deals with civil defense issues. It
provides important immunities to those who are acting in civil
defense of Alaska from being sued by each other or members of
the public. It contains an exception that allows for a third
party claim against the state or local government or civil
defense workers if malice or reckless indifference to the
interests, rights, or safety of others can be demonstrated using
the clear and convincing evidence standard.
MS. VOIGHTLANDER informed members the final subject area of the
bill addresses firefighting. This legislation will bring Alaska
into alignment with a majority of other jurisdictions that
immunize firefighters and state and local governments that
conduct firefighting activities. Litigation has not occurred in
this area in the past because people assumed the body of this
law prohibited such lawsuits. However, the Alaska Supreme Court
issued two decisions in 2001 that said litigation could be filed
against the state over firefighting activities. She said
firefighters are covered by workers' compensation under existing
law. Additionally, local firefighters are already immunized
under existing law. This legislation would expand that same
immunity to other firefighters in the state.
MS. VOIGHTLANDER pointed out that defending civil litigation in
these four areas has had a significant fiscal impact on the
state. For example, the defense costs of a recent case on search
and rescue amounted to $250,000. That case is on appeal over a
judgment in excess of $7 million. In the area of intra-military
torts, the 2001 case cost $1 million in defense costs, and the
total settlement was $7.5 million, of which the state is
obligated to pay $2.5 million. The state no longer has insurance
so any future claims will directly impact the state budget.
Finally, the cost of the defense for cases that were tried in
Palmer over the Miller's Reach fire has been $2.5 million. She
offered to answer questions.
SENATOR FRENCH said he is curious about the parallel between
police investigations and the court decisions that determined
immunity exists regarding how those investigations are
conducted, and the search and rescue situation. He asked if the
immunity doctrine is developed purely through court decisions or
whether a statute grants immunity for police investigations.
MS. VOIGHTLANDER replied:
Senator French, that immunity has arrived basically
through court decisions. And to put a finer point on
it, what the court has found in the number of cases
that I cited is that it will not recognize a tort of
negligent police investigations. So while we
oftentimes merge the doctrines of no actionable tort
duty and immunity, those are founded upon the precept
that there is no actionable court duty, however the
effect is there is immunization.
SENATOR OGAN informed the audience he would be temporarily
chairing the meeting. He then asked about people who might
violate someone's civil rights, such as a police officer that
unreasonably detains a person, and whether that type of scenario
is addressed in the legislation.
MS. VOIGHTLANDER told members the violation of constitutional
rights is a claim that can be made under federal law 42 U.S.C.
1983. It says a claim may be filed in either state or federal
court. This legislation does not affect the ability of an
individual to bring a 1983 action against an individual who
allegedly violated a constitutionally protected right because
that is covered by federal law.
SENATOR OGAN asked if individuals would be able to sue for
damages in state court if their constitutional rights were
violated by one of the organizations that have immunity.
MS. VOIGHTLANDER answered:
Senator Ogan, that is correct. A violation of
constitutional rights cannot be made against a state
under that law but it can be made against individuals
in their individual capacity and that lawsuit could be
filed in state court and, because it is founded upon a
federal law that Congress passed, this bill does not
affect that right.
SENATOR OGAN asked if a person could sue and collect punitive
damages in state court for a violation of his or her
constitutional rights.
MS. VOIGHTLANDER clarified that a person could because although
the law is federal, it was specifically passed so that a
litigant could file either in federal or state court. Both
courts have jurisdiction so this bill could not change that
federal law.
SENATOR OGAN pointed to language on page 5, line 26, and noted
the legislation provides immunity to "any organization
authorized to prevent, control, or suppress fires;". He asked if
the authorization would come from the state Fire Marshall's
office.
MS. VOIGHTLANDER said she does not know the answer to that
question.
SENATOR OGAN said his concern is that a private property owner
could authorize a neighbor to help fight a fire. He suggested
adding the words "state recognized" before authorization.
CHAIR SEEKINS suggested replacing "any organization" with the
phrase, "the state or any subdivision thereof".
SENATOR OGAN pointed out that he was the chief of a non-profit
fire department and an outlaw fire department that was not
recognized by the state Fire Marshall. The outlaw fire
department was an ad hoc group of neighbors that bought a
surplus truck.
MS. VOIGHTLANDER noted that is a term of art that exists in AS
41. 15. 040, which is in the section that authorizes control and
suppression of fires. She said it contains a "laundry" list of
those who are authorized to control and suppress and uses the
same term.
SENATOR FRENCH referred to new language on page 4, lines 12 and
13, and read, "except when malice or reckless indifference to
the interests, rights, or safety of others is shown by clear and
convincing evidence." He said he sees that language as a check
on the sweeping immunity this bill will grant. He explained his
concern is that this bill not grant blanket immunity and contain
some limit to immunity for poor decisions.
MS. VOIGHTLANDER explained that exception exists in the existing
statutory provision relating to civil defense. She said a
problem always arises when exceptions are made to immunity
statutes. An exception provides an opportunity for lawsuits to
be filed, which are costly to the state. Given State of Alaska
case law, it is extremely difficult to have civil cases disposed
of summarily on summary judgment. Although exceptions may go
some way in limiting liability, they do not serve the purpose of
limiting exposure to civil litigation and the associated costs.
SENATOR OGAN asked if clear and convincing evidence means the
jury must be more than 50 percent sure.
MS. VOIGHTLANDER said the general civil standard is
preponderance, which is viewed as 51 percent. The Alaska Court
System has characterized clear and convincing evidence as being
highly probable.
SENATOR OGAN asked if the bill will limit liability for
negligence, but if malice or reckless indifference is involved,
the evidence must prove that was highly probable.
MS. VOIGHTLANDER said that is correct for the section that deals
with civil defense.
CHAIR SEEKINS informed members the committee would take up CSHB
245(JUD)(efd fld) the following day at 9:00 a.m. He then
adjourned the meeting at 12:20 p.m.
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