Legislature(2003 - 2004)

05/17/2003 10:15 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    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.                                                                                             

Document Name Date/Time Subjects