Legislature(1999 - 2000)
04/10/2000 03:20 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE April 10, 2000 3:20 p.m. MEMBERS PRESENT Senator Rick Halford, Chairman Senator Robin Taylor, Vice Chairman Senator Pete Kelly Senator Jerry Mackie Senator Lyda Green Senator Georgianna Lincoln MEMBERS ABSENT Senator Sean Parnell COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 304(FIN) am "An Act relating to issuance and sale of revenue bonds to fund drinking water projects, to the Alaska clean water fund, to creation of an Alaska clean water administrative fund and an Alaska drinking water administrative fund, to fees to be charged in connection with loans made from the Alaska clean water fund and the Alaska drinking water fund, and to clarification of the character and permissible uses of the Alaska drinking water fund; amending Rule 3, Alaska Rules of Civil Procedure; and providing for an effective date." -HEARD AND HELD HOUSE BILL NO. 429 "An Act extending the termination date for the vessel permit moratoria for the Bering Sea Korean hair crab fishery and the weathervane scallop fishery; and providing for an effective date." -MOVED HB 429 OUT OF COMMITTEE SENATE BILL NO. 252 "An Act relating to certain state rights-of-way." -MOVED CSSB 252(RES) OUT OF COMMITTEE PREVIOUS SENATE COMMITTEE ACTION HB 304 - No previous Senate action. HB 429 - No previous Senate action. SB 252 - See Resources minutes dated 2/18/00. WITNESS REGISTER Mr. Dan Easton, Director Division of Facility Construction and Operation Department of Environmental Conservation 400 Willoughby Juneau, AK 99081-1795 POSITION STATEMENT: Presented HB 304 for the Administration Mr. Mike Burns Municipal Grants and Lands Division of Facility Construction and Operation Department of Environmental Conservation 400 Willoughby Juneau, AK 99081-1795 POSITION STATEMENT: Answered questions regarding HB 304 Mr. Deven Mitchell Treasury Division Department of Revenue PO Box 110405 Juneau, AK 99811-0405 POSITION STATEMENT: Answered questions regarding HB 304 Mr. Craig Tillery Assistant Attorney General Department of Law 1031 W 4th Ave., Suite 200 Anchorage, AK 99501-1994 POSITION STATEMENT: Answered questions regarding HB 304 Dave Soulak, City Manager City of Wrangell PO Box 531 Wrangell, AK 99929 POSITION STATEMENT: Supports HB 304 Bruce Jones, Director Division of Public Works City of Petersburg PO Box 329 Petersburg, AK 99833 POSITION STATEMENT: Supports HB 304 Bob Loeffler, Director Division of Mining, Land and Water Department of Natural Resources 3601 C St. Anchorage, AK 99503-5935 POSITION STATEMENT: Opposed to specific provisions in CSSB 252(RES) ACTION NARRATIVE TAPE 00-22, SIDE A Number 001 CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:20 p.m. Present were Senators Lincoln, Pete Kelly, Green, Taylor and Chairman Halford. The first bill to come before the committee was HB 304. HB 304-CLEAN WATER FUND/DRINKING WATER FUND MR. DAN EASTON, Director of Facility Construction and Operations for the Department of Environmental Conservation (DEC), gave the following overview of HB 304. He noted Mike Burns of DEC, Deven Mitchell of the Department of Revenue, and Craig Tillery, Assistant Attorney General, were also available to answer questions. HB 304 pertains to DEC's two low interest loan programs to construct drinking water and wastewater projects in communities. HB 304 provides DEC with the same bonding authority for both funds; it currently has bonding authority for the clean water fund only. Second, HB 304 provides DEC with a long term method to pay program operating costs from the loan fund so that DEC does not have to rely on general funds. Third, the Senate Finance Committee substitute added a provision to expand eligibility for the loan programs to include certain types of privately owned water and sewer utilities. MR. EASTON explained that every year DEC is eligible for a federal grant that must be matched with State money in a ratio of 5 to 1. Each loan program gets about $7.5 to $8 million of federal money and $1.5 million from the general fund. That money is loaned to communities on a reimbursement basis and communities repay the loans with interest. The balance of the funds also earn investment interest. MR. EASTON stated that HB 304 is a cost-saving measure. DEC is requesting bonding authority so that in the future, if the EPA grants cease, it will have the authority to sell bonds and put the money in the loan programs. In the short term, bonding authority will give DEC the option of using bond proceeds as the State match portion and to retire the bond indebtedness with interest earned on the $1.5 million general fund amount. DEC has bonding authority for the clean water fund so it will use that method for the FY 2001 capital budget. If HB 304 is enacted, DEC could do the same for the drinking water fund beginning in FY 2002. CHAIRMAN HALFORD asked if DEC's investments are in the tax exempt market or the taxable market. MR. MIKE BURNS replied that he believes they are all tax exempt. CHAIRMAN HALFORD asked if DEC can earn enough in that differential to cover the operating costs of the programs. MR. DEVON MITCHELL replied that the loans that are made within the fund are loaned at a subsidized rate to municipalities. CHAIRMAN HALFORD clarified that DEC is going to sell tax exempt bonds so it will get the benefit of the tax exemption and the rate on the bonds to come up with the State's share. Also, DEC will have money in that account that it will invest in the market. He asked if that investment can be invested to get the highest possible rate or whether there are vigorous rules governing how that tax exempt money can be invested. MR. MITCHELL answered the arbitrage rules would apply so DEC could not exceed the yield it was paying on the bonds. He explained that DEC is contemplating paying off the money obtained through bonding immediately. That would allow interest earnings within the fund to be used as the State match for the federal receipts. CHAIRMAN HALFORD asked if DEC will be going to the bond market to get the match for the federal funds but as soon as the federal funds are received, DEC will use existing money to pay off the bond. MR. MITCHELL said that is correct. MR. EASTON added that the rules about these loan funds are prescribed in federal law and are designed to keep the states from using the funds for anything other than drinking water and waste water projects. Once money is put in the fund, it must stay in the fund or be recirculated as loans to communities. One exception to that rule is a provision that allows the use of interest earned on the fund to retire bond debt. The federal government included that provision so that the states could use bonding mechanisms to capitalize their loan funds. Number 550 CHAIRMAN HALFORD said these funds have grown by the amount the State has appropriated annually. He asked if the State will no longer be appropriating money once DEC goes to a bonding mechanism. MR. EASTON said that is correct. CHAIRMAN HALFORD surmised that the growth rate of the funds will stop. MR. EASTON said that DEC has projected the growth rate will slow down by about two percent. MR. BURNS explained the rate will be a little higher because the funds will continue to grow with federal grants that DEC will receive each year plus the interest received from loans. MR. EASTON added DEC has projected that over the next ten years, this mechanism will take about two percent of the growth out of the fund. CHAIRMAN HALFORD indicated the growth based on the State's share of the match will be lost but not the growth from the federal share in the overall capitalization. SENATOR PETE KELLY asked if the current rules of the loan fund require the State match to be from general fund dollars. MR. EASTON said that is correct. SENATOR TAYLOR asked if an additional benefit of HB 304 will be that personnel costs for the program will be shifted out of DEC's budget and funded with proceeds from that account. MR. EASTON replied that actually, personnel are currently funded out of a portion of the federal grant, so as long as DEC continues to get the federal grant, it can continue to fund its personnel. The problem is that the federal grant for the wastewater program will stop in 2003 and for the drinking water program in 2008. The second purpose of this legislation is to give DEC a contingency plan to use when the federal grant stops. HB 304 will allow DEC to split the repayment string. HB 304 sets up an administrative fund for each loan fund. A small portion of the community repayment funds will be deposited into an income account in the administrative account. DEC will continue to request that capital funds be appropriated to an operating account every year and then it would ask that those funds be transferred to DEC's operating budget to be used for personnel costs. SENATOR MACKIE asked if the source of the money will be from the loan program. MR. EASTON said basically, yes. He explained if a portion of the repayment was not split off, it could not be used for program operating costs. No general funds will be used to support the program. CHAIRMAN HALFORD asked Mr. Easton to elaborate on the new entities that will be eligible to participate. MR. EASTON explained that the House Finance Committee substitute made eligible, for both loan programs, privately owned utilities that are certified and economically regulated by the Regulatory Commission of Alaska (RCA). By state law, privately owned utilities would be eligible for both drinking water and waste water loans. Under federal law however, they will not be eligible for waste water loans. The bill contains a delayed effective date of two years to generate revenues to deal with the additional costs and to develop regulations. Beginning FY 2002, DEC will be able to make loans to privately owned, certified and economically regulated drinking water utilities. Number 870 MR. MITCHELL noted that one concern he heard about participation by private utilities relates to the tax exempt status of any bond issuance that might occur with the long term borrowing concept. If private participation within the pool exceeds ten percent, a tax question would arise and tax exempt bonds could no longer be issued. He indicated that problem is "down the road." CHAIRMAN HALFORD asked if there is a distinction between private for-profit and private non-profit entities. MR. EASTON said that no distinction is made in HB 304 but he is not aware of whether RCA makes that distinction. CHAIRMAN HALFORD asked if DEC uses all of the money made available each year. MR. EASTON said it does. CHAIRMAN HALFORD expressed concern about private for-profit utilities competing in a government-run system. He wondered about adding a non-profit requirement to the private utilities provision to provide some level of protection. CHAIRMAN HALFORD took public testimony. MR. DAVE SOULAK, the City Manager of the City of Wrangell, stated support for HB 304 because it provides more economical loans for communities. Both the clean water and the drinking water funds will be self supporting by the year 2002 and will save the general fund over $3 million per year. These programs allow communities to save time and money. DEC's programs offer communities loans at two percent less than conventional funding sources and, with passage of HB 304, three percent. Communities can easily explain to DEC personnel their operational costs and maintenance systems which are difficult to explain to personnel at conventional financing institutions. HB 304 will create a win-win situation: the State will save $3 million for the next two years and lower interest rates will provide savings to communities. MR. BRUCE JONES, the Public Works Director for the City of Petersburg, stated that Petersburg is very interested in seeing HB 304 pass. Petersburg has two loan agreements with DEC. If HB 304 passes, the lower interest rate will save Petersburg approximately $35,000 per year. He agrees that HB 304 will create a win-win situation. CHAIRMAN HALFORD asked if the small communities have expressed concern about allowing private for-profit entities to compete in this program. Number 1267 MR. JONES replied he supports giving private utilities access to the loan funds because the purpose of the program is to preserve public health. His only concern is that the private for-profit entities be required to be regulated by the RCA and that they compete on a level playing field. MR. SOULAK commented that all funds have been granted this year. He feels it is incumbent upon the State to help municipalities which are not for-profit. For-profit utilities provide dividends to their shareholders. CHAIRMAN HALFORD asked what level of subsidy flows through these programs. Number 1353 MR. EASTON said the interest rate on the loans is currently 4.1 percent, which is 75 percent of the municipal bond index, so it is three-quarters of what a city would pay if it sold bonds. In addition, cities do not have to pay the assorted bonding costs. CHAIRMAN HALFORD said, in that case, he suspects private utilities will use this program. MR. EASTON said Alaska currently regulates about 22 economically regulated and certified private utilities. DEC does not expect a huge run on the loan funds and, in fact, the loan funds have done well and are getting bigger. Some communities are leery of sharing the pie, but DEC thinks that economic regulation and certification will force for-profit entities to pass on any savings realized through the low-interest programs to the customers through the rate structure. DEC also discussed the fact that some privately owned utilities may pose a higher risk than municipalities, and they may take more time and energy, so the bill contains a provision that allows DEC to apportion costs so that municipalities pay a lower interest rate than the privately owned utilities. CHAIRMAN HALFORD asked if DEC could provide a State cost-of-funds analysis. If HB 304 can pass on a benefit at no cost to the State, some concerns will be alleviated. He said he was thinking the bill could contain a provision that prohibits the interest rate to private entities from being lower than the overall cost of funds to the State. He questioned whether the State should privatize the subsidy for for-profit corporations if private utilities are in competition with municipalities and local governments. Number 1594 MR. EASTON pointed out that DEC sees a real benefit to improving drinking water quality and a fairly sizeable number of Alaska's population is served by private drinking water utilities. DEC feels that expanding the eligibility will result in improved drinking water. SENATOR TAYLOR suggested adding a provision that limits the subsidy to private utilities so that, although the competition is for the same pot of funds, the private utilities will have to pay more to play. He thought the lower interest rate will provide a huge incentive for private utilities to participate. He suggested specifying in the bill that a different interest rate will apply to private for-profit utilities, possibly 100 percent of whatever amount the municipal bond bank sells at. CHAIRMAN HALFORD added that a higher interest rate will also make the fund grow faster. He asked Mr. Easton to prepare language for a possible amendment and announced he would hold the bill. HB 429-MORATORIA: HAIR CRAB & SCALLOP FISHERIES CHAIRMAN HALFORD informed committee members that HB 429 simply extends the moratoria on the Hair Crab and Weathervane Scallop fisheries. HB 429 does not address the question of creating new transferable permits; it maintains the status quo. He noted that he is opposed to creating new transferable permits as they will create artificial value that will destroy the economics of some fisheries. There being no public testimony, SENATOR MACKIE moved HB 429 and its accompanying zero fiscal note from committee with individual recommendations. There being no objection, the motion carried. SB 252-RS 2477 STATE RIGHTS-OF-WAY CHAIRMAN HALFORD noted the committee has held one hearing on SB 252 and that a committee substitute (CS) has been proposed which is substantially shorter than the original bill. The CS deletes the entire listing and allows the Department of Natural Resources (DNR) to add to its list. The most significant change to the CS is a provision that suspends, at the request of a municipality with platting authority, the requirement to record parcels of land of less than 41 acres. The result of that provision will be that the 40 acre parcels that many municipalities disposed of will not be recorded. The CS does not remove the existence or non-existence of RS 2477s. It also suspends the recording requirement in situations where a municipality has platting authority and alternative access and has smaller parcels on which it is difficult to locate an unsurveyed RS 2477. SENATOR MACKIE moved to change the number "40" to "41" on line 6, page 2 and to adopt the CS (Version 1 GS2004\H) as the working document of the committee. There being no objection, the motion carried. Number 1909 CHAIRMAN HALFORD proposed amending the title to read, "An Act relating to listing, survey and mapping of RS 2477 rights-of-way, maintaining records concerning RS 2477 rights- of-way, and suspending the recording requirement on parcels of less than 41 acres until surveyed, if requested by a municipality with platting authority." SENATOR TAYLOR moved the title change as a conceptual amendment to allow the legal drafters to craft the appropriate language. There being no objection, CHAIRMAN HALFORD announced a conceptual title change was adopted. CHAIRMAN HALFORD took teleconference testimony. MR. BOB LOEFFLER, Director of the Division of Mining, Land and Water, DNR, made the following comments. DNR believes that RS 2477s on private property should be recorded so that future purchasers of that property have notice that an encumbrance on the title exists. DNR is very concerned, however, with the provision in SB 252 requiring it to record encumbrances in places where none exists. The record over the years shows that people do not want an encumbrance recorded on a title when in fact the RS 2477 does not pass through their property. DNR can support the requirement to record within a municipality if the municipality does not object, but outside of municipalities there are many small lots, and given DNR's current level of data, DNR is not exactly sure where the trails are. Recording those parcels will be unfair to the private property owners. DNR hoped the bill would not require it to record parcels of less than 160 or 40 acres unless it can verify that the trail goes through that parcel. MR. LOEFFLER also informed committee members that the bill contains a deadline of one year for trails listed in legislation which is over one year old, therefore the deadline has already passed. In addition, eliminating the 12 trails from the bill that do not meet the requirements of a RS 2477 may lead people to think they are authorized to trespass. He said his main concern is the provision that requires DNR to record trails when it cannot verify that those trails exist. In response to Mr. Loeffler's concerns, CHAIRMAN HALFORD said with regard to the time lines, the bill does not amend the time lines in existing law; those time lines were not followed by DNR last year. Regarding DNR's main concern, the long term survey costs, those costs could amount to $100 million, so the short term answer is to accurately use GPS and other location systems. Use of those systems will prevent parcels of any significant size from being recorded on the wrong pieces of property. He said that although questions remain about small parcels outside of municipalities, he does not know how to resolve that without losing the notification provisions of the bill. He repeated that the bill does not create or extinguish any rights. It merely provides notice to the public in the best way possible short of spending $100 million. MR. LOEFFLER stated that regarding the use of GPS or other short- cut technologies to determine where trails are with respect to property boundaries, the more creative DNR can be, the better off everyone will be. He said he agrees on a philosophical level with what Chairman Halford is saying but he believes it is wrong to record on people's property until DNR knows that an encumbrance exists. CHAIRMAN HALFORD remarked that the requirement to record on a parcel that is not on the trail will force someone to do the research to prove otherwise. At least a potential buyer will know that research needs to be done. SENATOR MACKIE asked if DNR supports the changes in the CS. Number 2219 MR. LOEFFLER replied the only provision that DNR is concerned about is the one that requires it to record on small parcels outside of municipalities. CHAIRMAN HALFORD said that requirement is in existing law. MR. LOEFFLER said that is correct. SENATOR TAYLOR asked Mr. Loeffler if he supports the specific CS before the committee which does not require DNR to record on any parcels smaller than 40 acres. MR. LOEFFLER remarked that the previous version was neutral with respect to whether a parcel was inside or outside of a municipality. DNR does not like the provision that requires it to record parcels outside of a municipality but the other changes in the CS are of much less concern. CHAIRMAN HALFORD said the issue is the obligation of notice versus the potential of giving a person a notice of encumbrance that will require that individual to prove it is on the wrong piece of ground. That action might be damaging to the person's emotional well being but he does not know what the answer is. He noted the issue deals with conflicting values that are both legitimate. SENATOR TAYLOR said the problem would be resolved had the State had an ongoing program of surveying RS 2477s and fighting for them. Now, none of this will be resolved until DNR uses a little common sense in the way it manages State lands, even if it just deals with one RS 2477 at a time. CHAIRMAN HALFORD noted this is a Senate bill. He suggested, "If we took out the provision that said the 40 acres in the title, not in the bill, but that the 41 acre line only applies to municipalities with platting authority, our bill would still say that it applies inside municipalities with platting authority but the Administration could make their pitch to try to carry that to the unorganized areas or the smallest communities without platting authority to the other body. I don't know if there's a - it's not an area where there's an absolute right or wrong because you are dealing with people on both sides that have very legitimate concerns." SENATOR MACKIE said a case can be made either way. CHAIRMAN HALFORD said he would not object to backing away from at least that part of the title and letting the bill go through the process to see what the collective wisdom of both houses is on that question. SENATORS GREEN and MACKIE felt that would be a reasoned approach. TAPE 00-22, SIDE B SENATOR MACKIE asked Mr. Loeffler his opinion of the Chairman's suggestion. MR. LOEFFLER said he would appreciate that opportunity and that he does understand that there are legitimate concerns on both sides of the issue. SENATOR MACKIE moved to delete the words, "if requested by a municipality with platting authority." SENATOR LINCOLN asked for clarification. CHAIRMAN HALFORD explained that the text of the bill would remain the same but the title would be amended to delete the phrase, "if requested by a municipality with platting authority" to allow the House to debate that question and make that change. CHAIRMAN HALFORD noted without objection, the conceptual title was amended. SENATOR LINCOLN asked Mr. Loeffler if he feels that language is better. MR. LOEFFLER said he does. SENATOR TAYLOR moved CSSB 252(RES) to the next committee of referral with individual recommendations. There being no objection, the motion carried. With no further business to come before the committee, CHAIRMAN HALFORD adjourned the meeting at 4:12 p.m.