Legislature(1995 - 1996)

02/06/1996 03:32 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               SENATE STATE AFFAIRS COMMITTEE                                
                        February 6, 1996                                       
                           3:32 p.m.                                           
  MEMBERS PRESENT                                                              
 Senator Bert Sharp, Chairman                                                  
 Senator Randy Phillips, Vice-Chairman                                         
 Senator Loren Leman                                                           
 Senator Jim Duncan                                                            
 Senator Dave Donley                                                           
  COMMITTEE CALENDAR                                                           
 SENATE BILL NO. 222                                                           
 "An Act relating to the financing authority, programs, operations,            
 and projects of the Alaska Industrial Development and Export                  
 Authority; providing an exemption from the procurement code for               
 certain projects of the authority; and providing for an effective             
 SENATE BILL NO. 141                                                           
 "An Act relating to legislative ethics; and providing for an                  
 effective date."                                                              
  PREVIOUS SENATE COMMITTEE ACTION                                             
 SB 222 - No previous senate committee action.                                 
 SB 141 - See State Affairs minutes dated 4/20/95, 4/27/95, 1/30/96,           
      and 2/6/96.                                                              
  WITNESS REGISTER                                                             
 Riley Snell, Executive Director                                               
 Alaska Industrial Development & Export Authority                              
 Department of Commerce & Economic Development                                 
 480 W Tudor Rd., Anchorage, AK 99503-6690¶(907)561-8050                       
   POSITION STATEMENT: representing Governor-prime sponsor of SB 222           
 Randy Simmons, Special Assistant                                              
 Alaska Industrial Development & Export Authority                              
 Department of Commerce and Economic Development                               
 480 W. Tudor Rd., Anchorage, AK 99503-6690¶(907)561-8050                      
    POSITION STATEMENT:  Commented on SB 222.                                  
 ACTION NARRATIVE                                                              
 TAPE 96-9, SIDE A                                                             
 Number 001                                                                    
 SSTA 2/6/96                                                                   
             SB 222 AIDEA OPERATIONS/PROJECTS/LOANS                           
 CHAIRMAN SHARP called the Senate State Affairs Committee to order             
 at 3:32 p.m. and brought up  SB 222   (AIDEA)  as the first order of          
 business before the committee.                                                
 RILEY SNELL, Executive Director, AIDEA, provided the committee with           
 a sectional analysis of SB 222.  He said the principal parts of the           
 bill are found in section 2, the bonding authority, which allows              
 them to issue bonds in order to finance loan participation, as well           
 as development finance projects that the authority undertakes under           
 different sections of its statutory powers.                                   
 Under the sunset authority of July 1, 1995, the Authority is only             
 authorized to do refunding bonds.  This section is necessary for              
 them to continue to meet the economic demands of the mission of the           
 Sections 7 - 12 deal with the Business Assistance Program.  These             
 modifications are being brought forward as a result of numerous               
 work sessions and discussions with the banking institutions and               
 small business operators around the State.                                    
 As a result of significant changes to the federal SBA program,                
 AIDEA would like to modify the existing statute to accommodate and            
 provide capital for the small businesses located in urban and rural           
 MR. SNELL said that the loan guarantee would be paid by the                   
 Authority 90 days after the loan is placed in default.  It is a               
 major condition in order to accommodate the banks' ability to go              
 forward and liquidate existing collateral to make the program                 
 attractive for their use.                                                     
 Number 75                                                                     
 Section 18 seeks legislative authorization for additional financing           
 on the Red Dog project.  The Authority is seeking $60 million to              
 finance expansion to aid the transportation system facilities                 
 serving the Red Dog Mine.  The principal would be used to expand              
 additional storage capacity of ore that is stored during winter               
 months at the port.                                                           
 The project is important to the Northwest Arctic Region.  It                  
 currently employs about 350 people, representing 15 percent of all            
 the jobs in the Northwest Arctic Borough, as well as creating 60 -            
 70 new jobs as a result of the expansion.                                     
 This project was originally authorized by the legislature in 1987             
 and construction commenced in 1989.  Since the original investment,           
 the project has performed as required under all the financial terms           
 and conditions that were placed on it by the Authority.                       
 MR. SNELL said the section 19 is the authorization for the                    
 Authority to acquire Snettisham from the federal government, a                
 total of $100 million.  This has been a long negotiated sale the              
 State undertook in the mid 1980's.  It is also associated with the            
 acquisition of the Eklutna Power project outside of Anchorage.                
 That project would be acquired by the three local utilities in the            
 Anchorage area:  Chugach Electric, ML&P, and MEA.                             
 These acquisitions would divest the federal government's holdings             
 of power projects in Alaska.  They believe with the proper                    
 structuring of the financing that the project will be good for the            
 State.  For the consumers of the Juneau and Douglas area, they                
 should be able to maintain existing rates.  The alternative of not            
 proceeding with the project quickly creates rate impacts and                  
 ultimate ownership in the private sector.                                     
 In addition, there is section 17 which repeals certain project                
 authorizations worth approximately $40 million of bond                        
 authorizations that was given to the Authority to participate in              
 financing of the aircraft fueling facilities at Anchorage                     
 International Airport.  As a result of the parties not agreeing on            
 how to structure the financing, mostly revolving around                       
 environmental indemnification issues, the Airport Fueling                     
 Consortium members elected to undertake the project on their own,             
 without the assistance of AIDEA's tax exempt financing abilities.             
 They are also asking for the repeal of the legislative                        
 authorization for AIDEA to issue up to $50 million in bonds for the           
 Midrex Facility which was originally proposed to be located at                
 Point Mackenzie but never commenced.                                          
 Number 154                                                                    
 CHAIRMAN SHARP asked if there was a way for the legislature to                
 maintain some control of the loans up to $10 million.  MR. SNELL              
 responded that the $10 million authorization was to assist in                 
 development finance projects, not in the loans, themselves.  These            
 projects are ones the Authority owns outright, like Red Dog and the           
 Unalaska Dock Facility in Skagway.  They were given these powers in           
 1992 or 93 and there is a three year sunset provision.                        
 SENATOR DONLEY said he didn't see a sunset provision now.  RANDY              
 SIMMONS, Assistant to MR. Snell, said that there was no sunset                
 provision for the $10 million limit.  SENATOR DONLEY said that                
 sunset provisions are healthy, because they guarantee things get              
 Number 188                                                                    
 SENATOR LEMAN asked if $100 million was close to the appraisal                
 value of the Snettisham project.  MR. SNELL said that figure is               
 close and is from a formula negotiated between the State and the              
 Federal Power Administration as to how to set the price for the               
 project acquisitions.  They are doing a risk assessment and looking           
 at deferred maintenance.  The actual purchase price is approaching            
 $83 million.  The balance of the fund could be used to create                 
 reserves and replacement fees for future equipment failures.                  
 Number 213                                                                    
 SENATOR LEMAN referred to the transmittal letter that says not                
 having the bonding authority that expired on June 30 has severely             
 restricted AIDEA's ability to assist key development projects and             
 asked if they had missed any opportunities.  MR. SNELL said there             
 are currently customers waiting for AIDEA to participate.                     
 SENATOR PHILLIPS asked how much capital would be tied up if they              
 were all authorized.  MR. SNELL said the rule of thumb is that you            
 need $1.50 of revenues to support $1.00 of acquisition.                       
 Number 250                                                                    
 CHAIRMAN SHARP asked what section 14 intended.  MR. SIMMONS said              
 that section clarified the definition of the loan participation,              
 itself.  It doesn't change how the program is run.  They                      
 participate in a percentage of the loans that a bank brings forward           
 to them; so their customer is the bank.                                       
 CHAIRMAN SHARP asked if there was any State land or rights of way             
 along the Red Dog road and what value is the road to the State.               
 MR. SNELL answered that the road is classified as industrial use              
 highway and is limited only to industrial users.  The area is a               
 mineral rich area and there are other potential projects that could           
 come on line to using the same port facilities as the Red Dog.                
 There is a mixture of land ownership (between the State of Alaska,            
 the federal government, and native corporations).                             
 CHAIRMAN SHARP asked if they had looked at the feasibility of                 
 additional debt on the Red Dog's additional 36 percent production             
 capacity.  This would increase AIDEA's share of the debt by 62                
 percent over what they have now.  MR. SNELL replied that with the             
 additional expansion and the new discoveries, the economic life of            
 the project is easily 50 years.  As a result of the expansion, it             
 will be the largest zinc/lead mine in the world.  In addition to              
 that, the quality of the product is probably as high as any                   
 operating mine that exists in the world.  In addition to that, the            
 credit worthiness of Cominco, Ltd. has substantially improved.                
 They believe that with properly structured financing, this would be           
 a credit worthy investment.                                                   
 CHAIRMAN SHARP asked if the State could use the road to access                
 other development.  MR. SNELL said that was correct and that the              
 agreements were in place with all the land ownership participants             
 that it was a public facility, but it was classified as an                    
 industrial use highway.                                                       
 Number 315                                                                    
 MR. SNELL said the SBA is not able to guarantee as much of a loan             
 as they previously were able to do.  It has been reduced from 80              
 percent and their fee structure is substantially higher which makes           
 it harder for small businesses to use it.                                     
 CHAIRMAN SHARP commented that what surprised him was that AIDEA was           
 guaranteeing not only the principal of the loan, but also the                 
 interest payment.  MR. SNELL clarified they are proposing only a 90           
 day grace period to allow the bank to liquidate the collateral.               
 Number 332                                                                    
 SENATOR DONLEY said he biggest concern was removing the provision             
 requiring the a majority of ownership be Alaskans for these                   
 programs.  He said this was a provision they fought hard to get and           
 he strongly opposed taking it out.  He was also concerned with the            
 new section 7 where the federal government steps out and we are               
 stepping in.  The state is supposed to be cutting down on                     
 bureaucracy.  He hated to see expansion again into an area where              
 businesses might default as they did in Anchorage in the 80's.  He            
 said that he thought AIDEA was doing a great job since then.                  
 SENATOR LEMAN asked if AIDEA had made a decision on the $60 million           
 (on Red Dog).  MR. SNELL said they were in early discussions with             
 the company on the structure of the financing.  They have                     
 commissioned the Stanford Research Institution to do an independent           
 financial analysis of the project with the additional AIDEA debt              
 and additional company debt that would be involved to determine               
 that the project economics work as viewed from an outsider.  They             
 also must have certain findings before the project can proceed.               
 They must find that the applicant has the ability to repay to debt,           
 that the amount of money the State is participating with has                  
 adequate returns, and about eight more findings that the Board of             
 Directors would be required to make prior to issuing the authority            
 to proceed into the project.  The legislature would also have to              
 authorize the project.                                                        
 Number 382                                                                    
 SENATOR LEMAN asked for some documentation of what they had gone              
 through so far.  MR. SNELL said he would provide him with that.               
 SENATOR LEMAN asked if there needed to be additional congressional            
 action to allow use of the road for other developments.  MR. SNELL            
 answered no further action would be needed.                                   
 SENATOR LEMAN asked if it would have to be a resource extraction              
 industry.  MR. SNELL said that was correct.                                   
 SENATOR LEMAN asked if he thought development was reasonably                  
 possible within the next decade.  MR. SNELL replied that there were           
 two or three projects: the Kennicott, for one, and bringing the               
 Arctic Slope coal reserve down into the Red Dog port area, for                
 CHAIRMAN SHARP asked if the original $103 million AIDEA bonds on              
 the Red Dog facilities obligated the full faith and credit of                 
 AIDEA.  MR. SNELL replied that it had the full faith and credit of            
 the State of Alaska.  CHAIRMAN SHARP asked if the additional $60              
 million would be the same.  MR. SNELL said no, they are proposing             
 that that be backed only by the Authority.                                    
 CHAIRMAN SHARP asked about the Snettisham project.  MR. SNELL                 
 answered that was covered by the full faith and credit of the                 
 State.  CHAIRMAN SHARP asked why would the full moral obligation of           
 the State be used instead of just AIDEA.  MR. SNELL replied if they           
 were adding another $60 million to the Red Dog obligation, it would           
 dilute the ability of the Authority to issue other debt using its'            
 moral obligation.                                                             
 MR. SNELL explained that with reasonable reserves and replacements            
 built into the Snettisham project there should be minimal exposure            
 to the State.                                                                 
 CHAIRMAN SHARP asked if they would have a take-or-pay power sales             
 agreement in their hand before they culminate the deal with the               
 feds.  MR. SNELL answered yes.                                                
 Number 435                                                                    
 CHAIRMAN SHARP asked who would run Snettisham.  MR. SNELL answered            
 that the local utility (AEL&P) would run it.                                  
 CHAIRMAN SHARP said they would prepare a CS and would show it to              
 him before they take action on it.                                            
 SENATOR LEMAN asked Senator Duncan if it was reasonable to have               
 AEL&P take over management of Snettisham.  SENATOR DUNCAN said that           
 AEL&P believes that, as well as the City of Juneau.                           
 CHAIRMAN SHARP asked for the installed capacity at Snettisham.  MR.           
 SNELL answered 78 megawatts, compared to 109 megawatts at Bradley.            
 SSTA 2/6/96                                                                   
                   SB 141 LEGISLATIVE ETHICS                                  
 CHAIRMAN SHARP announced  SB 141   to be up for consideration and             
 they would be starting on section 31.                                         
 JOE DONAHUE, a public member of Legislative Ethics Committee, said            
 the reason for section 31 was to clarify the vote they take is to             
 be kept confidential.                                                         
 SENATOR DONLEY asked if there was anything in existing law that               
 says those functions are private.  MR. DONAHUE answered that the              
 existing law was not clear.                                                   
 MR. DONAHUE said section 32 clarified the discovery aspect. In                
 addition, there are some procedures on releasing some information             
 the committee acquires in the course of its deliberation.                     
 Section 33 concerns attendance in executive sessions and                      
 confidentiality.  They have chosen not to allow legislators into              
 the deliberations.                                                            
 Sections 34 and 35 recommends who the appointing authority is for             
 legislative employees when the violator is a legislative employee             
 and gives the authority to impose sanctions.                                  
 SENATOR DONLEY commented that section 35 is new and it goes through           
 item by item and explains who the appointing authority is.                    
 SENATOR DUNCAN asked, under (b) (1) if some who works for him, as             
 an individual, is the appointing authority considered the                     
 legislative council.  MR. DONAHUE said it would be the legislator,            
 himself.  SENATOR DUNCAN said it didn't say that anywhere and that            
 needed clarification.                                                         
 SENATOR DUNCAN said he wanted individual legislators to have the              
 authority to be the appointing authority for their own members.  He           
 didn't have a problem with the Budget and Audit Committee being the           
 one that oversees fiscal analysts and employees of that Division.             
 Standing committees needed clarification, also.                               
 MR. DONAHUE explained that section 34 says the appointing authority           
 has the power to impose a sanction recommended by the committee or            
 to impose a different sanction.  It is clear they couldn't be                 
 SENATOR DUNCAN said he was concerned that they were changing                  
 something that had been standing for a long time.  Right now the              
 Rules Committee does not dictate who you hire, they tell you how              
 many positions you have.  He didn't want to imply that the Rules              
 Committee has to sign off on who every individual legislator hires.           
 CHAIRMAN SHARP agreed with that.                                              
 TAPE 96-9, SIDE B                                                             
 Number 578                                                                    
 SENATOR LEMAN illustrated his point by describing a scenario in               
 which he had a service station business as a client.  The fuel tax            
 is paid by the customer, through the conduit of a service station.            
 According to APOC's definition, that business would have a                    
 substantial interest in state government even though the service              
 station owner's participation in state government might only be to            
 vote.  That scenario differs considerably from ARCO's lobbyists who           
 deal with legislation.                                                        
 SENATOR DONLEY suggested clarifying that section.                             
 CHAIRMAN SHARP asked committee members to submit suggestions on               
 Section 37 before the end of next week.  He explained the only                
 change to Section 38 discussed by committee members was the date              
 change to an earlier date during the legislative session.                     
 MR. DONAHUE explained that there was a two-fold purpose for                   
 choosing that date.  First, all required reports would have the               
 same filing date (February 15), and that date would provide the               
 public more complete information of possible conflicts of interests           
 earlier in the session, than the April 15 deadline.                           
 Section 39 provides a penalty for late disclosure or failure to               
 disclose.  SENATOR PHILLIPS asked if failure to file is a big                 
 problem.  MR. DONAHUE explained it is usually a case of people                
 forgetting to file and notifying the committee six months after the           
 deadline.  The committee has been allowing people to file late, but           
 did not have a penalty for doing so.  The purpose of the                      
 disclosures is to provide information to the public, not to                   
 penalize, but without a penalty, people tend to put off filing.               
 Section 39 provides authority to establish a fine, Section 40                 
 establishes the amounts.                                                      
 Number 367                                                                    
 CHAIRMAN SHARP noted Section 41 provides an effective date.  MR.              
 DONAHUE stated the committee would prefer the date to coincide with           
 start of the calendar year rather than the start of session.                  
 SENATOR LEMAN suggested if guidelines are included for fines, the             
 committee consider similar fines for inadvertent omissions of APOC            
 filing requirements.  He felt APOC's fines are very inconsistent.             
 The committee discussed amendments to SB 141.  MR. DONAHUE                    
 explained amendment K.10 is an entirely new section which would               
 provide a definition of "substantial interest", which was                     
 originally defined in the handbook.  The definition is a proposal             
 of a series of tests that must be met to determine whether a                  
 substantial interest exists.  Ethics Committee members were                   
 concerned about requiring a declaration of conflict of interest on            
 votes, even though most legislators vote anyway according to the              
 Uniform Rules.  The Ethics Committee proposed the change from                 
 prohibition to disclosure.  Current law prohibits a legislator from           
 taking action at the moment on any administrative or political                
 action, which includes committee actions.                                     
 Number 325                                                                    
 CHAIRMAN SHARP commented he has heard a declaration of conflict of            
 interest during floor sessions many times, but not during committee           
 hearings.  MR. DONAHUE stated the Ethics Committee is primarily               
 concerned with declaration and countered that legislators may want            
 to review what is considered legislative or administrative action.            
 The Ethics Committee interpreted that to include committee action.            
 SENATOR DONLEY felt legislators should be required to orally                  
 disclose the conflict prior to a vote, rather than to file written            
 SENATOR PHILLIPS questioned whether under test #1 of the                      
 "substantial interest" provision, a person who owned shares in a              
 mutual fund that may have $2,000 of oil company stock would be                
 considered to have substantial interest in that company.  MR.                 
 DONAHUE stated $2,000 worth of stock would not be considered                  
 substantial, and explained that clients often only control which              
 mutual fund is purchased, rather than the mutual fund's investment            
 portfolio which changes constantly.                                           
 SENATOR DONLEY asked, if the amendments are adopted into a                    
 committee substitute, whether oral disclosure could be included.              
 MR. DONAHUE replied the Ethics Committee intent was oral disclosure           
 for both committee and floor action.  Written disclosure would only           
 be required when drafting legislation or testifying at an                     
 administrative hearing.  SENATOR DONLEY asked for clarification.              
 MR. DONAHUE stated the testimony at an administrative hearing would           
 have to be related to legislation, but could be presented by a                
 legislator representing his or herself.                                       
 The committee discussed when legislators testify before boards, to            
 determine whether or not they are acting in a legislative capacity,           
 they would have to have a substantial interest in the issue to                
 necessitate disclosure.                                                       
 MR. DONAHUE explained amendment K.17 which relates to the immediate           
 family.  This amendment changes the term "spousal equivalent" to a            
 "person cohabitating with the person in a conjugal relationship."             
 SENATOR LEMAN thought this term was sufficient and found it                   
 preferable because it removes the element that develops the                   
 equivalency to the legal relationship of marriage.  The other                 
 intent of the amendment is to lessen the burden of legislators from           
 knowing what associations every family member has with the state.             
 Right now, a legislator could be held liable for an adult sibling             
 who is involved in deals with the State.  This definition tightens            
 the meaning to immediate family members.                                      
 Amendment K.15 gives the Ethics Committee a right of follow-up to             
 ensure that corrective action occurs for a violation.                         
 CHAIRMAN SHARP asked if the committee would have the ability to               
 charge the violator under civil procedure.  MR. DONAHUE explained             
 if the Ethics Committee formally charged a person, the formal                 
 charges currently in the code would be used.  At present it is not            
 clear whether a person can be formally charged which makes the                
 process toothless.  Amendment K.15 addresses corrective action as             
 well as sanctions for legislative employees.                                  
 MR. DONAHUE explained amendment K.19 covers corrective action for             
 legislators, but does not cover sanctions.                                    
 SENATOR DONLEY asked if amendment K.19 adds a timeline to a                   
 sanction.  MR. DONAHUE replied that the Ethics Committee can                  
 already add a timeline, however if the corrective action does not             
 occur within that timeline, the Ethics Committee can take no                  
 further action.                                                               
 SENATOR DONLEY believed the Ethics Committee already has the                  
 authority to take further action.  MR. DONAHUE stated the Ethics              
 Committee has tried to exercise it, but was not successful.                   
 SENATOR DONLEY felt the Ethics Committee does not have the ability            
 to do follow-up, but it does have the authority to recommend                  
 sanctions to the legislature of time lines and penalties for                  
 failure to comply.  MR. DONAHUE believed the amendment would                  
 require the Ethics Committee to include a time frame.                         
 SENATOR DONLEY felt the amendment to be redundant as that ability             
 is already permitted by statute.                                              
 MR. DONAHUE clarified amendment K.19 allows for follow-up when a              
 legislator does not comply with a sanction.                                   
 CHAIRMAN SHARP discussed amendment K.20 which allows trainees to              
 volunteer services.   It addresses concerns of interns under bona             
 fide programs.  MR. DONAHUE stated the Ethics Committee had no                
 problem with that amendment.                                                  
 SENATOR DONLEY brought up topics discussed at an earlier date, such           
 as telephone usage, and vague language about office usage                     
 (regarding back-up data from campaigns).  He explained that records           
 were never intended to fall under the general prohibition on                  
 keeping campaign materials.  He suggested making a simple exception           
 for maintaining campaign and APOC records.                                    
 TAPE 96-10, SIDE B                                                            
 Number 000                                                                    
 Regarding telephone usage, SENATOR DONLEY commented that a                    
 legislator has no control over who calls the legislator, and                  
 whether the call is for state-related business.  He felt there                
 should not be a rule requiring legislators to control who can call            
 the office, and people should not be prohibited from calling on the           
 phone, since providing phone access allows the legislator to be               
 available at the office.  MR. DONAHUE commented that the words                
 "limited" and "nominal" are currently in the law.  If it is the               
 legislature's intent that any amount of telephone use is                      
 acceptable, then the language needs to be changed.  He did not know           
 whether the Ethics Committee would recommend that change.                     
 SENATOR DONLEY clarified the law allows unlimited use of the phone            
 as long as there is no special charge attached; but limits use for            
 other things.  He felt there is confusion about seminars, and felt            
 the original intent was not to limit people from making non-charge            
 phone calls.  MR. DONAHUE felt there are probably legislators and             
 legislative employees who spend more time during the day making               
 personal phone calls than doing legislative business.                         
 SENATOR DONLEY stated that was never the intent of the law, and               
 those cases should be management decisions rather than an ethics              
 question, and such a person should be fired.                                  
 CHAIRMAN SHARP thanked Mr. Donahue for his testimony and announced            
 the committee would reschedule SB 141 in the form of a committee              
 substitute incorporating the recommended amendments.  He adjourned            
 the meeting at 5:10 p.m.                                                      

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