Legislature(1995 - 1996)
02/06/1996 03:32 PM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 date." 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 authority. 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 Alaska. 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 revisited. 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 another. 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 directed. 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 documents. 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.