HOUSE FINANCE COMMITTEE February 1, 2000 1:45 P.M. TAPE HFC 00 - 22, Side 1. TAPE HFC 00 - 22, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:45 P.M. PRESENT Co-Chair Therriault Representative Foster Vice Chair Bunde Representative Grussendorf Representative G. Davis Representative Moses Representative Austerman Representative Williams Representative J. Davies Representatives Mulder and Phillips were not present for the meeting. ALSO PRESENT Conor Sullivan, Staff, Representative John Cowdery; Peter Fellman, Staff, Representative John Harris; Anne Carpeneti, Assistant Attorney General, Criminal Division, Department of Law. TESTIFIED VIA TELECONFERENCED: Bryce Wrigley, Delta Junction; Scott Miller, Delta Junction; Bill Ward, Delta Junction; Bob Franklin, State President, Alaska Farm Bureau, Board Member, Agricultural Revolving Loan Fund, Fairbanks; Jim Ellison, Fairbanks; Robert Wells, Director, Division of Agriculture, Department of Natural Resources; Blair McCune, Alaska Public Defenders Agency, Anchorage. SUMMARY HB 180 An Act relating to the possession, manufacture, use, display, or delivery of controlled substances while children are present. HB 180 was HEARD and HELD in Committee for further consideration. HB 203 An Act relating to loans from the agriculture revolving loan fund and to contracts for the sale of state agriculture land; and providing for an effective date. HB 203 was HEARD and HELD in Committee for further consideration. HOUSE BILL NO. 203 "An Act relating to loans from the agriculture revolving loan fund and to contracts for the sale of state agriculture land; and providing for an effective date." PETER FELLMAN, STAFF, REPRESENTATIVE JOHN HARRIS, noted that the legislation would put the Agricultural Revolving Loan Fund (ARLF) on the same footing relative to interest charged as the Farm Service Agency (FSA) and the Alaska Rural Rehabilitation Corp (ARRC). He noted that specific changes would give the ARLF greater flexibility to restructure loans based on the situations individual farmers find themselves in, thus, increasing the likelihood that the loan would be repaid. Mr. Fellman added that additional changes would redefine the composition of the loan committee to replace a loan officer with a board member since the loan officer would have previously processed the loan application. He stated that it would be more prudent to have the loan committee comprised of officers at a policy making level. Mr. Fellman pointed out that through the legislation, the ARLF Board would be given the authority to begin restructuring distressed farm loans rather than waiting for a specific date or for the 90 days after the Governor signed the bill. Mr. Fellman reiterated that passage of the proposed bill would be in the best interest for the State. Co-Chair Therriault advised that the bill packet contained a proposed committee substitute, work draft #1-LS0871\M, Cook, 1/21/00. The work draft does address concerns voiced last year regarding the operational costs. Representative Foster MOVED to adopt the work draft as the working document before the Committee. There being NO OBJECTION, work draft #1-LS0871\M was adopted. Representative J. Davies requested information on the changes which had been made to the work draft. Co-Chair Therriault understood that it was basically a change to the interest rate. Mr. Fellman agreed that changes were made to the interest rates. Additionally, the original bill included a loan officer who is an employee of the State. The Director of Agriculture suggested that might impose a conflict. That language was changed to two members of the Board and the Director of Agriculture. Representative J. Davies questioned if "emergency loans" were defined elsewhere in statute. Mr. Fellman replied that there does exist a directory loan which could be considered an emergency loan. The language would allow the director to make a loan from the ARLF using his own judgement. He added that he did not know of a governing statute for existing emergencies. Representative J. Davies asked if there was any place which defined what the purpose of the emergency loan should be. Mr. Fellman replied that it was expected that the Committee would determine that criteria. He acknowledged that in statute, there is not a clear definition of what an "emergency" is, however, there are statutes that cover disasters. Vice Chair Bunde referenced Page 1, Subsection #4, which speaks to the "interest rate" being comparable to other agricultural lending institutions. He asked what other lending institutions existed. Mr. Fellman replied that there is a federal lending agency, the Farm Service Agency (FSA). That agency can lend as low as 3.75% and up to as high as 8%. Also, within the State is the Alaska Rural Rehabilitation Corp (AARC) which is a private lending corporation that lends agricultural money. AARC adjusts their interest rates between 5% and 8% percent. In response to Representative Bunde, Mr. Fellman noted that the current rates vary depending on the type of the loan. Operating loans through AARC are at 6%; a "cattle loan" which would be for cattle and equipment, rate could be at 7% to 7.5%. Real estate loans could be assessed at 8%. The Board, which is a private corporation, establishes the interest rate and that rate cannot go lower than 5%. He suggested that it would not be in the State's best interest for the interest rate to go below that amount. Co-Chair Therriault noted that other lending institutions for borrowers turned down the FSA-3% interest rate and that it was difficult to obtain that rate. Co-Chair Therriault pointed out that some of the interest money is used to help support the Division of Agriculture. They have an interest in not setting the rate lower than they need too. Vice Chair Bunde inquired how many people were currently enrolled in the program. Mr. Fellman noted that there are currently 96 loans with the revolving loan fund. With passage of this legislation, it is anticipated that there would be an increase of 5%-6% per year by making the loans more desirable. Representative J. Davies recommended that there should be changes made throughout the bill in order to create comparable language applying to farm development chattel. He recommended restructuring the loan amounts. Vice Chair Bunde reiterated that this money should guarantee as much return as could be made through the money market. BRYCE WRIGLEY, DELTA JUNCTION, (TESTIFIED VIA TELECONFERENCED), encouraged Committee members to adopt the proposed legislation. He noted that as a farmer and borrower from ARLF, it is apparent that in Alaska, there is no vehicle which allows the type of service or loans that a lot of farmer's require. Mr. Wigley stated that the ability to be "proactive" is important in establishing rates and determining loans. He emphasized that the bill would improve the viability of agriculture in the State of Alaska. SCOTT MILLER, DELTA JUNCTION, (TESTIFIED VIA TELECONFERENCED), testified that he is a Delta Farmer and the local farm bureau president. He encouraged support of the proposed bill. Mr. Miller pointed out that the present statutes dealing with the ARLF are outdated. Policies in Alaska are not keeping pace with agricultural lending options available in the other states. He strongly urged that the State adopt the proposed legislation which would help to keep farmers in business. He encouraged that interest rates be made more flexible. BILL WARD, DELTA JUNCTION, (TRESTIFIED VIA TELECONFERENCED), noted that he has been involved in agriculture in the Delta Junction area for many years. He pointed out that it is difficult for operations within the agricultural loan fund to operate under a defined set of statutes that have such strict policies. Changes are needed to reduce the interest rates. He pointed out that the bill would provide greater flexibility to the loan managers. It would allow the loan managers to make decisions, which would help the sector that they are serving, and also fund itself. Mr. Ward emphasized that he believed this to be the next logical step to be for the Board of Agriculture. He urged passage of the proposed legislation. Co-Chair Therriault asked if having a 5% floor would severely restrict the flexibility desired by the farmers. Mr. Ward responded that realistically he could not foresee a manager going below that figure unless there were serious changes to the national economy. He recommended not to mandatorily place safe guards in the legislation. He believed that would require the managers to operate a function not in the State's best interest. BOB FRANKLIN, STATED PRESIDENT, ALASKA FARM BUREAU, MEMBER OF THE AGRICULTURAL REVOLVING LOAN FUND BOARD, FAIRBANKS, (TESTIFIED VIA TELECONFERENCED), commented that at times it is difficult for the ARLF to accommodate all the loan applications they receive because the interest rates put the loan repay amount in an unsatisfactory position. He noted that many times the borrower is driven away from the ARLF to other lending institutions with lower interest. Mr. Franklin voiced support of the proposed legislation. Mr. Franklin encouraged that the legislation must be made flexible enough so that the ARLF can be in the lending business with the fund. The current 8% is set in "concrete" and forces some borrowers to make other choices. He reiterated that there needs to be greater flexibility in the interest rate. Taking such action will make the ARLF more stable. JIM ELLISON, FARIBANKS, (TESTIFIED VIA TELECONFERENCED), testified in support of the legislation. He noted that presently he has not borrowed from the ALRF, however, encouraged that the rating system be updated. Mr. Ellison did not support the 5% low rate, stating that a destitute farmer would not be able to survive with that rate of interest. ROBERT WELLS, DIRECTOR, DIVISION OF AGRICULTURE, DEPARTMENT OF NATURAL RESOURCES, PAMLER, (TESTIFIED VIA TELECONFERENCED), stated that he had worked with Representative Harris and his staff regarding the proposed legislation. He commented that he would be more comfortable with the interest rate number being included in statute. Mr. Wells advised that with adoption of the work draft, the Division would be able to begin work on the fiscal note. He clarified that with a 5-year average, it is estimated that would amount to a one-percentage point which would impact the fund at about $20 thousand dollars. He commented that if the interest rate were lower, it would be a more attractive deal and could increase loan activity. This past year, the loan activity amounted to over 107 processed loans. Representative G. Davis noted that a cash flow projection estimate had not been provided for 1999. He asked if there was one available. Mr. Wells offered to provide that information to Committee members with the new fiscal note. He pointed out that in 1998, LBA performed an audit on the ALRF. Because of the Division's reliance on other operations within the ARLF, there had been concern that the cash balance would be declining at an unacceptable rate. He noted that at the end of the FY2000 projection, the revenues are up from the sale of assets and conservative spending policies at the Division of Agriculture. He concluded that the cash balance had not declined to the $6.5 million dollar range. Vice Chair Bunde MOVED a conceptual amendment to Page 1, Subsection #4, Section #2, Line 16, and Page 3, Line #24, placing a "five percent" floor and deleting the "eight percent". Vice Chair Bunde believed that the change would address concerns of the State farmers who need to borrow to keep afloat. Co-Chair Therriault OBJECTED. He believed that the rate would not be dropped below what was reasonable. He reiterated that the funding was necessary for the Division's budget. Representative J. Davies agreed with Co-Chair Therriault's objection. He stated that these numbers should not be included in statute. Vice Chair Bunde pointed out that 8% had been used in the original legislation. He made an analogy to the student loan program. A roll call vote was taken on the motion. IN FAVOR: Bunde, Grussendorf, Williams OPPOSED: J. Davies, G. Davis, Foster, Moses, Austerman, Foster, Therriault Representatives Mulder and Phillips were not present for the vote. The MOTION FAILED (3-6). Representative J. Davies MOVED to adopt Amendment #2. [Copy on File]. Co-Chair Therriault OBJECTED for the purpose of discussion. Representative J. Davies explained that the Board should be the ones who establish the situation and purposes for which the loans are made. Following discussion, Co-Chair Therriault WITHDREW his OBJECTION to the amendment. There being NO further OBJECTION, Amendment #2 was adopted. Co-Chair Therriault requested that the bill move from Committee with individual recommendations and then to hold it until final action could be taken on the note. Representative Foster MOVED to report CS HB 203 (FIN) out of Committee with individual recommendations. Vice Chair Bunde OBJECTED. He commented that a minimum floor percentage should be established. Representative J. Davies OBJECTED on procedural grounds. He suggested that the bill should be moved on Friday, February 4, 2000, when the fiscal note had been returned to the Committee. Representative Foster WITHDRWN his MOTION to move the bill from Committee. There being NO further OBJECTIONS, the bill was held in Committee for further action. CS HB 203 (FIN) was HELD in Committee for updated work by the Division of Agriculture on the fiscal note. (TAPE CHANGE, HFC 00 - 22, Side 2). HOUSE BILL NO. 180 "An Act relating to the possession, manufacture, use, display, or delivery of controlled substances while children are present." CONOR SULLIVAN, STAFF, REPRESENTATIVE JOHN COWDERY, stated that existing statutes acknowledges that children should not be allowed to enter or remain where drugs are stored or sold. However, current law does not prohibit the manufacture or use of drugs in the presence of children. HB 180 would correct that situation. Mr. Sullivan commented that new language in HB 180 expands the sphere of space in which the co-presence of children and drugs are forbidden. By using the phrase, "in the immediate physical presence of", children are protected in outdoor situations like a yard, campsite, or park bench. Stiffer penalty provisions send the clear message that children and drugs do not mix. Mr. Sullivan added that HB 180 would remove redundant language from the existing statutes under AS 11.51.130. Representative G. Davis asked the definition of a "controlled substance". Mr. Sullivan replied that it would not include alcohol. Vice Chair Bunde pointed out that marijuana was the topic of frequent discussion. He commented on the legislation passed regarding the medical use of marijuana. Mr. Sullivan understood that the medical marijuana law would prohibit any prosecution toward a registered person using marijuana. Representative J. Davies asked the controlled substances which would fall under this legislation. He inquired if the intent of the legislation was to modify "unlawfully" having the drugs around. He suggested that some of the drugs on the controlled list might be considered common substances. He questioned the ambiguity of including the language "unlawfully". Co-Chair Therriault commented on concerns which he had spoken with Representative Cowdery regarding. Specifically, Section #1, "endangering the welfare of a child knowingly". He asked the level of proof associated with that phrase. Co-Chair Therriault believed that the parent should not be responsible for providing the higher burden of proof. There must be greater consistency placed in statute regarding the fine being levied and the Class A misdemeanor. ANNE CARPENETI, ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF LAW, noted that "controlled substances" were defined in AS 11.71.900 and would include all the substances included on the list of those that are "illegal" in the drug laws. She noted that with regard to medical marijuana, all sections of the bill do use the language "unlawfully" used in possession. Representative Williams pointed out that there are current laws that cover these concerns. He asked how the proposed legislation would affect those laws. Ms. Carpeneti responded that the proposed legislation does not address the drug crime itself but rather addresses exposing children to unlawful conduct involving drugs. The assumption is that witnessing this would not be a good thing for children to see. Representative Williams asked if this legislation would affect the school laws. Ms. Carpeneti explained that it would penalize the person that does possess the drug during school. These are different laws from the ones in the current school code. She emphasized that the proposed intent also provides different societal interests. Co-Chair Therriault advised that some of these concerns have already been covered through other legislation. Ms. Carpeneti noted that on Page 3, language the sale of the drug. The proposed bill would expand that prohibition to include terms of "contributing to the delinquency of a minor and endangering the welfare of a child". The Department's position recommends a little "fine tuning", so that there is no repetitive language. Co-Chair Therriault voiced concern that the North Pole has become the "meth" capitol of Interior Alaska. He voiced concern that it is being manufactured on site. Co-Chair Therriault stressed that there is a high level of chemical substances found in many drug busts. In response to a question by Vice Chair Bunde, Ms. Carpeneti clarified that the legislation does not include alcohol. She noted that children can not be in a house with stored prohibited substances under current law. The proposed legislation would make that act more serious becoming a Class A misdemeanor. Representative G. Davis referred to Page 2, Line 12, "displayed" and asked what the language referred to. Mr. Sullivan replied that the intent of that language was to remove the word "sale". Sometimes a "sale" cannot be proven. BLAIR MCCUNE, ALASKA PUBLIC DEFENDER'S AGENCY, ANCHORAGE, (TESTIFIED VIA TELECONFERENCE) questioned how the legislation would interrelate with the Child in Need of Aid proceedings. He noted that sometimes-criminal cases are brought to the proceedings when there is serious physical or sexual abuse. However, more often than not, these cases do not rise to the level of neglect that would be classified as to the level of criminal behavior. Mr. McCune pointed out that those persons involved in the Child in Need of Aid proceedings oftentimes have strong motives to amend the behavior that caused the problem. Frequently, they are willing to undertake treatment so that they can get their children back. Mr. McCune recommended that the Committee be cautious when taking the proposed steps. Mr. McCune noted that there are many instances where drug abuse does not affect the children. He questioned the need to implement an additional statute when it is already understood to be criminal. He recommended that the Committee consider this situation. The effect that the legislation would have on a family is a consideration that a judge should take into consideration. He reiterated the questionable need for such criminal sanction. Representative J. Davies advised that there are other circumstances which could be problematic. Mr. McCune asked if there was a need for the child to be aware that something was "occurring" in a given situation and location. He asked what would occur if the parent thought that there was drug activity going on in a house and then took quick steps to arrest it. He stressed that arrangements would be made for the children if the problem was not addressed. Co-Chair Therriault noted that a copy of the committee substitute would be provided to Mr. McCune. Co-Chair Therriault advised that the bill would be held for further discussion at a later date. HB 180 was HELD in Committee for further discussion. ADJOURNMENT The meeting adjourned at 2:55 P.M. H.F.C. 7 2/01/00