SENATE TRANSPORTATION COMMITTEE April 28, 1998 1:35 p.m. MEMBERS PRESENT Senator Jerry Ward, Chairman Senator Gary Wilken, Vice Chair Senator Lyda Green Senator Rick Halford Senator Georgianna Lincoln MEMBERS ABSENT None COMMITTEE CALENDAR CS FOR HOUSE BILL NO. 373(RES) "An Act making changes to the Forest Resources and Practices Act; classifying anadromous streams and tributaries; relating to the designation of riparian areas; establishing buffers and slope stability standards on certain streams; and requiring retention of low value timber along certain water bodies where prudent." - MOVED SCSCS HB 373(HES)am OUT OF COMMITTEE CS FOR HOUSE BILL NO. 239(FIN) "An Act relating to the liability of motor fuel dealers for payment of tax imposed on certain credit transactions involving motor fuel sales or transfers that become worthless debts or on sales or transfers to persons who declare bankruptcy; and providing for an effective date." - MOVED SCSCS HB 239(RES) OUT OF COMMITTEE CS FOR HOUSE BILL NO. 290(TRA) "An Act relating to motor vehicle license plates for ranchers, farmers, and dairymen." - MOVED SCSCS HB 290(TRA) OUT OF COMMITTEE SENATE BILL NO. 352 "An Act relating to international airports revenue bonds; and providing for an effective date." - MOVED SB 352 OUT OF COMMITTEE CS FOR HOUSE BILL NO. 386(FIN) "An Act relating to the financing authority, programs, operations, and projects of the Alaska Industrial Development and Export Authority; and providing for an effective date." - HEARD AND HELD OVERSIGHT HEARING ON MEDICAID TRANSPORT ON RURAL AIRLINES PREVIOUS SENATE ACTION HB 373 - See Resources minutes dated 3/11/98, 3/20/98 and 4/6/98. HB 239 - No previous Senate action. HB 290 - No previous Senate action. HB 386 - No previous Senate action. SB 352 - No previous Senate action. WITNESS REGISTER Pat Springer Legislative Aide to Speaker Gail Phillips Alaska State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Presented HB 373 for sponsor Jeff Jahnke Division of Forestry Department of Natural Resources 400 Willoughby, 3rd Floor Juneau, Alaska 99801-1724 POSITION STATEMENT: Supports HB 373 Marty Welbourn Division of Forestry Department of Natural Resources 3601 C St., Suite 1034 Anchorage, Alaska 99503-5937 POSITION STATEMENT: Supports HB 373 Representative Gary Davis Alaska State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Sponsor of HB 239 Bob Bartholomew Income & Excise Audit Division Department of Revenue P.O. Box 110420 Juneau, Alaska 99811-0420 POSITION STATEMENT: Answered questions about the fiscal note for HB 290 Jeff Logan Staff to Representative Joe Green Alaska State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Testified for sponsor of HB 290 Sally Ellis Yute Air 4706 Herding Drive Anchorage, Alaska 99519 POSITION STATEMENT: Discussed problems with Medicaid Transportation on Rural Airlines Mike Hageland P.O. Box 220610 Anchorage, Alaska 99522 POSITION STATEMENT: Discussed problems with Medicaid Transportation on Rural Airlines Darrell Nagel First Health Services 4411 Business Park Boulevard Anchorage, Alaska 99503 POSITION STATEMENT: Answered questions regarding Medicaid Reimbursement to Rural Airlines Fran Collins First Health Services 4411 Business Park Boulevard Anchorage, Alaska 99503 POSITION STATEMENT: Answered questions regarding Medicaid Reimbursement to Rural Airlines Teri Kekiak Division of Medical Assistance Department of Health and Social Services 4501 Business Park Boulevard Anchorage, Alaska 99503 POSITION STATEMENT: Answered questions regarding Medicaid Reimbursement to Rural Airlines Bob Labbe Division of Medical Assistance Department of Health & Social Services P.O. Box 110660 Juneau, Alaska 99811-0660 POSITION STATEMENT: Answered questions regarding Medicaid Reimbursement to Rural Airlines Nancy Weller Division of Medical Assistance Department of Health & Social Services P.O. Box 110660 Juneau, Alaska 99811-0660 POSITION STATEMENT: Answered questions regarding Medicaid Reimbursement to Rural Airlines Representative John Cowdery Alaska State Capitol Juneau, Alaska 99801-1182 POSITION STATEMENT: Discussed SB 352 Marco Pignalberi Staff to Representative Cowdery Alaska State Capitol Juneau, Alaska 98901-1182 POSITION STATEMENT: Answered questions regarding SB 352 Morton Plumb, Jr. Director, Anchorage International Airport P.O. Box 196960 Anchorage, Alaska 99519-6960 POSITION STATEMENT: Answered questions about SB 352 Lydia Jones Senate Transportation Committee Staff Alaska State Capitol Juneau, Alaska 98901-1182 POSITION STATEMENT: Explained the provisions of SCSCSHB 386(TRA) Dave Eberle Director, Construction and Operations P.O. Box 196900 Anchorage, Alaska 99519-6900 POSITION STATEMENT: Answered questions about SB 352 Keith Laufer Alaska Industrial Development & Export Authority (AIDEA) 480 West Tudor Road Anchorage, Alaska 99503-6690 POSITION STATEMENT: Answered questions about, and supports, HB 386 Roger Head Hatcher Pass Development Corporation POSITION STATEMENT: Supports SCSCSHB 386 (TRA) Kyle Randish Hatcher Pass Development Corporation POSITION STATEMENT: Described the Hatcher Pass Project Paul Fuhs Consultant, City of Nome 10652 Porter Lane Juneau, Alaska 99801 POSITION STATEMENT: Described the Port of Nome Project Charlotte Maccay Cominco, Inc. 1133 West 15th Avene Anchorage, Alaska 99501 POSITION STATEMENT: Supports SCSCSHB 386(TRA) Mr. Mike Scott Mat-Su Borough 350 East Dahlia Palmer, Alaska 99645 POSITION STATEMENT: Supports SCSCSHB 386(TRA) ACTION NARRATIVE TAPE 98-7, SIDE A CHAIRMAN WARD called the Senate Transportation Committee meeting to order at 1:35 p.m. Present were Senators Green, Wilken, Lincoln, and Chairman Ward. The first order of business before the committee was HB 373. Chairman Ward noted the arrival of Senator Halford. CSHB 373(RES) - FOREST RESOURCES PAT SPRINGER, legislative aide to Speaker Gail Phillips, sponsor of HB 373, read the following statement on behalf of Speaker Phillips. "I am pleased to bring before you today a bill that will greatly enhance protection of Alaska's salmon resources and water quality. Thanks to a major cooperative effort between timber and fishing industries, environmental groups, and state agencies, we have proposed legislation designed to improve present Forest Practices Act safeguards. This cooperation represents the commitment from these groups to periodically reevaluate the Forest Practices Act protections for Alaskan streams. In February, 1996, the Board of Forestry heard reports from state agencies regarding the Act's effectiveness. The Board found that indeed the Act generally was working well in protecting salmon habitat and water quality but concluded that there were some areas needing further review. The Board then established a science and technical committee to recommend modifications. This group included scientists from timber, commercial fishing, and environmental communities, as well as federal and state research agencies. After intensive review, the committee identified opportunities to strengthen habitat and wildlife protection. A stakeholder committee convened to incorporate these findings into recommendations for the Board of Forestry, which in turn endorsed a series of amendments to the Act. These amendments have broad consensus support from all the participants. The cooperation shown by the Board members and the implementation group is indeed laudable, and as a result, we are now looking forward to better protections for our valuable salmon resources without unreasonable costs to industry or private owners. The State of Alaska has one of the most effective forest practices acts in the nation. I believe the collaborative process undertaken by the stakeholders in defining and agreeing to necessary protections is extremely valuable. It's the first step forward in our continued path toward managing our marketable resources while protecting our natural resources for future generations. Thank you for your consideration." MS. SPRINGER introduced the state forester, Jeff Jahnke. Number 080 JEFF JAHNKE, Director of the Division of Forestry in the Department of Natural Resources (DNR), and the presiding officer for the Board of Forestry, gave the following testimony in support of HB 373 on behalf of the Administration and the Board of Forestry. This bill is the result of a carefully crafted consensus following two years of effort by many people in the fishing, forestry and environmental communities, and the agencies associated with implementing the Act. Key points related to the development of this legislation are: -the process of resulting recommendations was based on the best available scientific information; -the process was open to the public throughout; -many different interests were involved in each step along the way -the results were supported by a wide range of interests; and -the interests represented by the Board of Forestry include commercial fishing, forest industry, Native corporations, environmental organizations, mining, fish and wildlife biologists, professional foresters, and recreationists. MR. JAHNKE noted Marty Welbourn, who was involved with the development of this legislation over the last two years, was available to speak on the specifics of the Act. Number 117 MARTY WELBOURN, Chief of Forest Resources for the Division of Forestry, and Co-chair of the Science and Technical Committee, made the following comments. When the Science and Technical Committee reviewed the Forest Practices Act in 1996 and 1997, it found that the Act was sound and needed few changes. The proposed changes in HB 373 only affect the part of the Act that addresses stream classification and riparian management on private land in Region 1, which includes the coastal forest in Southeast Alaska, Prince William Sound, the eastern part of the Kenai Peninsula, and Kodiak. It also includes Mental Health Trust land within that region. Under the existing Forest Practices Act, about 20 percent of streams, including some anadromous streams, are unclassified and have no designated riparian protection area therefore requirements to maintain some tree cover along stream banks do not apply to unclassified streams. Tree cover provides woody debris for fish habitat, stabilizes stream banks to control erosion, and provides nutrients to the stream. MS. WELBOURN described the two recommendations made by the committee that require statutory changes. The first recommendation is to classify all anadromous streams, and all tributaries to anadromous streams, and to provide appropriate riparian protections. Abundant scientific literature exists on the value of stream buffers for the protection of fish habitat in anadromous streams. The second recommendation is to provide for more woody debris in Type B streams (anadromous streams with rocky banks or steep gradients). Woody debris is needed for fish habitat within those streams, to control sedimentation, and as a source of debris for downstream Type A channels. Type A channels are the most productive of the salmon streams; woody debris washes downstream from Type B channels into Type A channels. MS. WELBOURN continued. HB 373 contains numerous recommendations from the Board of Forestry that respond to the Science and Technical Committee's findings. First, the bill changes the stream classification system and riparian management standards, so that all anadromous waters and their tributaries will be classified and have appropriate protection measures. All anadromous streams (salmon streams) would be classified as Type A or Type B, depending on the slope and the type of bank. All salmon streams would have a buffer, and slope stability standards would apply to those streams. Stability standards are special requirements for road construction and timber yarding to prevent erosion. They include a requirement to retain low value timber at the operator's discretion where it is feasible to do so. Under the existing Act, only Type A streams have a buffer. These low gradient streams are the most highly productive. HB 373 adds stability standards to those streams to 100 feet from the stream, or to the slope break, whichever comes first. On Type B streams, the bill would add a buffer out to 66 feet or to the slope break and, in many cases, the buffer would be narrower than 66 feet. The bill would classify all tributaries to anadromous streams as Type B or D, based on their steepness, and slope stability standards would apply. No buffer would be required. On Type B streams, slope stability standards would apply up to 100 feet from the stream or to the slope break, whichever comes first, and on Type D streams it would apply up to 50 feet or the slope break. The bill also strengthens the timber retention standards around larger tributaries. It requires the operator to retain low value timber where prudent within a minimum of 25 feet from the stream, depending on the particular stream characteristics. These changes help ensure that the goals of the Act, to provide adequate protection of fish habitat and water quality and to support the continuation of healthy timber and fishing industries, are met. These changes also help ensure that the Forest Practices Act continues to satisfy the requirements for nonpoint source pollution prevention under the federal Clean Water Act and the Coastal Zone Management Act. The Forest Practices Act provides one-stop shopping for the timber industry with respect to state and federal nonpoint source pollution and coastal management standards. Number 192 SENATOR HALFORD asked whether roads that are built with public funds or credits on public lands and continue as a public asset, remain open for use. MR. JAHNKE replied DNR evaluates each road individually to determine whether leaving it open for public use will affect the protection of water quality, fisheries, and other values. He believed the process is similar for federal land. He stated that use of roads generates maintenance needs, so the cost of maintenance to protect those values is also considered. SENATOR HALFORD questioned whether the state gives dollars or credits for the construction of roads. MR. JAHNKE did not believe it does. SENATOR HALFORD stated his concern is that the roads remain open unless there is some resource reason to close them. Number 222 CHAIRMAN WARD said he agreed, and that is one reason why the committee requested the bill. He expressed concern that people be able to use logging roads with their four-wheelers. He asked Mr. Jahnke if the procedure used to determine whether a road will remain open is in regulation. MR. JAHNKE repeated DNR looks at each road, and in its responsibility to protect the resources of the State of Alaska, it makes a determination as to whether leaving the road open will have a negative impact on the resources. CHAIRMAN WARD asked how many miles of logging roads DNR has opened up to the public in the last 10 years. MR. JAHNKE offered to get that information to the committee. MS. WELBOURN said she could not provide the specific number of miles, but in the Tanana Valley, most of the logging roads stay open because they are long term management roads. In other areas, logging roads have been closed because of particular concerns about long term erosion resulting from a lack of maintenance on those roads. Number 248 CHAIRMAN WARD asked Ms. Welbourn to elaborate on closures in the other areas of the state. MS. WELBOURN said most of the roads built in the Kenai Peninsula are temporary spur roads, and the main access road actually crosses private land. DNR does not have the option to decide whether those roads will remain open because the private land owners control access across their land. Similarly, in Southeast Alaska, most of the main roads have already been built by the Forest Service. The roads in the Haines State Forest were built by the State, and those roads typically stay open. CHAIRMAN WARD stated one of his original concerns and reasons for requesting this bill was due to inquiries about non-access to logging roads on the Kenai Peninsula. MS. WELBOURN repeated that most of the access to the logging roads is through private land, therefore access to that land is controlled by the land owner. CHAIRMAN WARD asked if DNR's policy is to close the public roads if they can only be accessed through private land. MS. WELBOURN repeated that typically the private land owners have the more accessible land. Number 262 SENATOR HALFORD asked if the public roads are open once a person gets to them. MS. WELBOURN replied they are open where they are maintained. Some of the roads follow seismic lines or existing trails, and those would remain open. Other roads that are built as temporary spur roads, typically on the Kenai, are not maintained, and have not been left open because of concerns about impacts on wildlife and fisheries. CHAIRMAN WARD asked whether DNR is maintaining the roads in the Interior. MS. WELBOURN said it does. CHAIRMAN WARD asked if the criteria is to close a logging road unless it is maintained. MS. WELBOURN stated that is correct if there is a hazard of erosion. She added if a road is built in such a way that it would be fatal to use without maintenance, it is closed, otherwise the road building costs would be much more expensive. Number 271 CHAIRMAN WARD asked if the fact that DNR considers the roads as logging trails plays into any of the scenarios. MS. WELBOURN stated logging roads are typically built to the lowest standards possible because of the cost of road building. CHAIRMAN WARD reiterated that people on the Kenai were refused access to logging roads on four wheelers which is what prompted his questions. MS. WELBOURN asked whether those people were on state or private land. CHAIRMAN WARD said they were on state land. MS. WELBOURN said she was not aware of any specific cases but would look into the problem for Chairman Ward. SENATOR HALFORD asked Chairman Ward if he received a copy of the legal opinion on the short title for HB 373. SENATOR WARD said he did. SENATOR HALFORD said the problem is technical and, according to the drafter, a section should be inserted that reads, "This chapter may be cited as the Forest Resources and Practices Act." SENATOR WARD asked where that line should be located in the bill. SENATOR HALFORD answered on page 3, line 31. He explained, according to the legal opinion, the Legislature has not officially denominated a specific act as the Forest Resources and Practices Act, hence the title of the bill is over-inclusive. SENATOR HALFORD moved to amend the bill to add the language, "This chapter may be cited as the Forest Resources and Practices Act" on page 3, line 31 and explained the amendment is not substantive. There being no objection, the motion carried. SENATOR GREEN moved SCSCS HB 373(TRA) from committee with individual recommendations and its accompanying zero fiscal note. There being no objection, the motion carried. CSHB 239(FIN) - MOTOR FUEL TAX CREDIT:TAX NOT PD BY USER REPRESENTATIVE GARY DAVIS, sponsor of HB 239, stated the bill is an attempt to resolve a problem brought to his attention several years ago. A fuel distributor was owed an excessive amount of taxes from a purchaser. The purchaser went bankrupt leaving the distributor unable to collect the motor fuel tax that the distributor paid on that delivery. Current statute requires the buyer to pay motor fuel tax when the distributor delivers the fuel. HB 239 allows the distributor to claim a credit for $500 or more in fuel taxes paid to the state that the distributor cannot recover through no fault of his/her own. The legislation establishes guidelines under which the Department of Revenue will establish regulations. The credit will only apply to aggregate amounts of taxes paid of $500 or more before it goes into effect. The Department of Revenue proposed an amendment to clarify existing language on page 2, lines 5 and 6. SENATOR WARD asked Representative Davis to explain the amendment. REPRESENTATIVE DAVIS explained the Department of Revenue believes the existing language on page 2, lines 5-6, is awkward. That language reads, "(1) under this chapter, the sales or transfers result in a tax liability, in the aggregate, on the transactions of $500 or more; and." The amendment deletes the words, "on the transactions" for the purpose of simplification. SENATOR GREEN moved to adopt the amendment. There being no objection, the motion carried. SENATOR HALFORD questioned why the Department of Revenue submitted a zero fiscal note that states it is not feasible to estimate the revenue loss, but includes estimates. He maintained that it is bad policy to submit zero fiscal notes that include amounts in the explanation, and he does not think the Legislature should let the Administration get away with doing so. Number 376 CHAIRMAN WARD asked Senator Halford if he would like the Senate Transportation Committee to do a separate fiscal note. SENATOR HALFORD suggested that the committee request the Department of Revenue to reflect its best estimate in the fiscal note. He added that the Department of Revenue should not deny the statutory requirement to estimate the cost of the bill just because it is not easy to do. CHAIRMAN WARD asked Representative Davis if he has discussed the fiscal note with the Department of Revenue. REPRESENTATIVE DAVIS said he has discussed the explanation section and he understands their unwillingness to put an actual dollar figure on the fiscal note. Number 388 BOB BARTHOLOMEW, Assistant Director of the Income and Excise Tax Division of the Department of Revenue, stated the department does not know what, if any, bad debt is in the industry related to motor fuel sales. The department called other states to find out their experiences and from those discussions, came up with an estimate of .01 percent. He did try to give some sense of the financial impact to the committee but did not include it in the fiscal note because of the uncertainty of it actually happening. SENATOR GREEN indicated the two page attachment to the fiscal note was not actually attached to it, which may have created some confusion. SENATOR WILKEN expressed concern about the basis of the legislation because the state will be subsidizing bad debt that could be taken care of through normal business practices, and this bill might set a precedent. He stated, to give an example, Petro, one of the state's biggest fuel customers, might do $45 million per year in business, so if Petro is losing $4500 per year, that does not seem important enough to begin the process of subsidizing businesses that go bankrupt. He noted indications of bankruptcy come far ahead of the actual event. Number 428 REPRESENTATIVE DAVIS said he appreciates the discussion, but does not believe that Petro Marine would not find that amount of debt to be a hardship, but would support this idea on principle. Current law requires the distributor to pay the tax when fuel is delivered, therefore the distributor is paying in advance, and betting that the customer will reimburse the expense. SENATOR HALFORD pointed out the fiscal note requirements in Title 24 require that a fiscal note shall contain an estimate of the amount of appropriation increase or decrease that will result from enactment of the bill. If the bill has no fiscal impact, a statement to that effect shall be attached. The fiscal note for HB 239 says that its enactment will cost money but contains zeroes, so it does not meet the law. He expressed concern that this Administration is submitting more and more of these fiscal notes. CHAIRMAN WARD asked Mr. BARTHOLOMEW if he is familiar with that requirement. MR. BARTHOLOMEW said he has not read that portion of Title 24 but is familiar with the requirement to do fiscal notes. He stated he does not believe the department would have a problem with putting the estimate contained on page three on the fiscal note. Number 456 SENATOR LINCOLN suggesting changing the fiscal note in committee to reflect the actual estimate. SENATOR HALFORD moved HB 239 from committee with the attached fiscal note, and a note to the Senate Finance Committee indicating that the fiscal note does not reconcile with the legislation. There being no objection to the motion, HB 239 moved to the Senate Finance Committee. CSHB 290(TRA) - LICENSE PLATES: RANCHES, FARMS, AND DAIRY JEFF LOGAN, legislative assistant to Representative Joe Green, sponsor of HB 290, explained the measure as follows. HB 290 broadens the definition of who can qualify as a person for the purpose of qualifying for an agricultural license plate. Language on lines 12-13 refers to AS 01.10.060, which defines a person as a corporation, company, partnership, firm, association, organization, and a few other entities. HB 290 was introduced at the request of one of Representative Green's constituents. The constituent was a farmer who formerly qualified for the agricultural license plates by registering his vehicles under his company name. The Division of Motor Vehicles (DMV) changed its interpretation of the statute and required that people registering under the company name pay the more expensive commercial fees. To pay the less expensive agricultural fees, he would have to register the vehicles under his personal name. Representative Green believes it is not up to any state agency to tell any Alaska business how it will organize the business, whether it be a corporation, sole proprietorship, etc., in order to get something that the business owner previously got anyway. After about one year of trying to get DMV to change its procedures, Representative Green introduced the bill. SENATOR HALFORD stated he agrees with Representative Green's intent, but he noted this restriction is abused in another area which could be fixed under this bill. He explained that farmers who have a bad year and seek seasonal employment elsewhere are forced to register their farm vehicles outside of the agricultural program if they did not earn their primary source of income from farming during the year. Senator Halford said he would like to see the language that requires the person's primary source of income be from farming deleted so that the statute would read, "vehicles under 16,000 pounds, owned by a person deriving income from the operation of a ranch, farm, or dairy where the person resides full time ...." He thought farm vehicles should not all of a sudden become illegally registered because the farmer took winter work. MR. LOGAN pointed out that agricultural vehicles are not on the road as often as commercial vehicles, as they are seasonal vehicles. CHAIRMAN WARD asked if the sponsor would object to Senator Halford's proposed amendment. MR. LOGAN said he did not think the proposed amendment is inconsistent with the goal of the legislation. SENATOR HALFORD moved to delete the words, "the person's primary source of" on line 7. SENATOR LINCOLN questioned whether anyone who gets any income from, and lives on, a farm or ranch would be eligible to get license plates for a lower fee. Number 520 SENATOR HALFORD explained the requirement is still restrictive in that a person can register a vehicle under the agricultural provision provided the vehicle is used exclusively to transport the person's own ranch, farm or dairy products to and from market, or to transport supplies, commodities or equipment to be used on a person's ranch, farm or dairy. SENATOR LINCOLN said that section would also allow a person with a few chickens on his/her land to register any vehicle used to transport chicken feed as agricultural. She objected to the motion because she stated the current language requires the person's primary source of income to be from agriculture, but not one's exclusive source of income. She believed the amendment would open up the reduced fee provision to many it is not intended for. MR. LOGAN showed committee members a picture of a 16,000 pound vehicle and stated, in regard to Senator Lincoln's concern, that it would not be necessary to use a 16,000 pound vehicle to transport chicken feed. SENATOR LINCOLN clarified the bill requires vehicles to not exceed 16,000 pounds, therefore a person could be using a regular pick-up truck. She maintained her objection to the amendment. The motion to adopt Senator Halford's amendment carried with Senators Halford, Wilken, Green, and Chairman Ward voting for the motion, and Senator Lincoln voting against it. SENATOR LINCOLN commented HB 290 is accompanies by a zero fiscal note that contains an asterisk signifying an indeterminate cost. She echoed Senator Halford's concern about not knowing the actual cost of a piece of legislation. SENATOR GREEN questioned whether the definition in the bill of "agricultural" includes greenhouse nurseries. MR. LOGAN replied under the definition given in AS 29.45.060(c), greenhouses are included. SENATOR GREEN moved SCSHB 290(TRA) from committee with individual recommendations and its accompanying fiscal note, and a letter to the Senate Finance Committee asking it to request an updated fiscal note. There being no objection, the motion carried. OVERSIGHT HEARING ON MEDICAID TRANSPORT IN RURAL AREAS SALLY ELLIS, representing Yute Air Alaska, discussed billing problems the airline has had with First Health. One problem is with prior authorization. An airline must have a prior authorization number in order to get reimbursed for Medicaid passengers. A physician or public health nurse is supposed to call First Health to get a prior authorization number, put the number on the travel form and sign off on it. In turn, the airline bills First Health and is supposed to be reimbursed in a timely manner. The problem is that Yute Air Alaska has been denied reimbursement for claims because the prior authorization number on the travel form is invalid. Yute Air has no way to determine whether the number is invalid prior to providing passenger travel, therefore it does not know for which passengers it will get reimbursed. CHAIRMAN WARD asked how much money Yute Air has carried. MS. ELLIS replied Yute Air Alaska has billed over $50,000 which is over 120 days past due. SENATOR HALFORD asked for clarification on how the system works. CHAIRMAN WARD stated representatives from the Department of Health and Social Services (DHSS) would address the committee shortly. TAPE 98-7, SIDE B Number 573 SENATOR GREEN asked what medical conditions most patients are being transported for. MS. ELLIS replied many people are flying from the smaller villages to Bethel, or into surrounding villages, such as Aniak, to go to a hospital to get better health care. CHAIRMAN WARD asked if the lack of payment by First Health is causing a reduction in air service. MS. ELLIS answered not that she is aware of. Number 564 SENATOR HALFORD asked how much travel is provided for Medicaid or Indian Health Service (IHS) patients, and how the provider bills for services. MS. ELLIS explained Yute Air gets First Health forms from the physician or Public Health nurse in the village as a form of payment. The form contains a prior authorization number which guarantees Yute Air payment. SENATOR HALFORD questioned whether First Health is a contractor for IHS. MS. ELLIS believed First Health is a contractor for the Medicaid program. SENATOR HALFORD asked how the IHS fits in. MS. ELLIS was not sure. Number 553 MIKE HAGELAND, owner of Hageland Aviation Services, an air carrier in Western Alaska, made the following comments. He noted the forms presented to the airlines also contain dates that may be changed without the airlines' knowledge. When those forms are submitted, the claims are denied because the services took place outside of the time frame for travel. He thought DHSS contracts with First Health for Medicaid services. He stated the form is burdensome. BOB LABBE, Director of the Division of Medical Assistance, explained Medicaid is a $350 million program; payment for medical transportation represents about three percent of the budget. In- state and out-of-state air transportation is provided for medical purposes, and is an expensive issue in Alaska. Because of the potential for high expense, air transportation costs need a certain amount of controls. First, DHSS needs to be assured that the travel is being provided for a medical purpose, which is the reason for the prior authorization. CHAIRMAN WARD asked if the controls are in place because of ongoing abuse or past abuse. MR. LABBE said the requirement was put in place when the program began to prevent abuse, and a similar requirement is in place in most states. National alerts were publicized because abuses occurred elsewhere. Alaska has avoided some of the experiences other states have had. CHAIRMAN WARD asked why the airlines are not being reimbursed. NANCY WELLER, Division of Medical Assistance, stated she received a phone call from another legislative office earlier this session regarding the problems Yute Air has experience. She alerted the division's Anchorage office, and First Health has been working with that office for about two months to clean up the errors that occurred in claim processing. At this time, DHSS computer records show that Yute Air has billed DHSS $13,000 more than it has been paid. The claims were not paid for a number of reasons such as data entry problems. CHAIRMAN WARD questioned the discrepancy between Yute Air's claim that $50,000 is outstanding and DHSS's claim that $13,000 is outstanding. He asked Ms. Weller if Yute Air has actually billed DHSS for the entire $50,000. MS. WELLER stated Yute Air bills consistently and just submitted hundreds of claims last week electronically. First Health is working with the division diligently to make sure that the errors in the claims are cleared up. CHAIRMAN WARD asked if the same activity is taking place on behalf of Hageland Air Services. MS. WELLER said she had no information on Hageland Air Services. SENATOR HALFORD asked for further clarification of the billing procedure for IHS. MS. WELLER stated IHS has very little transportation money and many of the IHS clients, particularly in the Bethel region, are Medicaid eligible, so Medicaid pays for their approved transportation. SENATOR HALFORD asked how the priority of eligibility works. MS. WELLER said the Medicaid program is a prior payer to IHS under federal law, meaning that Medicaid pays first. SENATOR HALFORD asked if the entire Medicaid system is a prior payer to the IHS system. MS. WELLER said that is correct for all health care services. If an Alaska Native is eligible for Medicaid, his/her services are paid for by Medicaid. Medicare or insurance companies are prior payers to DHSS but IHS is an exception. MR. LABBE added if an IHS program provides a service, it can bill DHSS for a Medicaid client. In those situations, DHSS turns around and collects 100 percent of that payment from the federal government. Each state's Medicaid program may vary, but under federal law, each state treats Medicaid like a third party for purposes of IHS programs. IHS is limited to reimbursement only for services provided under Medicaid, i.e. if adult dental services are not provided under Medicaid, IHS would not be reimbursed for providing those services. Number 437 CHAIRMAN WARD asked what the Legislature has to do to resolve the airline reimbursement problem. MS. ELLIS commented that Yute Air Alaska is billing according to recommendations made by First Health. Yute Air bills electronically on a weekly basis, but she is spending hours researching problems associated with a $100 claim, and the number of claims gets backlogged. She said she has reviewed all of the claims with Fran Collins of First Health and has billed for the entire $50,000. CHAIRMAN WARD asked DHSS to explain its method of dispute resolution. SENATOR LINCOLN asked Ms. Ellis what kind of research she has to do. MS. ELLIS responded it depends on the reason a claim was rejected. She noted DHSS has 999 rejection codes. She stated the first rejection code applies to problems with the prior authorization number. Yute Air Alaska has no way of knowing when a doctor of Public Health nurse applies the correct prior authorization number with the date of travel. The Medicaid recipient brings the form to the counter after it has been signed by the doctor. Yute Air ends up being penalized by a claim rejection when it has no way to determine whether the number is legitimate. SENATOR LINCOLN asked Ms. Ellis to provide the committee with other examples of rejection codes. MS. ELLIS explained Yute Air often bills for one-way tickets because a lot of customers prefer to return on a different airline because the schedule is more convenient. Yute Air's claim will be rejected if Hageland Air already billed for its one-way portion. Yute Air then has to fill out an adjustment form and resubmit the claim, which is time consuming. Yute Air bills approximately 100 claims each Friday, and the adjustments take between 2 and 3 hours per week. CHAIRMAN WARD asked whether the procedure or lack of funds causes the delay in claim processing. MR. LABBE replied the problem is not funding, it is more likely procedural, especially in the area of data entry. He thought First Health staff could better respond to that question, but added the claims are paid every week and the turnaround time is fairly quick. CHAIRMAN WARD asked how this problem can be resolved. MS. WELLER answered DHSS provides training on a regular basis. The First Health staff have been working with Yute Air staff on a weekly basis for the past two months to help them understand how to do the claims data entry so that the claims can be paid. CHAIRMAN WARD asked if the problem is that Yute Air is not billing correctly. MS. WELLER responded the problem is a lack of understanding of the procedures. CHAIRMAN WARD said if the citizens of the state cannot perform a service because the state procedures are so complicated, then DHSS needs to cease contracting or change its procedures. MR. LABBE said he is more than willing to review the procedures and was glad to hear the comments today. He stated most of the problems are procedural, not regulatory. Number 364 SENATOR WARD asked Mr. Labbe if he has reviewed and approved all of the rejection codes. MR. LABBE said he has not. CHAIRMAN WARD suggested there only be four or five rejection codes, rather than 999. SENATOR HALFORD asked if First Health has discussed its analysis of the problem. Number 350 DARRELL NAGEL, First Health, stated only a small percentage of the 999 rejection codes apply to transportation providers. Some are very specific to particular types of providers. He believed limiting the number of codes to a few would dilute their meaning. CHAIRMAN WARD asked if 999 rejection codes exist, but the air carriers only need four. THERESA KEKIAK, Division of Medical Assistance - Anchorage, stated DHSS has about 900 codes but they do not all apply to every single provider. The different types of providers are broken into claim types and they are of different dispositions, meaning some are denied automatically, i.e. a claim would automatically be denied if a client was not eligible. Other rejection codes specifically require prior authorization. CHAIRMAN WARD asked how DHSS measures the effectiveness of First Health. MS. WELLER replied the contract DHSS has with First Health contains performance standards that pertain to claim turnaround time, among other things. CHAIRMAN WARD asked if First Health has paid all claims within the proper time frame. MS. WELLER said First Health has met the performance standards in the contract. CHAIRMAN WARD commented DHSS's measurements must be flawed if there is a problem. He asked why there is such a large discrepancy in the amount of claim reimbursements that have not been paid. FRAN COLLINS, First Health, stated $13,000 of the total amount billed has not been paid to date, or has been denied for a verifiable, or correctable, reason. SENATOR HALFORD commented AS 37.05.285 requires payment by state agencies to occur within 30 days. He asked if that standard applies to DHSS. Number 297 MS. KEKIAK replied DHSS's payment standard is 21 days for a "clean" claim which is a claim containing no errors. MR. LABBE added that the federal standard for Medicaid payments requires states to process 90 percent of "clean" claims within 30 days, and DHSS far exceeds that standard. SENATOR LINCOLN questioned what DHSS's time frame is for responding to claims with problems. MS. WELLER explained the error codes are used to inform the provider of why the claim was not paid, i.e., an error code may tell the provider the claim was not paid because it is a duplicate or the recipient was not eligible. Those error codes are to provide specific information to the provider so that the provider can fix the claim and get reimbursed. CHAIRMAN WARD stated there seems to be the perception that there is an unnecessary delay in reimbursements. SENATOR LINCOLN asked Ms. Ellis if she has further problems once she responds to the error code or whether the problem is the amount of time it takes to research information to respond to the error code. MS. ELLIS stated she began researching the problems associated with the error codes with Ms. Collins and Ms. Weller about two months ago, and in that time, Yute Air has only been reimbursed for about $5,000 of the $50,000 billed. SENATOR LINCOLN asked Ms. Ellis if she feels she has responded to all of the requests surrounding the $50,000 in claims. MS. ELLIS answered she has tried. SENATOR LINCOLN asked what DHSS's turn around time is for reimbursement of corrected claims. MR. NAGEL responded the adjusted claims are worked immediately. SENATOR LINCOLN asked what the time frame is. MS. COLLINS replied, for the most part, a paper claim can be turned around in one to two weeks if there is no reason for further review of the claim or attachments. Electronically submitted claims can be processed and paid within the same week of submission. "Clean" claims, submitted by noon on Tuesday, can be paid by Friday. Adjustments and voided claims take two to three weeks, depending on the division's work load and the amount of research the claim requires. Number 184 SENATOR HALFORD said state law requires a payment of interest of 1.5 percent per month for non-paid debts over 30 days. He asked if DHSS ever pays interest on claims that were wrongly denied. CHAIRMAN WARD asked if that amount is deducted from payments made to the contractor. MS. WELLER said DHSS exceeds the 30 day payment requirement, but the issue is whether a claim is submitted in a condition to be paid. SENATOR HALFORD asked whether interest is paid if the error is on DHSS's part. CHAIRMAN WARD asked if DHSS pays interest if it is in error in any of its programs. MS. WELLER stated to her knowledge, DHSS does not, and she was unsure whether DHSS could do so under federal law. SENATOR WILKEN suggested that the Senate write a letter to First Health to ask it to straighten out the problem, and he suggested that Mr. Labbe report back to the committee on the resolution of this problem. CHAIRMAN WARD stated the committee would take care of the appropriate letter and would schedule a follow-up meeting. SB 352 - AIRPORT REVENUE BONDS REPRESENTATIVE COWDERY, sponsor of a House bill identical to SB 352, discussed the measure as follows. Five hearings were held in House committees. Ten percent of the Anchorage workforce is airport related, therefore this bill is very important to Anchorage. The interest rates on bonds are very favorable at this time. The project will be sized to where 15 to 20 contracts will be let. MARCO PIGNALBERI, staff to Representative Cowdery, joined committee members at the table. JOHN STEINER, representing the Attorney General's Office, was available to answer questions via teleconference. Number 119 MR. PIGNALBERI discussed the bill further. Existing statute provides authorization to sell $100 million in bonds to be repaid by the International Airport Revenue Fund. The sole purpose of SB 352 is to increase the $100 million to $180 million for the exclusive purpose of airport improvements envisioned by the project at Anchorage International Airport. In addition to the $180 million, approximately $26 million in federal highway funds, and upwards of $25 million in Federal Aviation Administration (FAA) funds, will be available. The total project cost is estimated at $230 million. CHAIRMAN WARD asked Mr. Pignalberi to inform committee members of the Air Carriers vote. MR. PIGNALBERI stated an Air Carrier Committee at the Anchorage International Airport exists. Two-thirds of the member carriers are required to reject a proposal. Approximately 85 percent of the revenue producing carriers voted in favor of this project, which exceeded the one-third approval rate required by the nature of their agreement. Number 085 SENATOR HALFORD asked if the Air Carrier Committee agrees to a project unless two-thirds of the group says no. MR. PIGNALBERI said that is correct. SENATOR LINCOLN asked about the 85 percent of revenues referred to by Mr. Pignalberi. MR. PIGNALBERI stated the carriers who voted in favor of the project constitute the carriers who provide 85 percent of the revenue generating capacity at the airport. He added there are a total of 15 votes but he was not sure how many voted each way. SENATOR HALFORD asked what the actions were of ERA, Peninsula Air, Reeves Airlines, and Southcentral Airlines. REPRESENTATIVE COWDERY stated many hearings were held to give ERA, Northern Air Cargo, and every carrier that wanted to testify the chance to do so. Basically, all approved of a project but some of the smaller carriers expressed concerns about downsizing. The original plan was reduced by $25 million and the project contains enough contingencies to assure that there will be no reduction in the size of the airport or the construction of it. SENATOR HALFORD asked how the carriers pay off the bond. REPRESENTATIVE COWDERY said the money will come from land rent, landing fees, fuel charges, and vendor leases. SENATOR GREEN questioned if the land rent is from the airport complex itself. MR. PIGNALBERI explained it includes land rentals for the whole Anchorage International Airport, for example, the FedEx project, and ERA on the Southern end of the airport. The airport revenue fund includes all revenues that come to the state from airport operations. CHAIRMAN WARD asked how many meetings occurred to consider this project. REPRESENTATIVE COWDERY replied five public meetings were held which amounted to over eight hours of testimony. The hearings accommodated everyone who wanted to speak, for as long as they wanted to speak. The bill contains a spending plan that requires the group to report to the Legislature about how it is spending the money each year. TAPE 98-8, SIDE A SENATOR WILKEN asked why the language change on lines 13-14 of page 1 of the bill was proposed and whether the project could occur without that change. MR. PIGNALBERI explained that language was provided by the legal drafters for stylistic consistency. The change is not substantive. Number 980 SENATOR WILKEN stated the sponsor statement refers to this airport project as the largest public works project ever undertaken by the state. He noted the revenue flow over 25 years is of concern to him. He questioned whether the $180 million will also provide for construction of roads leading to the airport. MR. PIGNALBERI answered the $180 million figure is the cost of the airport project and the financing cost, the two-year capitalization of interest. SENATOR WILKEN asked if we are going to finance $180 million for 25 years and back it up with landing fees, fuel flowage fees, and rents. He asked if any new sources of revenue are anticipated that are not in effect today. MR. PIGNALBERI stated all of those fees will increase by some increment. SENATOR WILKEN said what bothers him is on page 5 of the special review, the possibility is raised that an increase in landing fees and fuel flowage fees may render the Anchorage airport non- competitive and may affect air traffic. MR. PIGNALBERI said the conclusion of the report is that the airport can afford the project. He added an additional revenue source will be created sooner or later, and that is the passenger facility charge which the FAA is strongly recommending but no one wants to approach before November. He noted the amount of revenue is estimated at $5 to $7 million per year. SENATOR WILKEN asked whether that amount is projected in the 25 year revenue stream. MR. PIGNALBERI said it is not. REPRESENTATIVE COWDERY said he talked to Reeves and was told one employee does nothing but separate the passenger facility charges and sends the money to Seattle and Portland. SENATOR WILKEN repeated this bonding package is not based on passenger facility charges. MR. PIGNALBERI said that is correct. SENATOR WILKEN stated he is concerned the state will be spending $180 million and two years after the project is completed, the airport will need another four gates, and in the year 2010, another four gates. He questioned whether this project will need to be expanded as soon as it is finished. DAVE EBERLE, Director of Construction and Operations for the Department of Transportation and Public Facilities, answered that the facility is being built according to the current projected needs through the year 2005, and to correct the current deficiencies at the airport. To try to size the project larger would be somewhat speculative, so the plan is to take a wait and see approach to review passenger growth and other factors to prevent over-building at this stage. In the initial analysis of projection load growth, DOTPF projected there may be a need for an initial four gates in the year 2010. Future expansion will be evaluated on its own merits at a future date. SENATOR WILKEN asked if DOTPF based its projections on the graph named Enplanement Forecast which looks like a 20 year projection at 4.65 percent. MR. EBERLE said he could not speak to the revenue in total. DOTPF had an economic forecast and model of revenues done by a person who works with bonding issues. Various factors were included in the model. The assumed passenger load growth was around 4.2 percent. Several load growth scenarios were reviewed in the needs assessment. SENATOR WILKEN suggested developing these questions further for the Finance Committee to review. He expressed concern that we are planning to build a very nice airport, maybe more than what is needed, and that if we cannot support that airport ten years from now, given the current projections, the rates will have to be raised in both Anchorage and Fairbanks. Fairbanks does not want to do anything to upset the balance in fuel flowage or other fees, which is very delicate. SENATOR HALFORD asked what the interest rate will be on the bonds. ROSS KINNEY, Deputy Commissioner of the Department of Revenue, informed committee members the fiscal note attached to the bill shows three interest rates: a low rate; a mid-rate; and a high rate. If the bonds were issued today, the true interest cost would be in the neighborhood of 5.4 percent. With credit enhancement, which is the purchase of an insurance policy, the interest rate could be lowered to about 5.15 percent. The Department of Revenue feels extremely confident that the rates are as low as they have been in 20 years, and it believes the time is right to provide the funding for this project through a bonding mechanism simply because it is going to the be the cheapest money the airport providers will have access to. REPRESENTATIVE COWDERY asked Mr. Kinney to elaborate on the insurance policy. MR. KINNEY said the Department of Revenue would like to credit enhance any kind of a bond issue provided that the cost of the premium to buy the insurance provides a reduction in the interest rate that is greater than the cost of the premium itself. By purchasing the policy, the bondholders are assured they will get paid. If, for some reason, the airport did not make a timely payment, the insurance company would make the payment to the bondholders and would then look to the airport system for reimbursement. SENATOR HALFORD asked if the project is carried forward with a six percent interest rate, what the range of a proposed increase in landing fees and comparable lease rates would be. MR. EBERLE replied the informational packet should show it would not exceed 93 cents in the high year of around 2000, and that number would be less with the reduction to $180 million. SENATOR HALFORD asked what the percentage of that increase is. MR. EBERLE replied, from his recollection, the basic rate was done on around 72 cents, and the high year was 93 cents in the year 2000 and it comes down for a blend of 79 cents over the life of the bond. He offered to get that information to the committee. SENATOR HALFORD asked if the increase was less than ten percent and the increase in landing rates is comparably less than ten percent. MR. EBERLE said he did not want to speculate. He added one of the people who testified before the committee discussed the econometric models and that the fuel costs have a much greater impact than the landing fees. REPRESENTATIVE COWDERY said an increase in fuel costs by one cent per gallon would have a major impact. SENATOR HALFORD questioned whether that increase would have the same impact proportionally on small carriers and large carriers. REPRESENTATIVE COWDERY answered he is sure it would. He added the landing fees are based on gross weight of the plane. SENATOR HALFORD asked how many gates are at the Anchorage International Terminal. MR. PLUMBER said the International Terminal has 8 gates. SENATOR HALFORD asked how many flights go through that terminal each day. MR. PLUMBER said approximately 50 to 70 passenger flights use that terminal per week. The number per day varies. In the master plan forecast up to the year 2012, Lee Fischer projected that the traffic would not exceed 362,000, yet there were 700,000 last year. That forecast did not anticipate the return of some of the international traffic, nor did it anticipate the use of the international terminal for charters or as a place to put some of the cargo aircraft. SENATOR WILKEN asked if the one cent change in the fuel flowage fee will have a significant impact on the carriers. MR. PLUMBER replied the fuel flow charge is currently around two cents per gallon for signators and 2.03 cents for non-signatories. An increase in fuel flow costs of one cent would be a significant increase. SENATOR WILKEN asked if an increase of one cent would be able to support a certain debt load, but that one cent is a 50 percent increase in existing costs at the current terminal. MR. PLUMBER said he is not anticipating any increase in the fuel flow charge and such an increase has not been in any of the calculations. He clarified he was talking about the cost of fuel per gallon. The cost of gas has dropped close to 30 percent in the last year. SENATOR WILKEN questioned whether a one cent increase per gallon in the wing is also significant. MR. PLUMBER said that is correct. SENATOR WILKEN commented we should not think that a one cent increase here and there should pay this off because those increases threaten Alaska's geographic advantage. SENATOR WILKEN moved to report SB 352 out of committee with individual recommendations and the attached fiscal note. There being no objection, the motion carried. CSHB 386(FIN) - RE AK INDUS. DEVELOP & EXPORT AUTHORITY SENATOR GREEN moved to adopt SCSCSHB 386(TRA) as the working document before the committee. There being no objection, the motion carried. LYDIA JONES, Senate Transportation Committee Aide, explained the committee substitute as follows. HB 386 was introduced to extend the life of the Alaska Industrial Development and Export Authority (AIDEA) which is scheduled to sunset this year. The Senate Transportation Committee substitute extends AIDEA's bonding authority to July 1, 2000. A number of projects for which legislative approval is requested are contained in the bill. Among those are the Red Dog Mine and the port at the City of Nome. The committee substitute added the issuance of bonds to finance the improvement and modification of existing facilities at the Anchorage International Airport in the amount of $179 million; bonds in the amount of $70 million to finance the design and construction of a port at Pt. MacKenzie to be owned by Authority; issuance of bonds not to exceed $70 million to develop a railroad right-of-way and utility corridor to gain northern access to Denali National Park; issuance of bonds to finance improvement and expansion of the port facilities at the City of Seward for $20 million; and bonds to finance the construction and improvement of the Hatcher Pass Ski Resort, phase one, located in the Mat-Su Borough, not to exceed $15 million; and Section 25 provides detailed information about the right-of-way for the railroad and utility corridor. CHAIRMAN WARD asked about the expiration date. MS. JONES answered the expiration date of AIDEA's bonding authority was amended to the year 2000 because, while AIDEA has an excellent track record with its projects, the Legislature would like to have oversight of those projects and be informed of how they are proceeding. SENATOR LINCOLN asked Ms. Jones to expand on Section 25 in relation to Kantishna Holdings, Inc. MS. JONES noted that Mr. Joe Fields of Kantishna, Inc. was participating via teleconference. She explained Kantishna, Inc. is developing a project to gain northern access to Denali National Park. SENATOR LINCOLN asked Mr. Fields to describe the area referred to in the bill and how vast that area is. MR. FIELDS replied this land extends into Denali National Park to the West of Healy. The description in the bill is a portion of the townships in that area which contain the most likely final right- of-way for the Denali railway system. SENATOR LINCOLN asked Mr. Fields how many miles this area will extend. MR. FIELDS answered the area will extend, from the Alaska Railroad, about 20 miles to the West, to the eastern boundary of Denali National Park. SENATOR LINCOLN asked who is involved in Kantishna Holdings, Inc. MR. FIELDS replied Kantishna Holdings, Inc. is an Alaskan corporation that has proposed the development of the Denali Railway System. It currently holds an access permit across some of the lands in this area, and it has made a petition to the Secretary of the Interior for the balance of a right-of-way to the Kantishna- Wonder Lake area. SENATOR LINCOLN asked who the board members are. MR. FIELDS stated the Kantishna Holdings, Inc. board is comprised of Ken Murray, Jr. from Fairbanks, Lawrence Irving, Jack Williams, and himself. SENATOR LINCOLN asked if those four are the principal owners of Kantishna Holdings, Inc. MR. FIELDS said they are. KEITH LAUFER, Financial and Legal Affairs Manager of AIDEA, made the following comments. AIDEA supports HB 386, which will extend AIDEA's funding authority and create new facilities and jobs and help diversify Alaska's economy. AIDEA provided the committee with a detailed sectional analysis of the Finance Committee version of the bill. The bill contains four major components. The first extends AIDEA's bonding authority, which would otherwise sunset July 1, 1998. If AIDEA's authority was to sunset, AIDEA would be prevented from issuing development bonds under $10 million and from issuing conduit bonds. Bonds in the amount of over $10 million always require legislative approval. Conduit bonds can be issued without any credit implication to the state or to AIDEA but allow for tax exempt financing of qualified projects. Again, AIDEA will be required to get legislative authorization of projects over $10 million. MR. LAUFER continued. The second major aspect of the bill is that it merges AIDEA's export guarantee program and its business assistance guarantee program. The ten year old export assistance program has never been used. AIDEA commissioned a study to find out why that was the case and found that while exporting businesses are supported by other AIDEA programs, this program was not effective because it was designed after other states' programs that have strong manufacturing bases and it had some requirements that did not work well. For example, it had a 25 percent value-added component in Alaska which prevented the use of the program for trans-shipment or other types of exports that are common. The bill modifies the export program and merges it into the business assistance program which has worked fairly well. The program will cover services, not just manufacturing, and it covers distributors and trading companies. It only requires export insurance at AIDEA's discretion. Currently export insurance is required for all transactions regardless of location. MR. LAUFER explained the third aspect of the bill is the confidentiality provision. AIDEA has no such provision right now. AIDEA is subject to the general rules under the Public Records Act which require AIDEA to release documents under the terms of the Act. The default is that all records are public records; there is no exception for records submitted by applicants such as tax returns, business plans and the like. Instead, AIDEA must apply a Supreme Court test that requires it to balance the public's right to know versus the privacy interest of the applicant. SENATOR GREEN asked where that language is contained in the bill. MR. LAUFER stated it is in Section 8 of the bill. He stated the current bill contains a provision that specifies categories of documents, that if confidential when submitted to AIDEA, could be kept confidential at the applicant's request. The Legislature and the Legislative Budget and Audit Division would always have access to all information. The last aspect of the bill pertains to project authorizations. The Finance Committee's version of the bill contained two project authorizations; one for an expansion and modification of the port at the Red Dog Mine (the DeLong Mountain Transportation System) to provide a direct float-out facility. At present, Cominco Alaska uses barges to lighter concentrates out to ocean going vessels. The proposed project would extend the existing pier about one-half mile, and provide for dredging so that ocean-going vessels could be directly loaded. The project is very significant and will lower the costs of Cominco's operation thereby making Cominco's operation more secure in the state's investment. The project also has ancillary environmental benefits in that the concentrate will not have to be handled as often. That project is in a very preliminary stage. AIDEA believes the project to be a very good one. AIDEA is concerned about its concentration of debt in one particular project; AIDEA has over $200 million currently invested in the facilities at the port. This additional $80 million is a significant portion of AIDEA's $1.3 billion in assets. At present, AIDEA believes this project will be structured as a revenue financing, non-recourse to the Authority, based solely on Cominco's credit. That method will alleviate much of AIDEA's concentration concern as well as the rating agencies' and bond insurers' concerns. MR. LAUFER informed committee members the second project included in the House Finance Committee version of HB 386 is an expansion and modification project for the port at the City of Nome which provides for a new entrance channel to the harbor for safety and other reasons. That $30 million project is in a preliminary stage. It appears that $26 million could be funded through Army Corps of Engineer funds, so a substantial portion of AIDEA's involvement in this project would be short term. Again, there are a lot of due diligence and statutory requirements AIDEA would have to meet before it would invest in this project, but it looks promising at this stage. SENATOR HALFORD stated he believes the Legislature should have access to most of the confidential information if it is to be effective in its oversight capacity. He noted trade secrets and income tax returns of individuals are far different than business plans, credit reports, and other things the Legislature will need to have. MR. LAUFER responded AIDEA has been advised that the Legislature will continue to have access to all information. SENATOR HALFORD stated the Legislative Budget and Audit Division will have such access, the Legislature will not. He stated legislators who are willing to keep the information confidential should have access. CHAIRMAN WARD suggested Mr. LAUFER verify that the Legislature will have access with the Attorney General's Office. SENATOR LINCOLN asked for clarification about the additional amount to be invested in the Red Dog Mine. MR. LAUFER replied $80 million. The investment to date is about $230 million. SENATOR LINCOLN asked Mr. LAUFER if he had the opportunity to read the Senate Transportation Committee substitute prior to the meeting. MR. LAUFER said he read it in the last few minutes. SENATOR LINCOLN asked Mr. LAUFER if he had any comments he wanted to share on the version. MR. LAUFER stated he does not know what a lot of the projects are about so it is difficult for him to comment on them. He noted that typically, AIDEA has waited for projects to be further advanced before it got project authorization, because when AIDEA goes out into the bond financing market, that market treats all authorizations as though the bonds will be issued. When they look at AIDEA's finances, they will figure AIDEA will issue all of the bonds regardless of the stage of the project which will cause some difficulty. CHAIRMAN WARD asked if AIDEA has a mechanism in place to ensure that the public's interest is protected in the process. MR. LAUFER replied AIDEA would have to meet a number of statutory requirements before it could invest in any of these projects. He clarified he was addressing the financing concerns AIDEA may experience when it goes to the financing markets. CHAIRMAN WARD said he would hope AIDEA would take a prudent man rule and protect Alaska's interests. ROGER HEAD, principal of the Hatcher Pass Development Corporation, gave the following testimony in support of HB 386. The Hatcher Pass development project has been seriously considered for about 15 years, and AIDEA has reviewed previous proposals for the project. Both the Department of Natural Resources (DNR) and the Matanuska- Susitna Borough have put a high priority on this project. The Mat- Su Borough believes that in the near term, Hatcher Pass is one of the major economic development projects available to the borough. DNR believes this project is part of an overall winter and summer tourism plan. Previous proposals for the Hatcher Pass project were fairly grandiose in scale, and never reached fruition. DNR requested a proposal for a new lease in 1994. The proposed development that occurred as the result of that lease was a project estimated to cost about $25 million. Hatcher Pass Development Corporation, the Mat-Su Borough, and AIDEA reviewed the economic feasibility of that particular project and concluded that although the project offered great opportunities for both the state and the Mat-Su Borough, its size was too large to be feasible. The lease was sold about 1+ years ago to Davis Constructors. Davis Constructors undertook a study to determine how the project could be changed to meet the objective of the Mat-Su Borough and the State, which was to create a four season resort. The project plan was also pared down so that the first phase was financially feasible. That work has been ongoing for the past year, and a proposal was submitted to the National Bank of Alaska as the direct contact to use AIDEA's guarantee for financing. At the beginning of this year, NBA indicated that the debt-equity ratio of 90:10 did not provide the security it required. NBA recommended a debt equity ratio in the neighborhood of 25 to 30 percent. Since that time, four milestones have occurred. The first is that DOTPF made the Hatcher Pass road improvement project one of its highest priorities after the Mat-Su Borough contributed some funds to that project. That road is an integral part of the project's infrastructure. The Matanuska-Susitna Electric Association found a way to reduce the cost, from $2 million to $.5 million, for providing electricity to the project by using an overhead line and decided to participate and contribute to the project with its development fund. Third, the Mat-Su Borough reached an agreement with DNR whereby it will take over the lease property. The lease funds will be injected by the Mat-Su Borough into the initial development phase of the project. Fourth, DNR is planning to privatize Independence Mine. The recent contributions are narrowing the gap to where the Hatcher Pass Development Company believes it is very close to meeting the ratio requirement. It believes undertaking financing with AIDEA is logical. Ski areas tend to be a little bit more difficult to finance than other developments. MR. KYLE RANDISH, Vice President of the Hatcher Pass Development Company, described the project for committee members with the use of charts. When Hatcher Pass Development Company bought out the project, its goal was to down scale the project to make it economically feasible. It is proposing a four-phase development plan. The first phase will be the development of a ski area. The second phase will include infrastructure development for the ski area and to support the village. The third phase is the village concept and the fourth phase will include more mountain improvements. The ski area will have two detachable chair quad lifts, a base facility, lighting on the mountain, and a snow making system at the lower elevations. The goal of phase one is to establish a skier experience equivalent to what is available in the market in an economically feasible manner. The chair lifts are state-of-the-art. During the second phase, power, gas, water, and other developments will take place to accommodate the village scheme. The village concept will be a four seasons resort destination spot. The complex will offer some small hotels, small retail stores, a convention center, a golf course, and some residential development. As the village concept is developed, more skier business should develop and the ski area size should increase. SENATOR WILKEN thanked Mr. Head and Randish for attending the meeting. PAUL FUHS, port consultant for the Port of Nome, described the Nome port project through the use of illustrations. The existing port was built in 1917 by the U.S. Army Corps of Engineers. The 75 foot jetty is too small for the equipment coming in to the port. Because of the Community Development Quota Program, the number of fishing boats coming into Nome has increased. Over the last ten years, ten people died trying to come in and out of the port because of dangerous wave breaks in one spot. The causeway was built during oil field development in Norton Sound, but was shut down due to litigation. It contains cargo areas, but those areas are exposed to rough weather. Nome is a trans-shipment port: it serves 23 villages in the area. Senator Stevens and his staff met with the U.S. Army Corps of Engineers and negotiated an 18 month time frame to complete the project. A new breakwater and channel entrance will be the main navigation features that improve the safety and usability of the port. The Port of Nome prefers AIDEA financing because if the Corps of Engineers and the federal government do the procurement, it will take two years to get the project out to bid. Using AIDEA (Section 204E) financing will save an entire construction season. Also, if the federal government finances the project, the project would have to be done in one bid. By using AIDEA financing, the movement of the rock from Cape Nome, dredging, and other projects, can be completed using local contractors. With AIDEA financing, in the first year, 80 percent will be paid back to AIDEA and the community will take the rest of the debt ($5-6 million) as long term debt through AIDEA and pay that off with port revenues. SENATOR HALFORD asked if the Corps of Engineers has the money appropriated to do the project. MR. FUHS said that it does. SENATOR HALFORD asked if the Corps of Engineers will pay AIDEA back. MR. FUHS said it will pay AIDEA back 80 percent of the money as soon as it has certified that the project is complete. The project is based on an 80-20 share; the local government has to come up with 20 percent of the money. AIDEA will be reimbursed for roughly $20 million in the first year when the project is complete, and $6 million will be financed long term. SENATOR HALFORD asked how $20 million will amount to 80 percent of the project's total cost of $30 million. MR. FUHS said the total cost is estimated at $26 million but the figure is not exact yet. The community might want to extend the seawall to protect the front end of the spit. The dredged material will be used to fill in the jetty to make it usable property. SENATOR WILKEN asked about the purple area of the chart. MR. FUHS explained the purple notations are the bathometric markings which show the surveys of the elevations in the area to ensure that the project will stand up to rough weather. The community spent $550,000 on a feasibility study to which the federal government contributed a like amount. $250,000 of that amount was spent on modeling the port in a wave tank against the conditions of the 1974 storm in Nome. MR. FUHS stated the Community Development Quota Program contributed $550,000 and the community put in the rest. The only state money in the project is from a $200,000 community development block grant. SENATOR HALFORD asked what the tide level is in that area. MR. FUHS stated the tide is only about a meter; two at the maximum, but there is hold back from the storms because the area is so shallow. SENATOR WILKEN asked if the docking facilities will be upgraded. MR. FUHS said they will in the small boat harbor area, however those upgrades do not qualify for federal funding so they will be financed with local money. SENATOR HALFORD asked who owns the spit. MR. FUHS replied it is owned by about 20 entities, among them the city and the Native corporation. He added when this project got started, he was hired as the acting city manager of Nome, and the 14C3 land reconveyance to the Native corporation was resolved. SENATOR HALFORD commented this project will create a lot of high value downtown beachfront property. MR. FUHS agreed. He noted a gold seam runs through part of the area where the Beema (ph) is working, and it contains arsenic. The arsenic will be sealed into the bottom of the old channel so technically one whole area will be a toxic waste dump with zero value as far as the federal government is concerned. CHARLOTTE Maccay, Senior Administrator of Environmental and Regulatory Affairs for Cominco Alaska's Red Dog operation, stated Cominco is asking the Legislature to approve the Red Dog portion of the AIDEA funding bill which provides for further upgrade of the DeLong Mountain transportation system port site by converting the lightering barge load-out facility to an ocean vessel direct loading facility. The direct loading facility will open the port to other regional uses and other future resource extraction projects in the region. It provides cleaner, and a reduced number of, transfers of materials from port to vessel; it reduces marine wildlife exposure to moving vessels; and it improves productivity while greatly reducing shipping costs. Cominco has been successful in bringing economic development to rural Alaska and with NANA shareholder and Alaska hire. She noted she submitted detailed written testimony to committee members and was available to answer questions. CHAIRMAN WARD thanked Ms. Maccay for the tremendous amount of materials she supplied to the committee. JOHN KEY, General Manager of Cominco Alaska, stated he was also available to answer questions. Committee members had no questions of Ms. Maccay and Mr. Key. MIKE SCOTT, Manager of the Mat-Su Borough, stated his appreciation to committee members for hearing HB 386 and for including the Hatcher Pass and Point MacKenzie projects. The Hatcher Pass development project has been in place for several years and is now close to becoming reality. The Point MacKenzie project has been a borough priority for many years. The Mat-Su Borough is the largest area of the state without a port. At this point, some federal funding for this project is working its way through Congress. SENATOR HALFORD commented, regarding the confidentiality provision in the bill, he believes some things should be on the list but others should be a matter of public record. He believes income tax statements, cash flow statements, and trade secrets should not be a matter of public record, but financial statements, profit and loss statements, credit records, appraisals, if part of the collateral, marketing strategies, and market surveys should not be kept confidential. He repeated the list is too expansive. MR. LAUFER commented he was unable to get a representative from the Attorney General's Office to attend. He stated the issue is the separation of what the Legislature should have access to and what information should be a matter of public record. AIDEA's understanding was that any legislator would have access, providing the information was kept in confidence. AIDEA would be in support of amending the bill to clarify that provision. With respect to the specific items mentioned by Senator Halford, one of AIDEA's largest programs is its loan participation program in which AIDEA buys bank participation. Under the laws that apply to banks, all of that information is required by law to be kept confidential. SENATOR HALFORD questioned how this system has been working for years. MR. LAUFER replied AIDEA gets requests regularly and goes through the Supreme Court balancing test: the privacy interest versus the public interest. Generally, no one is happy with the decision AIDEA makes so it tried to create, in the bill, a list to give people guidance as to what information would be public and what would be confidential. The original bill allowed AIDEA to promulgate regulations. Representative Therriault questioned why AIDEA did not want to put a list in statute. AIDEA preferred Representative Therriault's approach and the bill was amended. The list is representative of the type of requests AIDEA receives and where the problems have occurred related to those requests. SENATOR GREEN asked if the bill could contain a stipulation requiring any person who plans to get an AIDEA loan through a bank to sign a waiver and comply with AIDEA's standards rather than the bank's. MR. LAUFER said certainly, and that has been the case up until now. The problem has been that AIDEA gets requests from competitors for information. AIDEA is not allowed, under current law, to inquire as to motives or anything; the information is deemed public record. AIDEA was hoping, through the legislative process, to get clearer standards as to what information could be held in confidence. AIDEA believes the list is representative of the kind of information that is normally considered confidential. The bill requires that the information be kept confidential before it is submitted, and often many of the borrowers' financial statements are already public at the time they are submitted. The bill would not apply to any of that information. SENATOR HALFORD stated, as an example, a high profile airline got an AIDEA loan. The airline had a lot of property listed at certain values and some of those properties had DEC problems. That information was generally public. If this bill passes, that kind of information would not be public. He believes the public has the right to know the appraised value of the collateral. MR. LAUFER responded the appraisal item is a particularly sensitive one for banks because AIDEA has had cases where appraisals of property were used by local assessors to reassess the property value. The bill contains exceptions in the appraisal section because AIDEA felt that certain appraisal information had to be public, but the banks were hesitant to allow the entire appraisal to be made public. CHAIRMAN WARD asked if there was further testimony on SCSCSHB 386 (TRA) at this time and noted his intention to pass the bill out of committee. There was no further testimony. CHAIRMAN WARD asked Senator Halford to work with the AIDEA representatives to prepare a committee substitute to be passed out of committee on Thursday. SENATOR HALFORD questioned whether the Chairman would like him to offer an amendment at this time. CHAIRMAN WARD said he also wanted to work with the group to remove some of the items that were included by the House Finance Committee. There being no further business to come before the committee, CHAIRMAN WARD repeated his intention to move the committee substitute out of committee on Thursday, and adjourned the meeting at 4:17 p.m.