Legislature(2007 - 2008)CAPITOL 106
03/20/2007 08:00 AM House STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB166 | |
| HB151 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 166 | TELECONFERENCED | |
| *+ | HB 151 | TELECONFERENCED | |
| *+ | HB 92 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE STATE AFFAIRS STANDING COMMITTEE
March 20, 2007
8:11 a.m.
MEMBERS PRESENT
Representative Bob Lynn, Chair
Representative Bob Roses, Vice Chair
Representative John Coghill
Representative Kyle Johansen
Representative Craig Johnson
Representative Andrea Doll
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 166
"An Act relating to contributions from permanent fund dividends
to community foundations, to certain educational organizations,
and to certain other charitable organizations that provide a
positive youth development program, workforce development, aid
to the arts, or aid and services to the elderly, low-income
individuals, individuals in emergency situations, disabled
individuals, or individuals with mental illness; and providing
for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 151
"An Act requiring an indemnification and hold harmless provision
in professional services contracts of state agencies, quasi-
public agencies, municipalities, and political subdivisions."
- HEARD AND HELD
HOUSE BILL NO. 92
"An Act removing the victims' advocate and the staff of the
office of victims' rights from the jurisdiction of the office of
the ombudsman in the legislative branch."
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 166
SHORT TITLE: CONTRIBUTIONS FROM PERM. FUND DIVIDENDS
SPONSOR(s): REPRESENTATIVE(s) THOMAS
02/28/07 (H) READ THE FIRST TIME - REFERRALS
02/28/07 (H) STA, FIN
03/20/07 (H) STA AT 8:00 AM CAPITOL 106
BILL: HB 151
SHORT TITLE: INDEMNITY CLAUSE IN PUBLIC CONTRACTS
SPONSOR(s): REPRESENTATIVE(s) JOHNSON BY REQUEST
02/22/07 (H) READ THE FIRST TIME - REFERRALS
02/22/07 (H) STA, JUD
03/20/07 (H) STA AT 8:00 AM CAPITOL 106
WITNESS REGISTER
REPRESENTATIVE BILL THOMAS, JR.
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 166 as prime sponsor.
KACI HOTCH, Staff
to Representative Bill Thomas, Jr.
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered a question on behalf of
Representative Thomas, prime sponsor of HB 166.
JERRY BURNETT, Director
Administrative Services Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Testified during the hearing on HB 166.
MICHELE BROWN, President
United Way of Anchorage
Anchorage, Alaska
POSITION STATEMENT: Testified in support HB 166.
DIANE KAPLAN, President
Rasmuson Foundation
Anchorage, Alaska
POSITION STATEMENT: Testified on behalf of the Rasmuson
Foundation during the hearing on HB 166.
THERESA BANNISTER, Attorney
Legislative Legal and Research Services
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Addressed Amendment 1 during the hearing on
HB 151.
MARK O'BRIEN, Chief Contracts Officer
Contracting and Appeals
Office of the Commissioner
Department of Transportation & Public Facilities (DOT&PF)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
151.
BRAD THOMPSON, Director
Division of Risk Management
Department of Administration
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
151.
ACTION NARRATIVE
CHAIR BOB LYNN called the House State Affairs Standing Committee
meeting to order at 8:11:52 AM. Representatives Roses, Coghill,
Johansen, Johnson, Gruenberg, Doll, and Lynn were present at the
call to order.
HB 166-CONTRIBUTIONS FROM PERM. FUND DIVIDENDS
8:12:26 AM
CHAIR LYNN announced that the first order of business was HOUSE
BILL NO. 166, "An Act relating to contributions from permanent
fund dividends to community foundations, to certain educational
organizations, and to certain other charitable organizations
that provide a positive youth development program, workforce
development, aid to the arts, or aid and services to the
elderly, low-income individuals, individuals in emergency
situations, disabled individuals, or individuals with mental
illness; and providing for an effective date."
8:12:36 AM
REPRESENTATIVE BILL THOMAS, JR., Alaska State Legislature,
introduced HB 166 as prime sponsor. He paraphrased his sponsor
statement, which read as follows [original punctuation
provided]:
HB 166 is an attempt to increase private philanthropy
in Alaska by giving people the option of donating a
portion of their Permanent Fund Dividend check to
their favorite charity. Alaskans who make $100,000 or
more, rank among the lowest in the nation as far as
percentage of income donated to charities.
In the hustle and bustle of life, we often forget
about those organizations who rely on donations and
who provide important services to our communities. HB
166 allows for a list of approved organizations to be
included with a person's PFD [permanent fund dividend]
application and allows them to check off which
charities that they would like to donate to. 100% of
their donation will go to the charity. The simplicity
of being able to simply check the desired charity
while applying for one's PFD will increase the rate of
donation and give these charities another avenue to
use in their fundraising.
HB 166 also requires that the charity meet certain
criteria before it can be placed on the list with the
PFD applications. Among the criteria, the charity must
be a 501(c)(3) organization, be directed by a
voluntary board whose members are residents of Alaska,
receive $100,000 or 5%, whichever is less, of its
annual receipts in contributions, and the charity must
provide a copy of an audit, for the previous fiscal
year, to the Department of Revenue
The Rasmuson Foundation, a charitable foundation which
makes $25 million in grants each year to Alaska
organizations, has pledged to fully fund the
administrative costs of the program for the first
three years of the program, creating a zero fiscal
impact on the state in these crucial beginning years.
HB 166 gives people a simple and convenient way to
donate to their favorite charities, who make a
positive impact in our communities. I urge your
support of this important piece of legislation.
8:15:29 AM
CHAIR LYNN asked how the applicant making the donation will be
able to specify how much he/she is giving.
8:15:51 AM
KACI HOTCH, Staff to Representative Bill Thomas, Jr., Alaska
State Legislature, on behalf of Representative Thomas, prime
sponsor of HB 166, explained that the following amounts can be
checked on the permanent fund dividend (PFD) application: $25,
$50, $75, or $100, or ten percent, twenty-five percent, fifty
percent, or one hundred percent of the amount of the PFD.
8:16:19 AM
REPRESENTATIVE THOMAS, in response to a question from
Representative Roses regarding the cost of the bill after the
first three years, said the legislation sunsets after that time
and would have to be reauthorized. In response to Chair Lynn,
he said anyone who decides to give to a charity through the
proposed check-off method on the PFD application would have a
receipt of that donation to show the Internal Revenue Service
(IRS).
8:17:20 AM
REPRESENTATIVE THOMAS, in response to Representative Johnson,
stated his understanding that all the eligible 501(3)(c)
entities would be on a list that accompanies the PFD
application; however, not all organizations will qualify. He
indicated that [the analysis portion of the fiscal note] gives
an explanation regarding qualification.
REPRESENTATIVE JOHNSON pointed out that the fund source is
listed under the General Fund for HB 166, while it is listed
under statutory program receipts for a matching Senate bill. He
questioned the inconsistency.
8:19:00 AM
REPRESENTATIVE THOMAS suggested that a representative from the
Department of Revenue could explain.
8:19:10 AM
REPRESENTATIVE THOMAS, in response to Chair Lynn, confirmed that
a PFD applicant can designate donations for more than one
charity on the same form.
8:19:29 AM
REPRESENTATIVE GRUENBERG expressed appreciation of the
generosity of the Rasmuson Foundation. He asked if that
foundation would mind entering into a contract with the state
guaranteeing that it will pay the administrative costs. He
stated support of HB 166, but said he has one concern. He
directed attention to page 2, lines 20-28, which read as
follows:
(c) The department may not include an
educational organization on the contribution list
unless the primary purpose of the organization is to
provide vocational training or postsecondary
education. Other than a community foundation, the
department may not include a charitable organization
on the contribution list for a dividend year unless
the primary purpose of the organization is to provide
a positive youth development program, workforce
development, aid to the arts, or aid and services to
the elderly, low-income individuals, individuals in
emergency situations, disabled individuals, or
individuals with mental illness. In addition, the
educational organization, community foundation, or
charitable organization
REPRESENTATIVE GRUENBERG said, for example, that that language
would preclude someone from giving to a hospital, museum,
library, and nonprofit k-12 schools, and he questioned whether
that was the sponsor's intent. He related, "... Normally, for
check-offs, as long as an organization would qualify as a
501(c)(3), that would be the donor's choice."
8:21:26 AM
REPRESENTATIVE THOMAS offered his understanding that any entity
qualified as a 501(c)(3) would qualify to be on the list.
REPRESENTATIVE GRUENBERG replied that he was hoping the sponsor
would say that, and he emphasized to Representative Thomas the
need to scrutinize the language on page 2, lines 20-28, because
it is "much narrower than any 501(c)(3)." In response to Chair
Lynn, he said he think's it may be appropriate to include the
term "501(c)(3)" in the bill; however, he said he would like the
sponsor to be in absolute agreement with doing so.
8:22:11 AM
REPRESENTATIVE ROSES surmised that the Rasmuson Foundation may
support the limited list of 501(c)(3) entities because it is
expeditious in who it contributes funds to and who it doesn't.
8:23:40 AM
JERRY BURNETT, Director, Administrative Services Division,
Department of Revenue, prefaced his statements by clarifying
that the use of PFDs is not the department's concern. That
said, he expressed concern regarding the complexity of having a
wide variety of choices related to amounts and charities. He
explained, "Every time you add a choice, you add complexity in
our payment system, [and] you add complexity to the
application." He said people who apply for dividends want a
simple application; any questions they have require them to call
the department. He said that may not seem like much to anyone
outside the department; however, if 10 percent of the people who
apply want to access the proposed program, and 10 percent of
those people have a question about it, that means 6,000 phone
calls. Mr. Burnett said the department will work on those
issues with the bill sponsor and with the Rasmuson Foundation if
the bill moves forward, but there may be unintended
consequences. He noted that the only "check-off" currently on
the application is for the advanced tuition program, which is
designed for applicants to put money aside to the University of
Alaska. He explained that the department writes one check to
the University Foundation who administers the program and
applies the money from each of the people [who checked that
option]. He stated, "The more we can make it resemble that, the
easier it will be to administer for the department."
8:27:21 AM
REPRESENTATIVE ROSES said having taught math for over 20 years,
he knows that many people don't know percentages. He said it
may be possible that an applicant checks off "50," thinking that
it means $50, when it really signifies 50 percent. Furthermore,
he pointed out that at the time of the application, a person
doesn't know what the sum of the PFD will be; therefore, he/she
has no way of knowing how much money 50 percent will be. He
said he supports the idea behind the bill, but he said he would
like to see better clarity regarding the numbers.
8:29:03 AM
MR. BURNETT told Representative Roses that that is exactly the
point he was trying to make. Regarding the comments
Representative Johnson made related to the fiscal note, he said
[HB 166] has a provision that would prohibit the department
"from spending any permanent fund dividend money on it." He
said in the Senate bill, that provision was added "after our
fiscal note was done." He continued:
It's not clear to me whether or not this would be
statutory designated program receipts or general fund
program receipts. If, in fact, the bill requires a
contract with the Rasmuson Foundation for them to pay,
it'll probably be ... statutory designated program
receipts, and that's a change that we're quite willing
to work on in [the House] Finance Committee and make
sure that it's budgeted correctly.
8:30:05 AM
REPRESENTATIVE GRUENBERG asked, "If the Rasmuson Foundation and
the sponsor are willing to have a clause in the bill that has a
condition precedent for a contract, would the department be
willing to help draft that contract?"
MR. BURNETT answered in the affirmative.
8:30:41 AM
REPRESENTATIVE DOLL asked how many additional employees would
need to be hired by the department in order to operate the
proposed plan.
MR. BURNETT replied that the biggest challenge the department
would face would be in rewriting the computer program to ensure
that both the online application process and the payment system
work properly. He said approximately 75 percent of PFD
applicants apply online. He said the department's fiscal note
provides several hundred thousand dollars to accomplish that.
He stated that although the department anticipates hiring only
one additional employee, the program will have "some effects
spread throughout the division." He said any time changes are
made to a program that affects every person in the state, both
the department and legislators can expect to receive an
increased number of phone calls, whether or not the change works
well or poorly.
8:32:26 AM
MR. BURNETT, in response to a question from Representative
Roses, said court-ordered garnishments from a PFD would take
priority over donations. In response to a question from
Representative Gruenberg, he said voluntary assignments, under
which donations and the voluntary advanced tuition fall, will
always come after garnishments; therefore, there is no need to
make that specification in the language of the bill.
8:34:12 AM
MICHELE BROWN, President, United Way of Anchorage, testified in
support HB 166. She said the bill is both good social policy
and an excellent way of promoting sustainability for the
invaluable services of nonprofit entities. She said Alaskans
have a great tradition of neighborliness, but that has not yet
translated into cash-based philanthropy. She stated, "Despite
what many Alaskans want to believe, government can't do
everything, and much of what has been done regarding quality of
life comes from the work of nonprofit organizations and their
volunteers." Ms. Brown relayed that the United Way of Anchorage
is a network of organizations that cares for children and
seniors, connects people with healthcare services and
information, provides workforce development, and ensures that
people are housed and fit so that they can get educated and hold
jobs. She relayed that that which affects individuals has
significant financial and social impact on the community, as
well. She said the proposed legislation would provide an easy
way for people to invest in quality of life for others. Ms.
Brown said the United Way of Anchorage stands ready to help
implement this legislation. She revealed that the organization
has a long history of managing donor-designated fundraising and
currently manages five public sector campaigns on behalf of
governmental entities, which she said are similar to how HB 166
is set up. She said the United Way of Anchorage could be "up
and running with the state to implement this as directed very
quickly" and efficiently.
8:37:07 AM
CHAIR LYNN expressed appreciation for the work of the United
Way.
8:37:13 AM
REPRESENTATIVE GRUENBERG asked how much United Way's management
would cost the program.
MS. BROWN said United Way would be working with the Foraker
Group at a cost estimated at under $100,000. In response to a
follow-up question from Representative Gruenberg, she confirmed
that that money would come from the Rasmuson Foundation during
the three years before which the bill would sunset.
8:37:45 AM
REPRESENTATIVE GRUENBERG referred back to page 2, lines 20-28,
[text provided previously], and asked if there are any
organizations under the umbrella of the United Way of Anchorage
that would not qualify.
MS. BROWN answered no.
8:38:06 AM
DIANE KAPLAN, President, Rasmuson Foundation, said the
foundation is pleased to work with the State of Alaska. She
said the idea came about a couple years ago. She said the
United Way of Anchorage does a wonderful job in facilitating
contributions; however, it only reaches a few communities in
Alaska. Because of success of other campaigns, she said, the
Rasmuson Foundation thinks [the check-off system on the PFD
application] would be "a terrific way of advancing interest
around promoting philanthropy in our state." She echoed Ms.
Brown's comment that Alaska has a long history of its people
being generous in their volunteer efforts. The proposed
legislation will provide a way to help organizations that the
public has come to depend upon deliver critical services around
that state. Ms. Kaplan explained that the dollars given by
individuals are the most precious, because they can be used for
unrestricted needs, whereas many grants are specified for
specific use. She said the Rasmuson Foundation board has made
funds available for the first 3 years. The State of Alaska will
write a single check from the donated monies and the United Way
will distribute those funds.
CHAIR LYNN expressed appreciation of the Rasmuson Foundation.
8:42:04 AM
REPRESENTATIVE ROSES asked if the Rasmuson Foundation would
remain interested in sponsoring the administrative costs if the
list were opened up to all 501(c)(3) entities.
8:42:34 AM
MS. KAPLAN responded that there are approximately 6,000
501(c)(3) entities in Alaska and if there were 6,000 choices on
the PFD application, the program wouldn't be very effective for
any of them. She stated, "So, we were looking for a way both to
make this program rational, in terms of providing real support
for core service providers, but also making sure that the
organizations that are listed have credibility with the public."
She said to qualify, the nonprofit organization must: file an
annual tax return with the IRS; have an audit; already be
engaged in individual fundraising; have a certain budget and
staffing; and have been tax exempt for a period of time [and]
have a voluntary board of directors who are residents here in
the state.
MS. KAPLAN stated that the Rasmuson Foundation funds in every
area of life, so its interest in limitation revolves more around
organizations that can demonstrate a certain level of
professionalism so the public can have confidence in the
program.
8:45:30 AM
REPRESENTATIVE DOLL said she used to work for United Way, and
she said she knows that many groups would not be on the list.
She stated concerned that that may be problematic.
MS. KAPLAN said the Rasmuson Foundation is "pretty confident
that every organization that can meet the basic criteria is
going to get a fair shake at being included."
8:47:45 AM
REPRESENTATIVE GRUENBERG asked Ms. Kaplan if United Way deals
with [organizations] involved with that listed on page 2, line
22: vocational training or postsecondary education.
MS. KAPLAN answered that United Way would simply be the
contractor that would ensure that the organizations that receive
designations from members of the Alaska public would receive
those dollars; United Way would be providing the technical
services. She emphasized that there would be no requirement
that an organization be affiliated with United Way to be part of
the program. In addition to redistributing funds received from
the state, United Way would issue a receipt to donors, showing
that they made a charitable [donation].
REPRESENTATIVE GRUENBERG asked what kind of controls there would
be regarding which entities would qualify as "vocational
training or post secondary education".
8:51:00 AM
MS. KAPLAN answered that an entity receiving the funds would
have to be a 501(c)(3), nonprofit corporation; a for-profit
company, regardless of whether it has provided educational or
any other services, could not be a recipient of these dollars.
The reason, she explained, is that the public would expect to
get a tax deduction for making the donation, and those [for-
profit] entities are not tax exempt. Furthermore, she related
that individuals could not be recipients of the donations, for
the same reason.
8:51:59 AM
REPRESENTATIVE GRUENBERG asked if the Rasmuson Foundation would
be willing to enter into a contract with the state, which would
make the foundation responsible for paying the administrative
costs.
MS. KAPLAN answered, "Absolutely, we would."
8:53:05 AM
REPRESENTATIVE ROSES pointed out the terms "vocational training"
on page 2, line 22 and "workforce development" on line 25 of the
same page. He asked Ms. Kaplan if she envisions any of the
apprenticeship programs under the umbrellas of various labor
union would qualify "under this definition."
MS. KAPLAN replied:
I'm not specifically familiar with how those are set
up in terms of their tax status, but I know for
example Alaska Work Partnership, which is the provider
of those services for many of those labor unions, is
definitely an eligible entity, in terms of our
funding, and I know that they are a 501(c)(3). So, I
think there's usually a nonprofit provider involved,
but in terms of the specifics of the question you just
asked, I hesitate to answer, because I'm not that
specifically familiar with their governing structure.
8:54:26 AM
REPRESENTATIVE COGHILL thanked Ms. Kaplan for her work and that
of the Rasmuson Foundation. He directed attention to page 3,
[line 15-16], which state that ["the educational organization,
community foundation, or charitable organization"]:
(7) must receive at least $100,000 or five percent of
its total annual receipts, whichever is less, from
contributions;
REPRESENTATIVE COGHILL asked Ms. Kaplan if that is intended to
be individual or private contributions.
MS. KAPLAN answered:
That would be from any source of contributed income.
And the rationale behind that is there are some
organizations that are 100 percent funded, let's say
by Medicaid or Medicare - they're not really involved
in raising funds from the public - and those would be
organizations that probably (indisc.) type of
legislation. So, we're looking at organizations that
are in the practice of receiving and requesting
donations from the public. That was the intent.
MS. KAPLAN, in response to a question from Representative
Coghill, explained that 501(c)(4) organizations are involved in
lobbying activities and individuals cannot make tax deductible
donations to them. A 501(c)(6) organization, she said, such as
a chamber of commerce or rotary club, usually serves its
members, and the purpose of that organization is to benefit a
specific group of people, rather than the public at large. She
said [501(c)(6)] organizations often have sister organizations
that are 501(c)(3), through which they raise tax-deductible
funds.
REPRESENTATIVE COGHILL noted that Ms. Kaplan's work with the
Foraker Group has been a huge benefit to Alaska. He remarked
that the criteria set up in order for organizations to be on the
list would put some organizations on a "preferred giving list."
He asked if Ms. Kaplan anticipates public tension over that
issue.
MS. KAPLAN responded:
We're really looking [at] this as a rising tide and
all ships benefiting down the road, because our hope
is to really do a very extensive public campaign about
individual giving. Some people will choose to give
through their permanent fund, and I think other people
will choose to give in another manner. If people have
their awareness raised about individual giving, if
their particular group or choice is not on this list,
they still have every right to take $25 or $100 from
their permanent fund [dividend] and give it to that
organization - they just might not be doing it through
the check-off. ... Our hope is just to raise the
awareness around charitable giving for individuals in
general, and we see the permanent fund dividend as
just one of many tools to do that.
MS. KAPLAN, in response to Chair Lynn, agreed that the check-off
list would give an advantage to those on it. However, she said
it is estimated that 600 organizations will make it onto that
list, and any organization that wishes to qualify need only
follow the standard, best practices, governance criteria for
nonprofit organizations. She admitted that the list may not be
perfect; however, she said she thinks it is the best list that a
group of experienced nonprofit executives and donors from around
the state could produce.
9:00:59 AM
MS. KAPLAN, in response to a question from Representative Doll,
directed attention to page 1, line 25, and noted that the term,
"youth development program" is a broad description for
organizations which serve children.
9:01:20 AM
REPRESENTATIVE GRUENBERG said the language on page 3, lines 2-3
is the only place in the bill that sets a date for determination
on any of the criterion. He suggested that there be language in
the bill that would require the organization to notify "the
manager" if it no longer meets any of the nine criterion.
MS. KAPLAN responded that she thinks the Rasmuson Foundation
would not have any objection to adding such language.
9:02:30 AM
MS. KAPLAN, in response to a request from Representative
Gruenberg, said she would ask Ms. Brown to make the list of
organizations available to the committee.
9:03:11 AM
REPRESENTATIVE ROSES said although the list would be helpful, he
does not want the bill held up while waiting for it.
MS. KAPLAN concurred with Representative Roses' desire to see
the bill move on to the next committee. She said if the bill is
held up for another year that would result in a big loss of
income for nonprofit organizations.
9:03:46 AM
CHAIR LYNN closed public testimony.
9:04:17 AM
REPRESENTATIVE COGHILL said he appreciates Representative
Gruenberg's previous recommendation to amend the bill "to
somehow protect the nine criteria." However, he said although
he likes "the idea," he is not in favor of the bill. He warned
that once check-offs are added on the PFD application, which has
already happened, then "it's just another, 'Me, too.'" He
emphasized how appreciative he is of the Rasmuson Foundation's
offer and its desire to see an increase in charitable giving in
Alaska; however, he said he is just not certain that this is the
best way to do it. He explained that he is not sure he wants
the state to manage such a program, because once it starts
accepting that responsibility, then there will be other "steps
of responsibility that we'll pick up for people."
9:07:13 AM
REPRESENTATIVE ROSES said he does not disagree with
Representative Coghill's comments. However, he noted that the
House Health, Education and Social Services Standing Committee
subcommittee recently closed out its budget, and some decisions
were made to cut out some organizations from the budget because
they could have other means by which to raise funds. He said HB
166 would provide one of those means.
9:08:52 AM
REPRESENTATIVE GRUENBERG expressed concern that the unintended
net result of the bill would be to "let the state off the hook."
He explained:
If charity "A" got money from a private source, then
the state would "defund" it. And so, the charity
would retain no more money than it's getting now, and
the beneficiary of this would be the State of Alaska.
And there's no protection in the bill for that. I
would like to see the charities benefit, not the State
of Alaska.
CHAIR LYNN remarked that it is okay to benefit the state. He
said it is not state's job to fund every 501(3)(c) in Alaska.
REPRESENTATIVE GRUENBERG responded that a citizen opting to give
money to a charity through the proposed check-off method on the
PFD has the right to know if that money "may simply go to reduce
the money the state gives the charity." He stated that he
thinks most Alaskans would not carry the reasoning as far as
Representative Roses' example; they would think their money is
actually going to benefit the designated charities.
CHAIR LYNN pondered whether those 501(c)(3) entities not on the
list would be hurt.
REPRESENTATIVE GRUENBERG stated that he also shares that
concern.
9:12:18 AM
REPRESENTATIVE ROSES stated:
If I led you to believe through my comments that ...
we're looking for ... a way to supplant some of the
funds that the state is providing, that isn't what I
intended to say. The point I was trying to make is:
When we were looking ... at the Health & Social
Services budget, ... we were looking for $38 million-
worth of cuts. The areas that we were most cognizant
of not trying to apply cuts were ones that had
matching dollars, because when you cut one dollar
there, you're actually cutting two. So, those areas
that are able to have the matching grants ... fared
the best in the budget ....
REPRESENTATIVE ROSES explained that his prior comments pertained
to concern over where the contributions from the private sector
come from and how the dollars can be better leveraged to
accomplish objectives. He stated:
We're going to have to start cutting regardless of
where the money comes from or who gets it, if the oil
revenues continue to decline, which we know they're
going to. ... All I'm saying is that the charitable
contributions are going to be much more important in
the future than they are now, because there [are]
going to be less state dollars ....
REPRESENTATIVE ROSES said although he shares Representative
Coghill's concerns regarding the dangers of opening a door and
then not knowing where it all ends, he will support HB 166.
9:15:10 AM
REPRESENTATIVE JOHNSON stated that he does not think there is
anything that can be done to HB 166 to protect charities that
would not financially encumber future legislatures.
9:16:00 AM
REPRESENTATIVE GRUENBERG said Representative Johnson is correct.
He said he had merely been talking about intent. To
Representative Roses, he said he has never sat on the House
Health, Education and Social Services Standing Committee finance
subcommittee, but he just did not want HB 166 to be used as an
excuse to cut the charity.
9:16:28 AM
REPRESENTATIVE DOLL said she will support HB 166, which she
described as a vehicle for a kind of voluntary tax and a means
to help those in need.
9:17:01 AM
REPRESENTATIVE COGHILL reiterated his concern that those on the
list will be the "preferred group," and that that will create
tension.
9:19:08 AM
REPRESENTATIVE GRUENBERG said he shares some of Representative
Coghill's concerns. He asked if there are any recognized
charitable organizations or groups that do not meet the
criterion on page 2, lines [20-29], because he said he does not
want to eliminate them.
CHAIR LYNN added that there are many organizations that are part
of the United Way that are not on the list.
9:20:25 AM
MS. BROWN said United Way's role will be simply as a "pass-
through contractor." She stated, "Administering this will be
more like when we administer the Share Campaign or the Combined
Federal Campaign, where the governmental entities determine
who's eligible and we then simply do the administrative work.
So, it really doesn't tie, in any way, shape, or form with the
United Way private campaign." She offered further details.
MS. BROWN, in response to a question from Chair Lynn, said the
United Way, the Rasmuson Foundation, and the Foraker Group have
set up a process by which organizations apply to be on the list,
and there will be an initial review, a supervisory review, and -
any time there is a decision that an organization is not
eligible - a review by a broad, statewide panel. She stated:
In this process, we had determined it would be a very
liberal interpretation of the language criteria that
Representative Gruenberg was citing on page 2 ...
[subsection (c)]. Where we expect most of the
limitations - where people will not qualify - will be
in the other issues. For instance ... they will not
have a voluntary board, or they won't have a board
that resides in state, or they will have been too new
to have been providing services for two years, or some
other factor like that.
CHAIR LYNN asked if a charity's social views would have anything
to do with its qualification.
MS. BROWN answered no.
9:23:32 AM
MS. BROWN, in response to questions from Representative Johnson,
said the United Way would most likely be on the list, but only
after submitting an application and qualifying. She said the
United Way has 49 service partners. She relayed that the United
Way of Anchorage always has entities trying to "join into our
umbrella." She said, "Our funding goes to our services
partners, but as we work on particular issues, it can also go
broader than that. She related that when someone "designates to
a particular organization," the United Way charges 8 percent for
administrative fees. She added, "On the public campaigns,
however, those run more at 2 ... or 3 percent."
MS. KAPLAN added, "However, on the permanent fund[dividend]
program, as proposed, 100 percent of the donation will go
directly to the designated charity, because the Rasmuson
Foundation would be covering those costs."
9:25:25 AM
REPRESENTATIVE GRUENBERG said he will support the bill with the
following two changes: The addition of language that requires a
contract between the state and the Rasmuson Foundation, and a
provision that the charity must notify the organization managing
the program if it is no longer eligible. He said it sounds like
the criteria set up are strict and structured.
9:27:06 AM
CHAIR LYNN suggested the committee hold the bill to get those
amendments drafted.
CHAIR LYNN announced that HB 166 was heard and held.
REPRESENTATIVE ROSES said he would not be present at the next
committee meeting and wants the other committee members to know
that he supports moving HB 166 out of committee.
REPRESENTATIVE GRUENBERG offered to speak Representative Roses'
views for the record should he be absent.
HB 151-INDEMNITY CLAUSE IN PUBLIC CONTRACTS
9:28:49 AM
CHAIR LYNN announced that the final order of business was HOUSE
BILL NO. 151, "An Act requiring an indemnification and hold
harmless provision in professional services contracts of state
agencies, quasi-public agencies, municipalities, and political
subdivisions."
The committee took an at-ease from 9:28:59 AM to 9:34:10 AM.
9:34:21 AM
REPRESENTATIVE JOHNSON, Alaska State Legislature, introduced HB
151 as sponsor by request. He said a constituent called
attention to the necessity for the bill. The constituent
illustrated the problem by saying that if someone were to slip
on the ice in front of a state building, and someone else were
to remark that the ice wouldn't have fallen on the sidewalk if
the building had been designed correctly, the necessity to
defend the state would go all the way to the engineer that
designed the building, irrespective of whether or not someone
did not scrape the ice or the contractor may or may have made a
mistake. Representative Johnson relayed that the designer and
the engineer, according to some contracts with the State of
Alaska, are responsible for defending the state in all the legal
costs involved. The bill, he said, would level the playing
field for all contracts with the state, as well as ensure
accountability; for example, the person who did not scrape the
ice would be responsible and "it wouldn't go all the way back to
the designer."
REPRESENTATIVE JOHNSON said some contractors are discouraged
from bidding, because it is very difficult to get insurance, and
they know that they may have to defend themselves in some future
litigation. He said only about 5 percent of the contracts with
the state put this type of responsibility on the [design
consulting companies], but those that do are costing extra
money, time, and effort due to litigation. He said one
unintended consequence of HB 151 is that it "may bring in some
financial consultants for the permanent fund dividend group and
the [Alaska Retirement Management (ARM)] Board." He stated that
that is not the intention of the proposed legislation, and he
expressed willingness to clean up the language to avoid such a
consequence.
9:38:55 AM
CHAIR LYNN moved to adopt Amendment 1, labeled 25-LS0479\C.1,
Bannister, 3/16/07, which read as follows:
Page 1, line 1, following "indemnification":
Insert ", defense,"
Page 1, line 7, following "Indemnification":
Insert ", defense,"
Page 1, lines 9 - 10:
Delete "that indemnifies the public agency and
holds the public agency harmless"
Insert "under which the consultant agrees to
indemnify, defend, and hold harmless the public agency
from claims or liability"
Page 1, lines 10 - 11:
Delete "who contracts with the public agency to
provide the professional services"
Page 1, line 12:
Delete "joint liability on a comparative fault
basis"
Insert "the indemnification, defense, and hold
harmless obligation on a comparative fault basis where
there is joint liability"
Page 2, line 1, following "indemnify":
Insert ", defend,"
Page 2, line 4, following "indemnify":
Insert ", defend, or hold harmless"
Page 2, line 8, following "indemnification":
Insert ", defense,"
Page 2, line 12:
Delete "provision"
Insert "subsection"
Page 2, following line 16:
Insert a new paragraph to read:
"(1) "consultant" means a person who
contracts with a public agency to provide professional
services;"
Renumber the following paragraphs accordingly.
9:38:58 AM
REPRESENTATIVE COGHILL objected.
9:39:08 AM
THERESA BANNISTER, Attorney, Legislative Legal and Research
Services, Alaska State Legislature, said Amendment 1 would add
an obligation of dissent to the language of the bill.
9:39:51 AM
REPRESENTATIVE COGHILL removed his objection.
9:40:02 AM
REPRESENTATIVE GRUENBERG said he would like the terms
"indemnification," "defense," and "hold harmless" to be defined
for the record.
9:40:26 AM
MS. BANNISTER said she would have to look up the terms indemnify
and hold harmless to describe the difference between them;
however, she said all three terms have always been associated
together.
REPRESENTATIVE GRUENBERG said defense is the obligation to
defend against the [court].
CHAIR LYNN proffered that indemnify means to "bring back to the
original position."
REPRESENTATIVE GRUENBERG said he does not know the difference
between indemnification and hold harmless.
9:41:04 AM
REPRESENTATIVE JOHNSON said Brad Thomas from Risk Management
suggested Amendment 1, and he is currently present.
CHAIR LYNN reminded the committee that the objection to
Amendment 1 had been removed.
REPRESENTATIVE COGHILL suggested that the House Judiciary
Standing Committee review the definitions when it hears the bill
next.
REPRESENTATIVE LYNN announced that Amendment 1 was adopted.
9:42:10 AM
REPRESENTATIVE JOHNSON said the bill would provide a policy of
fairness and address the cost to state and the difficulty of
individuals to contract with the state. He suggested the
committee focus on the bigger policy decision.
REPRESENTATIVE COGHILL asked if there have been court tests
related to the aforementioned terms.
REPRESENTATIVE JOHNSON deferred to Mark O'Brien.
9:43:57 AM
MARK O'BRIEN, Chief Contracts Officer, Contracting and Appeals,
Office of the Commissioner, Department of Transportation &
Public Facilities (DOT&PF), regarding the terms indemnification,
defense, and hold harmless, said the department has found this
language to be adequate in protecting its concerns and has not
had any specific claims or difficulties that required amendment
to that language.
9:44:47 AM
REPRESENTATIVE ROSES asked Mr. O'Brien if there have been any
instances where contractors have not bid because of the barriers
referenced by the sponsor.
MR. O'BRIEN explained that the existing language that the
department uses is the model toward which the proposed bill
intends to move other entities; therefore, the department has
not experienced such a barrier.
MR. O'BRIEN, in response to a question from Representative
Coghill, stated that before the bill was introduced, he was
asked to look at it. At that time, he said, he contacted both
the Risk Management Section and attorneys who work with DOT&PF,
and "they were not aware of any problems that they had in the
recent past involving our current provision."
9:46:15 AM
MR. O'BRIEN, in response to a comment from Representative
Coghill, confirmed that DOT&PF is responsible for numerous
buildings, facilities, highways, and airports throughout the
state, so "it's fair to characterize a fairly significant
investment in those facilities."
REPRESENTATIVE JOHNSON, in response to Representative Coghill,
offered his understanding that DOT&PF oversees construction of
approximately 90 percent of the state's facilities.
REPRESENTATIVE COGHILL asked, "Can you tell me why this has not
been previously a part of contracting?"
REPRESENTATIVE JOHNSON said he can't answer regarding the past;
however, he surmised the reason this issue has not been brought
to light is due to the fact that "they weren't able to sit down
with someone and ... draw the picture and explain ... the
inequities that existed [within] some of the contracting to a
legislator that would ... introduce the legislation ...."
REPRESENTATIVE COGHILL asked Mr. O'Brien, "Has there been
discussion on this very issue, looking for legal help from other
agencies?"
MR. O'BRIEN answered no. He explained:
Each owner sets up their own contractual requirements
for how they're going to impose the indemnity and hold
harmless provisions on the contractors that work for
them. And so, they would do that in-house with advice
of their own council and have not come to [DOT&PF] and
asked us that particular question that I'm aware of.
REPRESENTATIVE JOHNSON noted that Brad Thompson is the director
of Risk Management, and he might provide feedback to
Representative Coghill's questions.
9:49:46 AM
MR. O'BRIEN, in response to a question from Representative
Roses, said the University of Alaska has its own contracting
arm.
REPRESENTATIVE ROSES explained that he wanted to note for the
record that the bill would provide the same security to the
university that it provides to DOT&PF.
9:51:09 AM
REPRESENTATIVE GRUENBERG, in response to Representative Doll,
explained that HB 151 has no written effective date, thus, if
passed, it would automatically become effective 90 days after
being signed by the governor.
REPRESENTATIVE GRUENBERG directed attention to the language of
AS 45.45.900, which read as follows:
Sec. 45.45.900. Indemnification agreements against
public policy.
A provision, clause, covenant, or agreement contained
in, collateral to, or affecting a construction
contract that purports to indemnify the promisee
against liability for damages for (1) death or bodily
injury to persons, (2) injury to property, (3) design
defects, or (4) other loss, damage or expense arising
under (1), (2), or (3) of this section from the sole
negligence or wilful misconduct of the promisee or the
promisee's agents, servants, or independent
contractors who are directly responsible to the
promisee, is against public policy and is void and
unenforceable; however, this provision does not affect
the validity of an insurance contract workers'
compensation, or agreement issued by an insurer
subject to the provisions of AS 21, or a provision,
clause, covenant, or agreement of indemnification
respecting the handling, containment, or cleanup of
oil or hazardous substances as defined in AS 46.
REPRESENTATIVE GRUENBERG asked if that provision applies to the
state.
MR. O'BRIEN responded that that is not in his area of expertise.
9:53:49 AM
BRAD THOMPSON, Director, Division of Risk Management, Department
of Administration, said the division administers the self-
insurance program for state agencies only - not the University
of Alaska, the Alaska Railroad, the Alaska Housing Finance
Corporation, or other school districts and local municipalities.
He explained that HB 151 defines "public agencies" to encompass
all of those other parties to follow the form that the state has
already been using. He said the division advises and gives
guidance to DOT&PF and other state departments within its self-
insured program and uses "various forms of boiler plate
conditions" for indemnity in contracts for professional
services. He said that is a normal business practice. The
proposed legislation, he said, would apply the state's present
business practice to all other public agencies as defined. He
said he provided a fiscal note that shows that the bill, as
amended, uses the language from the DOT&PF model.
MR. THOMPSON, in response to Representative Gruenberg's citation
of AS 45.45.900, said:
That certainly would apply to the state, but the
nuance there is that it limits the ability to contract
out your sole negligence. You cannot contract away,
in a construction contract, your own sole negligence.
The state does not do so in its construction
contracts; and it does not do so in the appendix D,
which is our professional form for design engineers.
9:55:44 AM
MR. THOMPSON, in response to Representative Roses, clarified:
In our contracts, we stipulate that the independent
professional is responsible for their own deeds or
misdeeds. And [there are] different words for it, but
that's really what we're asking them: to hold us and
protect us from things that are their legal
responsibility, and to defend us in the cases where it
is arising from their legal...
What we at the same time say, within that same clause:
if there's comparative fault - if we and they are
responsible for whatever occurred - we would apportion
that based on comparative fault, which is prevailing
law. Now, there are ... stronger stipulations of
indemnity that would obligate the independent
professional to also protect for the comparative
allocation of the principle - the owner of the
project. We don't do so.
9:57:08 AM
REPRESENTATIVE ROSES asked if HB 151 would "provide that same
level of coverage" to which Mr. Thompson referred.
MR. THOMPSON responded, "I don't administer the risk management
guidance to those agencies, so I don't know the particulars, but
I'm understanding that they have different terms."
REPRESENTATIVE JOHNSON confirmed, "That is the intent."
9:57:54 AM
CHAIR LYNN announced that HB 151 was heard and held.
9:58:13 AM
CHAIR LYNN discussed the committee's upcoming calendar.
ADJOURNMENT
There being no further business before the committee, the House
State Affairs Standing Committee meeting was adjourned at
9:59:41 AM.
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