Legislature(2015 - 2016)HOUSE FINANCE 519
02/24/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: Department of Revenue, Randall Hoffbeck, Commissioner Designee | |
| HB26 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 26 | TELECONFERENCED | |
| *+ | HB 94 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 24, 2015
1:32 p.m.
1:32:00 PM
CALL TO ORDER
Co-Chair Thompson called the House Finance Committee
meeting to order at 1:32 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Randall Hoffbeck, Commissioner Designee, Department of
Revenue; Laura Stidolph, Staff, Representative Kurt Olson;
Kris Curtis, Legislative Auditor, Alaska Division of
Legislative Audit; Sara Chambers, Acting Director, Division
of Corporations, Business and Professional Licensing,
Department of Commerce, Community and Economic Development.
PRESENT VIA TELECONFERENCE
Cheryl Corrick, Chair, Board of Certified Direct-Entry
Midwives.
SUMMARY
HB 26 EXTEND CERT. DIRECT-ENTRY MIDWIVES BOARD
HB 26 was HEARD and HELD in committee for further
consideration.
HB 94 SUPPLEMENTAL/CAPITAL/OTHER APPROPRIATIONS
HB 94 was SCHEDULED but not HEARD.
CONFIRMATION HEARING:
DEPARTMENT OF REVENUE
RANDALL HOFFBECK, COMMISSIONER DESIGNEE
Co-Chair Thompson discussed the agenda for the day.
^CONFIRMATION HEARING: DEPARTMENT OF REVENUE, RANDALL
HOFFBECK, COMMISSIONER DESIGNEE
1:32:52 PM
RANDALL HOFFBECK, COMMISSIONER DESIGNEE, DEPARTMENT OF
REVENUE, introduced himself. He discussed his personal
background. He had obtained a degree in forestry management
in 1980. He relayed that he had first worked for the Bureau
of Land Management in Alaska. He was assigned land law
adjudication; adjudicating land claims under the Alaska
Native Claims Settlement Act (ANCSA) and Alaska National
Interest Lands Conservation Act (ANILCA). He subsequently
operated a home construction business in the 1980's worked
as a realtor and took a position as an appraiser supervisor
for the Municipality of Anchorage. Afterwards, he
participated on an oil and gas audit team for the North
Slope Borough (NSB) where he worked as a senior oil and gas
appraiser and then as a tax manager until the late 1990s.
Successively, he was appointed the Parks and Beautification
Manager for over one year in Anchorage. He subsequently
provided tax administration support for the Department of
Revenue (DOR) until 2001. He had then been offered the
state petroleum tax assessor position with the department
and worked in the position until 2006. In his capacity as
assessor he rewrote administrative regulations for AS 43.56
and was a member of the stranded gas line negotiating team
for former Governor Frank Murkowski for two years. He
returned to NSB and accepted a position as the Director of
Administration and Finance in 2007 and held the position
until 2011 when the NSB Mayor Charlotte Brower appointed
him Chief of Staff.
Commissioner Hoffbeck elaborated that the borough operated
like a small version of the state of Alaska because of its
dependence on oil and gas. The NSB director job had been
very similar to the commissioner of DOR position. The
finance director was the chief investment officer for the
borough, managing up to $1 billion in investments. He had
also been the budget manager, debt manager, and treasurer.
In addition, he had also been in charge of accounting,
grants benefits, risk management, insurance purchasing,
shipping and receiving, and records management. He had
retired in 2012 and had completed a seminary degree with a
master's degree in pastoral counseling and divinity and
intended to embark on a career in seminary. However, he was
asked by Governor Walker to serve as the commissioner and
had decided to accept the position.
1:40:39 PM
Co-Chair Neuman asked what he saw as the role of the
commissioner of DOR. Commissioner Hoffbeck replied that DOR
was tasked with collecting and managing the revenue for the
state. He detailed that as commissioner he would provide
support and make policy decisions for the department.
Co-Chair Neuman wondered where he thought the state's
revenue streams would be generated from in five years.
Commissioner Hoffbeck replied that the situation would be
difficult depending on what happened with oil prices. He
stated that it was not possible to live off of savings
forever. He believed a conversation on imposing broad based
taxes, changing fee structures, and spending investment
earnings from the Permanent Fund would need to take place
in the coming year. He noted that it may be necessary to
reassess oil and gas taxes.
Co-Chair Thompson noted that Representative Gara,
Representative Pruitt, and Representative Munoz had joined
the meeting.
Co-Chair Neuman referenced spending earnings from the
permanent fund and asked whether the governor was
considering the scenario. Commissioner Hoffbeck replied in
the affirmative. He related that the governor would
consider all revenue generating options. He clarified that
the permanent fund itself nor the dividend would be at
risk; only the undesignated earnings were available and
being considered for expenditure.
Co-Chair Neuman remarked that the former commissioner of
the Department of Transportation and Public Facilities
(DOT) was dismissed shortly after providing the current
administration advice. He wondered whether Commissioner
Hoffbeck had "his own voice" in discussions with the
governor. Commissioner Hoffbeck replied in the affirmative.
He related that he had a working relationship with the
governor for over 20 years. He noted that over the years
they had agreed and disagreed on issues. He voiced that the
governor had made it clear that he wanted to hear differing
opinions including the pros and cons on issues.
Co-Chair Thompson noted that Representative Gattis had
joined the meeting.
1:45:55 PM
Co-Chair Thompson referenced the creation of a municipal
advisory group under the Stranded Gas Act. He shared that
he had been a member of the group as mayor of Fairbanks and
had previously worked with the commissioner. He asked
whether the governor was going to introduce a property tax
bill during the legislative session.
Commissioner Hoffbeck replied that he was uncertain that a
property tax bill would be introduced by the governor
during the current legislative session. He elaborated that
the administration had recently met with the municipal
advisory group and determined that a PILT (payment in lieu
of taxes) structure was agreeable. The structure, which was
"more of a formula driven value than a PILT" had been
accepted and the advisory group requested to run some
models to see how the PILT would unfold over time. He
notified the committee that a meeting was scheduled for
March 13, 2015 for concurrence of the proposed PILT. With
concurrence, the PILT would be presented to the AKLNG
negotiations group to factor into the economics of the
project. Discussions would begin regarding impact payments
during construction with representatives of the Federal
Energy Regulatory Commission (FERC) and the advisory group
to determine whether the advisory group would adopt the
FERC process for impact payments. One more discussion would
ensue to determine how the revenue would be allocated
throughout the state that would take place between the
state and municipalities. He offered that until something
comes out of the negotiation process there isn't anything
concrete the administration could share with the
legislature on the matter. He provided a scenario where a
$50 billion pipeline based on a 20 mil levy totaled $1
billion per year on property taxes, which reflected a
significant portion of the total take of the pipeline
revenue. The economic model needed to have flexibility
built-in in the early stages versus "locking it down tight
early and having to build the project around it."
Co-Chair Thompson recalled that when he chaired the
municipal advisory group one of the concerns was the PILT
and the impact to the communities to accommodate mass
amounts of workers moving in. He relayed that the idea of
advancing funds to the municipalities for preparedness was
discussed. He wondered if the issue was currently being
addressed. Commissioner Hoffbeck replied that the issue of
impact payments would be discussed during the March
meeting. Co-Chair Thompson asked how often the municipal
advisory board met. Commissioner Hoffbeck answered that the
group attempted to meet once a month with the goal of
meeting every 2 weeks. He revealed that the "biggest
player" regarding property taxes and the gasline was the
state. He remarked that property taxes was a "significant"
constant revenue stream for the state as well as the
municipalities; "one that would not fluctuate with gas
prices."
Vice-Chair Saddler asked about the department's ability to
predict state revenue. Commissioner Hoffbeck replied that
predicting revenue essentially derived from one stream, was
difficult at best. He indicated that he would not change
the forecasting process and thought that no entity could
accurately predict the price of oil. He surmised that if
the state could broaden its revenue sources then predicting
revenue would become more accurate going forward. He
remarked that as long as the state was primarily relying on
oil revenue, the department was taking a conservative
forecasting approach.
Vice-Chair Saddler wondered who should pay the costs for
public services. He asked what the role of industry,
municipalities, and the public was. Commissioner Hoffbeck
answered that the "pay as you go method" did not work very
well. He expounded that fees for services was a reasonable
model. He believed that a "broader range of services that
the government provided were not fee driven" therefore the
government dispersed the state's "accumulation of wealth."
He believed oil and gas industry taxes were an appropriate
source of revenue for the state.
Vice-Chair Saddler wondered whether the administration
would consider increasing the "royalties" on fishing or
mineral extraction in the attempt to raise more revenue.
Commissioner Hoffbeck answered in the affirmative. He
believed that everyone understood and anticipated that
revenue sources needed to be broadened. He assured that the
administration would work with the various industries when
determining the amount of increases.
Representative Kawasaki cited the Trans-Alaska Pipeline
System (TAPS) valuations from 2014. He detailed that the
pipeline owners valued the system at $2.7 billion,
municipalities estimated the number at $13.8 billion and
DOR valued the pipeline at $5.8 billion. The State
Assessment Review Board (SARB) finally assessed TAPS at
$10.2 billion. He wondered what the commissioner thought
about the differences in the value of TAPS.
1:56:40 PM
Commissioner Hoffbeck recounted that ten years earlier in
his role as a state oil and gas property assessor, the
state obtained a three year settled agreement on the value
of TAPS. He elaborated that when the agreement expired and
work had been done to determine the value going forward he
discovered "issues" regarding the way pipelines were
valued. He felt that the practice of "discounting a
regulated rate" did not fairly determine the market value
of an asset. He argued that the pipeline had "a use value"
versus "the rate of return on its regulated tariff." The
case was heard in the state Supreme Court who sided with
the state's position of "use value" but modified some of
the assumptions and raised the value above the state's
assessed value. Currently, statute was based on the use
value and the industry maintained its disagreement. He
relayed that in the prior year the state had determined the
value of TAPS partially from the use valuation and partly
from a more recent superior court decision in 2009 that was
challenged and the state was currently waiting for the
impending Supreme Court decision. He recently worked with
the current state assessor and developed a more focused way
to value TAPS for the next valuation. He reported that of
late, he had worked "diligently" with the municipalities
and the mediator to attempt to resolve ten years of
litigation on the value of TAPS. He remarked that once the
value of TAPS was decided the industry and municipalities
agreed to participate in further discussions.
Representative Kawasaki wondered whether the commissioner
would be arguing on behalf of the state in front of the
Supreme Court. Commissioner Hoffbeck replied that last year
he withdrew from TAPS litigation. He revealed that in the
past he had represented both sides of the issue. He had
asked the attorney general for an opinion regarding the
legality of his participation in the current mediations
with the municipalities in his capacity as commissioner.
Both the industry and the municipalities requested his
current participation in the mediations, therefore with the
approval of the attorney general's office he remained
engaged in the negotiations.
Representative Guttenberg discussed that the AKLNG project
would only access 20 miles of the Fairbanks North Star
Borough in its current route. He felt that the impacts from
the project would still be significant for the City of
Fairbanks as well as the borough. Based on a mileage plan
the borough would not receive much of the impact money. He
shared that he had lived through the Trans-Alaska Pipeline
System (TAPS) in Fairbanks and the impacts were
"unimaginable." He wondered how the state would mitigate
the borough's costs.
Commissioner Hoffbeck agreed that there would be
substantial impacts on the Fairbanks area during
construction of AKLNG but not as much when in operation. He
alluded to a prior study by Information Insights during the
Stranded Gas Act discussions that examined the "massive
impacts" on schools, crime, and various other issues that
impacted Fairbanks during TAPS. He intended to start
working through the issues during the March 13, 2015
meeting with the municipalities. He anticipated that the
impact funding would be paid from the project and there
might be an additional state component. He was sensitive to
the issue.
Representative Guttenberg referred to the Gleason Decision
on the valuation of TAPS. He pointed out that with every
TAPS assessment a lawsuit ensued. He "wanted to ensure that
the state was in a strong position to keep up its
obligation to its tax base." He wondered how long the
litigation would go on.
Commissioner Hoffbeck replied that "everyone was weary of
the litigation." He noted that a tremendous amount of
litigation had not yet occurred. The 2007 to 2009
litigation was currently before the Supreme Court and the
2010 to present cases had not yet reached the Superior
Court. He believed that the forthcoming Supreme Court
decision would "reaffirm the initial decision." He hoped
that subsequently most of the issues would be resolved and
the parties could agree to a value. He reported that the
state had a difficult time keeping up with the litigation
costs and was "caught in the middle." He commented that the
state was the taxing authority and had to "set the
foundation" for the valuation and typically allowed the
other two opposing parties to "duke it out." He wanted the
state to act more proactively going forward by bringing the
parties together. He did not want another court case on
TAPS and hoped for a negotiated resolution.
2:06:49 PM
Co-Chair Thompson asked about the department's role in
Governor Walker's pipeline ownership strategy. Commissioner
Hoffbeck replied that the department's role would be to
look at financing options to determine how much of the
state's equity stake was affordable versus inviting equity
partners and how that would be structured. The department
would also examine the projects revenue generation to
ensure that the ownership structure generated a reasonable
rate of return.
Co-Chair Thompson noted that there were two pipeline
projects that appeared to be in conflict with each other.
He wondered whether the commissioner had a conflict of
interest. Commissioner Hoffbeck replied that he was not on
the Alaska Gasline Development Corporation (AGDC) board and
was specifically excluded from board membership by statute
in SB 138 (Gas Pipeline; AGDC; Oil & Gas Prod. Tax - 2014)
along with the Department of Natural Resources (DNR)
Commissioner Meyers. He delineated that he had not yet
signed the confidentiality agreement and was not privy to
the confidential information regarding AKLNG. He relayed
that the governor believed competition was positive and his
goal was to move both projects along which gave the state
options.
Co-Chair Neuman saw an issue with the huge investments
impending for the AK LNG project that were required by the
state. He asked how the commissioner could appropriately
advise the governor on revenue options regarding a gas
pipeline if the commissioner did not have access to all of
the information available. Commissioner Hoffbeck replied
that the Deputy Commissioner Donna Keppers had signed a
confidentiality agreement and had access to the
information. He elaborated that the attorney general's
office was developing a definition of confidentiality
regarding the project. The administration believed in
transparency. When the parameters were implemented the
commissioners would sign the confidentiality agreement and
have access to the information. He also wanted to ensure
that the public had as much access to the information as
possible.
Co-Chair Neuman spoke to the definition of confidentiality
and thought that confidentiality guarded certain business
plans that was not public. He wondered whether the
administration was looking at changing the definition of
confidentiality so the commissioner had the ability to sign
confidentiality agreements. Commissioner Hoffbeck replied
that the attorney general was looking at narrowing what
needed to be confidential.
2:13:20 PM
Representative Gara surmised that the commissioner of DOR
may be one of the most important revenue generators in the
state. He recalled the Amarata Hess case where the state
was underpaid royalties by $1 billion. He observed that
currently the state was faced with low oil prices and
negative production tax revenue over the next several
years. The probability existed that some oil companies had
underpaid their taxes under the Alaska's Clear and
Equitable Share (ACES) tax regime. He reported that the
state still had not completed a single ACES audit. He asked
how the commissioner would ensure that the state received
any revenue due and whether the state was up against
auditing deadlines and could lose the ability to retrieve
underpaid royalties.
Commissioner Hoffbeck acknowledged that the department had
been bumping up against statutory deadlines related to
audits. He assured that the department would not miss a
statutory deadline for audits. The department had recently
finished the last of the Petroleum Production Tax (PPT)
audits. He stated reasons for the delays but acknowledged
that it was not fair to the state or tax payer to wait 6
years for an audit. He implemented a plan to catch up
within 3 years and maintain audits within a 2 to 3 year
cycle. He indicated that DOR had well trained audit staff.
He was confident the audits would be done well and that the
issue was over areas of dispute with the producers.
Representative Gara expressed skepticism. He had heard
assurances before from prior administrations. He stated
that DOR had not retained extra audit staff since the prior
administration. He wondered how the audits would be
exhaustively completed in time to collect every penny of
underpaid taxes. Commissioner Hoffbeck replied that DOR's
implementation of its new tax management system enabled the
audit staff to concentrate on audits. He purported that
with the completion of PPT taxes, audits were more focused
on ACES. Work on the audits was being performed but needed
completion.
Representative Pruitt observed that the commissioner
brought experience, and a wealth of knowledge to the job.
He wondered whether the state should proceed with the
Alaska Stand Alone Pipeline (ASAP) line or the AKLNG
Project. Commissioner Hoffbeck replied that he did not
believe the projects were mutually exclusive. He related
that the governor had made it clear that he wanted to
support the AKLNG project and he also wanted to move
forward with the expansion of ASAP.
Representative Pruitt wondered whether the ASAP project
represented more of a "plan B" as the prior administration
had viewed it. Commissioner Hoffbeck answered that the
governor presented ASAP as a competing project. He detailed
that AKLNG would drive the agenda because ASAP could never
catch up and would continue to be the primary project.
Representative Pruitt indicated that a smaller gasline
owned by the state would generate less revenue for
municipalities. He stated that the revenue impact on
municipalities was significant and wanted to ensure that
would be considered. Commissioner Hoffbeck replied that the
issue had already been discussed along with the impacts of
a 25 percent state share of the AKLNG project and its
impacts on municipal revenue.
2:22:51 PM
Vice-Chair Saddler commented on the commissioner's comment
that ASAP was a competing project. He wondered why the
producers would continue to participate with the state on
the AKLNG project if the ASAP project was in competition.
Commissioner Hoffbeck believed the goal was to "level the
playing field." He voiced that each of the producers
involved in AKLNG had competing projects all over the world
as well and were weighing returns. He believed the governor
needed to convince everyone that the state was still
negotiating in "good faith" on AKLNG and would continue to
"push" for the project.
Vice-Chair Saddler wondered whether he observed any impacts
with the producers involvement in AKLNG based on the
governor's announcements regarding expanding ASAP.
Commissioner Hoffbeck replied in the negative. He shared
that the governor had contacted the heads of the various
companies prior to the announcement. He thought that the
challenge was maintaining a "firewall" within the state to
ensure that both projects information remained confidential
from one another. Vice-Chair Saddler observed that one of
the benefits of the previous arrangement between both
projects was the opportunity to share information and that
a firewall increased the costs of both projects.
Commissioner Hoffbeck replied that it was a reasonable
statement that costs would increase with a firewall.
Representative Gara wondered whether both projects
"provided negotiating leverage" with the producers and
benefited the state by creating options. Commissioner
Hoffbeck responded in the affirmative. He felt that both
projects "strengthened the state's hand and leveled the
playing field."
Vice-Chair Saddler asked whether he discussed what would
make him a successful commissioner with the governor.
Commissioner Hoffbeck shared that he discussed revenue
shortfalls, implementing a resulting long-term economic
plan and moving forward with an investment decision on a
gasline project with the governor. It was decided that the
measure of success would be determined by the outcomes on
both issues.
Co-Chair Neuman asked whether he could share both revenue
shortfall and gasline plans with the committee.
Commissioner Hoffbeck replied that the revenue shortfalls
was an opportunity to "rethink government" and what the
states core services were. He could not add any more
information regarding plans.
Representative Pruitt asked whether the administration
would lead the conversation on various issues. He pointed
to challenges related to marijuana, Medicaid reform, and
revenues. He wondered whether the administration would lead
or would the legislature be expected to introduce
legislation. Commissioner Hoffbeck answered that when the
governor's administration was "in order" he would be ready
to lead the discussion on revenue programs.
Representative Pruitt asked "what if they were not ready."
Commissioner Hoffbeck replied that the public, private
sector, legislature, and governor would need to work
together on the issue. He did not believe the public was
convinced that the state was operating as efficiently as
necessary; currently revenue discussions would be
premature. He felt that next fiscal year's round of budget
cuts would be so significant that the public would be ready
to consider revenue discussions. Representative Pruitt
agreed that the state needed to start with budget cuts. He
desired more leadership from the administration to help the
legislature understand how the governor would develop the
budget over the ensuing years.
2:32:28 PM
Representative Wilson wondered what his view of
"significant" budget cuts was in order to prompt the
revenue discussion with the public. Commissioner Hoffbeck
answered that he estimated the budget cuts to amount to
less than 10 percent this fiscal year. The governor's
target over the next two years was 25 percent which will
entail cutting entire programs. He expected engagement with
the public at that point.
Representative Wilson wondered whether the state could
"really make it" with only a 25 percent cut over the next
two years and its reserve accounts. Commissioner Hoffbeck
responded that currently the state's savings accounts
balance was roughly $9.5 billion and after the next fiscal
year the balance would be reduced to approximately $6
billion. If the price of oil remained low the state would
have to find other ways to balance the budget. He did not
believe the budget could be balanced by budget cuts alone.
Representative Wilson did not believe it was possible to
tax the state's way out of debt.
Co-Chair Thompson read a statement related to the
confirmation hearing. He stated that signing the committee
report did not reflect the individual member's approval or
disapproval of the appointee. He reminded the committee
that the House Finance Committee report (according to AS
24.60.130) accompanied the nomination to the full
legislature where confirmation or rejection will ultimately
take place.
2:36:16 PM
AT EASE
2:39:20 PM
RECONVENED
H
HOUSE BILL NO. 26
"An Act extending the termination date of the Board of
Certified Direct-Entry Midwives; and providing for an
effective date."
2:39:44 PM
LAURA STIDOLPH, STAFF, REPRESENTATIVE KURT OLSON, read a
statement to the committee:
Before you today is HB26, this legislation extends the
termination date for the Board of Certified Direct-
Entry Midwives to June 30, 2017.
Each year the Division of Legislative Audit reviews
state boards and commissions to determine if they
should be reestablished per AS 24.44. The Division of
Legislative Audit reviewed the activities of the Board
of Certified Direct-Entry Midwives. The purpose of
this audit was to determine whether there is a
demonstrated public need for the board's continued
existence and whether it has been operating in an
effective manner.
As the members noted in their review of the audit in
their packets, it is the opinion of the Division of
Legislative Audit that the board be extended two years
to June 30, 2017. You saw that in the opinion of our
auditors, the board is serving the public's interest
by effectively licensing certified direct-entry
midwives and apprentices. Additionally, it was found
that the board continues to improve the profession by
modifying and adopting midwifery regulations to
conform to current standards of care.
As the members also may have noted from the audit,
there were four findings and recommendations,
including having the Department pursue disciplinary
cases, increasing licensing fees to eliminate the
board's operating deficit, having the board
communicate certificate requirements to continuing
education providers, as well as approving apprentice
applications in accordance with statutes. To speak to
the recommendations, Kris Kurtis of Legislative Audit
and Sara Chambers of the Department of Commerce are
here, and Cheryl Corrick, the CDM Board Chair is on
line from Anchorage.
In closing, the Board of Certified Direct-Entry
Midwives serves an important role in protecting the
well-being of Alaskans by identifying individuals who
are willing to pursue technical training and meet
specified technical qualifications necessary for
license as midwives. The continuation of this board is
very important to the health and safety of Alaska's
women and children.
Thank you for your support of this legislation.
KRIS CURTIS, LEGISLATIVE AUDITOR, ALASKA DIVISION OF
LEGISLATIVE AUDIT, relayed that the division had conducted
a sunset audit and concluded that the board was operating
in the public's interest. However, the audit had found that
the Division of Corporations, Business and Professional
Licensing (DCBPL), Department of Commerce, Community and
Economic Development (DCCED) failed to carry out timely
disciplinary sanctions related to four midwife
investigations. Therefore, the division only recommended a
two year extension. The audit contained four
recommendations; the most serious was to DCCED's
commissioner to "take immediate action to pursue
disciplinary sanctions for certified direct-entry midwives
(CDM) cases when warranted." She detailed that disciplinary
sanctions were not actively pursued for four related
investigations involving two people, which supported
disciplinary sanctions. She continued to read from the
audit report:
In all four CDM cases, the respondents refused to sign
a CA. Rather than file an accusation and pursue an
administrative hearing, DCBPL staff followed alternate
procedures. Two of the four cases were forwarded to
the Department of Law's (DOL) Office of Special
Prosecutions and Appeals (OSPA) without a sufficiency
of evidence review by an AAG. A year after the cases
were forwarded to OSPA, no action had been taken.
According to OSPA, the cases represent their lowest
priority as the related offenses were categorized as
Class B misdemeanors?.
Due to staff turnover, it is unclear why DCBPL staff
did not pursue a civil licensing action as required by
standard operating procedures. At a minimum, licensing
action should be pursued concurrently to ensure the
public is protected from incompetent, negligent, or
unlicensed practitioners. By not pursuing licensing
action, the respondents were allowed to continue
practicing, and the public's safety was placed at
risk.
Ms. Curtis noted that the other three recommendations were
administrative.
Co-Chair Neuman surmised that the board had done a very
good job. He observed that the members had worked to modify
and adopt regulations to conform to current standards of
care. He felt that the fault lied with DCBPL. He wondered
why the audit recommendation only extended the board for
two years when it was the department that failed in
carrying out its duties.
Ms. Curtis replied that typically when the division of
audit identified issues within DCBPL that needed correction
audit followed up the following year especially related to
a system or procedure that was central to all of the
occupations. She elaborated that specific to the midwives
case the investigations were related to the midwifery
board. The sunset mechanism was the only mechanism that was
available for follow up and due to the seriousness of the
deficiency a shorter period was warranted to ensure
correction. She agreed that the board was operating in the
public's interest. Two of the audit's recommendations to
the board were simple housekeeping recommendations that did
not warrant an extension change. The other two
recommendations were directed at the department.
Co-Chair Neuman wondered whether it was common practice
that DCBPL was not getting its job done. Ms. Curtis replied
that it was fairly unusual and did not find that the
deficiency was characteristic of DCBPL.
Vice-Chair Saddler asked whether DCCED responded to
recommendation number one. Ms. Curtis replied that the
responses were included at the back of the audit; DCCED had
concurred with the recommendations. Vice-Chair Saddler
asked about recommendation number two related to license
fee changes and noted the board carried a deficit since
2010. He asked what the reason for the deficit was.
2:48:55 PM
Ms. Curtis could not speak to the deficit directly but
offered some perspectives. During the last audit in 2006,
the auditor had found that the board was suffering from a
deficit and at that point the board had the highest
occupational fees of over $2 thousand. The deficit was not
a new problem for the board. The board had had incurred
high investigation costs and had only a small number of
licensees.
Representative Guttenberg wondered whether the
investigation expenses came as a result of investigating
people that were not licensed. He detailed that the board
assumed costs for unlicensed practitioners and the
licensees acting within the law bore the cost of the
investigations. He asked whether the expense was related to
dealing with people who were not licensed.
Ms. Curtis responded that the investigation information was
not public. She elaborated that in general it was common
for audit to find investigations related to unlicensed
activity on occupational boards.
Representative Guttenberg reiterated his question whether
the investigation expense was related to people who were
not licensed. Ms. Curtis responded in the affirmative.
Representative Wilson referenced recommendation number two
and asked whether the deficit was expected to grow in the
next ten years. Ms. Curtis cited pages 14 and 15 of the
audit that contained the board's financial information
since 2010. She noted the board's deficit in 2006 was
"significant" and the fee was over $2 thousand. She found
it unusual that the certification fee in 2010 was lowered
to $500. The low fee could have driven the deficit as well
as four significant investigations.
Representative Wilson pointed to the FY 2010 direct
expenditures of $22,600. She understood why the deficit
happened but noted the growth of expenditures. She deduced
that even if fees were increased to $2,000 the deficit
would still continue to grow. Ms. Curtis deferred to the
department for a more detailed answer. She revealed that
investigations or regulatory projects drove board's
personal services costs.
Representative Wilson wondered how much the audit cost for
the board were. She wondered why the audit charges were not
charged back to the board. Ms. Curtis replied that the
Division of Legislative Budget and Audit (LBA) had a
personal services allocation to perform its work. She
offered that LBA's work encompassed financial, sunset,
special request, and federal compliance audits. She
reported that there had never been an attempt to recover
the costs from the boards.
SARA CHAMBERS, ACTING DIRECTOR, DIVISION OF CORPORATIONS,
BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, related that
the division concurred with the audit findings. The
department agreed that there was a serious need for
improvement within the department. She delineated that
within the past year the division incorporated changes to
the structure of its investigative unit. The division
currently worked "more closely" with DOL and OSPA to ensure
"the processes were codified" and the cases were recognized
as a priority when sent to DOL. The division's chief
investigator had set up a meeting every 30 days with DOL to
confirm that cases were acted upon. She added that the
division was "closing in on definitive action" regarding
the cases identified in the audit.
2:55:51 PM
Co-Chair Thompson asked how many registered midwives there
were in Alaska. Ms. Chambers answered that there were
approximately 50 registered midwives including apprentices.
Co-Chair Thompson pointed to the $115,000 deficit; he
wondered whether it was possible for the board to catch up.
Ms. Chambers replied that the board and the division had
been working over the past several years to chip away at
the deficit. She detailed that an increase to a $4 thousand
to $5 thousand licensing fee would be unsustainable for
midwives. She anticipated that the deficit costs could be
recovered over a period of time. The division with the
board's concurrence increased licensing fees over the last
two previous licensing cycles and would continue to do so.
She continued that prior to 2010 the division had provided
incorrect information to boards that "was not reconciled
with the state accounting system." The midwifery board was
given incorrect information and based on the misinformation
set the fee too low. She revealed that the division
discovered the mistake which affected several other boards
that incurred large deficits.
Co-Chair Thompson asked if there was a fear that a
continual increase in fees would reduce the number of
midwives. Ms. Chambers replied in the affirmative. She
stated that however, as long as the fees were mandated to
cover all of a board's expenses including investigations
she believed that "it was a cost of doing business."
Representative Wilson surmised that according to statute
there was not a choice "to chip away" at a board's
deficits. She wondered what gave the division the authority
to not collect the full deficit amount in fees by the next
licensing cycle. Ms. Chambers answered that the division
attempted to clarify the issue since 2011. She indicated
that the Division of Legislative Audit and the Division of
Legislative Finance (LFD) interpreted AS.08.01.065 as a
requirement for the division to analyze fees each year but
not necessarily increase fees each year to recover the
costs.
Representative Wilson asked why the midwifery "industry"
would not be safe without a board since the licensing
requirements would still be mandated.
3:00:23 PM
Ms. Chambers replied that the division maintained safety
standards with or without boards. A professional board
ensured timely information on regulatory issues to keep
current with standards of practice. Representative Wilson
asked whether not only the midwifery board but any board
could regulate itself voluntarily. She restated her
skepticism that the board could recover costs and pay for
itself with only 50 licensees. Ms. Chambers answered that
the model often used in professions without boards employed
"quite a bit of input from the professional community and
associations." Those professions lacked the statutory
authority to take action therefore; a volunteer board's
meetings would have to be subject to open meetings laws
regarding drafting regulations. She thought that the
board's value was "in keeping current with continuing
education." She related that the division's licensing staff
may not be aware of nuanced information that could affect
regulation without a board. She remarked that a possibility
existed that the midwifery board's activities could be
assumed by another board.
Vice-Chair Saddler asked what the standard board extension
was. Ms. Chambers replied that legislative audit could
extend a board for up to eight years. Vice-Chair Saddler
asked how long the midwifery board was in existence and
what percentage of births were assisted by midwives in the
state. Ms. Chambers deferred the question to the board.
Representative Guttenberg commented that the issue was part
of a "larger structural issue" that had been encountered
before. He pondered how many of the professional boards'
costs resulted from dealing with people who were not
licensed. He wondered how many boards were in financial
trouble due to investigations of unlicensed people who were
outside of a board's regulatory authority. He suggested
that perusing unlicensed individuals was the state's
responsibility instead of putting the burden onto the
licensed professional acting within the law. He believed
that scenario was the "larger issue."
Ms. Chambers answered that the division did not have a
specific statistic to offer. She stressed that according to
statute, each board was mandated to pursue unlicensed
individuals if discovered by the division's investigative
unit.
3:07:32 PM
Co-Chair Thompson redirected the conversation back to the
midwifery board.
Representative Pruitt wondered whether the division had the
authority to recoup the investigative costs from the
unlicensed individual, which would help limit the costs to
the midwives. Ms. Chambers replied in the negative. She
delineated that all fines collected were deposited into the
general fund. Licensees with or without a board covered the
investigative costs. The division had requested an
attorney's opinion on whether the division could "bill" the
individual for the investigative costs but did not
currently possess the authority.
Representative Kawasaki noted that the board requested
increased fees for certified midwifes and apprentices but
that the division denied the increase. He requested
clarity. Ms. Chambers answered that the issue had recently
been resolved and all of the fees were increased.
Representative Gattis wondered what would happen if the
board was allowed to sunset. Ms. Chambers replied that the
board would sunset but the licensing program would continue
and deferred to Ms. Curtis for technical answers.
CHERYL CORRICK, CHAIR, BOARD OF CERTIFIED DIRECT-ENTRY
MIDWIVES (via teleconference), provided a statement and
addressed members questions. She stated that the board was
an important part of the profession and worked tirelessly
to regulate and update midwifery in the state. She
elaborated that the board was working arduously to improve
its budget and investigation issues. She relayed that the
division was restructuring its investigative procedures to
address the board's concerns. Previous investigative
practices had increased the public's risk. She added that
the division was working with the board to implement cost
saving measures including administrative overhead. She
planned to eliminate the deficit through increasing
licensing fees over several licensing cycles. She addressed
the $500 licensing fee in FY 2010. She communicated that
she was a member of the board at the time and recalled the
collective concern from the licensees and board over the
low fee. The board's request for an increase was denied by
the division.
Ms. Corrick informed the committee that the board had been
in existence since 1988 and that approximately 10 percent
of the births in the state were attended by midwives. In
reference to questions concerning the public's safety
without a board, she added that an obstetrician and a
certified nurse midwife were board members. She discussed
that the team worked hard to ensure regulations were
updated to national standards. She deemed that the cost of
the board was minimal and that the higher costs were
associated with administration and investigations.
3:15:20 PM
Representative Munoz wondered whether the four ongoing
investigations were related to uncertified activity. Ms.
Corrick replied that two of the cases were related to
uncertified activity. Representative Munoz wondered how
many uncertified midwives were operating in Alaska. Ms.
Corrick guessed that there were two.
Vice-Chair Saddler referred to Ms. Corrick's letter in
response to the audit's recommendations. He noted that the
board was researching the possibility of a legal defense
fund to help smaller boards with investigative costs. He
requested more information.
Ms. Corrick responded that the midwives were interested in
working with other professions regarding the idea but that
no action had been taken to date.
HB 26 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:17:52 PM
The meeting was adjourned at 3:17 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB26 Supporting Documents-Legislative Audit 6-30-2014.pdf |
HFIN 2/24/2015 1:30:00 PM |
HB 26 |
| HB26 Sponsor Statement.pdf |
HFIN 2/24/2015 1:30:00 PM |
HB 26 |
| Commissioner DOR - Hoffbeck #3.pdf |
HFIN 2/24/2015 1:30:00 PM |
Confirmation HFIN Hoffbeck DOR |