Legislature(2003 - 2004)
04/07/2004 01:44 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 333
An Act relating to an endowment for public education; and
providing for an effective date.
Co-Chair Harris MOVED to ADOPT Work Draft 23-LS0991 Version
O dated 4-2-04. There being NO OBJECTION, it was so ordered.
REPRESENTATIVE DAN OGG explained that the bill recognizes
the long-term desire of Alaskan residents through the
Legislature to fulfill a land grant to the University of
Alaska, and it creates the Public School Trust Fund. HB 333
creates a tenants in common with the state, whereby public
education would receive a 3% undivided interest from state
land and the University would receive a 2% undivided
interest. The Department of Natural Resources (DNR) would
retain the rights and management of the land, and the
heightened fiduciary duty would not apply to either the
University or the public schools.
Representative Ogg described receipts. All receipts derived
from development leases on the land would be calculated
after deducting Constitutionally-mandated contributions to
the Permanent Fund, the existing receipts of .5% of revenues
for the Public Schools Trust, as well as administrative
service fees, sales fees and lease fees assessed by the
Department of Administration. He pointed out the difference
between Version N and Version O of the bill is that receipts
are limited.
Representative Ogg noted that there had been discussions
between the DNR and the University to define when the
receipts would start. Receipts are addressed in the language
on page 6, Sec.8, lines 25-27, "income received by the state
under contracts for royalties, rents, sales, leases, and
other disposals of state land entered into on or after the
effective date of this Act." He clarified that a new
contract with Bristol Bay would be included, while an
existing contract at National Petroleum Reserve-Alaska would
not.
Representative Ogg pointed out that HB 333 rescinds SB 7 and
its 250,000-acre land endowment to the University. He
discussed the legal battle over SB 7. Former Governor Tony
Knowles had vetoed SB 7 almost immediately after its
passage, and the Legislature overrode his veto with a 2/3-
majority vote. Governor Knowles released an attorney
general's opinion stating that the bill was an appropriation
requiring a three-fourths vote to override. The Alaska
Legislative Council sued to question the constitutionality
of the veto override. In January 2004 the Supreme Court
showed that the Legislature's override was proper. The
granting of land is not an appropriation, and therefore
subject to the two-thirds vote. Representative Ogg referred
to the copy of the Supreme Court Opinion in the packets
(copy on file.)
Representative Ogg explained that the Supreme Court was
unable to decide whether the law granting the land was a
dedicated fund because it was not brought up on appeal. It
remanded the case to Superior Court, which may take a couple
years to decide the issue.
Representative Ogg concluded that HB 333 would grant land to
the University in a different fashion than SB 7, by allowing
the State to manage it. Over time, it may not ever fully
fund the University, but he said that it would augment its
funding.
He referred to "Legislative Research Report, Number 04.176"
(copy on file), noting that the projections on page 2 show
$21 billion of revenues in 2030 from new oil exploration and
gas line contracts. The K-12 trust fund would be about $600
million, with 5% totaling another $30 million for the K-12
school system. The University trust fund would be
approximately $400 million, with an extra $20 million.
Representative Ogg noted that the new fiscal notes total
zero. There is a savings to the State and the University
system to grant the land in the manner proposed in HB 333.
He pointed out that if SB 7 were retained, the fiscal notes
on the selection of land and its management would total many
millions of dollars over a period of time.
Representative Fate asked if an in-depth comparison had been
done of the revenues that might have derived from the
250,000 acres in SB 7, and HB 333's provision for 3% of
revenues from new land lease contracts.
Representative Fate also questioned the bill's provisions
allowing the DNR to manage the lands and removing the
management prerogative of the Board of Regents. He
recounted, from his sixteen years on the Board of Regents,
that when DNR had management responsibility the profits from
the land in the endowment weakened, with little if any
profitability until the University took it over. He asked if
the sponsor had concerns regarding the DNR's management.
Third, Representative Fate asked if the bill inadvertently
takes away the Board of Regents' management of its other
lands in endeavoring to relinquish this management
responsibility.
Representative Ogg replied to Representative Fate's third
question first, stating that there is a separation of lands,
and HB 333 only addresses the lands granted under the
percentage basis. The bill's intent is to not restrict in
any way the existing lands that the University manages.
Representative Fate questioned the deleted language at the
bottom of page 2, [LAND CONVEYED TO THE UNIVERSITY OF ALASKA
UNDER AS 14.40.365]. Representative Ogg clarified Sec. 2(a)
adds "except for land transferred under AS 14.40.505," so
the University land is not treated as State public domain
land. It is not subject to the DNR, and the University can
manage it however it wishes, except for this new portion of
lands granted to them as tenants in common.
Representative Fate thought that it is only specific to the
new land grant, and again asked if it inadvertently takes
away management of the other endowment land of the
University. He felt that the Board of Regents' authority is
unclear in the bill. Representative Ogg did not believe it
takes away the clarity, because the intent of the language
is that the University would continue managing its existing
112 acres.
JOE BEEDLE, VICE PRESIDENT, UNIVERSITY OF ALASKA added that
Representative Ogg was correct in stating that the
University would retain its authority over its existing
lands after passage of the bill.
Regarding Representative Fate's second question, Mr. Beedle
clarified that the DNR manages land in the public interest
and holds the land in public domain. The University manages
its land more as a fiduciary responsibility, to maximum
revenue and educational opportunity consistent with all laws
and regulations, but it is not designated as public domain.
Representative Ogg responded to Representative Fate's first
question of whether there is a cost analysis of revenues
that would derive from this land and revenues from the
250,000 acres of land selected in SB 7. A cost analysis had
not been done because the University has not selected lands
under SB 7; however, under the fiscal note passed with SB 7,
it would cost $2.1 million every year in the selection
process and development, adding about $10 million in costs
over five years, with no receipts coming in. He said that
even if the land were obtained today, under SB 7 it would be
10 to 20 years before it would be developed. Under HB 333, a
revenue stream would begin to flow as soon as new state land
contracts are let.
Representative Fate pointed out that fiscal notes often show
the expense side and not the revenue side. Any derived
revenues from oil or gas development would be long term, and
he stated that Representative Ogg would be misled if he
thought that the revenues would arrive in the short term.
He argued that a cost comparison would be useful. He noted
that Mr. Beedle had answered his second question.
NICO BUS, ACTING DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF NATURAL RESOURCES, stated that the
three fiscal notes for the Department were based on Version
N of the bill, and would change for the new Version O. He
pointed to the Fund Source section on the fiscal note
Component No. 423, dated 4-6-04, explaining that after the
Permanent Fund distribution has been made, 4% of the DNR's
total revenue stream, or $36 million of revenue would go out
of the General Fund and out of the Land Disposal Income Fund
to the University endowment and the public school trust
fund. It would change by about $9 million for the extra 1%
in Version O.
Mr. Bus stated that fiscal note Component No. 424 is
basically a traditional note that explains the cost of
administration would be $25 thousand for the first year.
This would set up all the accounting, with ongoing costs for
future years at 7% because it increases the size of the
account structure and reconciliation requirements.
Mr. Bus explained that fiscal note Component No. 435, Forest
Management & Development, takes $18 thousand out of timber
sale receipts from the timber program. Retaining the same
program would require an $18 thousand General Fund
replacement. It assumes all receipts, not new receipts. He
said that fiscal note Component No. 2459, Title Acquisition,
is no longer needed.
Representative Ogg clarified that because the bill is
written on all new receipts from new contracts in FY 05, the
number on fiscal note Component #423 is zero because there
aren't any new contracts yet.
Representative Hawker requested clarification because the
fiscal notes show a 2% conveyance to the University and 2%
to the education trust, and he asked if Work Draft Version O
changed it to 2% and 3% respectively. Mr. Bus replied that
he is correct, and it would bring an extra $9 million. As
Representative Ogg pointed out, if it is all new contracts,
the DNR would have to completely start over, and assume the
revenue of the new contracts.
Co-Chair Harris asked how much land this legislation would
give to the private sector. Representative Ogg replied that
it would be the State's decision under this proposal of the
tenancy in common. The DNR would manage the lands, and it
would determine which lands to lease or sell to the private
sector. The University would not actually receive any of the
land. In response to a question by Co-Chair Harris,
Representative Ogg noted that the University would receive a
percentage of the revenue generated by the sale or lease of
the land.
CO-CHAIR HARRIS asked if this bill would make it easier for
the public to get land.
DICK MYLIUS, DEPUTY DIRECTOR, DIVISION OF MINING, LAND AND
WATER, DEPARTMENT OF NATURAL RESOURCES, replied that it
would, if SB 7 persists, because some of the lands that the
University would pick would be the better land disposal
parcels that DNR has identified for future land sales. The
Department has held off on land sales in McCarthy because
the University desired the land under SB 7.
Co-Chair Williams asked how the 2% POMV would work. Mr.
Beedle replied that Fiscal Note #4 contains assumptions
based on DNR having eligible land and resource earnings of
$100 million per year. If the Department were successful in
getting 2% of $100 million, the $2 million would go into an
endowment. Under the five-year averaging approach, 20% would
total $400,000 and DNR would earn 5% of that, so the second
year revenue to the University would be $20,000. By the
year 2010, it would grow to $300 thousand a year, and about
$700,000 by 2014. It would take years to build meaningful
revenue for the University.
Co-Chair Williams asked about the public school trust and
any concerns the Attorney General's (AG's) office might
have.
EDDY JEANS, MANAGER, SCHOOL FINANCE AND FACILITIES SECTION,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, replied that
he hadn't talked to the AG's office about Version O. He
assumed that the separate account of the contributions to
the trust is acceptable, but he would check with the AG's
office. The current public school trust is a dedicated
fund, and the Department receives one-half of 1% of the
proceeds annually.
Co-Chair Harris asked the University's position on the bill.
PETE KELLY, DIRECTOR OF STATE RELATIONS, UNIVERSITY OF
ALASKA, stated that the University is in favor of the bill,
and it would benefit from receiving a steady flow of income
even though it is long term.
Co-Chair Harris asked if this bill would bring more revenue
from lands allocated under the University's control. Mr.
Kelly noted that the lands envisioned under SB 7 wouldn't
produce for some time, with no guarantee that the land would
be marketable, or of the exact revenues that would derive
from the land. He noted the liabilities and costs involved
with managing that land.
Co-Chair Harris asked if it would all be State land. Mr.
Kelly affirmed that it would be State land currently managed
under Title 38.
Co-Chair Williams asked the University's viewpoint after
fighting for the 250,000 acres in SB 7. Mr. Kelly noted that
SB 7 is still in the courts and a long way from producing
revenue, while the provisions of HB 333 are simple.
Co-Chair Williams asked the University's viewpoint if the
Legislature does not repeal SB 7. Mr. Kelly responded that
he couldn't speak for the Board of Regents, but it would be
better to have income both from land and a trust account.
Choosing between the two, he said that this legislation is
simpler. Co-Chair Williams commented that he supported the
University land bill.
Representative Fate asked if there was federal legislation
accompanying the land bill that passed last year. Co-Chair
Harris answered that it was a federal match.
Representative Ogg commented that Senator Murkowski was
unable to get legislation through Congress that would match
250,000 acres of State land with 250,000 acres of federal
land. Mr. Kelly added, one of the problems with the Federal
land is that the unreserved, unrestricted land the
University would receive from the Federal government is not
that productive.
Representative Croft commented that the bill would be more
beneficial for K-12 than for the University.
Co-Chair Williams replied that he was suggesting doing both,
not one or the other. He thought that the University might
need more money in the future.
Representative Hawker asked about SB 7 and the issue before
the court. Representative Ogg replied that the Superior
Court must still decide whether it was an unconstitutional
dedication. With some exceptions, under the Alaska
Constitution, "the proceeds of any state tax or license
shall not be dedicated to any special purpose." He said that
if HB 333 passed and SB 7 is rescinded, the court case
becomes moot.
Representative Hawker asked if this bill is also subject to
the same criticism of an unconstitutional dedication of
funds. Representative Ogg replied that it is crafted the
same way as SB 7 in passing a vested title in State lands,
and both are subject to that issue.
Representative Croft asked the timeframe in reaching the $36
million figure on fiscal note Component No. 423.
Representative Ogg referred to the background information on
page 2 of the Legislative Research Report (copy on file)
showing new cumulative revenues of $21 billion from 2006 to
2030. The University portion would yield $400 million and
the K-12 would be $600 million off the revenue. The
University would receive $20 million annually.
Representative Ogg thought that the revenues under SB 7
would not reach those levels.
HB 333 was heard and HELD in Committee for further
consideration.
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