Legislature(1997 - 1998)
02/27/1997 10:05 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 83
"An Act making an appropriation for management fees for the
constitutional budget reserve fund (art. IX, sec. 17,
Constitution of the State of Alaska); and providing for an
effective date."
Co-chair Pearce explained that the initial overview of the
supplemental requests would continue. She informed the committee
of five new supplemental requests that had come in and that backup
would be available. Three of the requests were from the Department
of Law, which planned to combine two of them. One of the requests
was from the Department of Community and Regional Affairs for
Power Cost Equalization (PCE). One request was from the Department
of Fish and Game. She added that the new supplemental items would
be addressed the following week. She expected to see more new
requests.
Senator Adams asked whether the PCE item amounted to $1,750,000.
Co-chair Pearce replied that the number was $1.5 million.
DEPARTMENT OF ADMINISTRATION
DAN SPENCER, BUDGET ANALYST, OFFICE OF MANAGEMENT AND BUDGET
(OMB), provided a general overview for Section 8. He noted that
each year OMB had two types of items:
Warrants included in the Department of Administration request
·
that were older than two years, including checks that were
not cashed.
Miscellaneous claims, consisting of old bills the departments
·
had received. By statute, if a department received a bill
within two years of the time the cost was incurred, and any
money was lapsed in either of the years, the department had
to pay out of the current year's appropriation. Anything
beyond two years had to go to the legislature for an
appropriation.
Mr. Spencer explained that there were around 250 pages of backup
available, including photocopies of all the bills.
DEPARTMENT OF NATURAL RESOURCES
NICO BUS, CHIEF OF FINANCIAL OPERATIONS, DEPARTMENT OF NATURAL
RESOURCES, testified regarding Section 9. He detailed that the
request for $3.7 million was for fire suppression activities that
would get DNR through June 30. He reported that some of the money
appropriated the year before for a fire had carried into FY 97.
The appropriation was for $10 million; $7.8 million was used in FY
96 and $2.1 million was carried into FY 97. The fires were still
burning in July and August so the carryover was used. The $3.7
million request would pay the balance of fixed costs for January
through June, plus a one-project fire (historically experienced in
May and June).
Senator Adams asked whether there were other outstanding bills
that could be expected in a second or third supplemental bill. Mr.
Bus answered that DNR had accounted for all of the previous year's
activity. He noted that fires generally ended in August and
September, leaving October through December to do accounting
clean-up. He stated that the supplemental being discussed was what
the department anticipated needing for January through June.
Co-chair Pearce asked how the fixed-cost requirement totaling
$4.68 million compared to the previous year. Mr. Bus replied that
the amounts stayed fairly stable. The department did not always
know whether the fires would be federal fires, which would mean
additional federal money and a reduction of state costs. The $4.6
million was the estimate based on experience of actual costs.
Co-chair Pearce referred to a contract with Larry's Flying
Service, Inc. with different planes used in different years. She
questioned why the current year's aircraft cost $200,000 when the
prior year's aircraft cost $100,000. Mr. Bus answered that all
aviation contracts were going out to bid; the numbers were based
on the market price. He referred to the example of significantly
higher fixed costs for the Exxon Valdez oil spill because there
were very few helicopters and aviation equipment available. He
noted that sometimes prices went down. He offered to get more
information on why the cost had gone up.
Co-chair Pearce thought the price went up because of the use of a
different aircraft, and wanted to know why the aircraft was
considerably upgraded. Mr. Bus offered to get more information.
Co-chair Pearce referred to Bureau of Land Management (BLM)
contract services and queried OV10 aircraft support for $59.9,
which was a new component. Mr. Bus was not familiar with the
detail and offered to get more information.
Co-chair Pearce queried another new BLM item, TTY support. She
also wanted to know what DNR support services were (at $300,000).
Mr. Bus answered that DNR support services related to charging the
federal government for indirect costs when any administrative
charges were charged back to specifically non-general funded
entities. He referred to a mutual agreement between the federal
government and the state of Alaska. Rather than exchange bills on
indirect costs, the state would pay its estimated share of
$300,000 out of the fire suppression and BLM would pay its
indirect costs out of its core services. The $300,000 would be the
equivalent of indirect for the federal suppression program.
Co-chair Pearce asked who received the indirect payment. Mr. Bus
replied DNR support services. He explained that the payment was in
lieu of the indirect cost rate between the state and federal
agencies.
Co-chair Pearce asked who the federal indirect money went to. Mr.
Bus replied that the indirect cost rate was 15 percent, for
example. When there were fires, the state preferred to charge the
federal government the 15 percent. The federal government did not
have a negotiated rate, and could set the rate at whatever level.
The federal government said it may charge 30 percent if the state
charged it 15 percent. Rather than exchanging indirect cost
billings, the proposal was that the state pay for administrative
services out of the state fire-suppression budget and the federal
government pay indirect cost out of its budget. The fire
suppression budget then pays the administrative services group for
the support of the fire activity for the federal government. He
stressed that the Legislative Budget and Audit Committee (BUD) had
looked at the process. Initially BUD had determined that DNR
should not do it, but should do billing exchanges. Some years, the
state would make a bit of a profit; other years the state would
save significantly more. The conclusion was that the method was
good.
Co-chair Pearce queried the balance in the state fire-suppression
account on February 1. Mr. Bus responded that the balance on
December 31 was $1.5 million. Against that there were fixed
obligations of $2.3 million. Fire expense activity for initial
attack was about $3 million. The total estimated expenditures for
January through July were $5.3 million. The supplemental was $3.8
million.
Mr. Bus moved on to the veterans' discount program. He referred to
an eligible veteran who had died (Mr. Sisson?); his loan was
recalculated. In 1991 legislation was passed that gave veterans a
land discount. The land discount was discontinued, and legislation
was passed to give the veterans a land discount. There was an
investigation by the ombudsman, who agreed with Mr. Sisson and
said that DNR should go back and recalculate all the discounts.
About 36 veterans qualified for the discount, so DNR was asking
the legislature in the supplemental to refund the veterans for the
application of the discount program.
Senator Phillips queried the total if there was a recalculation
back to the beginning. Mr. Bus replied that DNR estimated the
recalculation would amount to about $270,000 in payments; the
total including interest would be between $400,000 and $450,000.
Senator Phillips estimated the total would be as much as $720,000
if the request (principal plus interest) was honored. Mr. Bus
thought the total would be $450,000 total. There was a discussion
about the math.
Co-chair Pearce queried the department's position on the interest
on the overpayments. Mr. Bus answered that the legislation
specifically stipulated that "the department shall credit without
interest to the account of a person who qualifies for the land
discount" under Section 2 of the act. He stated that DNR had not
included the interest on the overpayments based on its
interpretation of the intent of the legislation. He noted that the
ombudsman agreed. The supplemental request was a request to
recalculate the amortized loans without the amount for interest
included.
Co-chair Pearce asked whether DNR had gotten a legal opinion from
the Department of Law (DOL). She was concerned that if the state
chose to pay a certain amount, but did not have a contractual
agreement, the person could sue for the interest, and the state
could spend more money on the lawsuit than it would cost to just
pay the interest. On the other hand, she thought a decision should
be made based on the law (if such a law existed). She had read the
report by the ombudsman, but wondered whether there had been an
attempt to negotiate an agreement with the people in question. Mr.
Bus responded that there had not; DNR had tried to interpret the
law. The department was aware of the interest issue. He stated
that DNR would be happy to contact DOL and calculate the amounts.
He added that there could be other programs; other people could do
the same evaluation.
Co-chair Pearce thought that the department should work with DOL
to figure out how to keep from ending up in court with the present
litigants or other groups. She requested DNR to work with DOL and
to inform the legislature of other cases with overpayments.
Senator Parnell was concerned about the claims growing
increasingly larger. He asked for more information about the
requested payment. Mr. Bus answered that the ombudsman agreed that
the state should not pay the interest. He added that initially the
situation had seemed straightforward; 35 people requested and
received their discount because the intent was clear.
Recalculating the loans would mean annual actions.
Mr. Bus turned to a $100,000 request that would be used to remove
remaining contaminated buildings in Eagle (from the Old Eagle
school site). A settlement required that the money be asked for
before June 30 to allow the site to be cleaned of oil
contaminants. He noted that part of the request would be in the
capital budget, and that the supplemental portion was for removing
the structures on the site to make the site available for the
necessary work.
Co-chair Pearce reminded the committee that the DNR ratifications
had already been reviewed.
Co-chair Pearce returned to the request for Perseverance Trail
repair. She recalled a question she had had in an earlier hearing
about permitting; someone had claimed that the creek did not have
fish. She had thought that there had been a problem with fish
dying in the same creek at an earlier date.
Mr. Bus referred to research he had done on the question,
including speaking to Department of Fish and Game personnel and
the Division of Parks, which had done similar projects. He
reported that salmon did not come up the stream, although there
might be trout higher up. He stressed that no sediment would enter
the creek from the blasting, which would happen above the trail.
He had been assured that no permits would be required for the
project and that the project could be completed in 30 days. He
referred to a handout with a map detailing the project.
DEPARTMENT OF PUBLIC SAFETY
Mr. Spencer addressed Section 10, Village Public Safety Officer
(VPSO) contracts. He explained that the item would allow the
Department of Public Safety (DPS) to take any money that might
lapse from the VPSO contracts and use it in the following year.
The department did not know exactly how much money would lapse. He
noted that a lot of the money was not under DPS control; a lot
depended on whether a vacancy occurred in a VPSO position, the
ability of the local non-profit to fill the position, and other
factors. The request was an attempt to get more positions filled.
Senator Parnell verified that the reason for the lapse was
unfilled positions and that the governor had submitted a budget
with an appropriation to increase VPSOs by $300,000. He asked why
there was a need for lapsed money. Mr. Spencer replied that the
lapse would occur because of unanticipated vacancies that could
not be filled. He stressed the difficulty of filling the
positions. He described the intent to take advantage of funding
when a position was not filled in order to fill them to the extent
possible.
Senator Parnell summarized that 15 positions would be authorized
instead of 10. He asked why the budget did not ask for 15
positions instead of authorizing the use of lapsed funds. Mr.
Spencer replied that the intent was not to add new positions, but
to use leftover money to fill positions. He added that there was
no good estimate of the anticipated amount of the lapse, but the
department has estimated between $45,000 and $70,000 based on
historic trends. He thought the amount would be well under
$100,000.
DEPARTMENT OF REVENUE
LAURIE PERKINS, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES,
DEPARTMENT OF REVENUE, addressed Section 12 related to equity
management fees for a supplemental appropriation for the
Constitutional Budget Reserve (CBR) fund.
Co-chair Pearce referred to an earlier discussion related to the
issue during the CBR overview. She reminded the committee that the
section would require a three-quarter vote as it was related to
the CBR.
A member queried the CBR vote and an oil and gas litigation item
for $900,413 in FY 96 CBR funds. Co-chair Pearce reported legal
advice from Tam Cook regarding the need for a three-quarter vote
on the floor. She thought the other item was more straightforward.
She noted that verbally the answer to the section was "yes." She
reminded the committee that during discussion of the item, Mr.
Baldwin had been asked for an opinion.
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES
NANCY SLAGLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES,
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOT/PF),
addressed Section 13, a request for $391,400 to meet the increased
cost of fuel for the marine highway vessels for FY 97. She
explained that the majority of the estimated need was in Southeast
Alaska, for 7,126,000 gallons of fuel. The budget had been based
on a projected fuel cost of $0.74 per gallon; the current cost was
ranging between $0.83 and $0.85. The need for Southeast was
anticipated to be $352,400. The estimated need for the Southwest
region was 1,022,000 gallons budgeted at $0.80 per gallon; actual
cost was between $0.83 and $0.86. She emphasized that the cost had
been increasing on a weekly basis. She offered a minor technical
change to the language in the section. The appropriation was
stated as from the general fund to DOT/PF, Alaska Marine Highway
System. She wanted the word "fund" after "System" to avoid
accounting problems.
Co-chair Pearce expressed surprise at the prices. She queried the
kinds of fuel contracts used by the ferry system.
BRENDA MARKEY, SUPPORT SERVICES MANAGER, MARINE HIGHWAY SYSTEM,
DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, replied that
general services negotiated the contracts. She added that new fuel
contracts had been negotiated in September for the various
locations. The contract locked a price in for seven days; the
price was based on a (CPC?) system like the Oil Price Information
Service (OPIS). In previous years, when expenditures were much
higher, the system had some locations based on a 7-day lock-in and
other locations based on a 30-day lock-in. At that time, markup
was considerably more than present contracts. The base price
applied everywhere, and then each location (Ketchikan, Juneau,
Skagway, and Bellingham) had a markup; the markups ranged from
$0.06 over the base price in Bellingham to as much as $0.30 over
the base price in some locations. The difference in cost was
related to delivery systems.
Senator Phillips asked where the ferry system bought its fuel. Ms.
Markey replied that the fuel was purchased in different locations
in Alaska, including Skagway (the next cheapest location). She
noted that the ferry system tried to fuel or top off tanks at the
cheaper locations. She noted that the ferry system had not had a
fuel contract with Prince Rupert [British Columbia, Canada] since
1991 because of a tax. She detailed that prices could be higher
for vessels that could not stop at Skagway.
Senator Adams noted that the same argument about higher prices
would be used in the argument around Power Cost Equalization. He
noted that Alaska received approximately $400 million more. He
thought all the systems with increased fuel systems should be
looked at.
Co-chair Pearce discussed backup materials for various items and
the upcoming schedule for the committee.
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