Legislature(1999 - 2000)
02/25/2000 01:22 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 304 - CLEAN WATER FUND/DRINKING WATER FUND Number 0392 CHAIRMAN KOTT announced that the next order of business is HOUSE BILL NO. 304, "An Act relating to issuance and sale of revenue bonds to fund drinking water projects, to creation of an Alaska clean water administrative fund and an Alaska drinking water administrative fund, to fees to be charged in connection with loans made from the Alaska clean water fund and the Alaska drinking water fund, and to clarification of the character and permissible uses of the Alaska drinking water fund; amending Rule 3, Alaska Rules of Civil Procedure; and providing for an effective date." CHAIRMAN KOTT reminded the committee that the last time HB 304 was heard, there was an amendment offered to which there was an objection. Upon Chairman Kott's request, Representative Croft withdrew his objection and Representative Rokeberg withdrew Amendment 1. REPRESENTATIVE ROKEBERG announced that he would not be offering the amendment labeled 1-GH2031\A.2, Cook, 2/18/00, which he had brought up at the previous hearing. Number 0428 REPRESENTATIVE ROKEBERG made a motion that the committee adopt Amendment 3, labeled 1-GH2031\A.3, Cook, 2/25/00, which read: Page 8, line 23: Following "assistance to": Insert "organizations that are not exempted from regulation under AS 42.05.711(d) and that provide water service under a certificate of convenience and necessity from the former Alaska Public Utilities Commission or the Regulatory Commission of Alaska and to" Delete "municipal" Page 9, line 18: Delete "A" Insert "An organization that provides water service under a certificate of convenience and necessity or a" REPRESENTATIVE GREEN objected for the purpose of discussion. REPRESENTATIVE ROKEBERG informed the committee that he had met with representatives from the Department of Environmental Conservation (DEC) in order to make adjustments to amendments that he had previously offered. He indicated that the result was to place further sidebars. He reminded the committee that the original concept of the amendments was to allow private entities to be eligible for loan funds for water and sewer from the Clean Water Fund. The DEC had some concerns, however, and had made some recommendations, including the recommendation to ensure that the private utilities are certificated by the Regulatory Commission of Alaska (RCA) and economically regulated; the need for the latter is because there is a distinction between certificates issued by the RCA as to whether they are economically regulated or not. REPRESENTATIVE ROKEBERG noted that the department also had asked about prohibiting the refinancing of current debt when an entity is coming into the loan fund. There was also concern regarding the establishment of different regulatory criteria for that. Representative Rokeberg mentioned that he had discussed a different effective date with the DEC in case it needed time to promulgate regulations; upon review of the [new] amendments, however, he observed that they don't include that. He surmised that perhaps a different effective date is not necessary, according to the drafter. Number 0568 CHAIRMAN KOTT pointed out that Amendments 3 and 4 are identical except that Amendment 4 [labeled 1-GH2031\A.4, Cook, 2/25/00] also makes a change on page 9, line 27. The additional language in Amendment 4 read: Page 9, line 27, following "department.": Insert "A loan may not be made to an organization that is not a municipality to refinance debt of that organization." CHAIRMAN KOTT asked Representative Rokeberg what his intention is with the amendments. After Representative Rokeberg indicated some amendments refer to the clean water section of the bill and some to the drinking water section, and after confusion was expressed by various members, Chairman Kott proposed hearing from Dan Easton of the DEC while Representative Rokeberg reviewed the amendments, which were arriving by fax at various intervals. Number 0656 DAN EASTON, Director, Division of Facility Construction & Operation, Department of Environmental Conservation (DEC), stated that the Administration is not taking a position on the amendments. However, Amendment 4 includes most of the areas of improvement discussed by the DEC with Representative Rokeberg. He commented that the issues are relatively simple and he had reviewed, as did Representative Rokeberg, the suggestions of the department. With regard to the effective date, Mr. Easton explained that if the department finds itself making a lot of loans to numerous small, privately owned utilities, the department's workload will be significantly impacted. Obviously, the program would be designed in such a way to minimize that; however, there is probably no way to get around that if the number of loans doubles or triples, and there will be some fiscal impact. MR. EASTON pointed out that any fiscal impact on the agency would have to be reflected as a general fund fiscal note. In the original bill, there is a funding mechanism. If that funding mechanism were allowed a year to work, the agency could probably collect enough money to take on additional work in the fiscal year 2002, and the loan funds could actually be used to pay for that. A later effective date would also provide more time to set up the program, write the regulations and make any arrangements necessary with financing institutions. MR. EASTON mentioned discussion regarding the possibility of having the amendments allow - which these amendments do not - some differentiation when the division makes loans to public and private utilities. He expressed the need to protect the bond rating for the fund, which is currently very good. Changing the nature of who the division makes loans to may affect the bond rating. MR. EASTON pointed out that private and public utilities also may need to be segregated for the sake of competition in order to ensure that each has a reasonable likelihood of success in receiving the loan. Furthermore, if it costs more to make loans to private utilities versus public utilities, then it may be necessary to consider whether there is a need to establish different loan terms. For example, if it costs more to make loans to private utilities, then perhaps their interest rates would be higher than those of public utilities. Number 0900 REPRESENTATIVE ROKEBERG clarified that he also would be offering the amendments labeled 1-GH2031\A.2, 1-GH2031\A.4 and 1-GH2031\A.5. He said everything has been included except the effective date. Amendment A.5, which had recently arrived by fax, was identical to Amendment 3 [language provided above] except for the addition of the following: Page 10, line 9, following "section.": Insert "The regulations may establish different standards, criteria, procedures, and requirements for loans to organizations that provide water service under a certificate of convenience and necessity from those established for loans to municipalities." CHAIRMAN KOTT, in response to a withdrawal of the objection to Amendment 3, announced that the committee would table Amendment [3] and return attention to Amendment 2 in order to address them sequentially. Number 0998 REPRESENTATIVE GREEN recognized the desire to protect the bond rating. He recalled Mr. Easton's testimony at a prior hearing that the pot of money has more than enough requests already, and that the DEC uses an evaluation process. Hypothetically, requests coming from both the private and the public sectors could result in leaving some public sector requests on the table. He asked: Is there a possibility that someone could say that the department is subsidizing a private entity at the expense of a public entity? MR. EASTON replied that he believes that is the basic policy question; because it is a fundamental policy decision, that is probably why the Administration has no position on this now. Number 1062 REPRESENTATIVE JAMES stated her understanding that it is not the entity but the ratepayer/customer that receives the advantage. Therefore, she doesn't find it discriminatory among ratepayers. She asked what types of private entities exist, surmising that some exist because there is no municipal entity to serve people. She also asked whether the DEC's regulations would allow the opportunity for smaller communities to be co-sponsored, as a guaranty, by a group such as a regional Native corporation. MR. EASTON answered that the latter is certainly a possibility. Currently, the DEC encourages those sorts of arrangements, which would provide greater certainty of loan repayment. REPRESENTATIVE JAMES recalled Mr. Easton's mention of setting aside a certain amount of money for private entities and a certain amount for municipalities. She asked how Mr. Easton envisions that would work. Would the DEC establish separate pots of money? Would it be a percentage? Would it be a percentage of the applicants? Would the DEC measure the applicants on the basis of need and the health and safety of the ratepayers? MR. EASTON said that is the question: If the pie is to be divided, how and where will it be divided? The DEC believes it might be wise to ensure that the department has the ability to explore the possibilities, but they don't have an answer regarding how they would divide things up. In further response to Representative James, Mr. Easton indicated all of the things that she had mentioned would be considered in making the determination on that issue. Number 1212 REPRESENTATIVE CROFT commented that he continues to hold his belief, expressed at the previous hearing, that this is a government subsidy to a business entity, which is inappropriate here. Alluding to the Fairbanks utility that apparently had generated this legislation, he said this is particularly troublesome because [that utility] was purchased from a public entity, from the public, under certain conditions that were known at the time. REPRESENTATIVE JAMES objected to Representative Croft's comments, saying she is thinking of rural communities. REPRESENTATIVE CROFT pointed out that this covers Fairbanks and others in rural Alaska and elsewhere. The Fairbanks entity is the one he knows about, because they testified before the committee; it was purchased from the Fairbanks North Star Borough and the people of Fairbanks eventually, at a set price, with the idea that it would have to obtain conventional loans. If this is changed after the fact to a subsidized loan, in effect Fairbanks should have received more for the utility back then. He believes it goes to the profit of that private utility. The loans create an asset base, which creates the rate base; the larger the rate base can be made, the larger the rate base is for the profit. Although it doesn't go directly to that, as testified to at the previous hearing, it does creates the potential for cheaper loans. He surmised that the discussion now was aimed at Amendment 2. CHAIRMAN KOTT stated his understanding that no amendment was officially before the committee. REPRESENTATIVE CROFT asked Mr. Easton if it would be easier for the department to set up the program under the constraints identified, and then the legislature could, in separate legislation, make proposals to change the program. At that point, the DEC would know more about how the loan and bonding work, and what room there is to bring in more entities. He expressed concern that the DEC would be doing a whole new project and a whole new addition to it at the same time. [REPRESENTATIVE WILLIAMS joined the committee at the table. He did not speak during the meeting. However, committee packets for HB 304 contained a letter to him as chairman of the DEC Finance Subcommittee, dated 2/23/00, from Kurt Fredriksson of the DEC.] Number 1408 MR. EASTON answered that the more time the DEC can have to work and to design this, the easier it would be for the department. Number 1452 REPRESENTATIVE MURKOWSKI told members she shares the concern expressed by Representative Green that there is only one "pie," for which they are considering bringing in private entities as well. She asked how the "pie" is divided up currently. MR. EASTON explained that it is a competitive process. At about this time every year, the DEC sends out applications to all municipalities, which then submit the applications. The DEC scores those applications using the criteria, which are weighted fairly heavily toward public health but also measure other things such as whether the loan would result in affordable water systems and whether it would help the systems comply with the Safe Drinking Water Act. It is a competitive, ranked-application process. REPRESENTATIVE MURKOWSKI asked, if these amendments passed, whether the competitive application process likely would continue but just include private entities as well, competing for that same limited pool and possibly leaving out municipalities. MR. EASTON said that is correct. REPRESENTATIVE GREEN recalled Mr. Easton's testimony from a prior hearing indicating that the DEC, in its review of applications for loans, makes the entity's ability to repay a big consideration. MR. EASTON answered in the affirmative. Number 1607 REPRESENTATIVE JAMES asked whether Mr. Easton knows how many private water systems there are in the state. She commented that most of the small private water systems that she is thinking of exist because there is no municipal water system there. She feels that those folks would be in jeopardy, if their rates are high, to provide the safety that could be provided in a municipality. She asked: If the entity could meet the repayment test so that it doesn't affect statewide bonding, and if there is a health reason why this money should be loaned, then, according to law, would it not be true that the beneficiaries of this low-interest loan must be the ratepayers? MR. EASTON deferred to the RCA for an explanation of what it means to be RCA-regulated. Generally, he said, he knows that it is part of the RCA's responsibility to review and regulate the profits and how the savings are distributed with public utilities. REPRESENTATIVE JAMES restated her belief that these low-interest loans must benefit the ratepayers, not the municipalities or the private owners of water systems. It is from that position that she is arguing that point, she added. MR. EASTON said that is his understanding as well. However, he doesn't know the extent to which RCA regulations protect the consumers and require that profits be passed on to them. In discussions with people over the last few days, he has found some divergence in opinion on that point. Again, he recommended that the answer come directly from the RCA. Number 1791 REPRESENTATIVE MURKOWSKI asked if Mr. Easton knows how many of the smaller utilities are regulated by the RCA. MR. EASTON related his understanding that the RCA currently regulates every water and sewage utility that has ten or more service connections and provides that service for compensation. He estimated that there are 600-700 drinking water systems in the state. Using round numbers, if there are 250 communities, one could assume that the balance is largely private utilities. CHAIRMAN KOTT announced that the committee could take up the amendments. He stated his understanding that Amendment 3 had been withdrawn earlier. Number 1893 REPRESENTATIVE ROKEBERG made a motion that the committee adopt Amendment 2 [1-GH2031\A.2, Cook, 2/18/00], which read: Page 1, line 2, following "projects,": Insert "to the Alaska clean water fund," Page 7, following line 13: Insert a new bill section to read: "* Sec. 18. AS 46.03.032(p)(1) is amended to read: (1) "other qualified entity" means an entity that is not a municipality with a project that is eligible for assistance under [INTERMUNICIPAL OR INTERSTATE AGENCY AS THOSE TERMS ARE USED IN] 33 U.S.C. 1383 [, AND MAY INCLUDE AN AUTHORITY, CORPORATION, INSTRUMENTALITY, ENTERPRISE, OR OTHER ENTITY FORMED THROUGH AN AGREEMENT BETWEEN A MUNICIPALITY AND ONE OR MORE OTHER GOVERNMENTAL ENTITIES UNDER AS 29.35.010(13) OR UNDER ART. X, SEC. 13, CONSTITUTION OF THE STATE OF ALASKA, OR BETWEEN A MUNICIPALITY AND A REGIONAL HOUSING AUTHORITY UNDER AS 18.55.996(b)];" Renumber the following bill sections accordingly. Page 11, line 30: Delete "22" Insert "23" Page 11, line 31: Delete "Section 24" Insert "Section 25" CHAIRMAN KOTT noted that there was an objection to Amendment 2. REPRESENTATIVE ROKEBERG explained that Amendment 2 would add the definition of "other qualified entity," which would allow the inclusion of private entities under this bill. REPRESENTATIVE CROFT said he had the same philosophical objections stated earlier under general discussion. He pointed out that there had been testimony at an earlier hearing from the Anchorage Water & Wastewater Utility (AWWU) and the equivalent water utility in Juneau. The AWWU representative basically had said it had not raised its rates in eight years because of access to these low-cost loans. Already the demand exceeds the supply, and if many more people are added to the line, depending upon how they compete, the rates may have to be raised because of the lack of the 4 and 5 percent loans. Therefore, he pointed out, that would have a direct impact on consumers in his district. REPRESENTATIVE CROFT reiterated his belief that this would subsidize a private business and the profits of a private business that was purchased from the people for a set price, which did not include those subsidized loans. With subsidized loans, an entity can increase its asset base that provides the rate base that provides the allowable profit. For him, the fundamental question is a financial one, especially for his constituents in Anchorage and Representative Kerttula's constituents in Juneau. He believes this discussion and these amendments would best be heard in the House Finance Committee. REPRESENTATIVE ROKEBERG commented that this is not a new program. Furthermore, he lives where Representative Croft lives, and there is a private water system; those are Representative Croft's constituents as well. He turned to the situation in Fairbanks and the AWWU testimony, saying that over the course of the last eight years when there were no rate increases in Anchorage, Fairbanks was in the competition and had only dropped out a few months ago. The issue here is fairness, the ability of all citizens in Alaska to access it based on the criteria for public health established by the department. REPRESENTATIVE GREEN asked what other sorts of loans lending institutions are giving now. For example, would the Alaska Industrial Development and Export Authority (AIDEA) or some other state lending institution be able to satisfy the need private entities have for lower-rate loans? MR. EASTON said he did not know. REPRESENTATIVE GREEN agreed with Representative Croft that this has moved into a financial discussion. TAPE 00-21, SIDE A REPRESENTATIVE JAMES explained why she supports Amendment 2. She sees this as a policy issue having nothing to do with the fiscal note. This is a safe water issue. Every citizen of Alaska who has a water system, whether privately or municipally owned, and who would meet the qualifications in this bill, should be entitled to this low-rate loan. She believes the DEC will prioritize the applications for this fund. She also believes that for the committee to think of any specific group of people or [company] is misleading. CHAIRMAN KOTT acknowledged that some people view this as private- sector people competing for public dollars. Number 0243 REPRESENTATIVE CROFT clarified that he wasn't implying that this is out of order in this committee. He believes that adding 600 new people who want part of this "pie" will affect the consumers that have been using it in the Anchorage area principally. To his understanding, loans to a diverse group of people will be very different from the experience with loans to municipalities, which have been stable and good at repaying. The loans to such municipalities have resulted in competitive rates. Under this, it would be an entirely new situation. He reiterated his concern with the fiscal issues that would be best discussed in the House Finance Committee. However, he stated that at this stage he doesn't want to hold up this bill for those facts. Upon a roll call vote, Representatives Rokeberg, James and Kott voted in favor of the adoption of Amendment 2, and Representatives Murkowski, Croft and Green voted against it. Therefore, Amendment 2 failed to be adopted by a vote of 3-3. REPRESENTATIVE ROKEBERG [referring to the interrelationship of the amendments] commented that if one amendment fails, then they all fail. Number 0443 REPRESENTATIVE JAMES made a motion that HB 304 be held to the next meeting in order to receive additional information that has been requested by those who object to the amendment. She restated that this is a fairness issue. CHAIRMAN KOTT said that could be a possibility; however, the bill has a House Finance Committee referral, and it has a number of hurdles before reaching the Senate, where it would also receive scrutiny. Chairman Kott directed the committee's attention to the letter dated February 23, 2000 [addressed to Representative Williams, chair of the DEC budget subcommittee]. Chairman Kott noted that he and Representative Croft sit on that subcommittee. He explained that in response to his own inquiry as to what HB 304 could potentially save in general fund dollars, that letter says HB 304 could save up to $600,000; Chairman Kott noted that he would like a portion of that savings to be put towards food and sanitation inspections. Therefore, his only concern is that he doesn't want to see this bill belabored to the extent that the state loses out on some savings. However, he would follow the will of the committee. Number 0614 REPRESENTATIVE MURKOWSKI commented that HB 304 has been debated adequately, and nothing would prevent movement of the amendment in the House Finance Committee, where additional information could be obtained. She pointed out that she also had heard HB 304 in the House Community & Regional Affairs Committee, where she liked it, and she wants to see it move forward. As one who voted against the amendment, she doesn't know whether any additional information would change her mind in the next week or so. REPRESENTATIVE GREEN agreed that bringing up the amendments in the House Finance Committee would be appropriate. REPRESENTATIVE CROFT concurred, pointing out that the House Finance Committee is co-chaired by a member from Fairbanks. He said he doesn't want to hold HB 304 any longer. REPRESENTATIVE JAMES reiterated her objection to this being considered a Fairbanks issue, saying it is a statewide issue of fairness. Number 0797 REPRESENTATIVE ROKEBERG made a motion to report HB 304 out of committee with individual recommendations and attached fiscal notes. REPRESENTATIVES JAMES and ROKEBERG objected. REPRESENTATIVE ROKEBERG commented that the bill should be amended, and those in Spenard who have private water systems should be able to compete for low-interest loans. Upon a roll call vote, Representatives Croft, Green, Murkowski and Kott voted in favor of reporting HB 304 out of committee and Representatives Rokeberg and James voted against reporting HB 304 out of committee. Therefore, HB 304 was reported out of the House Judiciary Standing Committee by a vote of 4-2. CHAIRMAN KOTT requested that he be allowed to submit the letter of February 23, 2000, to the House Finance Committee and to recommend that the fiscal parameters be scrutinized with the notion that perhaps additional funds could be placed in the food inspection area; there were no objections to the request. [HB 304 was moved out of the committee.]
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