Legislature(2011 - 2012)SENATE FINANCE 532

03/13/2012 01:00 PM Senate FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
= SB 192 OIL AND GAS PRODUCTION TAX RATES
Heard & Held
Introduction by Senator Paskvan
<Continuation from 9:00 a.m. 3/13/12>
+= SB 160 BUDGET: CAPITAL TELECONFERENCED
Heard & Held
Agency Overviews:
University of Alaska
Alaska Housing Finance Corporation
Department of Public Safety
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 160                                                                                                           
                                                                                                                                
     "An Act  making and amending  appropriations, including                                                                    
     capital   appropriations   and  other   appropriations;                                                                    
     making   appropriations   to  capitalize   funds;   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
UNIVERSITY OF ALASKA                                                                                                          
                                                                                                                                
PATRICK GAMBLE, PRESIDENT,  UNIVERSITY OF ALASKA, introduced                                                                    
himself  and  other  staff that  were  available  to  answer                                                                    
questions. He communicated that  the $37.5 million increment                                                                    
for deferred maintenance or  replacement and renovation (the                                                                    
funding was for  year three of a five-year  program) was the                                                                    
only item in the governor's  budget that was included in the                                                                    
current  bill.  He explained  that  the  prior year  he  had                                                                    
proposed a  two-year program to  examine the  university and                                                                    
state  financial situation;  the budget  had been  flattened                                                                    
considerably  and  the  university  had not  asked  for  any                                                                    
planning  or programing  money for  new  projects. With  the                                                                    
exception of  the deferred  maintenance area  the university                                                                    
budget  was  in a  good  position  due  to a  generous  bond                                                                    
issuance.  When he  had taken  the position  as president  a                                                                    
deferred  maintenance  problem  was identified  and  he  and                                                                    
other university  staff had marked  it as the  top priority.                                                                    
He   furthered   that   other  areas   including   any   new                                                                    
construction would stay "lean  and mean" during the deferred                                                                    
maintenance improvements.  He noted that the  university had                                                                    
already  been given  generous funding  for construction  and                                                                    
that  the days  of increasing  the budget  from year-to-year                                                                    
(as in  the past  ten years) were  over; employees  had been                                                                    
told  that the  budget  would  at least  be  flat and  could                                                                    
decline depending on the economy.                                                                                               
                                                                                                                                
1:47:36 PM                                                                                                                    
                                                                                                                                
President Gamble  reemphasized that the number  one priority                                                                    
was  deferred maintenance,  which  was  beginning to  impact                                                                    
every corner  of the university;  it had the  largest single                                                                    
ownership of state buildings, many  of which were quite old.                                                                    
He  clarified  that the  number  one  academic priority  was                                                                    
engineering.  He  relayed  that  the  question  was  how  to                                                                    
programmatically  maintain and  improve the  facilities; the                                                                    
university  had not  been programmatic  about the  upkeep of                                                                    
its facilities  in the  past. He  added that  operations and                                                                    
maintenance money  had generally  been funded on  a year-to-                                                                    
year basis.  He explained  that the repurposing  dollars for                                                                    
older   engineering  facilities   became  an   accreditation                                                                    
problem  when engineers  were currently  far  in advance  of                                                                    
where  they  had  been  when the  facility  was  built.  The                                                                    
deferred  maintenance and  replacement and  renovation (R&R)                                                                    
were   connected   but    separate;   buildings   could   be                                                                    
reconditioned to add years to  their life, but if the upkeep                                                                    
was not  maintained systems could  fail and were  then moved                                                                    
to the deferred maintenance list.                                                                                               
                                                                                                                                
1:49:50 PM                                                                                                                    
                                                                                                                                
President  Gamble  stressed  that the  deferred  maintenance                                                                    
list  had  become so  large  that  the dollar  amounts  were                                                                    
staggering. He remarked that because  the large numbers were                                                                    
competitive with other  needs of the state  the tendency was                                                                    
to  not   want  to  deal   with  them.  He   understood  the                                                                    
legislature's  challenge  when  confronted with  the  budget                                                                    
decisions. The university's request  was for flat funding of                                                                    
deferred  maintenance   projects  and   no  new   money  for                                                                    
programing,  design,  or  engineering. The  prior  year  the                                                                    
university  had  requested  $50  million  for  R&R  (it  had                                                                    
received $2  million); the  amount was  needed on  an annual                                                                    
basis  in  order to  avoid  a  problem similar  to  deferred                                                                    
maintenance.  The legislature  had  authorized  the sale  of                                                                    
$100 million in bonds for  the university that would pay for                                                                    
them  internally; he  expressed appreciation  for the  funds                                                                    
and noted that the amount had  been cut back to $50 million.                                                                    
The  university was  striving to  put the  money to  work as                                                                    
quickly as  possible on pre-identified  projects by  each of                                                                    
the main campuses; each campus  had been polled to determine                                                                    
the  highest  priority  projects;  the total  cost  for  the                                                                    
priority  "mission  failure  potential"  projects  was  $100                                                                    
million. He  stressed that the deferred  maintenance was not                                                                    
an optional number  that would go away if it  was not funded                                                                    
in  one year.  The  university had  asked  for another  $100                                                                    
million and the  R&R funds in the current  budget, which had                                                                    
all  been  removed. The  rate  of  accumulation of  deferred                                                                    
maintenance from year to year  had grown to compete with the                                                                    
governor's funds designated  to reduce deferred maintenance;                                                                    
however,   it  only   slowed   growth   that  continued   to                                                                    
accumulate. He  expounded that the  entity had its  work cut                                                                    
out for  it; it would  use the  $37.5 million and  had asked                                                                    
for $15 million in receipt authority  in case it was able to                                                                    
obtain federal money during the current year.                                                                                   
                                                                                                                                
1:53:54 PM                                                                                                                    
                                                                                                                                
President  Gamble   referred  to  a  chart   titled  "FY  13                                                                    
Sustainment   Funding   Plan   for   UA   Facilities"   that                                                                    
illustrated the  effect of funding items  versus not funding                                                                    
items. Even with  the $50 million and  $37.5 million funding                                                                    
allocations the  deferred maintenance  number had  gone from                                                                    
$750  million down  to  $710 million;  the  growth had  been                                                                    
slowed,  but would  begin all  over again  as soon  as money                                                                    
stopped  being   directed  at  the  items.   The  model  was                                                                    
essentially  unchanged from  the prior  year given  that the                                                                    
concerns were  still the  same. He discussed  the idea  of a                                                                    
sustainment  approach   that  would  enable   facilities  to                                                                    
operate  going  forward  and to  bring  the  large  deferred                                                                    
maintenance number  down to a reasonable  number; reasonable                                                                    
to the  university was a  number in mid-$300  million dollar                                                                    
range as opposed to $700 million.                                                                                               
                                                                                                                                
President  Gamble  communicated  that  risk  increased  with                                                                    
advancing deferred maintenance (e.g.  HVAC, roof, or pluming                                                                    
failures).  He compared  one  of  the engineering  buildings                                                                    
built  in 1983  to airplanes  constructed in  the same  year                                                                    
that  were no  longer functional;  he explained  that planes                                                                    
went  to the  "bone yard,"  but buildings  went to  deferred                                                                    
maintenance. When  failures occurred  the university  had to                                                                    
borrow from  other fund  sources to  provide a  band-aid for                                                                    
the  problems.  He  provided  an   example  of  a  Fairbanks                                                                    
dormitory  that  had been  taken  down  due to  an  internal                                                                    
plumbing failure; as  a result students had to  move out and                                                                    
the  university   had  lost  the   revenue.  He   hoped  the                                                                    
legislature  would  enable  the   university  to  develop  a                                                                    
programmatic plan to address the problem.                                                                                       
                                                                                                                                
1:58:24 PM                                                                                                                    
                                                                                                                                
President  Gamble acknowledged  that  the governor's  budget                                                                    
was the budget before the  committee. He stressed that there                                                                    
was  no  padding  to the  deferred  maintenance  list;  each                                                                    
represented  a specific  project  at one  of the  university                                                                    
campuses.                                                                                                                       
                                                                                                                                
1:59:34 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman  recognized  the  importance  of  deferred                                                                    
maintenance. He  recalled the first time  the university had                                                                    
received funding for deferred  maintenance years earlier. He                                                                    
listed  various  funding  request items:  $2.5  million  for                                                                    
parking  security (page  3); $561,000  for Mat-Su  door lock                                                                    
key  access; $6  million  for  a master  plan  at the  lower                                                                    
campus; $3.6  million for a sports  facility renovation; and                                                                    
$6 million for  campus roads, curbs, gutters,  and ramps. He                                                                    
pointed   out  that   campuses   in   Lower  Kuskokwim   had                                                                    
experienced  failures due  to  extremely  cold weather;  the                                                                    
campus  needed  HVAC  upgrades as  the  current  system  was                                                                    
causing teachers and students  to have headaches. During the                                                                    
cold spell  many individuals had  to spend the night  at the                                                                    
facility to  provide 24-hour supervision  of the  system. He                                                                    
believed  the issues  represented  higher priority  problems                                                                    
than  parking   and  security.   He  wondered   whether  the                                                                    
university had a list of repairs needed at rural campuses.                                                                      
                                                                                                                                
President Gamble  replied in the affirmative.  He elaborated                                                                    
that  the number  one priority  specified  by the  Kuskokwim                                                                    
campus was a $5.1 million  project; $900,000 would go to the                                                                    
campus if  the university  only received the  $37.5 million.                                                                    
He furthered that  the dollars provided to  the campus would                                                                    
increase proportionally based on  funding received above the                                                                    
$37.5  million.  He  added  that  the  priority  lists  were                                                                    
provided by campuses.                                                                                                           
                                                                                                                                
Co-Chair Hoffman  emphasized that  the problem at  the Lower                                                                    
Kuskokwim campus represented a  health/life safety issue. He                                                                    
opined that  the issue should  rank higher than  parking and                                                                    
security.                                                                                                                       
                                                                                                                                
President  Gamble  agreed.  He  promised to  look  into  the                                                                    
concern  and explained  that  funding  was reallocated  from                                                                    
another area if safety issues existed.                                                                                          
                                                                                                                                
Co-Chair Hoffman would provide the information.                                                                                 
                                                                                                                                
President  Gamble pointed  to the  chart and  explained that                                                                    
projects were not  prioritized and that they  all fell under                                                                    
the urgent category.                                                                                                            
                                                                                                                                
2:05:03 PM                                                                                                                    
                                                                                                                                
Senator  McGuire asked  President  Gamble to  meet with  Dan                                                                    
Fauske   [Executive   Director,   Alaska   Housing   Finance                                                                    
Corporation (AHFC),  Department of Revenue] and  report back                                                                    
to  the committee  on whether  some of  the replacement  and                                                                    
upgrade projects  would qualify under the  loan program that                                                                    
originated under the omnibus  energy package. She elaborated                                                                    
that  the  package  included  $250   million  for  AHFC  for                                                                    
upgrades  and replacements  on  roof  repair, HVAC  systems,                                                                    
windows,  power infrastructures,  etc.  She  added that  the                                                                    
program may present another funding  option for the projects                                                                    
that  would   potentially  free   up  funding   for  Senator                                                                    
Hoffman's district [Lower Kuskokwim].                                                                                           
                                                                                                                                
President Gamble  agreed. He would  discuss the  option with                                                                    
Mr. Fauske during a meeting the following week.                                                                                 
                                                                                                                                
Senator Thomas pointed  to a line on  the chart representing                                                                    
the  status quo;  it was  defined  as "deferred  maintenance                                                                    
backlog  without   adequate  R&R."  He  wondered   what  was                                                                    
considered  an adequate  R&R number.  He asked  what funding                                                                    
amount  would reduce  the number  below  $362.5 million.  He                                                                    
asked whether $100 million was the amount needed.                                                                               
                                                                                                                                
President Gamble  explained that if the  university received                                                                    
$50 million per  year for R&R the  deferred maintenance line                                                                    
would  still  increase,  but at  a  controllable  slope.  He                                                                    
detailed that if  nothing was done the  slope would increase                                                                    
by 15  to 20  degrees. The chart's  assumption was  that the                                                                    
$50 million would  help flatten the line;  however, it would                                                                    
not take care of the  deferred maintenance projects that had                                                                    
already accumulated. The  accumulated projects were separate                                                                    
(shown  by the  down-sloping green  line on  the chart).  He                                                                    
explained that  the light colored line  indicated what would                                                                    
have happened  if the university had  received the requested                                                                    
$100  million the  prior year.  The $750  million total  had                                                                    
been  reduced to  approximately  $710  million; however,  if                                                                    
funds  were  not  funneled  to  deferred  maintenance  as  a                                                                    
separate  entity, the  number  would  continue to  increase,                                                                    
albeit at a slower rate.                                                                                                        
                                                                                                                                
2:09:03 PM                                                                                                                    
                                                                                                                                
Senator Thomas  asked for details  on the $10  million Board                                                                    
of Regents budget request related  to solutions for Alaska's                                                                    
energy needs and the relationship  between the Alaska Center                                                                    
for Energy and Power and the industry.                                                                                          
                                                                                                                                
President Gamble deferred the  question to Mark Meyers, head                                                                    
of research at the university.                                                                                                  
                                                                                                                                
MARK   MYERS,  VICE-CHANCELLOR,   RESEARCH,  UNIVERSITY   OF                                                                    
ALASKA, FAIRBANKS  (VIA TELECONFERENCE), explained  that the                                                                    
$10  million  proposal  was for  a  partnership  to  develop                                                                    
statewide energy, which had three  components: (1) work with                                                                    
Alaska Center  for Energy and Power  on hydrokinetic issues,                                                                    
rural energy  systems like wind-diesel  coupling, geothermal                                                                    
energy, etc.; (2)  form an energy analysis group  to gain an                                                                    
apples  to  apples  project  comparison,  and  to  determine                                                                    
project risks and how they  would integrate with each other;                                                                    
(3) integrated  fossil fuel  research. Research  was largely                                                                    
funded  by industry,  but the  petroleum research  labs were                                                                    
old.  The  research included  questions  on  shale oil,  oil                                                                    
recovery,  heavy oil,  and environmental  work on  the North                                                                    
Slope  related to  water supply  and new  infrastructure. He                                                                    
relayed that investment in an  integrated fashion would help                                                                    
to  shorten the  development cycle  time of  the alternative                                                                    
energy sources.                                                                                                                 
                                                                                                                                
Co-Chair Stedman believed there  were related documents that                                                                    
could be provided to the committee.                                                                                             
                                                                                                                                
2:12:15 PM                                                                                                                    
                                                                                                                                
Senator Ellis  appreciated hearing that the  number one non-                                                                    
deferred maintenance  priority was engineering.  He remarked                                                                    
that he  and other members  had been encouraging  support of                                                                    
the   funding  for   Fairbanks  and   Anchorage  engineering                                                                    
upgrades.  He asked  whether industry  had come  together to                                                                    
request  the   university's  support  for   the  engineering                                                                    
buildings. He referred  to a recent address  by U.S. Senator                                                                    
Mark  Begich who  had  spoken  in support  of  a $5  million                                                                    
university increment  for an unmanned  drone program  at the                                                                    
Eielson  Air  Force  Base. Senator  Begich  was  working  to                                                                    
inform  others in  Washington D.C.  that Alaska  could be  a                                                                    
center for excellence through the  university related to the                                                                    
unmanned drone  program. He asked President  Gamble to speak                                                                    
to the items.                                                                                                                   
                                                                                                                                
President  Gamble responded  that the  demand for  engineers                                                                    
was high  in Alaska; graduates  from the university  had the                                                                    
advantage  of  partnering  with   companies  in  the  state.                                                                    
Engineering  areas  included  fisheries, mining,  the  North                                                                    
Slope,  and other.  He  furthered  that undergraduates  were                                                                    
able  to  obtain  hands-on experience  while  getting  their                                                                    
graduate degrees;  the retention  was excellent  for Alaska.                                                                    
He moved  on to address  the second question related  to the                                                                    
unmanned  drone program.  He relayed  that he  was currently                                                                    
part  of  a group  that  advised  the governor  on  military                                                                    
issues  and  was  the  chairman   of  the  Alaska  Aerospace                                                                    
Corporation. He  discussed that Alaska  could be one  of the                                                                    
first  places   in  the   U.S.  to   put  drones   to  work.                                                                    
Additionally,  the state  could help  work out  any airspace                                                                    
bugs the  Federal Aviation Administration was  dealing with.                                                                    
He had been pleasantly  surprised by Senator Begich's recent                                                                    
request. Work was being done  predominately at the Fairbanks                                                                    
campus on  safely integrating drone operations  in airspace.                                                                    
He  expounded  that  the Alaska  Aerospace  Corporation  saw                                                                    
potential for bringing drones into  the state and conduction                                                                    
large scale  operations potentially  at a base  like Eielson                                                                    
Air Force  Base. He  believed that  drones were  the future;                                                                    
Alaska's  airspace was  uncomplicated  and encroachment  was                                                                    
not   a  problem.   He  emphasized   his  support   for  the                                                                    
university's involvement.                                                                                                       
                                                                                                                                
2:17:09 PM                                                                                                                    
                                                                                                                                
President  Gamble  stressed  that  there  was  cutting  edge                                                                    
research  underway primarily  at  the  Fairbanks campus.  He                                                                    
accentuated  that  scientific  information provided  to  the                                                                    
committee from outside could be  provided by the university.                                                                    
He furthered that the university  wanted to conduct research                                                                    
that was  directly applicable to Alaska's  needs. He relayed                                                                    
that  unfortunately the  item had  not made  the current  or                                                                    
last budget.  He hoped that  he could link  the university's                                                                    
answers to  legislator's questions  for a cheaper  rate than                                                                    
offered   by   outside   consultants.   He   asked   for   a                                                                    
reconsideration   of   the   research   component   of   the                                                                    
university's budget request.                                                                                                    
                                                                                                                                
2:18:52 PM                                                                                                                    
                                                                                                                                
ALASKA HOUSING FINANCE CORPORATION                                                                                            
                                                                                                                                
DANIEL R.  FAUSKE, CHIEF  EXECUTIVE OFFICER,  ALASKA HOUSING                                                                    
FINANCE  CORPORATION  (AHFC),  DEPARTMENT  OF  REVENUE,  and                                                                    
PRESIDENT,  ALASKA GASLINE  DEVELOPMENT CORPORATION  (AGDC),                                                                    
pointed to AGDC's $21 million capital request.                                                                                  
                                                                                                                                
Co-Chair Stedman  informed the committee that  it would hear                                                                    
from AGDC and then move to AHFC.                                                                                                
                                                                                                                                
JOE  DUBLER, VICE  PRESIDENT  AND  CHIEF FINANCIAL  OFFICER,                                                                    
ALASKA  GASLINE  DEVELOPMENT  CORPORATION  AND  DIRECTOR  OF                                                                    
FINANCE, ALASKA  HOUSING FINANCE CORPORATION,  DEPARTMENT OF                                                                    
REVENUE,  directed attention  to page  10 of  the governor's                                                                    
proposed FY  13 capital  budget project detail  sheets: Item                                                                    
51753  (copy on  file). He  explained that  the $21  million                                                                    
request would continue AGDC's efforts  to develop an instate                                                                    
gas pipeline from the North  Slope to the Railbelt with off-                                                                    
takes in  Fairbanks and Anchorage.  The funding  would allow                                                                    
for the  continuation of  engineering, data  acquisition and                                                                    
refinement   of   engineering    design,   permitting,   the                                                                    
environmental   impact   statement    (EIS)   process,   the                                                                    
attainment   of   a   federal  and   private   right-of-way,                                                                    
subsistence   impact  review,   project  risk   and  phasing                                                                    
analysis,  commercial analysis  that would  culminate in  an                                                                    
open season  in the end  of calendar year  2013, preparation                                                                    
of  a comprehensive  financing  plan,  and discussions  with                                                                    
affected parties along the alignment of the pipeline.                                                                           
                                                                                                                                
Mr. Dubler turned to a  breakdown of the $21 million request                                                                    
shown on  a spreadsheet  titled "Alaska  Gasline Development                                                                    
Corporation: ASAP  - Funding  Outline Thru  FEL 3"  (copy on                                                                    
file).                                                                                                                          
                                                                                                                                
Mr.  Dubler  reviewed  the spreadsheet.  He  explained  that                                                                    
commercial  operations  for  FY  13 were  budgeted  at  $3.8                                                                    
million; the  item would include discussions  with potential                                                                    
shippers, to develop markets for  the gas, work with Prudhoe                                                                    
Bay  operators   and  owners,  and  integration   plans  for                                                                    
commercial operations.  He elaborated that there  had been a                                                                    
successful expression of interest in  June 2011 and AGDC was                                                                    
currently working  on an  open season.  Pipeline engineering                                                                    
and  environmental permitting  was budgeted  at $6  million;                                                                    
the increment  included progression  of the  pipeline route,                                                                    
data  collection   and  design,  utilizing   information  to                                                                    
upgrade  the project  design, and  cost estimates.  The cost                                                                    
estimates were  refined from  the current  plus or  minus 30                                                                    
percent interval down to a plus  or minus 10 percent for the                                                                    
open season. He furthered  that important requirements for a                                                                    
successful open season were fairly  accurate design and cost                                                                    
estimates. The  pipeline engineering  had obtained  a right-                                                                    
of-way for  state land  and a  right-of-way for  the federal                                                                    
land  would   be  issued   once  the   environmental  impact                                                                    
statement  was provided  to the  Bureau of  Land Management;                                                                    
the  rights-of-way represented  a couple  of large  hurdles.                                                                    
Staff were currently working to  obtain the right-of-way for                                                                    
private land.                                                                                                                   
                                                                                                                                
2:24:34 PM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman asked  about the  right-of-way route.  Mr.                                                                    
Dubler explained  the route  would go  from the  North Slope                                                                    
through Dunbar  - with a  lateral line going to  Fairbanks -                                                                    
and would  cut across  the Minto flats  to follow  the Parks                                                                    
Highway through Big Lake to  the Little Susitna River (where                                                                    
the current Enstar project was located).                                                                                        
                                                                                                                                
Co-Chair Hoffman  asked how the  route had  been determined.                                                                    
Mr. Fauske  answered that  the route  had been  determined a                                                                    
number  of  years earlier.  The  route  was  seen to  be  in                                                                    
compliance with  the intent  of HB  369, which  had mandated                                                                    
the deliverability of gas from  the North Slope to tidewater                                                                    
at the lowest  cost. The entity had asked  whether there was                                                                    
any information in the difference  between the Parks Highway                                                                    
versus  the Richardson  Highway that  would mitigate  a $0.5                                                                    
billion difference;  the Parks Highway was  93 miles shorter                                                                    
than  the Richardson  Highway and  the  pipeline would  cost                                                                    
approximately   $5  million   to   $6   million  per   mile.                                                                    
Additionally, the  federal government would have  to examine                                                                    
the  longer alternate  route  for  environmental factors  to                                                                    
determine   whether   one   of   the   routes   was   better                                                                    
environmentally. He  explained that AGDC had  been given one                                                                    
year from the  passage of HB 369 to provide  a report to the                                                                    
legislature and  governor by  July 1,  2011; the  report had                                                                    
been provided and much of  the existing information had been                                                                    
utilized.                                                                                                                       
                                                                                                                                
2:27:29 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  asked for  detail  on  any overlaps  with                                                                    
Alaska  Gasline Inducement  Act (AGIA)  and any  interest in                                                                    
private   parties.  He   noted  that   he  and   others  had                                                                    
"heartburn"   with   AGIA   related  to   the   90   percent                                                                    
reimbursement  and little  private enterprise  money to  the                                                                    
state; the scenario would                                                                                                       
cost $500  million and he  was concerned that the  state was                                                                    
heading towards "AGIA  version 2" with a  $400 million cost.                                                                    
He asked what assurances could  be provided that his concern                                                                    
would  not  come  to fruition.  He  wondered  about  private                                                                    
enterprise.                                                                                                                     
                                                                                                                                
Mr.  Fauske relayed  that  AGDC had  invited  industry to  a                                                                    
meeting in Anchorage to determine  potential interest in the                                                                    
gasline. He  related that  under AGIA  the gasline  would be                                                                    
limited to 500 million cubic feet  (mcf) of gas per day; the                                                                    
restriction was  lifted if the  location was below  the 68th                                                                    
parallel.  The   meeting  had   required  questions   to  be                                                                    
submitted  in  writing in  advance.  He  furthered that  the                                                                    
total  amount of  gas needed  for Fairbanks,  Anchorage, the                                                                    
military bases,  and the Central Corridor  was approximately                                                                    
240  mcf of  gas  per  day. The  entity's  concern had  been                                                                    
whether there  was a commercial  interest in the 260  mcf of                                                                    
gas  per  day  that   remained;  AGDC  had  been  pleasantly                                                                    
surprised to find that the  commercial interest existed. The                                                                    
500 mcf of gas per day had been maxed out by the non-                                                                           
binding interest expressed. The  commission was currently in                                                                    
discussions with the producers  and was working on alignment                                                                    
going  forward  as requested  by  the  governor. Work  could                                                                    
include a spur  line; the AGIA contract  required 5 off-take                                                                    
points from the gasline.                                                                                                        
                                                                                                                                
Mr. Fauske pointed  out that with the EIS  that was expected                                                                    
to be  completed in May  2012 and  the transfer of  lands to                                                                    
Department of  Natural Resources  under the  state right-of-                                                                    
way, the project had made  incredible progress. He discussed                                                                    
the  frontend-loaded  FELs  1 through  3;  the  project  was                                                                    
currently at  about plus  or minus 30  percent and  the goal                                                                    
was to reach FEL  3 in the fall of 2014  into 2015 (after an                                                                    
open season  had been conducted  and to look  at sanctioning                                                                    
the  project) and  to reach  plus  or minus  10 percent.  He                                                                    
remained very  hopeful and believed  that the  project could                                                                    
be  quite  meaningful  for  bringing a  gas  supply  to  the                                                                    
Central  Corridor  of  the   state  that  hopefully  reached                                                                    
outlying areas once gas was flowing.                                                                                            
                                                                                                                                
2:32:02 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  wondered where private enterprise  was. He                                                                    
asked whether  there were pipeline  companies willing  to do                                                                    
the work  or whether the  project was "just  another scoping                                                                    
project being  financed by the  state." Mr.  Fauske answered                                                                    
that AGDC had met with  producers and pipeline companies. He                                                                    
stressed that  the $400 million work  had to be done  by the                                                                    
state  prior  to  industry   involvement.  He  relayed  that                                                                    
nationwide  builder/owner/operators  had expressed  a  great                                                                    
deal of interest in the  project. The commission was working                                                                    
to   exchange  information   with  producers   to  determine                                                                    
alignment. He  remarked that  there was  legislation related                                                                    
to confidentiality  agreements that had presented  a problem                                                                    
because  companies  were   unwilling  to  provide  necessary                                                                    
information if  it was not kept  confidential. He reiterated                                                                    
that the work was going well.                                                                                                   
                                                                                                                                
Co-Chair  Stedman expressed  concern that  industry had  not                                                                    
shown up at the table.  He wondered how much information had                                                                    
been purchased  twice by  the state due  to an  overlap with                                                                    
AGIA. Mr.  Fauske did not  believe any information  had been                                                                    
paid  for twice.  He explained  that ADGC  was concentrating                                                                    
most  of its  work  from Fairbanks  south,  while AGIA  work                                                                    
continued in the north to  avoid duplication. He had relayed                                                                    
to  participants  that  the   commission  had  promised  the                                                                    
legislature that it would not duplicate expenses.                                                                               
                                                                                                                                
Co-Chair  Stedman thought  Mr. Fauske  had referred  to some                                                                    
duplication during a recent phone conversation.                                                                                 
                                                                                                                                
2:34:53 PM                                                                                                                    
                                                                                                                                
Mr. Dubler replied that AGDC  had been in close contact with                                                                    
the AGIA  Alaska Pipeline Project  (APP). He  explained that                                                                    
the  confidentiality presented  the biggest  problem in  the                                                                    
communications. Maps  of the APP  project had been  shown to                                                                    
AGDC,  but AGDC  was not  able to  keep the  information. He                                                                    
anticipated that  there would  be some  overlap, but  he did                                                                    
not know  that there  had been  any as of  yet. Most  of the                                                                    
work done  by the APP  was different  from the work  done by                                                                    
AGDC; there  were various types  of data  gathering required                                                                    
for a  project (e.g.  rivers and streams,  bird, vegetation,                                                                    
and  fish   surveys,  stream  crossings,  and   other).  The                                                                    
commission was hoping to get  a confidentiality agreement in                                                                    
place  that  AGIA  was  comfortable   with  to  enable  more                                                                    
meaningful  conversation regarding  the progression  of work                                                                    
and to avoid charges for duplicate information.                                                                                 
                                                                                                                                
2:36:11 PM                                                                                                                    
                                                                                                                                
Co-chair Stedman  surmised that there would  be some caution                                                                    
given the  amount of  money spent on  AGIA compared  to what                                                                    
had been gained.  The legislature had been told  that it did                                                                    
not need  to worry  about the  three major  industry players                                                                    
and that  utilities would  step up to  the plate  that would                                                                    
enable  a  large  line to  be  constructed  through  Canada;                                                                    
however,  utilities had  scoffed at  the idea  of committing                                                                    
without  gas  given  the   significant  financial  risk.  He                                                                    
wondered whether  the entity that  Mr. Dubler  had mentioned                                                                    
(that had  expressed interest  in the 260  mcf per  day) was                                                                    
interested in taking commitments without gas.                                                                                   
                                                                                                                                
Mr. Dubler  replied that  he could not  divulge the  name of                                                                    
the entity. He relayed that there was gas involved.                                                                             
                                                                                                                                
2:37:46 pm                                                                                                                    
                                                                                                                                
Co-chair Stedman  felt apprehensive  as the  legislature had                                                                    
been  told  similar  things  several   years  earlier  on  a                                                                    
different project.                                                                                                              
                                                                                                                                
Mr. Dubler  responded that AGDC  had been cautious  as well,                                                                    
which had  prompted the commission to  conduct an expression                                                                    
of interest  meeting in  May 2011;  the results  showed that                                                                    
there  was enough  gas available  on the  north-side of  the                                                                    
pipeline from  producers and  enough customers  and shippers                                                                    
on the  south-side of the  pipeline to fill the  pipeline at                                                                    
0.5 billion cubic feet (bcf)  per day. Although the interest                                                                    
was  non-binding,   AGDC  was  comforted  by   the  achieved                                                                    
results; it  was working  towards a  binding open  season at                                                                    
the end  of 2013  and expected  to have  firm transportation                                                                    
commitments for the entire capacity of the line.                                                                                
                                                                                                                                
Co-Chair Stedman  asked for  verification that  the capacity                                                                    
would  be  0.5  bcf  per  day. Mr.  Dubler  replied  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
2:39:05 pm                                                                                                                    
                                                                                                                                
Mr.  Fauske   relayed  that  the  commission   had  been  in                                                                    
discussions  with  Doyon  in the  Nenana  Basin  related  to                                                                    
contract  versus  common carrier;  the  field  had not  been                                                                    
proven, but  was one of  great interest. The  commission had                                                                    
also  been in  discussion with  mining entities  that wanted                                                                    
gas for  their projects. He  stressed that there had  been a                                                                    
great deal of  interest stated by private  enterprise in the                                                                    
project.  He  believed  that because  the  debate  had  been                                                                    
ongoing people  thought the project was  just another study;                                                                    
therefore, it was difficult to  gain interest. He had worked                                                                    
hard on  the project  and emphasized that  he had  no vested                                                                    
interest in  the proposal. He  was proud of the  project and                                                                    
believed  in it  because it  continued to  make headway.  He                                                                    
clarified  that the  project would  be  funded with  revenue                                                                    
bonds.  He referred  to discussions  that the  project would                                                                    
require a large  infusion of cash by the state;  when he had                                                                    
taken  the position  he had  believed the  cost would  be $3                                                                    
billion to $4  billion. He had been  pleasantly surprised by                                                                    
the  tariff  numbers showing  that  the  project would  only                                                                    
require  $400 million  in state  funds.  He emphasized  that                                                                    
there  was  no cash  outlay  by  the  state  in any  of  the                                                                    
financial information that had been supplied.                                                                                   
                                                                                                                                
Mr. Fauske stressed that the  project had real potential. He                                                                    
opined  that the  producers and  others would  not stand  by                                                                    
while the state  moved gas off the North  Slope without some                                                                    
type  of involvement  if  it ended  up  being a  stand-alone                                                                    
project. He had heard from  Exxon and others that they would                                                                    
certainly want an  equity piece equivalent to  the amount of                                                                    
gas flowing.  He agreed  that a bigger  line would  be good,                                                                    
but stressed that there would  need to be a large commercial                                                                    
activity paying the cost; the  incremental cost of a 48 inch                                                                    
line  from Prudhoe  Bay to  Fairbanks was  $2.8 billion.  He                                                                    
held  his reservations  on the  larger line  and noted  that                                                                    
AGIA had been working on  it. The commission had avoided the                                                                    
area due to  the $500 million limitation  and existing state                                                                    
activity  pursuing the  idea. He  disagreed with  people who                                                                    
thought a  smaller line was  not feasible. He  wondered what                                                                    
the  alternative would  be (especially  if  the reserves  in                                                                    
Cook  Inlet  were not  as  substantial  as anticipated)  and                                                                    
pointed  to  the  dire conditions  in  Fairbanks  and  rural                                                                    
Alaska. He explained that HB  369 had resulted from a belief                                                                    
by  some that  the big  line would  not occur.  He commended                                                                    
Anchorage  Mayor Sullivan  for engaging  the public  when he                                                                    
held  a  brown-out practice.  He  reminded  people that  the                                                                    
intent  was  to  get  gas  to  Alaskans;  the  beauty  of  a                                                                    
commercial  application  was  to   keep  tariffs  lower.  He                                                                    
concluded  that a  perpetuating goal  had been  to beat  the                                                                    
price  of imported  Liquid Natural  Gas (LNG);  the proposed                                                                    
analysis  did  just  that.  He noted  that  the  number  was                                                                    
currently  $14 to  $16 per  million cubic  feet; tariffs  to                                                                    
Anchorage would be $9.63 and $10.33 to Fairbanks.                                                                               
                                                                                                                                
2:43:57 pm                                                                                                                    
                                                                                                                                
Co-chair  Stedman stated  that  he was  not questioning  Mr.                                                                    
Fauske's  good  intention,  but  he  was  questioning  where                                                                    
private enterprise was.  He remarked that the  state was not                                                                    
a  shining  model of  bigger  projects;  he pointed  to  the                                                                    
recent  prison  that had  cost  around  $200 million  as  an                                                                    
example   and   added   that   the   gasline   project   was                                                                    
substantially  larger.  The   project  could  have  negative                                                                    
repercussions  on  the  state if  it  went  upside-down.  He                                                                    
opined that it  was a bad business practice  to move forward                                                                    
on  a  project without  private  enterprise  at the  state's                                                                    
side.  He  emphasized  that additional  red  flags  went  up                                                                    
related  to the  privacy issues.  The legislature  had heard                                                                    
all of  the "lines" delivered  to it regarding AGIA  and the                                                                    
state would be $500 million down  the drain. He did not want                                                                    
to see  another $400 million  wasted and surmised  that $900                                                                    
million could essentially fix Fairbanks' problem.                                                                               
                                                                                                                                
2:45:07 pm                                                                                                                    
                                                                                                                                
Mr. Fauske  agreed. He explained  that the $400  million was                                                                    
the price  the state needed  to pay  to get industry  at its                                                                    
side. He pointed to the FEL  1 through 3 "trumpet curve" and                                                                    
explained  that milestones  were reached  along the  process                                                                    
that would  determine whether the project  would proceed. He                                                                    
furthered  that  it  could always  be  determined  that  the                                                                    
project was  not worthwhile, but to  reach the determination                                                                    
some money had to be spent to prove it.                                                                                         
                                                                                                                                
Co-Chair Stedman remarked that  whose money was the relevant                                                                    
issue.  Mr.  Fauske replied  that  the  money was  the  $400                                                                    
million [that would be spent by the state].                                                                                     
                                                                                                                                
2:45:55 PM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  discussed that  none of the  smaller state                                                                    
energy  projects (between  $1 million  to $5  million) could                                                                    
move  forward without  a power  purchase agreement;  many of                                                                    
the grants  had not  come to fruition  because they  had not                                                                    
obtained the agreement. He could  see the enthusiasm for the                                                                    
proposed  project,  but  that was  not  a  requirement;  the                                                                    
legislature  had a  financial  fiduciary responsibility  for                                                                    
the  project.  He asked  for  a  list  of mines  that  could                                                                    
potentially benefit from the proposed gasline.                                                                                  
                                                                                                                                
2:47:15 PM                                                                                                                    
                                                                                                                                
Mr. Fauske stressed  that he had not ever  advocated for the                                                                    
construction  of a  state-operated pipeline;  he had  voiced                                                                    
that the state could be  an equity participant and owner. He                                                                    
stressed  that  the  state  needed to  spend  money  to  let                                                                    
industry know that  the project was real. He  noted that the                                                                    
industry would not spend the initial money.                                                                                     
                                                                                                                                
Co-Chair Stedman felt  that the fact the  industry would not                                                                    
spend the money represented a red flag.                                                                                         
                                                                                                                                
2:48:10 PM                                                                                                                    
                                                                                                                                
Senator Thomas  referred to needs  addressed by  the project                                                                    
on pages 11 and 12 of  the governor's proposed FY 13 capital                                                                    
budget  project   detail  sheets.   He  asked   whether  the                                                                    
expression  of  interest  had been  from  instate  users  or                                                                    
companies planning  to export gas. Mr.  Dubler answered that                                                                    
that  the  expression  of  interest had  been  open  to  all                                                                    
interested parties.                                                                                                             
                                                                                                                                
Senator  Thomas   assumed  that  AGDC  would   know  whether                                                                    
interested companies  would import  or export the  gas. Page                                                                    
12 of the governor's detail  sheet specified that one of the                                                                    
needs the  project would address  was the decline  of fields                                                                    
in Cook Inlet  that "may not meet demand as  early as 2014";                                                                    
he asked if AGDC believed that  was the case. He believed it                                                                    
was  critical   to  know  whether   the  interest   was  for                                                                    
exportation or  for Cook  Inlet. He  stressed that  the need                                                                    
for the  project would be cancelled  if Cook Inlet had  9 to                                                                    
20 trillion cubic feet of  gas. Mr. Fauske answered that the                                                                    
state's  maximum need  was  240 mcf.  He  surmised that  the                                                                    
interest  expressed in  the remaining  260 mcf  was probably                                                                    
not for local use.                                                                                                              
                                                                                                                                
Senator Thomas  believed that it  made sense to  continue if                                                                    
the interest was  for export, but he did not  agree with the                                                                    
need specified on page 12 if the gas was not for export.                                                                        
                                                                                                                                
Mr. Dubler  answered that  the Railbelt  used less  than 250                                                                    
mcf of  gas and that the  remaining 250 mcf would  leave the                                                                    
state.                                                                                                                          
                                                                                                                                
2:50:37 PM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  believed   the  issue   created  another                                                                    
problem; the  idea was  to shift  demand and  build industry                                                                    
off of  the gas. He was  concerned about selling all  of the                                                                    
gas, building a line and not being able to expand it.                                                                           
                                                                                                                                
Mr.  Dubler  responded that  the  500  mcf AGIA  restriction                                                                    
would be  removed if the  licensee abandoned the  license or                                                                    
the state determined it was  not actively pursuing the item.                                                                    
The  proposed 24  inch, 2500  psi  gasline with  compression                                                                    
could  go  up  to  1  bcf  per day  and  would  be  able  to                                                                    
accommodate a significant increase in state activity.                                                                           
                                                                                                                                
2:51:39 PM                                                                                                                    
                                                                                                                                
LES  CAMPBELL, DIRECTOR  OF BUDGET,  ALASKA HOUSING  FINANCE                                                                    
CORPORATION, DEPARTMENT  OF REVENUE,  turned to  the request                                                                    
for a  new item  54796 related  to domestic  violence rental                                                                    
assistance for  $1,328,400 in general funds.  The purpose of                                                                    
the  item was  to provide  rental assistance  to victims  of                                                                    
domestic violence  or sexual assault who  had been displaced                                                                    
or  were in  need of  alternate housing  to prevent  further                                                                    
harm  to  the  household.  Some of  the  outcomes  included,                                                                    
rental assistance  for up to  150 households  statewide that                                                                    
had been displaced from permanent  housing or were otherwise                                                                    
at  risk of  displacement because  of recent  or reoccurring                                                                    
domestic violence instances.                                                                                                    
                                                                                                                                
Mr. Campbell  spoke to statewide project  improvements (item                                                                    
40068) in the  amount of $2 million  in corporate dividends.                                                                    
The  purpose  of  the  project was  to  provide  funding  to                                                                    
address known and unknown conditions  in AHFC housing stock.                                                                    
Outcomes  included, advancements  in  providing funding  for                                                                    
emergency  repairs, roof  replacements, fire  alarm systems,                                                                    
allowing  quick response  to code  changes  and life  safety                                                                    
issues,  providing amenities,  allowing  quick response  for                                                                    
seen  conditions, and  enhancing  operations for  individual                                                                    
project developments.                                                                                                           
                                                                                                                                
Co-Chair Hoffman requested a list  of how the funds had been                                                                    
spent in the past three fiscal years.                                                                                           
                                                                                                                                
2:54:02 PM                                                                                                                    
                                                                                                                                
Mr.  Campbell addressed  a request  for the  Building System                                                                    
Replacement  Program  (item 47069)  in  the  amount of  $1.5                                                                    
million in  corporate dividends.  The program's  purpose was                                                                    
to  address  the  specific   major  repair  and  replacement                                                                    
identified in  a five-year review. The  program would reduce                                                                    
maintenance  costs,   increase  the   useful  life   of  the                                                                    
structures,  and increase  tenant  safety.  The program  was                                                                    
ongoing to replace component parts.                                                                                             
                                                                                                                                
Mr.  Campbell  turned  to  a  request  for  fire  protection                                                                    
systems  (item  47066) in  the  amount  of $2.2  million  in                                                                    
corporate  dividends. The  purpose was  to flush,  evaluate,                                                                    
and make  life safety  code repairs  to public  housing fire                                                                    
protection systems throughout  the state. Projected outcomes                                                                    
included  maintenance cost  reductions, increased  structure                                                                    
life, and  increased tenant safety. The  ongoing project was                                                                    
projected to continue for several future fiscal years.                                                                          
                                                                                                                                
Mr.  Campbell directed  attention to  item 47068  related to                                                                    
security  systems  replacement  upgrades in  the  amount  of                                                                    
$500,000 in corporate dividends.  The purpose was to upgrade                                                                    
existing  security  and  door   access  systems  to  senior,                                                                    
disabled,   and  multi-family   public  housing   complexes.                                                                    
Projected   outcomes   included   increased   security   for                                                                    
residents, reduced theft  and vandalism, reduced maintenance                                                                    
and  custodial  costs,  and increased  useful  life  of  the                                                                    
structures.  He relayed  that Anchorage  and Fairbanks  were                                                                    
close  to  completion. The  funds  would  target the  Juneau                                                                    
area.                                                                                                                           
                                                                                                                                
Mr.  Campbell  pointed to  item  6323  for the  Supplemental                                                                    
Housing Development  Program in the amount  of $2,559,800 in                                                                    
corporate  dividends and  $4,440,200 in  general funds.  The                                                                    
program's  purpose was  to  supplement  the federal  housing                                                                    
funds  provided to  regional housing  authorities to  ensure                                                                    
safe,  decent, and  affordable housing  statewide. Projected                                                                    
outcomes were: construction of affordable  homes in up to 20                                                                    
urban and  rural communities; build  onsite water  and sewer                                                                    
facilities;  provide  energy  efficient design  features  in                                                                    
homes; construct roads to  project sites; provide electrical                                                                    
distribution  systems; retrofit  homes to  provide safe  and                                                                    
healthy  environment; and  provide clients  with new,  safe,                                                                    
and  energy efficient  housing.  The program  was for  stock                                                                    
owned by regional housing authorities.                                                                                          
                                                                                                                                
Mr.  Campbell   discussed  item   6351  related   to  energy                                                                    
efficiency monitoring  research in the amount  of $1 million                                                                    
in corporate dividends. The purpose  was to conduct research                                                                    
analysis, information  dissemination, and  interchange among                                                                    
members  of  the  industry  and  between  the  industry  and                                                                    
public. The project  was ongoing and was  a designated grant                                                                    
to the Cold Climate Housing Research Center in Fairbanks.                                                                       
                                                                                                                                
2:57:36 PM                                                                                                                    
                                                                                                                                
Mr.  Campbell moved  to  item 6334  for  the Senior  Citizen                                                                    
Housing Development  Program in  the amount of  $4.5 million                                                                    
in state  general funds.  The purpose  was to  provide funds                                                                    
for   the  development   of  senior   citizen  housing   and                                                                    
accessibility modifications to  senior's residences. To date                                                                    
the program had  funded 1,209 senior units  and had provided                                                                    
accessibility modifications  to over 150 homes.  The project                                                                    
outcomes for  the current request was  for three development                                                                    
projects (30 units), modifications  for accessibility for 40                                                                    
units, and technical grant  assistance for building capacity                                                                    
and organizations  developing senior housing.  Program funds                                                                    
were  used only  to  fund the  development  gap (the  amount                                                                    
necessary to  make the project  financially feasible  or the                                                                    
difference between all other funding  sources expected to be                                                                    
contributed  including,  loan  funds  and the  cost  of  the                                                                    
development projects).                                                                                                          
                                                                                                                                
Mr. Campbell  highlighted item 6347  related to  the Housing                                                                    
and Urban Development Capital Fund  Program in the amount of                                                                    
$750,000 in corporate dividends to  work as a match for $3.3                                                                    
million in federal  receipts. The purpose was  to expand the                                                                    
supply of affordable low and  moderate income housing and to                                                                    
strengthen  the  state's  ability to  design  and  implement                                                                    
strategies  to   achieve  an   adequate  supply   of  energy                                                                    
efficient and affordable housing.  The program had funded 44                                                                    
rental projects containing 818  units, rehabilitated 373 low                                                                    
income  homes,  and  assisted 315  low  income  families  in                                                                    
purchasing homes.                                                                                                               
                                                                                                                                
2:59:50 PM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  relayed  that  the  capital  budget  item                                                                    
discussion would  continue during  the afternoon  meeting on                                                                    
the following day.                                                                                                              
                                                                                                                                
Co-Chair Hoffman  requested a report  from AHFC  showing the                                                                    
beginning  balance of  the  proposed FY  13  level of  funds                                                                    
available  in AHFC  receipts and  dividends including  funds                                                                    
the agency  planned to expend,  the amount it  would receive                                                                    
under the budget,  and the balance at the end  of the fiscal                                                                    
year.                                                                                                                           
                                                                                                                                
Co-Chair Stedman explained that  because interest rates were                                                                    
so low  there was  concern about  dividend impacts  in areas                                                                    
including  the  permanent  fund  and  the  state  retirement                                                                    
system. He  asked the corporation to  include projected AHFC                                                                    
dividend items for upcoming years.                                                                                              
                                                                                                                                
Co-Chair Stedman discussed the schedule for the following                                                                       
day.                                                                                                                            
                                                                                                                                

Document Name Date/Time Subjects
SB 160 AGDC FY 2013 Budget Request.pdf SFIN 3/13/2012 1:00:00 PM
SB 160
SB 160 AGDC Funding Profile JMD.pdf SFIN 3/13/2012 1:00:00 PM
SB 160
SB 160 DPS King Air Proposal 031212.pdf SFIN 3/13/2012 1:00:00 PM
SB 160
SB 160 Interior Helo -final- 11_28_11.pdf SFIN 3/13/2012 1:00:00 PM
SB 160