Legislature(2003 - 2004)

04/28/2004 09:06 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 313                                                                                                        
     "An Act making supplemental and other appropriations; amending                                                             
     appropriations; making an appropriation to capitalize a fund;                                                              
     and providing for an effective date."                                                                                      
Co-Chair Green chaired this portion of the meeting.                                                                             
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Senator Dyson  moved to adopt CS SB  313, 23-GS2153\I, as  a working                                                            
document.  [Note:  this  committee  substitute  was adopted  at  the                                                            
previous hearing of this bill.]                                                                                                 
There was no objection  and the committee substitute version "I" was                                                            
again ADOPTED.                                                                                                                  
ALEX SWIDERSKI,  Assistant Attorney General, Environmental  Section,                                                            
Civil  Division, Department  of  Law, testified  via teleconference                                                             
from Anchorage that he was available to answer questions.                                                                       
Co-Chair  Green  noted additional  supplemental  requests  had  been                                                            
received  after the  committee  substitute was  produced.  Potential                                                            
conceptual amendments addressing  those requests would be presented,                                                            
and a Committee member could choose to sponsor an amendment.                                                                    
Amendment#1: This amendment  increases the allocation in Section 11.                                                            
JUDGEMENT AND CLAIMS. of  the committee substitute on page 17, lines                                                            
3 - 5 to the Department of Law to $3,862,300.                                                                                   
     This adds $1,300 to the appropriation from the general fund to                                                             
     the Department of Law to pay judgments and claims against the                                                              
     state for the fiscal year ending June 30, 2004.                                                                            
Co-Chair Green moved for adoption.                                                                                              
Without objection the amendment was ADOPTED.                                                                                    
TOM  LAWSON,   Director,   Division  of   Administrative   Services,                                                            
Department  of Community  and Economic Development,  testified  that                                                            
the  Department  is attempting  to  amend an  FY 03  capital  budget                                                            
appropriation   by  adding  $100,000   to  the  appropriation.   The                                                            
additional appropriation  would allow the Department  to purchase an                                                            
imaging  system   for  the  Division  of  Banking,  Securities   and                                                            
Corporations.  The imaging system would work with  the corporations'                                                            
database to  modernize the processing  of corporation applications.                                                             
The Department  expects the imaging system to increase  revenue over                                                            
Co-Chair  Green clarified  that the current  FY 05 appropriation  to                                                            
the  Department  of Community  and  Economic  Development  is  $1.25                                                            
million, and the request  asks for an additional $100,000. She asked                                                            
Mr.  Lawson to  restate the  Department's  need for  the  additional                                                            
Mr.  Lawson  reviewed  his earlier  testimony  and  added  that  the                                                            
imaging  system is  used  in eight  other states,  and  its cost  is                                                            
$600,000.  This additional  appropriation,  in combination with  the                                                            
existing  FY  05  appropriation,  would  enable  the  Department  to                                                            
purchase the imaging system.                                                                                                    
Co-Chair Green  specified that the appropriation would  be allocated                                                            
from receipt supported services funds.                                                                                          
Senator  B. Stevens  asked  if a  balance  existed in  the  receipt-                                                            
supported services  fund of the Division of Banking,  Securities and                                                            
Corporations, or if the receipts would be accrued in the future.                                                                
Mr. Lawson  replied that the Division's  revenues are approximately                                                             
$14 million  annually, and  the Division's  costs are approximately                                                             
two million dollars  annually. Sufficient funds exist  each year for                                                            
Senator  B. Stevens  clarified funds  were currently  available  for                                                            
Co-Chair Green  asked if any member chose to sponsor  this amendment                                                            
to address the Department's request.                                                                                            
Amendment #2:  This amendment would  amend Section 3. DEPARTMENT  OF                                                            
COMMUNITY  AND ECONOMIC DEVELOPMENT.,  on page  2, lines 13  - 23 of                                                            
the committee  substitute by adding a new subsection  to provide for                                                            
an increase  of the appropriation  in Section 1, ch. 1, SSSLA  2002,                                                            
page 3, lines  25-27, for the Electronic  Document Imaging,  Storage                                                            
and  Retrieval   System  (ED99)  from   $1,125,000  to  $1,225,000.                                                             
Accompanying explanatory language reads as follows.                                                                             
     This adds $100,000 of receipt supported services from the                                                                  
     Division of Banking and Securities to the project.                                                                         
Co-Chair Wilken moved for adoption.                                                                                             
Without objection the amendment was ADOPTED.                                                                                    
Amendment  #3: This amendment  increases the  appropriation  made in                                                            
Section 10(n)  of the committee substitute on page  12, lines 1 - 4,                                                            
to  the  Department  of  Health  and  Social  Services,  Senior  and                                                            
Disabilities  Services  Budget Request  Unit (BRU)  to $237,290,200                                                             
other  funds,  and subsequently  increases  the  allocation  to  the                                                            
Senior/Disabilities  Medicaid  Services component  to $217,556,500.                                                             
This amendment  also  inserts intent  language following  line  4 to                                                            
read as follows.                                                                                                                
     It  is the intent  of the  legislature that  the Department  of                                                            
     Health  and Social Services  address  escalating growth  in the                                                            
     Personal  Care  Attendant  program.  Changes  to  reduce  costs                                                            
     should  consider eligibility,  reduction in rates and  hours of                                                            
     service.  It is  also the intent  of the  legislature that  the                                                            
     department implements  a process for recovery of costs where an                                                            
     audit  or quality  assurance  review  determines  abuse of  the                                                            
     personal care attendant program                                                                                            
     This amendment  also increases the appropriation  to the Senior                                                            
     and Disabilities  Medicaid Services  component made  in Section                                                            
     10(w) from  $6,930,400 to $11,760,800. The amended  language on                                                            
     page 16, lines 5 - 10 reads as follows.                                                                                    
          (w) The sum of $11,760,800 is appropriated to the                                                                     
     Department   of  Health   and  Social   Services,  senior   and                                                            
     disabilities  Medicaid  services,  for the  fiscal year  ending                                                            
     June 30, 2004, from the following sources:                                                                                 
          General fund/mental health                      $11,202,400                                                           
          Alcohol and other drug abuse treatment              558,400                                                           
                And prevention fund (AS 43.60.050)                                                                              
Accompanying explanatory language reads as follows.                                                                             
     The Department of  Health and Social Services has updated their                                                            
     Medicaid  projections based on  activity through March,  and is                                                            
     projecting  an additional  deficit of  $14,700 million  for the                                                            
     Senior  and Disabilities  Medicaid program.  Letter from  Janet                                                            
     Clarke is attached [copy on file.]                                                                                         
JANET  CLARKE,  Director,   Division  of  Administrative   Services,                                                            
Department  of  Health  and  Social  Services,  apologized  for  the                                                            
"lateness"  of this request.  While conducting  quarterly  financial                                                            
reviews and considering  the federal Medicaid Disabilities Services'                                                            
Personal  Care Attendant  (PCA) program,  the Department  discovered                                                            
that the  cost for  this program  has accelerated  and increased  to                                                            
approximately   six  million  dollars  monthly.  She   referenced  a                                                            
memorandum  dated April 28,  2004 from Ms.  Clarke to the Office  of                                                            
Management and Budget [copy  on file], which explains that the costs                                                            
of the  Personal Care Attendant  program in  FY 03 was $39  million.                                                            
The estimated  cost for this  program in FY  04 is $65 million.  The                                                            
Department   has  proposed   regulations  that   would  allow   cost                                                            
containment  efforts  to be  taken. The  regulations  are now  being                                                            
processed,  and are in the final adoption  stages in the  Department                                                            
of Law.  The regulations  would put  a "soft cap"  on the number  of                                                            
hours  that  could be  authorized  without  preauthorization  of  35                                                            
hours. The  regulations would also  allow the Department  to conduct                                                            
independent assessments  of the PCA program. This "startling growth"                                                            
would  require  drastic  cost  containment  measures  to  "get  this                                                            
program  under  control."  To  address  the  remaining  FY  04,  the                                                            
Department  requesting  that the  Committee amend  the supplemental                                                             
request by $14.7  million, including $4.8 million  of general funds,                                                            
and  $9.9 million  of  federal  authority  funds.  The Department's                                                             
supplemental  request had previously  been $31 million total  funds;                                                            
with  the adoption  of  this  amendment the  overall  request  would                                                            
increase  to $45.8 million  total funds.  The Department's  original                                                            
request  involved  a  reallocation   of  general  funds  within  the                                                            
Department. The Department  could not reallocate the funds needed to                                                            
fulfill  the costs of  the PCA  program. Ms.  Clarke emphasized  the                                                            
Department's  commitment to  more closely  monitor and control  this                                                            
Co-Chair  Green asked what  affect this  supplemental appropriation                                                             
would have on the FY 05  operating budget appropriation, which would                                                            
soon  be  heard  by  a  conference  committee.   She  asked  if  the                                                            
Department has  the ability to address these program  cost increases                                                            
for FY 05.                                                                                                                      
Ms. Clarke  asserted that  the Department would  have to "move  very                                                            
rapidly" to adjust  the regulations Medicaid is governed  by because                                                            
the regulatory  process is lengthy.  The Department had planned  for                                                            
additional regulation changes  in FY 05 to increase control over the                                                            
PCA program. Currently  the Department is auditing  the providers in                                                            
this program.  The audit would assist the Department  in determining                                                            
where program changes need  to be made because "clearly something is                                                            
wrong with  this program." The Department  has determined  that some                                                            
parties are receiving  unexpected and significant  funds through the                                                            
PCA program. Additional  staff, and contracts may  have to be funded                                                            
to ensure greater  control over this program, but  the Department is                                                            
not asking to amend the FY 05 budget.                                                                                           
Co-Chair Green  asked if this program  was included in the  Medicaid                                                            
fraud legislation of the previous year.                                                                                         
Ms. Clarke  replied that this program  had never been audited  prior                                                            
to this review.                                                                                                                 
Co-Chair Green  inquired if legislation  was needed to increase  the                                                            
Department's control over this program.                                                                                         
Ms.  Clarke  responded  that  she had  just  recently  explored  the                                                            
financial aspects  of this program, and has not had  the opportunity                                                            
to  determine  if legislation  is  needed.  The Department  has  the                                                            
controls  in   place  to  better   manage  this  program;   however,                                                            
regulations  must  be changed  and  the regulatory  process  is  not                                                            
Co-Chair Green moved for adoption of the amendment.                                                                             
Senator B. Stevens commented  on the growth rate of this program. He                                                            
referenced  the memorandum to the  Office of Management and  Budget,                                                            
and noted  that the  cost of  the PCA  program had  grown from  $8.3                                                            
million in FY  01 to a projected $65 million in FY  04. He asked how                                                            
many program  recipients were receiving  funds, and the growth  rate                                                            
of those funds.                                                                                                                 
Ms. Clarke  directed Senator  B. Stevens to  the second page  of the                                                            
memorandum  where   the  number  of  recipients  is  detailed.   She                                                            
continued   that  in  October   2002  the   previous  gubernatorial                                                             
administration adopted  regulations that expanded the hourly rate of                                                            
personal care  attendants from $14 to $21 per hour.  The regulations                                                            
also  allowed  consumer  directed  attendants  to  be  hired.  Other                                                            
program  changes  were made  that had  "unintended  consequences  of                                                            
growth."  For example,  typically  to meet Medicaid  eligibility  an                                                            
individual  must have medical  necessity and  meet an institutional                                                             
level  of  care,  yet   certain  individuals  taking   advantage  of                                                            
activities  of daily living  and chore services  offered by  the PCA                                                            
program may  not meet be  eligible. Audits  are being conducted  and                                                            
reviews would  be conducted that ensure the program  is available to                                                            
those  individuals who  need  it. The Department  has  not made  the                                                            
changes needed to control this program.                                                                                         
Ms. Clarke  referred  to the data  in the memorandum  and  commented                                                            
that the costs of the PCA  program have grown exponentially, but the                                                            
number of program recipients has not.                                                                                           
Senator B.  Stevens responded that  the data in the memorandum  does                                                            
not include data  from FY 01 and earlier, but data  from those years                                                            
is  probably  similar  to  the rates  of  change  exhibited  in  the                                                            
Ms. Clarke  informed that  earlier data shows  that recipients  were                                                            
increasing,  but  not  to the  extent  of  the  expenditures.  These                                                            
disproportional  rates of change are  a result of people  using more                                                            
services while hourly employee rates increase.                                                                                  
Senator B. Stevens  stated that his concerns regarding  this program                                                            
"mirror" those  of Ms. Clarke and  the Department. Specifically,  he                                                            
expressed unease about  the "astronomical" rate of change between FY                                                            
02 and FY 03.                                                                                                                   
Co-Chair  Wilken  noted that  three  months  prior, Ms.  Clarke  had                                                            
presented  the Committee  with  a chart  containing  the PCA  growth                                                            
rates as well as the growth  rates of other Department programs. All                                                            
of the programs  were growing at exponential  rates from  80 percent                                                            
to 180  percent  per year.  He expressed  his suspicion  that  "this                                                            
[program growth]  really wasn't a  surprise". He predicted  that the                                                            
other programs  experiencing  extreme growth  would also be  brought                                                            
before the legislature for appropriations.                                                                                      
Ms. Clarke  stated that the Department  has identified the  areas of                                                            
extreme  growth. These programs  include the  PCA program,  pharmacy                                                            
costs  and  residential  psychiatric  treatment  center  costs.  The                                                            
Department has developed  strategies for each of those high-cost and                                                            
high-growth  programs. Adequate cost  containment requires  time and                                                            
Co-Chair Green  recalled past legislation  in the Senate  Health and                                                            
Social  Services Committee  and on  the Senate floor  that had  been                                                            
"hotly debated" and addressed  issues similar to this amendment. The                                                            
legislature  typically gets distracted  and rejects needed  reforms.                                                            
Legislatures  become "fragmented"  and decide that they do  not want                                                            
to "disadvantage"  others. The consequence of a lack  of reform is a                                                            
situation  like that before  the Committee  now, which requires  the                                                            
legislature  to  "come  to  the  rescue"  in  the  "eleventh  hour".                                                            
Legislatures  need  to make  difficult  decisions,  and to  identify                                                            
their  intention to  make programs  available  for deserving  people                                                            
while hindering abuse of these programs.                                                                                        
Senator Hoffman  pointed out that the appropriation  included in the                                                            
amendment reflected  a ten percent increase in the  amount requested                                                            
from the  general fund  in comparison  to the  total allocation.  He                                                            
asked Ms. Clarke for the  reason for this increase. Additionally, he                                                            
asked  why such  a significant  increase  is  being  brought to  the                                                            
attention  of the legislature  near the end  of the fiscal  year. He                                                            
stated that  such a late request suggests  possible problems  within                                                            
the program and the Department.                                                                                                 
Ms.  Clarke   responded  that  the   first  supplemental   amendment                                                            
appropriation  reflected reallocations within the  Department, which                                                            
explains   the  difference   in   the   ratio  between   the   first                                                            
appropriation and that proposed in this amendment.                                                                              
Ms. Clarke addressed Senator  Hoffman's second question and informed                                                            
that the Department currently  has access to nine months of data for                                                            
FY 04.  The  Department noticed  PCA  program expense  increases  in                                                            
February  and March  2004 data,  but the  regression  model used  to                                                            
determine projections  suppressed  the supplemental projection.  Ms.                                                            
Clarke  suggested that  a different  projection  methodology  should                                                            
have been used for this program given its significant growth.                                                                   
Co-Chair  Green added that  the legislature  had the opportunity  to                                                            
take action  to hinder  the cost  increases, but  chose not  to. She                                                            
emphasized  that  the  legislature  has  the ability  to  assist  in                                                            
"stemming the tide" in  future years, but it would require difficult                                                            
The amendment was ADOPTED without objection.                                                                                    
Senator B. Stevens  stated that he did not object  to the amendment.                                                            
He  emphasized  that  the  program   increases  are  the  result  of                                                            
regulations   adopted  in   2002  and  not   legislation,   yet  the                                                            
legislature is responsible for funding these increases.                                                                         
Senator Dyson responded  that during the interim legislatures should                                                            
consider  the  functions  of  the  various  State  departments,  and                                                            
determine  the  type  of  reporting   mechanisms  that  need  to  be                                                            
implemented to  avoid financial "surprises". Retirement  should be a                                                            
specific area  of focus. Mechanisms need to be put  in place so that                                                            
regular reports are produced.                                                                                                   
Co-Chair Green did not disagree.                                                                                                
Co-Chair  Green   noted  language   included  in  the  supplemental                                                             
appropriation  that allows for more timely payment  of certain funds                                                            
the Department  of  Health and  Social Services  has requested.  The                                                            
supplemental must  be expedited in order to allow  the Department to                                                            
make payments to certain vendors.                                                                                               
Ms. Clarke  referred to a  letter from the  Department to the  House                                                            
and  Senate  Finance  Committees   dated  April  20,  in  which  the                                                            
Department   explained  that  it   would  be  out  of  "expenditure                                                             
authority"  in the PAC Medicaid  program. At  the end of April,  the                                                            
Department  would not  have the ability  to pay  any vendors  in the                                                            
senior  and disability  services  area,  which  encompasses  nursing                                                            
homes, waiver  clients, assisted living  clients, and Personal  Care                                                            
Attendant program  clients. The Department urges the  passage of the                                                            
supplemental appropriation legislation.                                                                                         
Co-Chair Green clarified  that this issue reflects a potential delay                                                            
in payment, and not a failure to pay.                                                                                           
Senator  Dyson asked  for a review  of the  differences between  the                                                            
fast track supplemental and the regular track supplemental.                                                                     
Co-Chair Green  replied that it is  not uncommon for the  fast track                                                            
and regular track  supplemental budgets to pass at  the same time as                                                            
the  capital   budget.   The  supplemental   allows   funds  to   be                                                            
appropriated  for  FY 04  expenditures  after  the FY  04  operating                                                            
budget  has  been  passed.  Supplemental   requests  have  not  been                                                            
received  quickly   this  year  as  evidenced  by   the  receipt  of                                                            
additional supplemental amendments this morning.                                                                                
Senator  Dyson understood  that the fast  track supplemental  should                                                            
have been completed  earlier in the  session. He clarified  that the                                                            
fast track supplemental  and the regular track supplemental  are now                                                            
being considered together.                                                                                                      
Co-Chair Green noted that  the Exxon Valdez Oil Spill (EVOS) Trustee                                                            
Council request was not included in this bill.                                                                                  
ERNESTA   BALLARD,   Commissioner,   Department   of  Environmental                                                             
Conservation,  explained that she was testifying in  her capacity as                                                            
one  of  the  State  trustees  on  the  EVOS  Trustee  Council.  She                                                            
continued to testify as follows.                                                                                                
     I am here  to request your consideration of restoring  the $1.5                                                            
     million that was requested  by the Council for appropriation to                                                            
     the  Department  of  Law. This  funding  will  be used  by  the                                                            
     Department  to directly  support  information  needs for  final                                                            
     resolution  of the civil settlement  between Exxon and  the two                                                            
     governments:  the  United States  government and  the State  of                                                            
     Alaska. This work  may include preparation for litigation and I                                                            
     would  be  happy to  arrange  with  the  Department  of Law  to                                                            
     provide  to you,  in executive  session, a  briefing about  the                                                            
     details  of that preparation  if you would like that  to occur.                                                            
     The studies  that have been conducted over the  years since the                                                            
     oil  spill by  Trustees'  scientists  have suggested  that  the                                                            
     coastal and  marine ecosystems in the oil spill  region may not                                                            
     have fully recovered,  and that some populations of species may                                                            
     remain  impaired,  and  the continued  exposure  to  the  Exxon                                                            
     Valdez oil might at  least be partially responsible. As you may                                                            
     know,  these  findings are  not  without scientific  or  public                                                            
     controversy.   Most   recently,   for   example,  Exxon-funded                                                             
     scientists  published  data suggesting  that  in their  opinion                                                            
     their oil, the Exxon  Valdez oil, was neither bio-available nor                                                            
     toxic. Exxon scientists  challenged the methods that were used,                                                            
     and  the conclusions  reached  by  NOAA (National  Oceanic  and                                                            
     Atmospheric Administration)  researchers in their lingering oil                                                            
     studies.  A full and complete understanding of  these issues is                                                            
     necessary  for the  State to  determine what  course of  action                                                            
     best  to  pursue to  complete  the requirements   of the  civil                                                            
     This work is time-sensitive  and should be completed as soon as                                                            
     possible,  and that is the reason  that we requested  it in the                                                            
     supplemental  budget. The supplemental  request moves  funds at                                                            
     the direction  of the Exxon Valdez  Oil Spill Trustee  Council,                                                            
     moves  funds that  would be spent  otherwise  in 2005 and  2006                                                            
     into the current budget  to take advantage of the current field                                                            
     season  so  that  work  can  be  completed   before  the  civil                                                            
     settlement  deadlines,  the deadline  of September  6th in  the                                                            
     civil settlement documents  for deciding whether a re-opener of                                                            
     the  terms of  the agreement  is warranted.  The  work will  be                                                            
     executed  under  the  direction of  the  Department  of Law  in                                                            
     cooperation  with attorneys  for the  federal Trustees  and the                                                            
     United  States' Justice  Department. The  work is essential  to                                                            
     develop  the information  needs  of the  Department  of Law  to                                                            
     support the civil settlement. I urge your reconsideration.                                                                 
Co-Chair Wilken  referred to a request  that was raised in  February                                                            
for $1.5 million for "studies  and analysis related to oil remaining                                                            
in the environment from  the Exxon Valdez oil spill." He emphasized,                                                            
as he had  in February,  "Enough is enough."  Another study  used to                                                            
discuss the damage  of the oil spill on the Prince  William Sound is                                                            
not necessary.  He stated, " I used that Sound in  the summer, and I                                                            
don't think it is damaged."                                                                                                     
Co-Chair  Wilken furthered  that the State  continues to  contribute                                                            
funds to take land off  of the market and to provide a jobs program.                                                            
In February  he asked what the $1.5  million would be used  to fund.                                                            
He referenced  a letter  dated April  8, 2004,  which contained  the                                                            
response to his  question. The letter detailed that  the funds would                                                            
be spent on five  new projects and one existing project;  however no                                                            
reference  was made  to the  Department  of Law.  He questioned  the                                                            
involvement  of the Department of  Law and the reference  to a civil                                                            
settlement. He further  asked exactly what this $1.5 million request                                                            
would fund besides another study.                                                                                               
Ms. Ballard responded by testifying the following.                                                                              
     The money is going  to be used, not to generate new information                                                            
     about damages  or injuries, which may have occurred.  The money                                                            
     is going  to be used to determine the strength  of the evidence                                                            
     and  the nature of arguments  that might  be made on behalf  of                                                            
     either resolving completely  the settlement as it is written in                                                            
     the settlement documents,  or proceeding forward to assert that                                                            
     there are additional claims, which might be made.                                                                          
     The money  will be used at the  direction of the Department  of                                                            
     Law because  the Department of  Law necessarily represents  the                                                            
     State  of Alaska. The  provisions of  the settlement  agreement                                                            
     distinguish   between  the  responsibilities   of  the  Trustee                                                            
     Council,  which have  been conducted over  the years since  the                                                            
     spill  to fulfill the restoration  requirements, distinguishes                                                             
     between those responsibilities  and the responsibilities of the                                                            
     separate  governments,  the United  States  government and  the                                                            
     State  of Alaska,  to determine  whether or  not, by  September                                                            
     2006,  a case  might be  made that  there is  remaining oil  or                                                            
     remaining  injury   from  oil.  There  are  provisions  in  the                                                            
     settlement  agreement that  would need  to be addressed  by the                                                            
     governments,   not  by   the  Trustee   Council,  but   by  the                                                            
     governments.  The  Trustee  Council,  all  six members  of  the                                                            
     Trustee   Council,  have   agreed  this   winter  that   it  is                                                            
     appropriate  that  the  attorneys  direct  a synthesis  and  an                                                            
     assessment  of the information that has been  gathered over the                                                            
     many  years of  the studies which  you are  describing,  not to                                                            
     conduct new studies.                                                                                                       
Ms.  Ballard continued  that  she  had not  had the  opportunity  to                                                            
review the letter referenced by Co-Chair Wilken.                                                                                
Co-Chair  Green suggested  that this discussion  be set-aside  until                                                            
the Committee met in executive  session because inconsistencies must                                                            
be addressed before the appropriation is considered further.                                                                    
Senator  Hoffman  asked  if the  EVOS  Trustee  Council unanimously                                                             
approved this request.                                                                                                          
Senator  Bunde commented  on  his past  interaction  with the  areas                                                            
affected by the Exxon Valdez  oil spill. He informed that an area of                                                            
Prince William  Sound has been intentionally untreated  for purposes                                                            
of a comparison  study, and many individuals  who seek to  "drag out                                                            
this issue" of the damage  created by the oil spill wrongly use that                                                            
untreated area as an example of continued damages.                                                                              
Co-Chair Green  stated that the EVOS  issue would be discussed  at a                                                            
later time. She informed  that the Department of Revenue's requested                                                            
gas pipeline risk  assessment appropriation is not  included in this                                                            
Senator  B. Stevens  stated that  funds  for the  gas pipeline  risk                                                            
assessment  that would be expended  in FY 05 should be incorporated                                                             
into the  2005 operating  budget rather than  included in the  FY 04                                                            
supplemental request.                                                                                                           
Co-Chair   Green  clarified   that  the   Department  of   Revenue's                                                            
appropriation  would  consist   of $1.5  million   from statutorily                                                             
designated   program   receipts  and   $9.8  million   from   either                                                            
unrestricted federal receipts or the general fund.                                                                              
Senator  B. Stevens  stated that  if further  expenses  for the  gas                                                            
pipeline  analysis would  be required  in fiscal  years 2006,  2007,                                                            
2008  and 2009  than  the appropriations   should become  an  annual                                                            
operating  expense  factored  into  the operating  budget  in  those                                                            
years. He asked  if the requested appropriation would  be a one-time                                                            
SFC 04 # 99, Side A 10:46 AM                                                                                                    
STEVE PORTER, Deputy Commissioner,  Department of Revenue, testified                                                            
that the Department  expects to expend two-thirds,  or approximately                                                            
six million  dollars, of  the requested appropriation  in 2004,  and                                                            
the additional  one-third in 2005.  The State departments  could not                                                            
conduct negotiations  until the Stranded  Gas Act applications  were                                                            
received.  The  amount  of  the  appropriation  would  enable  those                                                            
negotiations to become  a project. After the project is established,                                                            
the permitting process  has begun, and ongoing operations begin, the                                                            
State departments should  be able to include these expenses in their                                                            
operating budgets.                                                                                                              
CHERYL FRASCA, Director,  Office of Management and Budget, Office of                                                            
the  Governor,  clarified  that  this request  was  submitted  as  a                                                            
capital appropriation  effective in FY 04 to address  the multi-year                                                            
expenditures this  legislation would approve. Capital  projects have                                                            
longer lives than operating  expenses; thus this appropriation would                                                            
not lapse in FY 04. The  gas pipeline analysis is a project, and not                                                            
an ongoing operating expense.                                                                                                   
Co-Chair  Green asked if  this appropriation  could be shifted  into                                                            
the capital budget.                                                                                                             
Ms. Frasca replied  that this bill identifies this  appropriation as                                                            
a capital budget appropriation.                                                                                                 
Co-Chair  Green asked  if  this appropriation  could  have  multiple                                                            
effective dates as a capital appropriation.                                                                                     
Ms.  Frasca  responded  that  multiple   effective  dates  could  be                                                            
established,  but  they  are  already allowed  for  in  the  capital                                                            
Co-Chair Green mentioned  that some Committee members have expressed                                                            
concern  about the  ANGDA bill  and the  accuracy  of the  projected                                                            
costs of the analysis.                                                                                                          
Senator B. Stevens  referenced the spreadsheet titled  "FY 2004/2005                                                            
Gasline  Funding Request"  dated April  8, 2004  [copy on file].  He                                                            
asked if the  one million dollars  appropriated to the Stranded  Gas                                                            
Act working  group to  "negotiate contracts  with other applicants"                                                             
would  be used  in negotiations  with  any  of the  three  contracts                                                            
currently submitted.                                                                                                            
Mr. Porter  replied that  he had ten minutes  of testimony  prepared                                                            
that would respond to that  question and detail the remainder of the                                                            
Co-Chair  Green informed that  the Committee  needed to recess.  She                                                            
expressed the  importance and necessity  of having the gas  pipeline                                                            
analysis appropriation fully explained.                                                                                         
Senator Hoffman  asked Mr. Porter  when the Department expected  the                                                            
legislature to approve a gas pipeline contract.                                                                                 
Mr. Porter responded  that the State would spend five  to six months                                                            
gathering and  reviewing data related to the contracts;  an executed                                                            
contract is not expected before the fourth quarter of 2004.                                                                     
AT EASE 10:53 AM / 1:48 PM                                                                                                      
Co-Chair Wilken moved to  convene an executive session under Uniform                                                            
Rule 22(b)(1) for discussion  of matters, the immediate knowledge of                                                            
which would adversely affect the finances of a government unit.                                                                 
Without objection the motion PASSED.                                                                                            
Co-Chair Wilken then announced  that the following individuals would                                                            
be  allowed  to  attend  the executive   session:  Ernesta  Ballard,                                                            
Commissioner,   Department  of  Environmental   Conservation;   Greg                                                            
Renkes,  Attorney  General,  Department  of Law;  Kurt Fredriksson,                                                             
Deputy  Commissioner,  Department  of  Environmental  Conservation;                                                             
Kathryn Daughhetee,  Director, Division of Administrative  Services,                                                            
Department  of Law;  and Kevin  Duffy, Commissioner,  Department  of                                                            
Fish and Game.                                                                                                                  
EXECUTIVE SESSION 1:50 PM / 2:15 PM                                                                                             
Co-Chair Wilken  moved to adjourn  the Executive Session  and resume                                                            
the regular meeting of the Senate Finance Committee.                                                                            
There were  no objections and the  Executive Session was  ADJOURNED.                                                            
Co-Chair Green asked Mr. Porter to begin his presentation on the                                                                
risk analysis of the gas line project.                                                                                          
Mr. Porter  stated that bringing  the gas line  to market is  a high                                                            
priority  of Governor Frank  Murkowski. The  Governor would  request                                                            
that  all of  the  necessary  resources  be made  available  to  the                                                            
Stranded  Gas Act  working group  in order  that  they can  complete                                                            
their task.                                                                                                                     
Mr. Porter outlined his presentation and proceeded to testify as                                                                
     On March  26, 2003 the  House passed  HB 16, which amended  the                                                            
     Alaska  Stranded  Gas  Development  Act: 40  yeas  and 0  nays,                                                            
     followed  by the Senate  on April 4th  with 19 yeas and  0 nays                                                            
     and one excused. On  April 7th the Governor promptly signed the                                                            
     bill into  law and it became  effective April 8th. During  that                                                            
     same  time Governor  Murkowski  was  already dealing  with  and                                                            
     discussing  a Stranded  Gas [Act] application  with the  senior                                                            
     management  officials from Conoco Philips, BP  and Exxon, where                                                            
     they discussed  the filing application of the  Stranded Gas Act                                                            
     and the plan  to conclude negotiations by the  end of the year.                                                            
     Obviously  that  didn't occur,  but that  was the  hope at  the                                                            
     time.  By April  11th, just  a few  days later,  the State  had                                                            
     established its Stranded  Gas [Act] working group, and they had                                                            
     actually  produced their first product in the  initial overview                                                            
     of  the issues to  be addressed  under the  Act. At that  point                                                            
     there  was a  long period  of silence  in the  public, but  the                                                            
     Stranded   Gas  [Act]  working   group  was  working   hard  at                                                            
     identifying  the  issues and  preparing for  negotiations,  and                                                            
     from  time   to  time  having  discussions  and  clarification                                                             
     discussions  with the majors.  Finally, on January 13,  2004 of                                                            
     this year Conoco Philips  and BP submitted an application under                                                            
     the  Stranded Gas Act.  The application  was admitted  one week                                                            
     later,  [on] January 20th, to  include Exxon. A couple  of days                                                            
     after  that,  [on] January  22nd,  MidAmerican  Energy  Holding                                                            
     Company   and   MidAmerican    Holding   Company   Alaska   Gas                                                            
     Transmission  Company submitted  an application under  the Act.                                                            
     The next  day the State determined that Conoco  Philips, BP and                                                            
     Exxon  were  qualified  sponsors,  and  submitted  a  qualified                                                            
     project under the  Act and approved their application, allowing                                                            
     the contract  negotiations to  commence. So things were  moving                                                            
     quickly,  [and there was] a lot  of activity. On January  28th,                                                            
     just one week later,  the State determined that the MidAmerican                                                            
     application,  that they were, qualified sponsors,  and they had                                                            
     submitted  a qualified project. The next day  the Department of                                                            
     Revenue  established the municipal  advisory committee  that is                                                            
     required  under the Stranded  Gas Act  to provide input  to the                                                            
     contractual  negotiations.  The advisory  group  is made  up of                                                            
     potentially  economically and revenue impacted  municipalities.                                                            
     On February  4th, just  a few days later,  Conoco Philips,  BP,                                                            
     and  Exxon did enter  into a reimbursement  agreement  with the                                                            
     State  for $1.5 million. The  State has continued to  negotiate                                                            
     with   the  reimbursement  agreement   with  MidAmerican,   and                                                            
     ultimately  MidAmerican never signed a reimbursement  agreement                                                            
     prior to  withdrawing their application. On February  27th, the                                                            
     Alaska  Gas Line Port Authority  submitted an application,  and                                                            
     then  on March 25th,  MidAmerican withdrew  their application.                                                             
     Then  on the  first of  the beginning  of this  month  Governor                                                            
     Murkowski  announced  that  Enbridge,  a  Calgary-based  energy                                                            
     transportation   company,  intended  to  file  a  Stranded  Gas                                                            
     application.  [This  was]  followed on  April  8th by  Governor                                                            
     Murkowski  signing into  law SB 241,  which appropriated  $1.65                                                            
     million to the Department  of Revenue for costs associated with                                                            
     bringing  Alaska North  Slope gas to  market. We do  appreciate                                                            
     the Senate and House's allocation of that money.                                                                           
     We immediately  executed a couple  of contracts and  moved some                                                            
     of our projects  forward. On April 19th the Governor  announced                                                            
     the  signing  of an  MOU  (memorandum  of  understanding)  with                                                            
     Trans-Canada, which  provided that Trans-Canada would submit an                                                            
     application  under the  Stranded Gas Act,  and the state  would                                                            
     resume processing Trans-Canada's right-of-way application.                                                                 
     So what  this kind of presents  to you [is] what I am  going to                                                            
     call a  very dynamic environment.  We have had companies  come;                                                            
     we  have  had  companies  go.  We've  had  a  number  of  other                                                            
     companies  come  in; we've  had  additional  companies  express                                                            
     interest.  The current  status, at that  point, is we  have one                                                            
     approved  application  and  a  signed reimbursement   agreement                                                            
     Conoco  Philips,  BP  and  Exxon.  We  have  one  approved  and                                                            
     withdrawn  application with MidAmerican. We have  one submitted                                                            
     application  not yet approved  with no reimbursement  agreement                                                            
     from the  Alaska Gas Pipeline Authority, and  we are waiting on                                                            
     two  additional applications  from Trans-Canada  and  Enbridge.                                                            
     That is the  context in which we find ourselves  doing research                                                            
     on  behalf of stranded  gas,  and bringing  North Slope  gas to                                                            
     In addition to that  we have the Alaska Natural Gas Development                                                            
     Authority,  created  by the  people of  the  State through  the                                                            
     passage of proposition  three. Through intent language $650,000                                                            
     of  that  $1.5  million  is  allocated  to  them  for  research                                                            
     supporting their project.                                                                                                  
     With  that  context  in  mind  I  would  like  to  discuss  our                                                            
     additional funding  requests, but first I would like to address                                                            
     the  $1.65  million,  which I  think  was  a request  from  the                                                            
     Committee.  The State  recognizes that  there are many  ways to                                                            
     share  risks through  financial  structures  and otherwise.  We                                                            
     also recognize  that we need additional expertise  to work with                                                            
     us to identify the  various options available to us. We plan to                                                            
     hire,  for a limited  amount of money,  a number of experts  to                                                            
     assist us in really  expanding the options we have available to                                                            
     us  at the  present time.  And we  have allocated  $100,000  to                                                            
     $150,00   in  that  effort.  The  intent  here   is  to  really                                                            
     understand  the financial ways in which we can  share, identify                                                            
     how  to spread risk,  and also substantive  ways the State  can                                                            
     examine.  So write now we are  looking at expanding,  you might                                                            
     say, our  options that are available to us on  the table and we                                                            
     plan  on hiring a number  of experts  in the community  whether                                                            
     its  Syrah, or  Morgan Stanley,  Merrill  Lynch, Golden  Sacks.                                                            
     There  are a number  of companies we  will basically go  to and                                                            
     ask  them for ideas  for ways to expand  the options the  State                                                            
     may  have  available  to it.  We recognize  the  importance  of                                                            
     understanding  what others are  predicting for gas prices:  oil                                                            
     and gas price forecast.  And there are only a few companies who                                                            
     make  price  projections,  but we  know  that is  an  important                                                            
     element  as we look at the overall  project. We have  basically                                                            
     allocated up to $100,000 for research on price forecasting.                                                                
     Several parties  have suggested the possibility  of down stream                                                            
     markets taking  a significant risk position on  the project. We                                                            
     need  to understand  the possibility  of the regulated  markets                                                            
     and  the  unregulated  markets   for taking   significant  risk                                                            
     positions  on the project.  We have  estimated that that  would                                                            
     cost up to $300,000  just to do that evaluation and process. We                                                            
     have allocated $650,000,  as I have said before, for the Alaska                                                            
     Natural  Gas Development Authority  for research in  supporting                                                            
     their project.                                                                                                             
     Now  the possibility  of a tax-exempt  structure, like  the one                                                            
     ANGDA  provides,   could  bring  substantial   benefit  to  the                                                            
     project, and they  should not be overlooked. I think that there                                                            
     has  been a lot  of discussion  in the public  arena about  the                                                            
     Alaska   Natural  Gas  Development   Authority  and   the  Port                                                            
     Authority:  whether  they are  viable,  whether we  need to  be                                                            
     spending  effort on them  or not. And  the key is a lot  of the                                                            
     statements made in  the public are people's assumptions of what                                                            
     is  true,  and the  State's  responsibility  is to  verify  the                                                            
     information  and verify the accuracy of the feasibility  issues                                                            
     that ANGDA has presented.  If they are assumptions that benefit                                                            
     the  State, we have  to find  a way to capitalize  on them.  If                                                            
     they don't  benefit that State,  than that information  we have                                                            
     provided  to ANGDA, at that point an oil and  gas line would no                                                            
     longer  be feasible. Those are  decisions that need  to be made                                                            
     based  on substance,  not  on political  arguments  out of  the                                                            
     daily news  or any other organization that is  posturing for or                                                            
     against them. And that is the State's intent.                                                                              
     We  spent  a   substantial  amount  of  money  on  contractors                                                             
     supporting  the MidAmerican  negotiation  so we have  allocated                                                            
     basically  a couple  hundred thousand  dollars to the  division                                                            
     for that  effort as well. We  budgeted $250,000 for  the socio-                                                            
     economic  analysis being conducted to determine  impacts to the                                                            
     municipalities. This  contract may increase to include the spur                                                            
     lines to  Cook Inlet and Valdez. The total contract  could cost                                                            
     up to $300,000.                                                                                                            
     The Stranded  Gas [Act] working  group is also consulting  with                                                            
     the  Alberta government,  and we  are looking  for ways  we can                                                            
     assist  each other  in supporting  the development  of the  gas                                                            
     pipeline.  [For]  that  negotiations  and discussion,  we  have                                                            
     budgeted approximately $50,000 for that effort.                                                                            
Senator Bunde  understood that the Department has  proposed to spend                                                            
an excess  of $100,000  in processing the  MidAmerican Stranded  Gas                                                            
Act  application.  He  inquired  about  the status  of  that  amount                                                            
considering the withdrawal of MidAmerican's application.                                                                        
Mr. Porter  responded that over a  two-month period between  January                                                            
and March  2004, substantial  efforts to  negotiate the MidAmerican                                                             
contract   occurred.   These  efforts   required   hiring   multiple                                                            
consultants,  and costs  reached approximately  $200,000. After  the                                                            
MidAmerican application  was withdrawn, all related  project efforts                                                            
were terminated.                                                                                                                
Senator Bunde  summarized  that the State  spent $200,000 to  "drive                                                            
them [MidAmerican] away".                                                                                                       
Mr. Porter  would not agree  with Senator  Bunde's exact  statement,                                                            
but confirmed the amount spent.                                                                                                 
Mr.  Porter   continued  that  the   Department  has  allocated   an                                                            
additional $50,000  for contingencies. Expenses would  total between                                                            
$1.65 million  and $1.75  million  depending on  the results  of the                                                            
Senator  Bunde  commented that  very  primary,  basic disagreements                                                             
existed regarding  the MidAmerican  contract, and the disagreements                                                             
were  not changed  by the  $200,000 costs  incurred.  He asked  what                                                            
assurances  would be  provided to  ensure that funds  are not  spent                                                            
negotiating  future  applicants  until  some  sort of  agreement  is                                                            
reached between the State and the applicant.                                                                                    
Mr. Porter  informed that  the State's approach  to the MidAmerican                                                             
contract was unique because  MidAmerican was attempting to arrive at                                                            
an agreement  within a short period  of time. MidAmerican  attempted                                                            
to  require the  State  to adopt  an  exclusivity  clause;  however,                                                            
MidAmerican  would  not commit  to  expend  funds or  construct  the                                                            
pipeline.  The  clause  would  have required  the  State  to  accept                                                            
MidAmerican  as  the exclusive  pipeline  builder  for  a  five-year                                                            
period, and  would have hindered the  State from conducting  any due                                                            
diligence  measures   during  that  period.  The  State   considered                                                            
MidAmerican's requests inappropriate.                                                                                           
Senator Bunde asserted  that MidAmerican had stated their intentions                                                            
to  require   an  exclusivity  clause   from  the  onset   of  their                                                            
application submission.  The State disregarded the  incompatibility,                                                            
and  proceeded  to invest  $200,000  to  negotiate  the MidAmerican                                                             
Mr. Porter replied,  "In hindsight, you are absolutely  correct." He                                                            
continued  that  the State  clearly  stated  their position  on  the                                                            
exclusivity  clause throughout  negotiations  with MidAmerican.  The                                                            
State continued to move  forward with the negotiations assuming that                                                            
a  resolution   on  exclusivity   could   be  reached.  MidAmerican                                                             
emphasized that if they  were to invest in Alaska, they wanted their                                                            
asset base  to be protected.  The State was  trying to find  ways of                                                            
assuring that  protection. Ultimately, MidAmerican  decided that the                                                            
exclusivity clause was  the specific method they wanted to implement                                                            
to ensure asset protection;  their decision terminated negotiations.                                                            
Senator  Bunde  restated his  concern  that  large funds  are  spent                                                            
without assurances.                                                                                                             
Mr. Porter  emphasized that the State  must have enough information                                                             
to make  a "good decision  on behalf  of the  State" as required  by                                                            
statute,   especially   when   negotiating   multi-billion    dollar                                                            
contracts.  This information  gathering  process has  to be  pursued                                                            
even  if nine  million  dollars  is spent,  and  a contract  is  not                                                            
Co-Chair  Wilken  clarified  that  the  State's  negotiations   with                                                            
MidAmerican  were underway  beginning in August,  and continued  for                                                            
six months.                                                                                                                     
Mr. Porter affirmed.                                                                                                            
Co-Chair  Green asked if  expenditures could  specifically  focus on                                                            
the evaluation  of a particular contract, or if general  evaluations                                                            
are  conducted  that  realize  information   affecting  the  overall                                                            
contract process.                                                                                                               
Mr. Porter  responded  that evaluations  deliver  both specific  and                                                            
general information. In  certain situations contractors are required                                                            
to identify the  specific contract they are working  on. However, in                                                            
other situations  work conducted by the contractors  benefits all of                                                            
the contracts  in which case the State would pay for  the evaluation                                                            
costs,  or the  principals holding  reimbursement  agreements  would                                                            
allocate the costs among the applicants.                                                                                        
Mr. Porter  informed  that he would  be discussing  three  different                                                            
areas of the Department's  supplemental request: the contractual and                                                            
other  support  for ongoing  stranded  gas  negotiations,  the  risk                                                            
analysis portion, and the State gas line right-of-way portion.                                                                  
AT EASE 2:35 PM / 2:35 PM                                                                                                       
Amendment #4:  This amendment adds  a new subsection to Section  12.                                                            
DEPARTMENT OF  LAW., on page 17, line 6 of the committee  substitute                                                            
to read as follows.                                                                                                             
          (_) The sum of $1,500,000 is appropriated from receipts                                                               
     from  the  Exxon  Valdez  Oil Spill  Trustee  Council,  to  the                                                            
     Department of Law,  environmental law, for studies and analysis                                                            
     related  to oil  remaining in  the environment  from the  Exxon                                                            
     Valdez  oil spill and to injury  resulting from that  spill for                                                            
     the fiscal years ending June 30, 2004 and June 30, 2005.                                                                   
Co-Chair Wilken moved for adoption                                                                                              
The amendment was ADOPTED without objection.                                                                                    
Mr. Porter stated that  he would first be addressing the contractual                                                            
and other support  for ongoing stranded gas negotiations  portion of                                                            
the amendment. He testified the following.                                                                                      
     We have allocated  up to $700,000 to negotiate  with the Alaska                                                            
     Gas Line  Port Authority outside  of the Stranded Gas  Act. The                                                            
     Port Authority  may determine that the Stranded  Gas Act is not                                                            
     the right  vehicle to proceed ahead with negotiations  with the                                                            
     State.  Much of what the Act  has to offer, the Port  Authority                                                            
     basically  does not need. That  does not mean that we  will not                                                            
     sit down  and talk to them or work with them.  The Stranded Gas                                                            
     Act is one vehicle  to bring a pipeline board; they are not the                                                            
     only  vehicle. But there  are parties  that can actually  build                                                            
     the pipeline without  going through the Stranded Gas Act and we                                                            
     should consult  with them, deal with them, and  there is a part                                                            
     of  that  we may  end  up expending  money  [for]  outside  the                                                            
      Stranded Gas Act, and the $700,000 is that allocation.                                                                    
     We  have  allocated  $2.6  million  to  negotiate  with  Conoco                                                            
     Philips, BP, and Exxon,  of which $1.5 million is reimbursable.                                                            
     Our costs  on these could increase  substantially depending  on                                                            
     the duration  of the negotiations  and on the number  of issues                                                            
     needing  to be resolved. We project  up to an additional  [one]                                                            
     million dollars could  be spent on these negotiations depending                                                            
     on those issues.                                                                                                           
     We  have projected  an additional  $250,000  to $500,000  to be                                                            
     spent  on  answering  feasibility  questions   surrounding  the                                                            
     Alaska Natural  Gas Development Authority, and  we would expect                                                            
     to spend at least $250,000 answering those questions.                                                                      
     We  have  allocated  an additional  $300,000  for  the  State's                                                            
     supportive  passage of the energy  bill in [U.S.] Congress  and                                                            
     subsequent   FERC  (Federal   Energy   Regulatory  Commission)                                                             
     regulation  process. If the energy bill actually  passes, there                                                            
     will be a substantial  amount of work on behalf of the State to                                                            
     make  sure that  those  FERC regulations  and  other  processes                                                            
     actually meet the needs of the State.                                                                                      
     An  additional  $250,000  has  been allocated  for  working  on                                                            
     regulatory  and legislative issues between the  State of Alaska                                                            
     and the Alberta government.                                                                                                
     One of the  most important issues surrounding  the Stranded Gas                                                            
     Act  is  in-State  gas  use  and benefits:   understanding  the                                                            
     capacity  of the people of the  State of Alaska to participate                                                             
     in major  pipeline projects, developing the business  expertise                                                            
     and keeping the contracts  in-State, examining the potential to                                                            
     expand the  capacity of the people of Alaska  to meet the needs                                                            
     of the  project. We have basically  allocated $550,000  to this                                                            
     effort. Research in  this arena could actually easily double to                                                            
     $1.1  million  depending  on  how  committed  the State  is  to                                                            
     ensuring the maximum benefit to the people of the State.                                                                   
     Somebody asked me  'what in the world is capacity' and I use it                                                            
     all the time  so I didn't' think about it until  somebody asked                                                            
     me  that this  morning.  Capacity to  the people  is  basically                                                            
     looking  at  your community  and  saying,  'how many  of  these                                                            
     people  are going to  have jobs? How  many of these people  are                                                            
     qualified  to  bid on  projects,  and could  obtain  employment                                                            
     through that project?'  The other element of capacity is really                                                            
     understanding  what capacity  you can build in an environment:                                                             
     if you've  got two or three years before a project  comes down,                                                            
     is there thorough  training or development of local businesses?                                                            
     Can  those  businesses  achieve  the  capacity  to be  able  to                                                            
     participate  in the project?  Those are  the elements  that are                                                            
     really tied  to this particular issue, and we  think it is very                                                            
     important,   and  we  have  allocated  a  substantial   sum  to                                                            
     basically support that.                                                                                                    
     Next we have recognized  that the process of negotiations under                                                            
     the  Stranded Gas Act  is dynamic. We  have seen a substantial                                                             
     number  of changes  to  the parties  we are  negotiating  with.                                                            
     There  is some evidence that  this process is stabilizing,  but                                                            
     there  have been inquiries by  others that suggest that  we may                                                            
     not be finished yet  in defining all of the applicants. The Act                                                            
     itself requires all  applicants to file an application no later                                                            
     than March  31, 2005 so there is a deadline.  We have allocated                                                            
     an additional  $450,000 for negotiations  with applicants  that                                                            
     have  yet to be filed.  The total cost  of this portion  of the                                                            
     request  is $3.6 million to $5.3  million. This portion  of the                                                            
     request goes to the Department of Revenue.                                                                                 
     The  second  section  of this  analysis  is the  risk  analysis                                                            
     portion of the project.  It is actually four phases, and I will                                                            
     walk  through  each phase.  Phase one  is really  defining  the                                                            
     boundaries:  capitalizing  on the information  provided  by the                                                            
     consultants in the  analysis mentioned earlier. We would expect                                                            
     to utilize  the information obtained  and the ideas  created to                                                            
     develop  an  understanding  of  how  much risk  the  state  can                                                            
     tolerate.  We  have projected  a budget  of  $200,000 for  this                                                            
     portion of the project.                                                                                                    
     In  phase two of  the risk  assessment phase,  this phase  will                                                            
     determine  the  role of  the  drivers of  risk,  and develop  a                                                            
     structural  model for price risk that incorporates  the role of                                                            
     the drivers,  define the project and identify  the construction                                                            
     costs  risk,   and  identify  the  tariff  risk   [involved  in                                                            
     transporting  gas] from Alberta to the lower  48 [states]. This                                                            
     is a substantial and  important portion of the project. We have                                                            
      allocated $780,000 for this phase of the risk analysis.                                                                   
     In  phase three, the  risk benefit  sharing alternatives,  this                                                            
     phase will  identify ways to share risk between  the producers,                                                            
     the  State of  Alaska,  the federal  government,  the  pipeline                                                            
     companies,  potential  shippers  and  the  Canadian  provinces.                                                            
     [This phase will work]  to construct a risk analysis assessment                                                            
     model  using a real-time options  framework to evaluate  costs,                                                            
     benefits  and  effectiveness  of different  options  the  State                                                            
     might create. The  budget for this portion of the risk analysis                                                            
     is $500,000, but because  of the complexity of dealing with the                                                            
     risks  among  the parties,  the  budget  for this  phase  could                                                            
     easily increase to up to $800,000.                                                                                         
     Phase  four, which is  the final phase  of the project,  is the                                                            
     proposal  by  the  State. Once  the  policymakers  determine  a                                                            
     preferred  approach,  a  white  paper will  be  developed  that                                                            
     presents a proposal  or way forward from the State's standpoint                                                            
     to encourage development  of a gas project within the near-term                                                            
     time frame. The budget  for this phase is $100,000 to $200,000.                                                            
     The  total  budget  for  the risk  analysis  project  is  $1.58                                                            
     million to about $1.98  million. This portion of the request is                                                            
     allocated to the Department of Natural Resources.                                                                          
     And the third,  and final, portion of the supplemental  request                                                            
     is  basically   the  State  gas  line  right-of-way.   We  have                                                            
     allocated a total  of $3.9 million to the Department of Natural                                                            
     Resources  for  the  application   of  the permitting   process                                                            
     associated  with the completion of the State  right-of-way. The                                                            
     goal  of  this  is  to  accelerate  the  gas  line  project  by                                                            
     completing  one of the critical  permits in advance  of knowing                                                            
     who will  be building the pipeline. We would  utilize the State                                                            
     entity  to apply for  the permit. The  State entity could  then                                                            
     assign their  rights to the right-of-way to the  builder of the                                                            
     pipeline. This was once again approximately $3.9 million.                                                                  
     The  total cost of  this [project] including  the $1.5  million                                                            
     from the producers  is $10.58 million; less reimbursement it is                                                            
     $9.08 million.                                                                                                             
Co-Chair  Green   referenced  the  "FY  2004/2005  Gasline   Funding                                                            
Request"  spreadsheet dated  April 8, 2004.  She commented  that the                                                            
layout of  the spreadsheet  was misleading.  She clarified  that the                                                            
legislature  was not presented  with this  appropriation request  at                                                            
the  beginning  of  the year.  She  inquired  as  to how  best  this                                                            
appropriation  could be presented  to ensure that 2004 expenditures                                                             
be  distinguished  from  2005  expenditures.   She  also  asked  for                                                            
confirmation  that  this  appropriation  would  be included  in  the                                                            
capital budget.                                                                                                                 
Ms. Frasca  stated that if this supplemental  request is  adopted it                                                            
would be assigned to the capital budget.                                                                                        
Co-Chair Green  asked if this appropriation  request is appropriate                                                             
as an amendment to the FY 04 supplemental budget.                                                                               
Ms. Frasca  emphasized that this appropriation  would be  considered                                                            
as a  capital  project associated  with  the Stranded  Gas Act.  The                                                            
intention  is not  to build this  appropriation  into the  operating                                                            
budget  where  it  would  be treated  as  an  ongoing  expense.  The                                                            
Department  of Revenue  could  divide  the appropriation  into  2004                                                            
expenditures and 2005 expenditures if necessary.                                                                                
Mr.  Porter  commented  that  he regards  this  appropriation  as  a                                                            
capital project,  and does not consider the fiscal  year expenditure                                                            
distinction important.                                                                                                          
Co-Chair  Green   replied  that  the  fiscal  year  distinction   is                                                            
important  to  the  legislature   this  year.  She  added  that  the                                                            
Committee  would  allocate  the Department  of  Revenue  the  needed                                                            
project funding using the best possible fiscal method.                                                                          
Ms. Frasca  asked Mr.  Porter if  he has the  information needed  to                                                            
separate the project expenditures for FY 04 and FY 05.                                                                          
Mr. Porter  responded that the separation  would not be a  "contract                                                            
by contract split".  The separation would involve  determining which                                                            
contracts  would be allocated  and committed  by June 30, 2004.  The                                                            
Department has  a "strong interest" in delivering  the contract data                                                            
to the State  by August or September  2004, requiring a significant                                                             
portion  of the  contracts to  be committed  by June  30, 2004.  The                                                            
Department  suggests two-thirds of  the total appropriation,  or six                                                            
million dollars,  be available in FY 04, and one-third  available in                                                            
FY 05.                                                                                                                          
Co-Chair Green  asked if the State gas line right-of-way  portion of                                                            
the amendment would be implemented in 2005.                                                                                     
Ms. Frasca  responded  that two-thirds  of the  total appropriation                                                             
would be needed in FY 04.                                                                                                       
Co-Chair  Green  asked  if another  fund  source  could be  used  to                                                            
satisfy the appropriation.                                                                                                      
Ms. Frasca asked  Co-Chair Green to clarify if she  was referring to                                                            
the general fund.                                                                                                               
Co-Chair Green affirmed.                                                                                                        
Mr. Porter  highlighted  that the  State's intent  is to capture  as                                                            
much  funding possible  through  reimbursement  agreements with  any                                                            
party to  minimize the  State's expenditures.  The Department  would                                                            
spend  the appropriation  only as  necessary, and  would return  any                                                            
remaining funds to the legislature for reappropriation.                                                                         
Co-Chair  Green  emphasized  the  State's  ability  to  require  the                                                            
Stranded Gas Act  applicants to share costs associated  with the gas                                                            
pipeline   negotiations.   She   noted   that   this  is   a   large                                                            
appropriation, "that you  [the Department of Revenue] hopefully will                                                            
not use."                                                                                                                       
Mr. Porter affirmed.                                                                                                            
Co-Chair   Green  stated   that   the  amendment   addressing   this                                                            
appropriation  request  would be adjusted  and brought  back to  the                                                            
AT EASE 2:49 PM / 2:49 PM                                                                                                       
Co-Chair  Green   informed  that  the  Mt.  Edgecumbe   High  School                                                            
supplemental  request was  the next request  being considered.  This                                                            
proposed amendment is not included in the committee substitute.                                                                 
KAREN  REHFELD, Deputy  Commissioner,  Department  of Education  and                                                            
Early  Development,   stated  that  the  Department's  supplemental                                                             
request consisted of two  parts: one part of the request would be an                                                            
operating  appropriation  and the  second  part would  be a  capital                                                            
appropriation.  Due to the  joining of the  fast track supplemental                                                             
and the  regular track  supplemental, the  legislature might  prefer                                                            
that  the capital  appropriation  section  be  "broken  out" of  the                                                            
supplemental budget.                                                                                                            
Ms. Rehfeld explained  that this appropriation request  would enable                                                            
Mt. Edgecumbe High School  to accommodate thirty additional students                                                            
in the 2004/2005  school year and during the expansion  of dormitory                                                            
and  classroom  facilities.   If  the  Mt.  Edgecumbe   High  School                                                            
expansion were  to begin this fall, the Department  of Education and                                                            
Early Development  would need to renovate  classroom space  and have                                                            
operating  funds  available  to hire  staff  and amend  the  current                                                            
dormitory and food services  contracts to accommodate the additional                                                            
students.  The  Department  and  Mt.  Edgecumbe  High  School  staff                                                            
members are concerned about  their ability to serve students without                                                            
the  necessary  capacity  and resources.  This  appropriation  is  a                                                            
priority of Governor  Frank Murkowski. An ongoing  demand exists for                                                            
spaces at Mt. Edgecumbe  High School: an average of 250 applications                                                            
are received  each year and since  reopening, the school  could only                                                            
accept approximately 140 students.                                                                                              
Senator Olson asked if  the additional 30 students have already been                                                            
accepted for the next school year.                                                                                              
Ms. Rehfeld  responded that  the deadline  had passed for  receiving                                                            
applications.  The  Mt.  Edgecumbe  High School  staff  members  are                                                            
currently  reviewing  the applications,  and  would  be prepared  to                                                            
offer the 30 spaces to students.                                                                                                
Co-Chair  Wilken  expressed   concern  regarding  the  construction                                                             
timeline,  and its  scheduled  2004 opening.  He  clarified that  an                                                            
earlier amendment  had requested two million dollars  to utilize the                                                            
Sitka  Pioneers' Home  for  Mt. Edgecumbe  High School  students  in                                                            
order that construction  could begin on the current dormitory. Sitka                                                            
residents  have  expressed   that  the Mt.  Edgecumbe   High  School                                                            
construction  project  would  not  be  completed  in  2004  even  if                                                            
additional funding were  received. He asked if authorizing the funds                                                            
now would serve  any productive purpose. He expressed  surprise that                                                            
after numerous  appropriations, funds are still being  requested for                                                            
this project.                                                                                                                   
Ms. Rehfeld responded that  the Department of Transportation (DOTPF)                                                            
is the project  manager for the construction:  the dorm renovation,                                                             
the work on the classroom  space and the academic building. The cost                                                            
of utilizing the Sitka  Pioneers' Home for the temporary housing for                                                            
Mt. Edgecumbe  High School students would be the cost  of utilities,                                                            
and not  construction costs.  The Deputy  Commissioner of the  DOTPF                                                            
has traveled  to Sitka multiple  times, and  has begun working  with                                                            
the architect and those  processing the bid documents, both of which                                                            
are confident  that this construction project would  be completed in                                                            
the fall of 2004.  Bid documents would be sent out  May 14th for bid                                                            
openings beginning on June 4, 2004.                                                                                             
SFC 04 # 99, Side B 02:55 PM                                                                                                    
Ms.  Rehfeld continued  that  the academic  expansion  would not  be                                                            
completed by  fall of 2004; however,  the use of an additional  four                                                            
classrooms would be sufficient  until the renovations are completed.                                                            
The  Department is  hearing  concerns from  the Mt.  Edgecumbe  High                                                            
School staff  because the  additional operating  funds requested  in                                                            
this amendment  are needed to provide  for the residential  capacity                                                            
and the instruction of the additional 30 students.                                                                              
Co-Chair Wilken  asked what factors  have changed since the  October                                                            
and December appropriation  requests that now require  an additional                                                            
two million dollars.                                                                                                            
Ms. Rehfeld  responded that  the Department  of Education and  Early                                                            
Development had not intended  the dormitory and classroom renovation                                                            
projects  to be completed  by fall of 2004  when they requested  the                                                            
original  $7.5 million  from the  legislature  for the renovations.                                                             
However,  Governor Murkowski  toured  the facility,  and  determined                                                            
that the renovations  could be completed  by fall of 2004,  allowing                                                            
additional  students  to attend  Mt. Edgecumbe  High  School in  the                                                            
2004/2005 school years.                                                                                                         
Ms.  Rehfeld   continued   that  the   need   for  this   additional                                                            
appropriation  arises because  the  academic facility  would not  be                                                            
completed by fall of 2004,  thus requiring the renovation of certain                                                            
classrooms  to provide  a  temporary  learning environment  for  Mt.                                                            
Edgecumbe   High  School  students   until  the  academic   facility                                                            
renovation  is  completed.  In summary,  timing  has  required  this                                                            
additional appropriation.                                                                                                       
Co-Chair Wilken asked if  the two million dollar appropriation would                                                            
essentially  allow   for  30  additional  students   to  attend  Mt.                                                            
Edgecumbe  High   School  for  four  months  before  the   classroom                                                            
renovation is complete.                                                                                                         
Ms. Rehfeld  replied that one million  dollars of the appropriation                                                             
would  cover the  annual operating  costs  of the  expansion of  Mt.                                                            
Edgecumbe High  School, and the remaining one million  dollars would                                                            
fund the construction of the temporary classrooms.                                                                              
Co-Chair Wilken  stated that he had spoken with a  resident of Sitka                                                            
who would  be in a position  to bid on a  Mt. Edgecumbe High  School                                                            
construction  contract.  This individual  informed  Co-Chair  Wilken                                                            
that  the no bids  had  been declared,  and the  Sitka construction                                                             
force does not  have the capacity to complete the  immense amount of                                                            
construction work remaining.  Even if a sufficient labor force could                                                            
be provided,  it would be  at a high cost  to the State because  the                                                            
project would  need to be rushed. He restated his  concern regarding                                                            
this two  million dollar  appropriation and  contrasted it  with the                                                            
original Mt. Edgecumbe  High School renovation appropriation,  which                                                            
"seemed logical and efficient".                                                                                                 
Co-Chair Green  asked the amount of the original Mt.  Edgecumbe High                                                            
School   renovation   appropriation   that  was   approved  by   the                                                            
Legislative Budget and Audit Committee.                                                                                         
Co-Chair  Wilken   responded  that  the  first  Revised   Program  -                                                            
Legislative   (RPL)  was  $1.65  million,   and  in  December   2003                                                            
approximately  $6  million  was appropriated  for  fall renovations                                                             
allowing for a 2005 completion.                                                                                                 
Co-Chair  Green confirmed  that the  total appropriation  was  $7.65                                                            
Ms. Rehfeld  informed  that the  Department of  Education and  Early                                                            
Development has  received comments from Sitka residents  emphasizing                                                            
that the local  construction companies  are "very anxious"  to begin                                                            
bidding on the Mt. Edgecumbe High School renovation project.                                                                    
Co-Chair Wilken thanked Ms. Rehfeld for her comment.                                                                            
Co-Chair  Green emphasized  the unique priority  Mt. Edgecumbe  High                                                            
School has  been given in receiving  first, a capital appropriation                                                             
of nearly eight million  dollars, and second, a potential additional                                                            
two  million  dollar   appropriation.  Mt.  Edgecumbe   High  School                                                            
probably  has one  of the  highest  per-student allocations  in  the                                                            
State.  She   asserted  that  she   is  "lukewarm"  regarding   this                                                            
appropriation request.                                                                                                          
Co-Chair Green  announced an updated  committee substitute  would be                                                            
prepared to reflect the adopted amendments.                                                                                     
Co-Chair Green ordered bill HELD in Committee.                                                                                  
Co-Chair Wilken chaired the remainder of the meeting.                                                                           
AT EASE 3:03 PM / 3:06 PM                                                                                                       

Document Name Date/Time Subjects