Legislature(1995 - 1996)
02/27/1996 03:04 PM HES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HSCR 3 DISAPPROVING EXECUTIVE ORDER 97 SSCR 3 DISAPPROVING EXECUTIVE ORDER 97 Number 008 CO-CHAIR CON BUNDE called the meeting of the Joint House & Senate Health, Education and Social Services (HESS) Committees to order at 3:04 p.m. House members present at the call to order were Representatives Bunde, Toohey, Vezey, Rokeberg, Davis, Brice and Robinson. Senate members present at the call to order were Senators Green, Leman, Miller and Ellis. A quorum was present of both House and Senate members to conduct business. The first order of business was HSCR 3, Disapproving Executive Order 97 and SSCR 3, Disapproving Executive Order 97. SENATOR JUDY SALO joined the meeting at 3:05 p.m. CO-CHAIR BUNDE opened the meeting for public testimony. Number 128 DIANE BARRANS, Executive Director, Alaska Commission on Postsecondary Education; and Executive Officer, Alaska Student Loan Corporation, said when she testified before the committee last month, she spoke about the history of the Commission and the various functions it has performed over the past 22 years. She described how the current functions, primarily management of the operations and finances of the Alaska Student Loan Program, are not well-served by the existing configuration of two boards -- especially when the designated members are particularly susceptible to special interest influences, sometimes to the detriment to the loan fund itself. MS. BARRANS said this past week, she met with groups at AMBAC, the Alaska Student Loan Fund's bond insurer, as well as staff at Moodys and Standard & Poor's credit rating agencies in New York City. In anticipation of the upcoming bond issue, she provided for them an overview of the pending legislation and a servicing and operational status report. Their reaction to her update was uniformly quite positive. When reviewing the Executive Order and the related comments by Bond Counsel to the Loan Corporation, Ken Vassar, they were pleased to see that we in Alaska are continuing to refine our focus on the financial well-being of the loan fund. MS. BARRANS pointed out that in his January 10 letter commenting on the Executive Order, Mr. Vassar noted that this reorganization would be "beneficial to the corporation's efforts to finance the student loan program through the sale of its bonds and beneficial to the student loan program generally." Mr. Vassar has been bond counsel to the corporation since its creation and therefore his comments are particularly valuable. While not an insider to the management of operations, he has been a consistent and objective observer over time. He goes on to add "The existence of two, separate state agencies with identical staff and possessing powers and duties relating to the same program is confusing. Even the members of the commission and the members of the corporation have been confused as to the boundaries of their respective powers and duties." Additionally, he adds "consolidation will also eliminate the inefficiencies of having two entities that must transact the same business with each other." Mr. Vassar provides examples of the inefficiency and reiterates that "it would improve the efficiency of the entire process to have the same entity responsible for these interwoven procedures." Ms. Barrans said Mr. Vassar will be in town for a corporation meeting tomorrow afternoon and would be available to answer questions regarding his experiences with the commission and corporation. MS. BARRANS concluded that they are convinced the consolidation under Executive Order 97 provides for stronger, more focused management of the Loan Fund and they respectfully asked that the committee not disapprove it through the Resolution. Members of the legislative body may elect to amend the statutes through the bill process. She was looking forward to working with any of the committee members on such an initiative. She stated however, at this point, it is critical that the entities which can positively or negatively impact our bottom line, that credit rating agencies, the insurer of the bonds has the highest possible comfort level that we are working cooperatively and continuing to move in the right direction. Number 416 CO-CHAIR BUNDE said speaking for himself and he believed for the House and Senate HESS Committees, it would be their goal to continue to work toward this consolidation. He added that statutory changes would be needed to achieve that. Number 453 SENATOR JUDY SALO said when they dealt with the issues in SB 123 as well as the items in this Executive Order, she thought that these were all part of a package to make the whole loan fund more financially stable. She asked if that was true. MS. BARRANS replied that from an administrative perspective, all of these changes are pieces of what is necessary to move the fund to a financially stable existence. She said having a single entity that administers both the financial side as well as the operational side is a big part of that. SENATOR SALO said the reason she asked the question is that she had some problems with portions of SB 123. She felt it was sort of a hard hit on students who were taking out the loans and profited from this program over the years and there were a couple of places where the increased costs were significant. But in combination with decreasing the administrative costs and becoming more realistic about those costs, that's what sold her. So, she was happy to hear the committee's commitment to address the concepts in this Executive Order. CO-CHAIR BUNDE responded that he was cautious to speak for himself and for the House HESS Committee, the wheels are already in motion to begin to deal with it. He emphasized that it would require an extensive statutory change. Number 600 ERIC FORRER said the question before the committee concerns the status of the Governor's Executive Order that changes the governing structure of the postsecondary education agency. He commented he is one of the University Board of Regents representatives to the Postsecondary Commission. He sat on the commission for two years and is now chair of that commission. While two years is not that much, he said it did give him a bit of the history and the flavor of the commission's operations, including at some meetings, as much as a full day of student appeals. His arrival on the commission coincided with the hiring of a new agency director, the initiation of a new management style and the creation of a new internal organization. Upon that director's departure for a job in Washington, he wrote the commission a position paper, in which he was able to refer to a Division of Legislative Audit report from December 1994, which pointed out the Alaska Student Loan Program Fund is not self-sustaining and is in a state of financial deterioration. The report also noted that the current role of the Alaska Commission on Postsecondary Education does not reflect its statutory mandate. The outgoing director also wrote "Over the past 20 years, our education policy changes in Alaska have definitely resulted in the obsolescence of the ACPE's original role." Mr. Forrer said he was quite interested in the financial deterioration part of the assessment, and at the last meeting of the Student Loan Board, he asked the managing director of Smith Barney, a New York debt security firm, what that deterioration amounted to. The answer he gave, which got the nod from other financial advisers in the room, was that of the 480 million general fund dollars invested by the state in the student loan fund, some 260 million dollars remain. He was shocked at the notion that the commission of which he is chair, has been living with a set of statutes, rules and a political environment that enabled 45 percent of such a huge investment to be lost. His initial reaction was and remains that the second half of this fund is not going to disappear on his watch. MR. FORRER said the upshot of his experience is that he has cooperated with the Governor's Office in the creation of the Executive Order and he urged the committee to let it stand. He noted that if the committee denies its passage, it will be one of the most expensive political gestures the state has endured. The connection between the structure of the commission and the management of the fund is that the commission as it is currently structured is a very blunt tool for rigorous management. It is a difficult environment in which to muster sustained political will. It suffers from lack of authority and it is fatally subject to the relentlessly self-serving lobbying of private sector interests that have arrayed themselves around the fund. Consequently, the public policy governing the fund is structured at least in part, by interests for which the fund was never intended in the first place. He was not accusing the proprietary schools of doing anything except engaging in self-preservation, but their vision has a very close horizon. How this group can make arguments for a structure that results in a loss of millions of dollars annually to the fund upon which they depend is beyond him. He explained that when the fund loses its ability to sell bonds and the state loses the equal access aspects of the loan fund, the first crowd at the table begging for fresh money will be the private interests that take such a keen interest in influencing the statutes and regulations. The arguments that should be made to counter their positions have a constituency that is as wide as the entire state, but at any given moment, is only a few students deep. There is no well- connected lobbyists for the united future student borrowers of Alaska, there is only the agency itself, himself, and the committee members who have the authority to help rescue this investment of public dollars for the state's future. He urged the committee to let Executive Order 97 stand and to use subsequent clean up legislation to achieve more finely directed goals. Number 863 REPRESENTATIVE CAREN ROBINSON referenced Mr. Forrer's comment that he had worked with the Governor's office and asked him to explain how they reached the conclusion to go in the direction taken in the Executive Order. MR. FORRER responded that anyone who has paid attention to postsecondary in the past, would come to the same conclusion; that is, it needs significant structural change and the two bodies existing simultaneously is confusing and serves no purposes. He began to question what could be done to solve this problem and what are the things that drive the postsecondary education; that is to say the legislation that created it. It turned out to be a bigger can of worms than what he realized. For example, two regents are there because of the statutory language that states post secondary oversees the university's budget, which has never occurred and on and on. He wasn't certain who actually came up with the proposal to move in the direction of the Executive Order. CO-CHAIR BUNDE said it becomes a question of the cart before the horse. It would require some serious statutory changes, which Mr. Forrer had alluded to, and whether there's an Executive Order that goes halfway and then statute, or just statutory change is a policy call. Co-Chair Bunde assured Mr. Forrer that he shares the concerns about the financial stability of the loan. CO-CHAIR BUNDE asked if there was further public testimony. Hearing none, he opened the meeting for discussion. Number 1000 REPRESENTATIVE TOM BRICE questioned the statement on the fiscal note stating the estimated savings reflected in Executive Order 97 will not be achieved in the manner proposed by the Governor. He said there is no back up documentation in the packet to substantiate that statement and asked if there was any information available. CO-CHAIR BUNDE said as he previously mentioned, the Executive Order only makes half of a step and significant statutory change is required in order to achieve the needed efficiency. He added that it's going to take legislation which overhauls the entire post secondary system, instead of just limiting the number of people. REPRESENTATIVE BRICE asked if the bill was currently in the drafting stage. CO-CHAIR BUNDE responded the bill was presently being drafted and he would make it available as soon as it was available to him. He anticipated it to be an ambitious, cooperative and perhaps lengthy goal to write the applicable statutes. Number 1116 SENATOR MIKE MILLER moved to pass Senate Special Concurrent Resolution 3 out of the Senate HESS Committee with individual recommendations. An objection was raised. CHAIRMAN GREEN asked for a roll call vote. Voting in favor of the motion were Senators Green, Miller and Leman. Voting against the motion were Senators Salo and Ellis. CHAIRMAN GREEN announced that action on the Resolution disposes of the issue of Executive Order 97 and it will be passed to the Senate Secretary. Number 1158 REPRESENTATIVE ROKEBERG moved to pass House Special Concurrent Resolution 3 out of the House HESS Committee with attached fiscal notes. REPRESENTATIVE BRICE objected and raised a point of question relating to procedure. He explained that it is normal procedure for the House HESS Committee not to pass a bill out of committee on the first hearing. Given the impact of this Executive Order, he felt it would be appropriate to hold it over until the next meeting. CO-CHAIR BUNDE noted the House HESS Committee has moved bills out of committee at the first hearing on several occasions, and that it was his wish to do so with HSCR 3. Number 1203 REPRESENTATIVE VEZEY asked for a call of the previous question. REPRESENTATIVE BRICE pointed out that when bills had passed out of committee at the first hearing, it had been done with a consensus of the committee. Number 1235 CO-CHAIR BUNDE asked for a roll call vote. Voting in favor of the motion were Representatives Vezey, Rokeberg, Davis, Toohey and Bunde. Voting against the motion were Representatives Brice and Robinson. C0-CHAIR BUNDE announced that House Special Concurrent Resolution 3 had moved from the House HESS Committee. The action on the Resolution disposes of the issue of Executive Order 97 and it will be passed to the House Clerk. CO-CHAIR BUNDE adjourned the joint meeting of the House & Senate HESS Committees at 3:23 p.m.