Legislature(1999 - 2000)
02/07/2000 01:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 7, 2000
1:50 P.M.
TAPE HFC 00 - 27, Side 1.
TAPE HFC 00 - 27, Side 2.
TAPE HFC 00 - 28, Side 1.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:50 P.M.
PRESENT
Co-Chair Therriault Representative Foster
Co-Chair Mulder Representative Grussendorf
Representative Austerman Representative Moses
Representative Bunde Representative Williams
Representative G. Davis
Representative J. Davies and Representative Phillips were
not present for the meeting.
ALSO PRESENT
Representative Lisa Murkowski; Representative Bill Hudson;
Representative Fred Dyson; Melinda Hofstad, Staff,
Representative Bill Hudson; Wes Keller, Staff,
Representative Fred Dyson; Mike Tibbles, Staff,
Representative Gene Therriault; Jim Lynch, Interim Vice
President of Finance, University of Alaska, Fairbanks;
Barbara Thompson, Deputy Director, Division of Teaching and
Learning Support, Department of Education and Early
Development; Anne Allen, Senior Council, Section #29,
Government Relations Department, TIAA-CREF, New York
(Testified Via Teleconference).
SUMMARY
HB 108 An Act relating to the use, operation, and
regulation of boats; establishing a uniform state
waterway marking system; and providing for an
effective date.
CS HB 108 (FIN) was reported out of Committee with
a "do pass" recommendation and with a fiscal note
by the Department of Administration and zero notes
by the Department of Public Safety and the
Department of Natural Resources.
HB 191 An Act relating to charter schools; and providing
for an effective date.
CS HB 191 (FIN) was reported out of Committee with
a "do not pass" recommendation and with a fiscal
note by the Department of Education and Early
Development.
HB 268 An Act relating to the Alaska Higher Education
Savings Trust; and providing for an effective
date.
HB 268 was HEARD and HELD in Committee for further
consideration.
HOUSE BILL NO. 108
An Act relating to the use, operation, and regulation
of boats; establishing a uniform state waterway marking
system; and providing for an effective date.
MIKE TIBBLES, STAFF, REPRSENTATIVE GENE THERRIUALT, spoke to
Amendment #1, 1-LS0445\U.1, Ford, 2/7/00. [Copy on File].
The amendment would insert "by a person who has not
established residency as described under AS 01.10.055". He
noted that original language did not address the difference
between residents and non-residents and would have exempted
all paddleboats. The amendment adds the language, that if
you are a non resident, you would have 90 days before you
would be required to register your boat, however, if you are
a resident, you would be required to register your paddle
boat regardless of the amount of time intended to use the
boat.
Vice Chair Bunde MOVED to adopt Amendment #1. There being
NO OBJECTION, Amendment #1 was adopted.
Mr. Tibbles spoke to Amendment #2, 1-LS0445\U.3, Ford,
2/7/00. [Copy on File]. He explained in the current draft,
the director of Legislative Finance would be responsible to
notify the reviser of the statute. If no federal receipts
were received by the State, the language of the amendment
would speak to that. Amendment #2 would remove the director
of the Legislative Finance Division and would specify the
Chair of Legislative Council. Additionally, there would be
language added which would speak to the federal funds
received during the year. Co-Chair Therriault clarified
that this should be action approved by the majority of the
Legislative Council.
MELINDA HOFSTAD, STAFF, REPRESENTATIVE BILL HUDSON,
testified that Representative Hudson did support Amendment
Vice Chair Bunde MOVED to adopt Amendment #2. There being
NO OBJECTION, it was adopted.
Co-Chair Therriault questioned the fiscal note.
Ms. Hofstad spoke to the Department of Administration's
fiscal note. She commented on the potential to bring in
federal dollars somewhere between $400,000 and $600,000
dollars per year to operate the boating safety program and
the registration of the vessels. Ms. Hofstad reiterated,
following the initial set-up costs, the State could expect
to receive these funds to be used for the boating safety
program. She clarified that it was expected that the funds
would be used for that program, however, added that would be
decided by future legislatures.
Co-Chair Therriault asked if the amount should be indicated.
Ms. Hofstad replied that it should represent total operating
costs. She added that the program would be a potential
moneymaker for the State and would be revenue positive after
the first year.
In response to queries by Co-Chair Therriault, Ms. Hofstad
stated that she was referring to the total operating costs.
She pointed out that changes in revenue are indicated on the
note. Ms. Hofstad repeated that the intent of the proposed
legislation was to get people into the safety aspect of the
program.
Co-Chair Mulder referenced the non-motorized boats such as
canoes, 10' and over, and asked if they were currently
required to be registered with the Coast Guard. Ms. Hofstad
noted that they are not. She added that one reason they
were included in the registration section is that a large
percentage of the deaths which occur in recreational
boating, happen in non-motorized vessels. She stated it is
important that those boat owners are contributing and
registered in the program in order that lives can be saved.
Co-Chair Mulder interjected if these people will be taxed so
that "they can be saved". Ms. Hofstad replied that there
are two different programs which address the safety aspects.
Additionally, there are two types of vessel groups, the
motorized and the non-motorized. The intent is to include
all boat users.
Co-Chair Mulder emphasized that the pool of people being
required to pay would be expanded through the proposed
legislation. He pointed out that currently there are 33,300
non-powered boat registrations processed each year at $10
dollars. He believed his constituents would not appreciate
the legislation.
REPRESENTATIVE BILL HUDSON advised that the majority of
accidents in the State of Alaska take place in small
vessels. When providing search and rescue, it is difficult
to determine who owns these boats. He pointed out that many
times boats are found drifting. Through the proposed
legislation, the boat owner would be required to have on
their boat, a small decal with large numbers so that they
could be quickly recognized. He emphasized that this is not
a matter of the money to be generated, but rather an
opportunity to help identify in the search and rescue
situations. He understood the concerns voiced by Co-Chair
Mulder. Representative Hudson clarified that the cost would
be $10 dollars for three years. He reiterated that this
legislation would help to save lives.
Co-Chair Mulder noted that he had based his statement upon
information included in the fiscal note. Representative
Hudson clarified that the note stipulates only one third of
the boats would register each year. Ms. Hofstad pointed out
that Representative Hudson had worked with the two largest
non-powered boat groups and that both of those groups had
endorsed the legislation. They believe these safety
benefits will help boat users.
Co-Chair Mulder understood why the large groups would
endorse the bill but he did not believe that group
represented the general rank of the casual user. He stated
that those constituents will resist the proposed
legislation. He suggested that a good safety educational
program could be provided without including that group under
the umbrella of the bill. He recommended using the fiscal
note to buy life jackets and then place them on the ends of
each dock. He advised that would save more money than the
proposed education program.
Representative Grussendorf reminded members of previous
testimony and the support voiced by specific groups. He did
agree that the "paddle boat aspect" would be a concern for
the individual users.
Co-Chair Therriault referenced the fiscal note provided by
the Department of Administration, Page 3, which would
require three-year registration. He reiterated that
language was not clear regarding the length of time for the
registration renewals. He asked the total number of
paddleboats in use throughout the State. Ms. Hofstad
clarified that there are 90,000 paddleboats in the State,
and noted that information had been specified in the bill.
Co-Chair Therriault explained that the Department would
address this work in much the same manner as it does with
the Division of Motor Vehicles (DMV). He advised that if
the municipalities wanted access to the raw data regarding
the information, they would then be responsible to refine it
at their at their own expense.
Representative Austerman MOVED to report CS HB 108 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CS HB 108 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the
Department of Administration and zero notes by the
Department of Public Safety and the Department of Natural
Resources.
HOUSE BILL NO. 191
An Act relating to charter schools; and providing for
an effective date.
MIKE TIBBLES, STAFF, REPRESENTATIVE GENE THERRIAULT, spoke
to Amendment #1, 1-LS0598\N.1, Ford, 1/31/00. [Copy on
File].
Vice Chair Bunde MOVED to adopt Amendment #1. Co-Chair
Therriault OBJECTED for the purpose of discussion.
Vice Chair Bunde explained that that the amendment would
make the language of the bill more permissive. The current
language states that a charter school may not elect to
receive services. The amendment clarifies that the charter
school and the school district can negotiate over services
that are appropriate for the charter school.
Co-Chair Therriault asked if the charter school has no
"special needs" children, what would happen to the federal
dollar allocation. Vice Chair Bunde explained that during
negotiations, the school district would be responsible to
stipulate that the money be used for the "betterment of
all". Co-Chair Therriault WITHDREW his OBJECTION to the
amendment.
REPRESENTATIVE FRED DYSON foresaw no problem with inclusion
of the amendment. He stated that it was language that was
intended to be included. Inclusion of that language would
assume that there is a congenial relationship between the
two entities, however, he acknowledged that is not always
the case.
Representative Foster asked what would occur if the
relationship was not smooth. Representative Dyson replied
that the school boards would be the final entity to make
that decision.
There being NO further OBJECTION, Amendment #1 was adopted.
Mr. Tibbles spoke to Amendment #2, 1-LS0598\N.2, Ford,
2/3/00. [Copy on File]. He noted that the amendment would
give charter schools more flexibility in the space in which
they could operate. Representative Foster asked if the fire
codes would be more restrictive. Co-Chair Therriault voiced
concern with the amendment.
Co-Chair Mulder MOVED to adopt Amendment #2. Co-Chair
Therriault OBJECTED for the purpose of discussion.
Representative Dyson explained that the school building
safety requirements are very stringent. What the charter
school people have found is that if they can not find public
school space, it is inordinately difficult to find a
building to lease that meets the school requirements. The
charter school people want to go with the same standards
that are used for "large groups of people who come
together". Representative Dyson pointed out that most of
the charter schools have small populations. He noted that
in the language of the amendment, it stipulates that the
safety codes for the children are met. He emphasized that
it has been very difficult for prospective charter schools
to find adequate facilities.
Co-Chair Therriault inquired if the same standards had to be
met by private schools. Representative Dyson replied that
they did not. Currently, private schools must have the same
standard as exists in public building facilities.
Representative Foster questioned how those standards would
apply to a public building. Representative Dyson explained
that each school administrator would have the final say on
that concern. He stressed that getting small children out
of a burning building is always a concern. He believed that
any superintendent would be capable of making the proper
decision. He noted that the amendment would extend the
contract period.
Vice Chair Bunde advised that he would support the amendment
because the chief supporting administrator would have the
final say and would ultimately be in charge. The liability
would be "personified" in that person. He stressed that the
language of the amendment does not provide a lot of
flexibility as the ultimate authority rests in that person.
Representative Grussendorf noted that he opposed the
amendment because it would require that the safety standard
rest solely on the school official. The standards for
public schools are always much more stringent because of
that responsibility. He emphasized that it would be a
mistake to incorporate the amendment.
Co-Chair Therriault noted that he would be more comfortable
knowing that school administrator was directly responsible
for the decision. Co-Chair Therriault WITHDREW his
OBJECTION to Amendment #2.
Representative Grussendorf OBJECTED to adopting Amendment
A roll call vote was taken on the motion.
IN FAVOR: Foster, Austerman, Bunde, G. Davis,
Therriault, Mulder
OPPOSED: Grussendorf, Moses, Williams
Representative J. Davies and Representative Phillips were
not present for the vote.
The MOTION PASSED (6-3).
Vice Chair Bunde MOVED to adopt Amendment #3, 1-LS0598\N.3,
Ford, 2/4/00. [Copy on File]. Mr. Tibbles explained that
the amendment was submitted by the Department of Education
and Early Development to clear up the statutes and reference
on basic need. He reminded members that there are four
factors which determine basic need. The Department believes
that it is important to reference all four of these
concerns.
WES KELLER, STAFF, REPRESENTATIVE FRED DYSON, replied that
the amendment was a housekeeping measure. Co-Chair
Therriault stated that from previous conversations with
Representative Dyson, he did not have an objection to the
amendment. There being NO OBJECTION, Amendment #3 was
adopted.
Vice Chair Bunde MOVED to adopt Amendment #4, 1-LS0598\N.4,
Ford, 2/3/00. [Copy on File]. Mr. Tibbles explained that
the amendment would delete the sunset clause. There being
NO OBJECTION, Amendment #4 was adopted.
BARBARA THOMPSN, DEPTY DIRECTOR, DIVISION OF TEACHING AND
LEARNING SUPPORT, DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT, spoke to the fiscal note. She stated that the
bill would expand the number of charter schools throughout
the State. The fiscal note would provide funding for that
endeavor. This legislation would institutionalize the State
program. Those people who intend to start a charter school
must have the expertise to help plan and implement that
endeavor and the fiscal note would provide for that. Co-
Chair Therriault questioned the need for a full time
education specialist at Range 21. Co-Chair Mulder added
that the Range 21 position would need a + time sectary. He
additionally, questioned the contractual $50 thousand
dollars requested to evaluate the effectiveness and success
of charter schools within Alaska.
Ms. Thompson advised that the contractual amount includes
funding for providing essential evaluations and covers costs
for the regular contractual agreement.
Representative Williams asked about the statewide acceptance
of the charter schools concept.
(TAPE CHANGE HFC 00 - 27, Side 2)
Ms. Thompson noted that there is a lot of interest in
concept of charter schools. She noted that it is obviously
indicated by viewing charter school applications from within
the Alaska schools districts. The bill will allow more
schools to start up.
Representative Williams observed that the bill would be
asking the State to spend more money. He questioned how the
additional funds would be spent and asked if there was
supporting material indicating that the charter schools are
doing well. Ms. Thompson replied that there has not been
funding available at any time to provide an extensive
evaluation.
Co-Chair Therriault pointed out that the legislation does
exist due to requests by constituents. Representative
Williams reiterated that there is additional funding
requested with the legislation. Co-Chair Therriault advised
that the fiscal concerns for the extra personnel would be
addressed at the end of session during Conference Committee.
Representative Grussendorf referenced Section 4(f). He
asked why would the school board approve another charter
school given the considerations of Section 4(f). He
believed that would curtail the growth of charter schools
throughout the State.
Mr. Keller replied that he did not think that would happen.
He commented that it is only fair that the local
contribution be distributed equitably. Most school
districts are distributing local contribution in excess of 4
mils.
Co-Chair Therriault agreed that Section #4 merited concern
with regard to compliance with federal guidelines.
Mr. Tibbles explained that at this time, he did not know if
Section #4 would cause complications with the federal
guidelines. Mr. Tibbles had not had an opportunity to speak
with the federal auditors regarding charging direct and
indirect costs. He noted that Section #4 would require that
the district itemize each service provided. In that each
service must be recorded, a potential exists that may
require itemization of the indirect costs. The problem with
that is the federal guidelines that determine how things
should be accounted for. It could be a problem if a charter
school "pushed" the school district to itemize the indirect
costs. Anchorage and Fairbanks school districts have
indicated that this could become an accounting "nightmare".
Without solid information from the auditors, Mr. Tibbles did
not know the scope of the problem this could cause.
In response to Co-Chair Therriault, Mr. Tibbles pointed out
that Legislative Legal has suggested options for language to
address this concern. He noted that language could be
included in the "exceptions" section for the indirect costs
by providing specific examples, or to add the language
"except for services that are not required to be itemized".
Representative Bunde asked if it should be included as an
amendment or simply stated through the intent of the
Committee. Co-Chair Therriault believed that it should be
placed in the "exceptions" section as recommended by
Legislative Legal.
Representative Austerman spoke to the library funds coming
to the charter school. Mr. Keller stated that the sponsor
assumes that the school district and the charter school
would be negotiating and that the final decision would be
decided at the local level between the charter school and
the school district.
Mr. Tibbles reiterated the suggestion provided made by
Legislative Legal Services which would place the information
either under the "exceptions" or on Page #3, Line 12,
following the word "itemized".
Co-Chair Therriault MOVED a conceptual amendment which would
add to the list of exceptions that the itemization not be so
specific that it would run counter to the federal
guidelines. Mr. Keller replied that Representative Dyson
would support that change. There being NO OBJECTION, a
conceptual Amendment #5 was adopted.
Co-Chair Mulder MOVED to report CS HB 191 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Austerman
OBJECTED. He stated that his understanding of charter
schools was that they were not suppose to cost the State any
more money than that based on the student count. He warned
that he was additionally, "nervous" about the Section #4
allocation.
Representative Williams OBJECTED to the amount of money
proposed to be spent. He added that the sunset clause
should have remained in the bill. Representative Williams
voiced concern that charter school students might not be
adequately educated, while at the same time spending more
money per student.
Co-Chair Therriault advised that he had indicated to the
Department that they should not begin spending the money as
proposed in the fiscal note. He foresaw a reduced fiscal
note. Co-Chair Therriault invited Representative Williams
to propose a reduction to the fiscal note at this time.
Representative Williams asked how that action would affect
the charter school system and how it could be tracked. He
recommended that the existing charter schools be more
closely watched for the next year or two to see how well
they are performing.
Representative Grussendorf stated that he did not know why a
school board would find any incentive to expand the charter
school system with the inclusion of Section #4.
Additionally, he warned of the repercussions of not giving
the Department adequate funding to cover the fiscal notes to
determine accountability. He stated that he could not
support the proposed legislation given these concerns.
Ms. Thompson echoed Representative Grussendorf's concern in
not funding the fiscal note to provide for the evaluation
effectiveness study. She emphasized that there are more
charter schools "coming on board" each year. The school
district must be providing more evaluation on the
effectiveness with the proposed increases to charter
schools. She stressed that it is important to have
expertise and evaluation at the State level.
A roll call vote was taken on the motion to move the bill
from Committee.
IN FAVOR: Williams, Bunde, G. Davis, Foster, Mulder,
Therriault
OPPOSED: Grussendorf, Moses, Austerman
Representative Phillips and Representative J. Davies were
not present for the vote.
The MOTION PASSED (6-3).
CS HB 191 (FIN) was reported out of Committee with a "do not
pass" recommendation and with a fiscal note by the
Department of Education and Early Development.
HOUSE BILL NO. 268
An Act relating to the Alaska Higher Education Savings
Trust; and providing for an effective date.
REPRESENTATIVE LISA MURKOWSKI explained that Alaska, through
the student loan program and the Advance College Tuition
program has traditionally offered its residents seeking
higher education, solid financial options. HB 268 continues
this trend and will allow residents and non-residents alike
the ability to put money into a trust fund to be used for
higher education expenses. The bill will ensure that
Alaskans will continue to have flexible and powerful
financial options to utilize for their higher education.
Representative Murkowski continued that under IRS Code 26
USC 529, commonly known as "Section 529", it is recorded
that states are allowed to create "qualified State tuition
programs". Section 529 defines "qualified State tuition
program" as a program established and maintained by a state
or an agency under which a person may either purchase
tuition credits or certificates on behalf of a designated
beneficiary. That then entitles the beneficiary to the
waiver or payment of a qualified higher education expense
for the beneficiary, or they may make contributions to an
account that has been established for the purpose of meeting
the qualified higher education expenses of that designated
beneficiary.
Representative Murkowski continued that HB 268 would
establish a qualified State tuition program. The program
would be administered by the University of Alaska and would
be known as the "Alaska Higher Education Savings Trust".
The bill would also change the structure in order to conform
to the new IRS codes and changing the name of the program to
the Advance College Tuition Savings Fund. In order to keep
the overhead down and the record keeping and marketing costs
to a minimum, HB 268 would place both programs under one
administrative head. Representative Murkowski urged members
to pass the bill from Committee.
Co-Chair Therriault asked about "rolling" the program into
the University services.
JIM LYNCH, INTERIM VICE PRESIDENT FOR FINANCE, UNIVERSITY OF
ALASKA, FAIRBANKS, explained Section #529 and the federal
regulations of that section. He noted that in 1996, he had
participated in the drafting of Section #529. Mr. Lynch
stated that he had argued the tax-exempt status to the
University's Advanced College Tuition (ACT) program before
the National Office of the Internal Revenue Service (IRS).
He added that the University of Alaska administration is in
support of the proposed legislation. The institutions could
use that are eligible for federal financial aid purposes.
He added that the legislation would support education by
subsidizing programs and making loans available. He
commented that the legislation would encourage prospective
students to save in advance for college.
Co-Chair Therriault asked if the bill would dismantle the
current University program. Mr. Lynch explained that the
legislation would add a higher education trust and would
modify the ACT program from a tuition program to a savings
program.
Mr. Lynch provided background history regarding the
legislation. He noted that there are essentially two types
of savings programs. The first is a prepay program; the
other is like a defined benefit pension plan. Mr. Lynch
pointed out that the first state program made available was
in Michigan in the late 1980's. Michigan established a
prepaid tuition program and filed with the IRS for exempt
status. The IRS came back and told them that they were a
taxable entity. It took five to six years for the State of
Michigan to win the appeal of the program. The Alaska
Program was started in 1991, and was designed to be tax
exempt to accomplish some of the items listed in Section
Mr. Lynch spoke to the taxable criteria of the tuition
costs. He noted that there have been gift tax exemptions
built in and tuition credits for the kids as a completed
gift. They would qualify for the $10,000 dollar gift tax
exclusion. He added that the program is deeply connected to
the University, as it is an unrestricted liability of the
University. The intent of this was to make the organization
exempt. The IRS never accepted any of the arguments
maintaining that these were loans by citizens to the
University and the increase in value was essentially
interrupting income to those individuals. At that time, the
Alaska Program was running and the IRS lost its case against
the State of Michigan. Following that, various states got
together and passed Section #529 in 1996.
Mr. Lynch noted other events which had occurred regarding
the concern. In 1998, the Alaska Legislation passed the
Alaska State Trust Act, which does provide a creditor
protection vehicle to be associated with it.
Mr. Lynch explained that Section #529 basically exempts
State programs and that private entities would not be able
to issue to them. The earnings are tax deferred and the
beneficiaries are the ones taxed on this money. Mr. Lynch
pointed out that there are a number of state tax break
benefits that are associated with it. There is a special
averaging provision which allows a person to put up to
$50,000 into one of these accounts for a beneficiary and
then take the exclusion for the next five years. For a
husband and wife, that means that they could put $100,000
dollars aside for a child's education.
Mr. Lynch added that there are some generational "skipping"
provisions within Section #529, intending that no generation
be skipped. He stated that it is one of the few vehicles
in which you can make a gift and continue to control it and
then take it back from the beneficiary. The other advantage
to Section #529 is that there are no income limitations on
who can put the money into the fund. He pointed out that
after Section #529 passed, there was an "explosion" in the
number of college savings programs.
Mr. Lynch advised that the bill would create one
administrative structure within which to manage two
programs.
? The advanced college tuition program; and
? The higher education trust.
The bill would help to combine the benefits of Section #529
with the creditor protection trust laws in Alaska. It would
help complete the transition of the ACT program from a
prepaid to savings program. Savings vehicles have special
treatment in terms of determining what the taxable portion
of the earnings are under those savings and the treatment
for federal financial aid purposes. Mr. Lynch pointed out
that the bill would allow the two programs to develop on a
complimentary basis, while at the same time, it would allow
for one record keeper.
Co-Chair Mulder commented that the main advertisement was
somewhat misleading, indicating that the money would be tax
deferred. Mr. Lynch replied that a person pays tax on the
money when it goes into the account. Co-Chair Mulder asked
what would happen if the child decides that they are not
going to school. Mr. Lynch explained that in Alaska Plan,
they could not get the funds out of the account unless they
go to school and instead, the money would revert back to the
grantor of the trust. Mr. Lynch added that the granter of
the trust could change the name of the child as long as it
is a member of the family.
Co-Chair Therriault inquired if the funding would reflect on
the child's assets for federal college assistance. Mr.
Lynch replied that at this point, that decision has not been
made. Many of those decisions will be left up to the
individual. He noted that they would receive better
treatment than through the prepaid tuition. Mr. Lynch
testified that unfortunately, the financial aid rules do
penalize for saving. That can not be avoided at this time.
He acknowledged that it is not clear how a savings program
will be treated down the road.
(TAPE CHANGE, HFC 00 - 28, Side 1)
Mr. Lynch noted that this would have to be limited to
eligible institutions. Eligible institutions are defined
within code Section #529 as a "Group of institutions that
qualify for federal financial aid as of the date the act was
passed". Co-Chair Mulder asked if Alaska Vocational
Technical Center (AVTEC) would qualify. My Lynch understood
that the school in Seward did not initially qualify,
however, they do now.
Vice Chair Bunde thought that the legislation would
encourage more students to leave the State. Mr. Lynch
agreed that there needs to be more incentives to encourage
students to go to college within the State of Alaska.
Mr. Lynch stated that through the Advanced College Tuition
program, there is a guarantee that if you come to school at
the University of Alaska, you would receive education at
that equivalent, at some point in the future. Vice Chair
Bunde reiterated that the money from this program could be
used for attendance of any school throughout the United
States. He believed that it would encourage more "brain
drain" from Alaska.
Co-Chair Therriault pointed out that these funds are
portable. Mr. Lynch replied that it is difficult to get
people to buy into a program isolated to the University of
Alaska. He emphasized that incentives need to be provided.
ANNE ALLEN, SENIOR COUNCIL, SECTION #529, GOVERNMENT
RELATIONS DEPARTMENT, TIAA-CREF, New York, (TESTIFIED VIA
TELECONFERENCE), offered to provide a resource of
information to Committee members. She encouraged Alaska to
offer this program. She stated that these are flexible
programs and they can be used for any type of higher
education including vocational schools, technical schools,
and would cover the costs for room, board and books. She
noted that there are a wide variety of donations that can be
make to this program. The accounts act somewhat like a ROTH
IRA and are affordable.
She stressed that it is important to encourage these
programs and that a lot of states do have the tax deductions
and incentives to attract people to their state program.
She emphasized that Alaska would be carving out its own
niche. She explained that the age of the beneficiary would
determine the investment risk and that various risk factors
could be considered. Ms. Allen pointed out that account
owners can not move money around.
Ms. Allen referred Page 2, pointing out language that
indicates that there can be multiple investment managers to
an account. She noted that at this time, there is only one
state that has multiple mangers. She noted that there has
been negative testimony regarding the use of multiple
managers. She proposed that the multiple investor's concept
could lead to increased costs to the participants. Ms.
Allen concluded that HB 268 is a good bill and urged the
Committee's support.
Vice Chair Bunde asked if the main difference between HB 268
and parents putting money into their own mutual fund would
be that the earnings would be taxed deferred. Ms. Allen
agreed that it would be tax deferred on the federal level.
She emphasized that whom ever opens the account, would have
the assurance that this money would be used for education.
Additionally, she noted that there is a "potential" to
receive a higher investment at the state level.
Representative Austerman questioned the fiscal note and the
indicated interest earnings. Mr. Lynch replied that he had
prepared the fiscal note for the University conceptually
creating a business plan. The product must first be
established. He added that the fiscal note would be
providing for the child's education and plans for a future
event. The restrictions on Section #529 are that you only
choose once. He agreed with Ms. Allen that the cost would
be the key point.
Mr. Lynch explained that initially, the State will need to
adopt a business plan by undertaking an analysis of what
other states have done. Attorney fees will be accessed in
establishing a complicated trust. Securities and Exchange
Commission (SEC) will depend on how the program is marketed.
The intent is to take the $25 million dollars in the ATC
program and combine these two programs for record keeping
and investment and then use today's program as a carrot for
the providers. He noted that what makes the program work is
the volume and the earnings from that the program would be
used to support it.
Co-Chair Therriault asked if the existing program would be
converted. Mr. Lynch explained that the bill would make a
common administrative structure for the two programs. Co-
Chair Therriault asked if the programs would remain
separate. Mr. Lynch replied that they would. One is a
formal trust program and the other is a contract.
Representative Austerman assumed that the operating cost of
$100 thousand dollars would cover the cost of one employee.
Mr. Lynch replied that most of the costs would be out-
sourced. Otherwise, it would be contracted out with a major
consolidator, as they know how much it will cost to manage
the money. After that, it is important to access what
services you expect to receive from the provider. The
question is what the fee would be used for to determine the
investment returns.
Co-Chair Therriault asked if this would be similar to the
Supplemental Benefits System (SBS) portfolio. Mr. Lynch
explained that the investment program can not be changed.
Most programs are set up based on the age of the
participant. This would be the same concept as the Alaska
Target 2005, 2010, or 2015. You would be required to choose
the asset allocation and stick with it.
Co-Chair Therriault asked at what age a child is no longer
paying at the parent's rate of unearned income.
Representative Murkowski replied that was at age 14. Mr.
Lynch replied that the child would not be paying until the
money is withdrawn.
Representative Austerman questioned how the program would
work. Mr. Lynch replied that the sponsor would receive a
portion of the fund for the investment work. He explained
that you have to invest money to receive it. The larger the
fund becomes, the more will be received. Co-Chair
Therriault inquired who the sponsor would be. Mr. Lynch
replied that would be the State of Alaska or the University
of Alaska. He noted that there are a couple of ways that
the fees come in. The provider will set the fee amount for
establishing the account. He added that there are fee
revenues associated with the plan.
Representative Austerman pointed out that the income
received back would be determined by how the market was
doing. Mr. Lynch replied that even if the mutual fund is
loosing money, the manager would still be receiving their
fees. Representative Austerman questioned how the
percentage fee would be determined.
Mr. Lynch replied that this would be an account opened for
the child through the sponsor. Representative Austerman
asked if the remaining amount, after the cost for running
the program, would be issued to the participants. Mr. Lynch
replied that there is no guarantee that a specific amount
would be received. Mr. Lynch acknowledged that it will take
a while to obtain the objective for the invested money. If
the fund is doubled, the program would pay for itself.
Representative Austerman asked if the plan is not paying for
itself, who is paying for it. Mr. Lynch replied that the
University would be subsidizing the program initially.
Vice Chair Bunde requested to see the revenue neutral. He
believed that the program would be subsidized by the State.
He pointed out that manager fees will always be included.
He added that there is a potential liability to be able to
pay the managerial fees. Mr. Lynch stated that the
subsidized costs would not be to the managerial fees. The
upfront costs would be used for consulting and attorney
costs to establish the program.
Mr. Lynch noted that the purpose of the Alaska Prepaid
Tuition Program (APPTP) program is to help change the view
of parents and children and to get them thinking about
higher education. Mr. Lynch stressed that program does have
the potential to grow. HB 268 recommends a defined benefit
program that will go up with inflation and tuition and
providing a guaranteed education program.
Co-Chair Therriault noted that HB 268 would be HELD in
Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 3:50 P.M.
H.F.C. 18 2/07/00
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