Legislature(2001 - 2002)
02/13/2002 01:42 PM House FIN
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* first hearing in first committee of referral
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HOUSE FINANCE COMMITTEE
February 13, 2002
1:42 P.M.
TAPE HFC 02 - 25, Side A
TAPE HFC 02 - 25, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:42 P.M.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
Representative John Davies
ALSO PRESENT
Representative Gary Stevens; Senator Alan Austerman;
Representative Drew Scalzi; Jeff Bush, Deputy Commissioner,
Department of Community and Economic Development; Eddy
Jeans, Manger, School Finance and Facilities Section,
Department of Education and Early Development; Carl Rose,
Executive Director, Association of Alaska School Boards
(AASB), Juneau; Sandro Lane, Board Chairman, Alaska Seafood
Marketing (ASMI), Juneau; Greg Favretto, Alaska Seafood
Marketing Board (ASMI), Anchorage; Jamie Ross, Alaska
Seafood Marketing (ASMI) Board, Homer; Rose Heyano, Alaska
Seafood Marketing (ASMI) Board, Dillingham; Dale Kelley,
Executive Director, Alaska Trollers Association (ATA),
Juneau; Randall Ruaro, Staff, Representative Bill Williams;
Leroy Cabana, Homer; Sherry Tuttle, Alaska Seafood Marketing
Board and the Alaska Trollers Association, Sitka.
PRESENT VIA TELECONFERENCE
Gary Baldwin, Lower Kuskokwim School District, Bethel.
SUMMARY
HB 312 An Act relating to the delay of the reduction of
supplementary public school funding; and providing
for an effective date.
HB 312 was reported out of Committee with a "do
pass" recommendation and with fiscal note #1 by
Department of Education & Early Development.
HB 360 An Act making appropriations to the Alaska Seafood
Marketing Institute for generic salmon marketing;
and providing for an effective date.
HB 360 was HEARD and HELD in Committee for further
consideration.
#HB360
HOUSE BILL NO. 360
An Act making appropriations to the Alaska Seafood
Marketing Institute for generic salmon marketing; and
providing for an effective date.
REPRESENTATIVE GARY STEVENS stated that HB 360 would
appropriate $12 million dollars over the next five years to
boost the marketing of Alaska's salmon.
The Alaska salmon industry touches thousands of Alaska
families both along our coastline and in major cities. It
is the State's largest private employer and the lifeblood of
the coastal communities.
The salmon industry was severely impacted by the September
11th attack. The pipeline for fresh halibut froze. Prices
plummeted and the Alaska Seafood Marketing Institute (ASMI)
budget fell along with it.
Representative Stevens pointed out that the increase in fish
farms around the world has flooded the United State markets
and driven down the price of salmon to levels that are
jeopardizing Alaska's industry. Currently, ASMI is in the
second year of a federally funded program specifically
geared to combat the impact of farmed salmon on Alaska wild
salmon. The program will end in June 2003, just when it is
gaining momentum.
Representative Stevens noted that the appropriation for
ASMI, while not the only answer, could help to stop the
erosion of the market and help turn the tide against a
worldwide glut of cheap imported salmon in both the domestic
and overseas markets.
Co-Chair Williams noted that it was not his intent to move
the bill from Committee at this time.
SANDRO LANE, BOARD CHAIRMAN, ALASKA SEAFOOD MARKETING
INSTITUTE (ASMI), TAKU SMOKERIES, JUNEAU, voiced support for
HB 360. He addressed his comments to the reduction in ASMI
funding that has occurred in the last five years. ASMI is
facing approximately a 37% reduction in funds for marketing
salmon worldwide and that trend is continuing. It is
projected that the industry will be down 53% in the next
four years. No funding has come directly out of the general
fund appropriation since 1993. He requested that ASMI be
assisted in a time of industry need. The time to market is
when the industry is down.
Mr. Lane pointed out that the ASMI programs have been
viable. The State's competitors have dwarfed marketing
funds. Those competitors spend more than 10-fold what
Alaska does. ASMI is looking for a source of unrestricted
funds such as the Market Assistance Program (MAP) export
grant monies. Those grant funds are matched funds and are
not best serving the industry because they are restricted.
Mr. Lane urged Committee members to consider the request.
He pointed out that the entire ASMI Board was present at the
meeting. He added that the members of the ASMI Board
represent the entire State regions.
Representative Hudson inquired what the 1% tax would
generate for ASMI in the upcoming year.
Mr. Lane explained that it would generate $1.8 million
dollars. That number is down from $3.6 million dollars in
FY00. Those funds are domestic monies and cannot be used to
leverage export-marketing funds. It is restricted money.
In response to Vice-Chair Bunde, Mr. Lane recalled that $54
million dollars in raw fish tax was paid last year.
GREG FAVRETTO, BOARD MEMBER, ALASKA SEAFOOD MARKETING
INSTITUTE (ASMI), ANCHORAGE, spoke to the declining revenues
that ASMI has been experiencing. He indicated that ASMI is
in unanimous support of a self-imposed tax. ASMI does need
the funding support from the Legislature in order to impact
that which is taking away market shares. He urged the
Committee's support. Mr. Favretto mentioned the huge impact
that the crisis in Central Alaska is experiencing.
JAMIE ROSS, BOARD MEMBER, ALASKA SEAFOOD MARKETING INSTITUTE
(ASMI), HOMER, noted that he was present at the meeting to
represent the coastal villager fishermen who are desperately
struggling with their current salmon crisis. The fishing
business is being extremely affected by the downturn in the
Japanese economy and the farmed fish competition.
Mr. Ross noted that ASMI has a deep commitment to the
fishermen and the hard work of the members of the
corporation. He pointed out that ASMI is using creative
methods to access federal matching funds. The fishing
problems cannot be solved in the face of such desperate
times. ASMI cannot exist without marketing money. That is
how HB 360 will help. He guaranteed that for every dollar
spent, there would be a measurable return.
Mr. Ross stated that the State of Alaska is facing an
incredible tragedy given the fishing disaster. The effects
of next summer will be dramatic from Bristol Bay and the
western coast of Alaska as the prices continue to slide.
HB 360 is a long-term plan to fill the gap. The fishing
industry needs bolstering in order for it to survive in the
State.
Representative Hudson mentioned the increased consumption
and farmed salmon opening into new markets.
Mr. Ross replied that one of the biggest sections of growth
in this country is farmed-fillets. Some regions are hoping
to enter into that fillet market and that could be done
domestically. However, without the bolstering of the 1%
tax, Alaska will not be able to enter into that arena.
ROSE HEYANO, BOARD MEMBER, ALASKA SEAFOOD MARKETING
INSTITUTE (ASMI), DILLINGHAM, voiced strong support of HB
360. She noted that it is important to support marketing
and that the 1% tax could only be used for that purpose.
The fishing industry depends on the ASMI Board to make the
marketing of Alaska salmon possible. She stressed that
there is not another business in the State that could
replace the commercial fishing base, a major industry for
decades. She urged that support continue. Ms. Heyano
reminded members that the industry is sinking dramatically
and it needs the help of State officials.
Vice-Chair Bunde encouraged Committee members to support
marketing by taking samples of Alaska seafoods to out of
State national meetings and events. He stressed that
personal marketing is effective and suggested that the low
cost and personal advertisement would serve the industry
well.
Co-Chair Williams acknowledged that there is a problem in
the industry and that everyone does want to help with that
concern. He added that no one really knows how to address
the problem. He pointed out that Senator Austerman is
working on a bill to help the industry.
Co-Chair Williams reiterated that he did not know what to do
and how the funds should be spent. He reminded Board
members that the State also is in a spending crisis. He
hoped that some plan could be devised that would address the
crisis in the fishing industry.
Representative Hudson asked if the Administration had
submitted a plan which recognizes the need for special
assistance.
JEFF BUSH, DEPUTY COMMISSIONER, DEPARTMENT OF COMMUNITY AND
ECONOMIC DEVELOPMENT, stated that the Governor did submit a
plan that would provide $5 million dollars for ASMI. He
stated that the Governor does recognize the shortfall for
the salmon industry and realizes that there are no short
solutions for those problems. Marketing will need to be a
piece of any plan. Mr. Bush stated that HB 360 was part of
the necessary piece.
He added that the Governor has also proposed a regional,
international market analysis and research plan. It has
been suggested that those are pieces of a puzzle that could
turn into solutions. They need to be on the table as well.
DALE KELLEY, EXECUTIVE DIRECTOR, ALASKA TROLLERS ASSOCIATION
(ATA), JUNEAU, stated that the Alaska Trollers Association
(ATA) strongly supports State funding for the Alaska Seafood
Marketing Institute (ASMI). By phasing in that support over
a period of years, HB 360 offers the State an avenue to
support seafood marketing in a manner sensitive to the
State's current budgeting needs.
Recent years have brought a series of challenges for those
who harvest and market Alaska seafood. For instance,
fishermen have seen their bottom line ravaged by the rapid
rise of cheap subsidized farm salmon in the marketplace,
combined with numerous regulatory policies restricting their
access to salmon. Processors have struggled to maintain old
markets, and develop new, in the face of increased
production costs and the glut of farmed salmon.
She added that in 2000, Chile increased its export of farmed
salmon by 57%. Canada's new government has just lifted its
moratorium on new salmon farms. A look to Norway, Scotland,
Ireland, New Zealand, Iceland, and even the United States,
makes the future painfully clear "salmon farming" is here to
stay and we must find a way to compete. More farmed species
and product forms are in development and will further test
marketing skills. Now more than ever, the seafood industry
needs to identify its wholesome array of wild-caught fish as
uniquely different in the marketplace.
Ms. Kelly noted that obviously, the old methods of selling
seafood does not work in the face of the new-age market
threats. That is not expected to change, which necessitates
new strategies to reposition and expand our place in the
market. Well-crafted marketing programs are essential if
Alaska is to make buyers aware of the many fine seafood
choices available from here. Sound generic marketing
campaigns are essential to underpin any niche marketing that
individual fleets may choose to pursue.
She pointed out that seafood is Alaska's first industry. It
is the business that has directly and indirectly provided
more jobs and income than any other to Alaskans and the
State for well over 100 years. When the fishing industry
loses market share, the entire State feels the pain of
reduced employment and income for our communities and the
general fund. We harvest more fish in the State than most
countries and are competing head to head with entire nations
that invest millions and millions of dollars to market
fisheries product. This year, the Norwegian fish farm
industry estimates it will need $100 million to market in
the face of some of the problems it faces. Norway is
already known to invest $40 million plus each year to help
their industry move fish. Obviously they recognize a strong
reliance on seafood. She asked if there was a similar link
between Alaska seafood and the economic success of the
State.
In the face of significant market challenges, the seafood
industry still contributed $52 million dollars to the
general fund in FY01. The industry has tremendous potential
to do better with increased support and investment. The
industry has a working fleet of thousands, and most of them
are residents of Alaska, whose earnings are distributed
widely within the State. Even Anchorage, who is not
immediately identified as a fishing port, has over 900
permit holders and nearly 40 processing plants. Alaska
relies on the seafood industry.
Alaska fishermen are digging deep into their pockets during
this very lean time and choosing to support ASMI through
reauthorization of the marketing tax. Their 1% contribution
makes up a significant portion of ASMI's budget.
Regardless, the expectations for ASMI are not proportional
to its level of funding and the corporation is expected to
do too much with too little.
Ms. Kelly stated that considering the good things ASMI does
now, imagine what they could do with the State's help and
backing. She encouraged the Legislature to work in
partnership to ensure the long-term health of the industry
which has been a cornerstone of Alaska's economy.
Vice-Chair Bunde asked how many members working for the
commercial fishing industry would be willing to pay a
broader base tax to help run the State of Alaska.
Ms. Kelly noted that she did not have the answer to that
question, however, pointed out that a lot of taxes that come
into the general fund are coming out of the bottom line at
the dock. Fishermen pay a tremendous amount of tax and
that is money that is coming back through the general fund.
She pointed out that the Alaska trollers consist of 85%
resident participation. She did not know about the number of
non-residents and their contribution to the State coffers.
Vice-Chair Bunde understood that the commercial fleet
consisted of about 75% non-residents. He surmised that they
were not putting much of their money back into the economy
of the State.
Representative Hudson asked the value of the fishing
industry combining into one professional industry. He asked
how through the proposed legislation, would the value of
ASMI work in educating Alaska fishermen to seek different
markets. He inquired without those assets, how could they
"crack" into that market.
Ms. Kelly agreed that there was a correlation between ASMI's
program and other individual marketing schemes. ASMI
provides a base line of information, which would take a
tremendous amount of research for any firm to do on their
own. She stressed the value of ASMI.
Representative Hudson addressed quality and competition
within the foreign product. He thought that because of the
situation in the market, it is essential to determine new
ways for the State to remain in that market.
Ms. Kelly pointed out that quality is important and that is
what Alaska is known for. Many processors have acknowledged
that the State needs to shore-up the quality of the product.
She added that it is important that quality programs are
done sensitively. All of the fisheries in the State are
unique. There is not a one size fits all. She added that
any fleet could improve.
Representative Stevens thought that it was shortsighted to
think in terms that taxation could be costing the fishermen.
He noted that if ASMI did not exist, what would take its
place. What is available to support the marketing of Alaska
salmon.
He noted that in 1997, the last funds in the amount of $570
thousand dollars was provided for the ASMI program. The
funding received from the federal government for ASMI in
FY02 will be $4 million dollars and that will end in FY03.
The salmon marketing tax from fishermen was up as high as
$4.8 million dollars. That currently has dropped to $2
million dollars. The $4 million dollar processing tax will
be reduced to $2.8 million dollars. He highlighted the
large decreases in funding to that program. If $4 million
dollars is lost from the federal government, it will have a
terrible impact.
Representative Stevens stated that the proposed bill is
about "growing the economy". The funding will be used for
that purpose. The bill addresses the impact that it will
have on all fishing communities throughout the State.
Vice-Chair Bunde shared concerns with the State getting
involved with private enterprise.
Representative Stevens pointed out that tourism and fishing
are tied together. He asked how the State could support one
without the other.
LEROY CABANA, HOMER, spoke for the concerns of the common
commercial fishing person. He noted that ASMI has provided
the opportunity to move forward. Without ASMI, the industry
is not sophisticated enough to move forward. Fishermen are
too spread out geographically to organize. He referenced
the amount of raw fish tax and the contribution that the
commercial fishing industry has made to the State. He
thought that to provide funding to ASMI to help market fish,
helps to save actual tax dollars. As the value of the fish
goes down, the value of the contribution goes down.
TAPE HFC 02 - 25, Side B
SHERRY CUDDLE, BOARD MEMBER, ALASKA SEAFOOD MARKETING
INSTITUTE (ASMI), SITKA, commented that fish product carries
a message about the State of Alaska to the rest of the
world. She quoted the number of hours that many fisheries
put in order to make the industry work. She requested the
Committee's support for the legislation.
Co-Chair Williams stated that HB 360 would be HELD in
Committee for further consideration.
#HB312
HOUSE BILL NO. 312
An Act relating to the delay of the reduction of
supplementary public school funding; and providing for
an effective date.
RANDALL RUARO, STAFF, REPRESENTATIVE BILL WILLIAMS, stated
that HB 312 suspends the erosion on the "Supplemental
Funding Floor" established in SB 36 during the 20th
Legislature. Currently, the erosion effect takes some
school funds away from 22 school districts across the State.
The suspension will be in place pending the results of a
study of school district cost factors funded by this
legislature last session. The results of that study will be
available for consideration by the Legislature in
determining school funding for FY04.
Mr. Ruaro stated that the Supplemental Funding Floor is a
way to help school districts that lost funding in SB 36 make
the transition from the old community based funding formula
to the new school funding formula established by SB 36.
Mr. Ruaro pointed out that the supplemental funding floor
held school districts that qualified for less State funding
under SB 36 than under the old community based funding
formula "harmless". The districts were given additional
funds that represent the difference between the districts
old community based funding formula and the new school
funding formula established by SB 36.
However, as a school district qualifies for increased
funding, the school districts supplemental funding floor
continues until the school district no longer qualifies for
a supplemental funding floor.
Mr. Ruaro advised that HB 312 proposes to suspend the 40%
reduction to the supplemental funding floor for FY03 only.
The suspension will allow legislators to have current,
reliable, area cost differential information while
deliberating the FY04 budget. It will give the next
legislature the tools necessary to make sound and informed
school funding decisions based upon the best possible
information.
EDDY JEANS, MANGER, SCHOOL FINANCE AND FACILITIES SECTION,
DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, spoke in
support of HB 312. He stated that the legislation is a step
in the right direction to suspend erosion in the
supplemental funding until completion. He offered to answer
questions of the Committee.
Representative Lancaster asked if the bill would make any
district whole.
Mr. Jeans replied that was the intent and that it would
suspend the erosion for a one year period.
CARL ROSE, EXECUTIVE DIRECTOR, ASSOCIATION OF ALASKA SCHOOL
BOARDS (AASB), JUNEAU, spoke in support of the legislation.
He stated that the foundation formula has been adjusted in
the past. He mentioned that there are things that could be
done to make the foundation formula more perfect.
SB 36 moved the State from the unit factor into a per pupil
factor. As a result of the transition in that floor, the
State thought that we could remove 40% per student for
people that were covered by the floor. Moving away from
unit funding to per pupil funding has been done. He thought
that all students should be entitled to what they generate,
which is the issue before the Committee. He claimed that
this is an issue of fairness, equity and integrity. The bill
is the right way to go and it will be good for Alaska.
Additionally, it is only a one year extension to help deal
with area cost differentials.
Vice-Chair Bunde interjected if in the next year, would they
be arguing to reinstate the floor. He understood that the
floor was put in place because not all school districts
could justify the funding they got based on a per pupil
count. If the floor is removed, it will memorialize their
use of funds that cannot be justified on a per pupil count.
Mr. Rose responded that anytime you go into the foundation
formula, you create a situation in which the foot is larger
than the shoe. The shoehorn for SB 36 was the "floor".
That was intended to change the way that schools were being
funded and it was intended to have a dramatic impact on some
of the small schools. The economy of scale was such that
they could not deal with it. The bill does not injure
anyone, and would be covered equally by the funding floor.
SB 36 is part of the State's reality, and the issue of
adequacy needs to be addressed.
Representative Hudson asked if this would be a permanent
change.
Mr. Rose replied that in November 2002, there would be more
information on the district cost study. He stressed that
right now, there is a floor, which is penalizing growth. To
suspend that, it will provide an opportunity to deal with
"real" data to determine the real costs.
Representative Lancaster asked if the communities had come
forward requesting additional funding.
Co-Chair Williams responded that the communities have been
requesting it ever since SB 36 was passed.
Representative Whitaker questioned if "more kids were
getting less".
Mr. Rose explained that for those school districts that were
protected by the floor, which would have received less or
"held harmless", one of the stipulations was that any of the
additional students received only 40% of that allotment
would be withheld. HB 312 recognizes the hold harmless and
clarifies that if the pupil generates 100%, which it is
designed to do, then that is what should occur. At this
time, any new student only gets 60% of the money if
protected by the floor.
In response to Representative Whitaker, Mr. Rose explained
the rational for the protection was when moving away from
the unit, some of the smaller school districts were harmed
that did not have the benefit of the economy of scale.
Co-Chair Mulder explained the intent when the foundation
formula was being rewritten and that no district would
receive less money than they were currently receiving.
Under the new formula, they would receive more than they
were entitled to. To allow them to be able to grow into the
new formula, the operating floor was put in place. There is
a disproportionate amount of money received. He advised
that there are 20 schools impacted. Since the floor was put
in place, 15 schools have grown into the floor and are no
longer impacted by it.
Vice-Chair Bunde commented that they grew into the new
formula and away from the subsidy that they could not
justify by the number of students.
He added, any bill signed by the Governor will have input
from the Legislature and the Administration. The floor was
what made SB 36 work. The bill provided a percentage to the
smaller rural schools. SB 36 was a way to provide a subsidy
for those districts that could not justify the funding that
they needed. Those districts are getting 60% more, rather
than receiving 40% less.
Representative Croft suggested that the transition language,
the floor and the erosion, in SB 36 was "okay" if moving to
a new formula, if you have confidence that it is a better
one. As the State gets closer to having better data, it
became more obvious that relying on that floor for a year
did not make good sense. The criticism of the district cost
factor made it more difficult to justify the data. He
stressed that it became more important to have the good data
and that the McDowell study did not support the entire
weight that was put upon it. It now has become fair to
suspend action on that change until the full data is
available.
Representative Whitaker thought that it could impact the
appeal of the Kasayulie Court case.
Co-Chair Williams understood that Kasayulie case stipulates
that the Legislature has not funded the rural communities
adequately.
Co-Chair Mulder interjected that the Kasayulie case dealt
with construction dollars. The issue before the Committee
is in regard to SB 36. In SB 36, the final solutions were
crafted in the House Finance Committee. He added that it
has been contentious since the day it was signed. Under the
new formula, the new money is not warranted. The question
is if it is on merit warranted. He supported Co-Chair
William's recommendation that the Legislature be brought
forward from that original legislation. He hoped that next
year, with the area cost differential study, the State will
be looking at a rewrite.
Representative Whitaker commented for the record that it
should be made clear that the legislation under discussion
is not related to rural school construction and has nothing
to do with the Kasayulie case.
Representative Croft agreed that the legislation does not
deal with capital money, but rather an operating issue. The
legislation is unrelated to the Kasayulie case.
Vice-Chair Bunde suspected that when it goes to court, it
would be acknowledged that the Legislature had been
discriminating and handling the money fairly.
GARY BALDWIN, [TESTIFIED VIA TELECONFERENCE], ASSISTANT
SUPERINTENDANT, LOWER KUSKWIN SCHOOL DISTRICT, BETHEL, spoke
in support of the proposed legislation. He prefaced his
comments that the most important obligation for the State of
Alaska is in providing quality education for children. He
noted that he fundamentally disagreed with the basic
principles of SB 36. As inflation continues to eat away at
what the resources can provide to the students, the
districts need to receive the full benefits of the
increases.
Mr. Baldwin mentioned having a quality teaching staff. The
major teacher turnover in rural schools each year has a
negative impact on the ability to provide quality teaching.
Representative Hudson MOVED to report HB 312 out of
committee with individual recommendations and with the
accompanying fiscal note.
Vice-Chair Bunde OBJECTED. He commented that it if there is
extra money for spending, it should be added for all schools
and not just nineteen districts. He reminded members that
SB 36 brought $40 million dollars of new money into the
education system throughout the State.
A roll call vote was taken on the motion.
IN FAVOR: Foster, Harris, Hudson, Lancaster, Moses,
Whitaker, Croft, Mulder, Williams
OPPOSED: Bunde
Representative J. Davies was not present for the vote.
The MOTION PASSED (9-1).
HB 312 was reported out of Committee with a "do pass"
recommendation and with fiscal note #1 by Department of
Education & Early Development.
ADJOURNMENT
The meeting was adjourned at 3:00 P.M.
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