Legislature(1999 - 2000)
04/11/2000 03:15 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE April 11, 2000 3:15 P.M. TAPE HFC 00 - 112, Side 1 TAPE HFC 00 - 112, Side 2 CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 3:15 p.m. PRESENT Co-Chair Mulder Co-Chair Therriault Representative Foster Vice Chair Bunde Representative Grussendorf Representative Austerman Representative Moses Representative J. Davies Representative Phillips Representative G. Davis Representative Williams ALSO PRESENT Diane Barrans, Executive Director, Postsecondary Education Commission, Department of Education; Karen Rehfeld, Director, Division of Education Support Services, Department of Education and Early Development; Carl Rose, Executive Director, Association of Alaska School Boards; Diane Barrans, Executive Director, Postsecondary Education Commission, Department of Education; Sheila King, Finance Officer, Alaska Student Loan Corporation; Carol Carroll, Director, Division of Support Services, Department of Natural Resources; Marie Marx, Staff, Senator Leman. TESTIFIED VIA TELECONFERENCE Milton Byrd, President, Charter Community College; Jon Stolle, President, American Institute of Architects, Anchorage; John Davis, Superintendent, Bering Straight School District, Unalakleet; Major Thomas, Member, Alaska National Guard; Richard Turcic, Division of Administrative Services, Military and Veterans; General Thomas Westall, Alaska National Guard, Glennallen; Major Richard Thomas, Alaska National Guard. SUMMARY HB 211 "An Act relating to liability for providing managed care services, to regulation of managed care insurance plans, and to patient rights and prohibited practices under health insurance; and providing for an effective date." HB 211 was Postponed. HB 281 "An Act providing for the issuance of general obligation bonds in the amount of $665,000,000 for the purposes of paying the cost of design, construction, and renovation of public elementary and secondary schools, renovation of state buildings, capital improvements at the University of Alaska, and capital improvements to state harbors; and providing for an effective date." HB 281 was Postponed. HB 331 "An Act relating to payment, allowances, and benefits of members of the Alaska National Guard and Alaska Naval Militia in active service; relating to computation of certain benefits for members of the Alaska State Militia; and providing for an effective date." CSHB 331 (MVA) was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Military and Veterans Affairs. HB 373 "An Act relating to return of contributed capital, or payment of a dividend, to the state by the Alaska Student Loan Corporation; and providing for an effective date." HB 373 was REPORTED out of Committee with "no recommendation" and a zero fiscal note by the Department of Education and Early Development. HB 445 "An Act relating to a rural school construction and planned maintenance pilot program; and providing for an effective date." HB 445 was heard and HELD in Committee for further consideration. CSSB 247(FIN) "An Act relating to eligibility of certain persons who receive veterans' benefits for longevity bonus payments; and providing for an effective date." CSSB 247 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Administration, published date 3/20/00. CSSB 275(HES) "An Act relating to the school year for purposes of the postsecondary student loan program; and providing for an effective date." CSSB 275 (HES) was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Education and Early Development. CS FOR SENATE BILL NO. 275(HES) "An Act relating to the school year for purposes of the postsecondary student loan program; and providing for an effective date." Representative J. Davies observed that he further reviewed the bill and is comfortable with the language. Co-Chair Mulder MOVED to report CSSB 275 (HES) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSB 275 (HES) was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Education and Early Development. HOUSE BILL NO. 445 "An Act relating to a rural school construction and planned maintenance pilot program; and providing for an effective date." Co-Chair Mulder spoke in support of HB 445. He observed the expense and difficulty of building in rural Alaska. The legislation creates a pilot program to see if there is a better way to build schools in rural Alaska. He pointed out that there are four functions involved in building: financing, design, construction, and maintenance and operation. He maintained that these four functions tend to be segregated. Each has its own contingency. The biggest contingencies are generally in design and construction and can range up to 15 percent. Bonds are sometimes let far in advance of when the money is actually needed for the project. There are no time limits between when bonds are let and when the money is needed. He maintained that there would be less money lost through interest paid if the time between the bonding and building were reduced. Co-Chair Mulder summarized that the bill unites the four facets of school construction under one umbrella and reduces costs associated with timing, contingency-planning dollars, and change orders. The goal of the bill is to have school construction without change orders. The bill provides coordination and allows all components to work together, while building a facility to the specifications of the school district and employing local hire standards without contingencies and cost overruns. This process is not new to the private sector. Co-Chair Mulder explained that the legislation would authorize the department to enter into a RFP process to see if there are entities that would bid as a package and oversee the construction as a package in order to guarantee savings to the state of Alaska. In response to a question by Representative Grussendorf, Co- Chair Mulder noted that he worked with the department and other individuals on the legislation. He maintained that the department wants direction from the legislature. He did not anticipate that there would be a fiscal impact note accompanying the legislation. Co-Chair Therriault observed that the department did not anticipate submitting a fiscal impact note. A House Finance Committee zero fiscal note would be submitted with the bill. Representative Phillips recalled discussions, which indicated that the management contractor would oversee the project for three years after its completion. The legislation provides for "a private sector facility maintenance plan" for "a period of time following completion." She questioned if a "period of time" was included over a "three-year period" because it is a test project. Co-Chair Mulder agreed that the anticipation is that there would be supervision for a three-year period following completion. He thought that the department would like to have some flexibility in regards to the "warranty" period. Representative Austerman referred to a handout provided by Co-Chair Mulder titled Rural Schools Capital Construction and Planned Maintenance Pilot Project (copy on file.) Co- Chair Mulder observed that Mark Pepper, was the consultant. Representative Austerman noted that the legislation pertains to all schools. He emphasized that schools in Kodiak would have different needs than schools in Nome. Co-Chair Mulder pointed out that the legislation reads: A request for proposals required under this subsection must solicit proposals for development of all school construction projects funded for construction in fiscal year 2001 and located within rural educational attendance areas. He observed that Kodiak is not within a rural educational attendance area. He noted that there are existing designs for many of the schools that are on the list. The intent is not to impose a prototypical design, but to have proper management of the design, construction and maintenance phases in order to increase efficiency and reduce change orders. Representative Grussendorf recalled similar legislation in a previous year. Representative J. Davies referred to page 2, line 10 and questioned the definition of "development". Co-Chair Mulder responded that the intent is to provide management, but that development was used because it is more encompassing. Representative J. Davies pointed out that the legislation focuses on FY01 construction projects and that projects may take more than one fiscal year to complete. Co-Chair Mulder clarified that the legislation pertains to projects that are funded in fiscal year 2001. The legislation would be a pilot program. He observed that some communities do not have much experience with school construction. The intent is to provide assistance and technical oversight to make sure the state gets the best value for its dollars. Representative J. Davies expressed concern that each school be put to bid as an individual package, so that different people around the state might work on the projects. Co-Chair Mulder affirmed that it was his intent that the projects are put out as separate bids and not focused toward one entity. Vice Chair Bunde expressed concern that savings can be realized through an economy of scale. Co-Chair Mulder stressed that most of the projects have completed the design phase. In response to a question by Vice Chair Bunde, Co- Chair Mulder observed that he did not know how many schools would be affected. Representative G. Davis acknowledged the use of prototypes but emphasized concerns regarding local input. JON STOLLE, PRESIDENT, AMERICAN INSTITUTE OF ARCHITECTS, ANCHORAGE testified via teleconference. He expressed concern that there had been insufficient debate on the bill. He added that there are unsubstantiated claims that the traditional method is slow and costly. He maintained that the selection criteria seems to be narrowly crafted and would exclude many design firms in Alaska. He emphasized that there are few entities that would meet all of the qualifications. He asserted that there are checks and balances in the current system and recommended that the legislation be held for further consideration. DR. JOHN DAVIS, SUPERINTENDENT, BERING STRAIGHT SCHOOL DISTRICT, UNALAKLEET testified via teleconference. He expressed concern that the legislation would affect FY01 construction. He observed that most of the projects that would be funded in FY01 would already be in the design phase. It would cost additional money to reengineered or rethink design plans. He expressed support for legislation that would remove the school district from the responsibility of constructing buildings. He stressed that they have been able to achieve cost savings through the use of a single architect on several projects. He pointed out that many schools built under the Bureau of Indian Affairs are prototypical in design. Co-Chair Mulder emphasized that the legislation is not an effort to force prototypical design. He acknowledged that there are three projects in Unalakleet that have gone through the design phase. KAREN REHFELD, DIRECTOR, DIVISION OF EDUCATION SUPPORT SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT testified in support of the legislation. The department supports the overall goal to efficiently manage school construction projects, to reduce costs, and to maximize the dollars available for schools. She observed that the department has had discussions with Co-Chair Mulder and his staff regarding the school construction management pilot program in HB 445 and understands that it is the intent to implement a pilot program for school construction projects that are funded in FY01. Ms. Rehfeld pointed out that the department does not know which projects would be included. The pilot appears to only involve REAA school district projects. There are concerns with the timing, preparing the RFP and some of the technical issues. There are some details that would need to be considered in order for the pilot program to be successful, but the department is supportive of efforts to address school construction. CARL ROSE, EXECUTIVE DIRECTOR, ASSOCIATION OF ALAKSA SCHOOL BOARDS expressed concerns with the legislation. He referred to experiences with cost overruns relating to a school built in Skagway. He stressed that availability of funds contributed to cost overrun problems. He observed that he was the president of an insurance company that replaced four schools that burnt down. He stressed that schools were replaced with the assistance of an architect and a contractor. It was in the insurance company's best interest to replace the schools promptly. He maintained that adequate funding reduced cost overruns. He stressed the need to identify the problem and cost. He questioned what insurance is there that equity and fairness would be provided in terms of the distribution of jobs. In response to a question by Co-Chair Mulder, Mr. Rose observed that schools are insured for replacement costs. Replacement costs are adjusted for a variety of factors. The company worked with the communities in all but one case the cost was contained. The needs of a community were balanced. Co-Chair Mulder pointed out that savings could be realized if there is someone responsible to assure that shipments are timely. Mr. Rose stressed that the availability of funding is the major issue. Costs would have increased if they had spread the work between seasons. He reiterated concerns regarding issues of fairness and questioned if the work would be single source to one person. Co-Chair Mulder spoke in support of providing sufficient funding for projects. Vice Chair Bunde stressed that the goal is to produce school buildings and not provide economic development. Mr. Rose responded that the issue is between a sole source contract and competitive bid. Co-Chair Mulder stressed that the department would protect competition. Representative Williams referred to a tribal government program where the tribe manages the construction of schools and provides local hire. The federal government pays for the local hire portion. Co-Chair Mulder stated that he would look into the concept. Representative J. Davies recommended that the bill require two or three private sector developers with different expertise in different areas of the state. He also suggested that there be some cost analysis regarding how the legislation would save money. Representative J. Davies questioned if the second use of "price" in line 16 was redundant. He also suggested that there be a sunset provision to remove pilot program from statue. Co-Chair Mulder emphasized that the department has the ability to implement the without legislation, but observed that the department prefers to have legislative direction. Representative J. Davies noted that some design firms have indicated concerns with the speed in which the legislation has advanced and the qualification list in subsection 2. (TAPE CHANGE, HFC 00 - 112, SIDE 2) Co-Chair Mulder emphasized that he is open for suggestions. HB 445 was heard and HELD in Committee for further consideration. HOUSE BILL NO. 373 "An Act relating to return of contributed capital, or payment of a dividend, to the state by the Alaska Student Loan Corporation; and providing for an effective date." DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION COMMISSION, DEPARTMENT OF EDUCATION testified in support of the legislation. She observed that the legislation reflects the growing financial stability of a unique, longstanding and valued Alaskan program "the Alaska Student Loan Program". She read from a prepared statement: As you may already be aware, legislative and administrative changes to the Alaska Student Loan Programs made in recent years have resulted in the Alaska Student Loan Corporation transitioning from an enterprise agency operating with an annual net deficit to one producing an annual net income. This outcome has allowed the ASLC board to identify and prioritize several policy goals. In priority order, these goals are: 1) Continue in a direction of fiscal strength and good credit standing; 2) Continue to reduce the costs of borrowing for AK residents; 3) Continue to reduce the Corporation's equity deficit of $43 million; and 4) Propose a mechanism that, while subordinate to the top three priorities, makes possible a return of contributed capital to the ASLC's original financing source-the State of Alaska. The ASLC is already experiencing success in meeting these goals: in 1999 our improved financial standing was rewarded by a full ratings upgrade to double-A by both Moodys and Standard and Poors; the interest rate on 2000-2001 state student loans has been reduced to 8%, the lowest rate in several years; the interest-free borrowing while student-borrowers are in school remains intact; and, the Corporation's equity deficit has been reduced by almost $7 million over the past two years. In recommending this bill for your approval, our board is seeking a mechanism for the ASLC to fulfill its fourth goal. The bill provides that, in any year that the Corporation has at least a $2 million net income, the board will declare a return of capital payment to the State of between 10% and 35% of that income amount. This approach was developed and endorsed by the Corporation as one that is considered reasonable within the financial community as a conservative method of meeting this goal. The Corporation's senior staff and financial advisors met and discussed the proposal with both rating agencies and bond insurer to avoid any adverse impact to our credit standing or possible related increase in the cost of bond issuance. Their reaction has been positive-under the conditions that this bill would place in law. It is important for me to reference current proposals for the FY200 1 budget year that use ASLC receipts, in both the House and Senate versions of next year's budget, that make passage of this bill an imperative for the Corporation's wellbeing. Approval of this return of capital approach will pre-empt any concerns raised by this year's budget structure. Passage of this bill will insure that the Corporation's capital return payment is made without putting at risk the financial and public policy goals of the Alaska Student Loan Corporation. I have provided a handout that includes a Statement of Projected Revenues and Expenses that projects both current and future, through 2004, payment amounts. Also included are two graphs that illustrate the income trend and its impact on the Corporation's fund Equity Balance over that same time period (copy on file.) In response to a question by Vice Chair Bunde, Mr. Barrans reviewed the establishment of interest rates. When the program was funded through the General Fund there was a statutory interest rate, which was set at 5 percent and later increased to 8 percent. A formula was developed through legislative changes to tie the cost of borrowing to the cost of funds to the Corporation. The calculation has two pieces: a weighted average of the cost of bonds in the prior five years, and cost of the program operations. Vice Chair Bunde observed that the Commission's philosophy was, at one time, that the student loan should be the loan of last resort and that there were lower interest rates available through the federal government. Ms. Barrans responded that the program is a close competitor with the federal student loan program. Subsidized federal loans are still a better deal for students that qualify. The Alaska student loan program is close to the unsubsidized federal student loan and does not require income or asset qualifications. In response to a question by Vice Chair Bunde, Ms. Barrans stated that the best way to reduce the cost of loans to borrowers is to reduce the cost to run the program by: reducing losses, reducing administration costs, and to achieve better rates on bonds. The amount of capital the bill returns to the state does not materially affect the ability to reduce rates in the future. Representative J. Davies questioned if the Corporation had discussed reinstating credit on loans for returning students. The Alaska Student Loan Corporation has not engaged in the discussion. Ms. Barrans clarified that the focus has been on making up the ground that was loss in equity investment. She added that if the full equity were returned that discussions might occur. In response to a question by Representative J. Davies, Ms. Barrans observed that in the House version of the operating budget $1.6 million dollars of Student Loan Corporation receipts are appropriated to offset the cost of WAMI and a new program that would provide that would provided National Guard tuition credit. In the Senate $1.6 million dollars of Student Loan Corporation receipts are appropriated to fund the operation of the university. SHEILA KING, FINANCE OFFICER, ALASKA STUDENT LOAN CORPORATION explained surplus funds that are recycled into new loans. The Corporation must keep a level of collateral to meet their bonds covenants. Representative J. Davies questioned how much is available in the current fiscal year that would be used by the legislature. Ms. Barrans observed that the total appropriation of corporation receipts is $2 million dollars. The Senate worked with the Corporation. She observed that this is slightly less than the 35 percent that the Corporation would have available. Representative G. Davis noted that the transmittal letter from the Governor indicated that some of the earnings would go to the Alaska Scholars Program. Ms. Barrans acknowledged that the Governor recommended the use of funds for the Alaska Scholars Program but pointed out that funds have not been earmarked in a statutory way. The university on the Alaska Scholars Program could spend the funds. Vice Chair Bunde recalled that the University found funding for the first year of the Alaska Scholars Program and would look to the legislature to fund it for the next year. Ms. Barrans voiced strong support for the legislation. She indicated that this has been a joint effort. Representative J. Davies MOVED to report HB 373 out of Committee with the accompanying fiscal note. Vice Chair Bunde OBJECTED for the purpose of discussion. He pointed out that it is a twice-removed tuition hike, but that it is nice that the students support their university. He WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. HB 373 was REPORTED out of Committee with "no recommendation" and a zero fiscal note by the Department of Education and Early Development. HOUSE BILL NO. 331 "An Act relating to payment, allowances, and benefits of members of the Alaska National Guard and Alaska Naval Militia in active service; relating to computation of certain benefits for members of the Alaska State Militia; and providing for an effective date." CAROL CARROLL, DIRECTOR, DIVISION OF SUPPORT SERVICES, DEPARTMENT OF NATURAL RESOURCES provided information on the legislation and spoke in its support. The legislation changes the name of the Alaska State Militia to the Alaska State Defense Force. The legislation also changes the way pay is calculated for national guardsmen when they are brought onto state active duty. Presently, pay is calculated based on rank, years of service and added allowances. The basic pay from the federal government would be multiplied by 200 percent. This would streamline the administrative process without affecting pay of the members. The proposal was presented to and approved by the officers and enlisted men's associations. The legislation would also clarify in statute that the members of the Alaska State Defense Force should be paid as if they are state employees. They are currently handled as emergency employees. Representative Phillips spoke in the support of the bill and stated that she was ready to move the bill from Committee. MAJOR RICHARD THOMAS, ALASKA NATIONAL GUARD testified via teleconference in support of the legislation. He stressed that anything that can simplify procedures during disasters would be of assistance. He noted that the bill would make pay more timely and accurate. RICHARD TURCIC, DIVISION OF ADMINISTRATIVE SERVICES, MILITARY AND VETERANS AFFAIRS, ANCHORAGE testified via teleconference in support. He stressed that the current system is extremely complicated and emphasized that the new system would simplify and reduce the time needed to calculate pay. The legislation would also ensure timely payments. GENERAL THOMAS S. WESTALL, BRIGADOR, ALASKA STATE MILITIA, GLENNALLEN TESTIFIED via teleconference in support. The Alaska State Defense Force is a trained military service that principally trains in the field of mobilization. The defense force can mobilize in 24 hours. There are three trained soldiers assigned specific jobs in the State Emergency Coordination Center. The Alaska State Militia has operated in almost every disaster that the state has been involved in over the past 16 years. The soldiers are civilians in their normal capacity. They need protection of their civil jobs, which is provided under AS 24. These soldiers are not looking for compensation. He noted that they have been committed for extended periods of time. The Division of Emergency Services would have to hire staff to do the task that the State Defense Force has traditionally done. Emergency Services would not be able to operate 24 hours a day without exhaustion. Vice Chair Bunde noted that there is a zero fiscal note accompanying the bill. Representative Phillips MOVED to report CSHB 331 (MVA) out of Committee with the accompanying fiscal note. CSHB 331 (MVA) was REPORTED out of Committee with a "do pass" recommendation and with a zero fiscal note by the Military and Veterans Affairs. CS FOR SENATE BILL NO. 247(FIN) "An Act relating to eligibility of certain persons who receive veterans' benefits for longevity bonus payments; and providing for an effective date." MARIE MARX, STAFF, SENATOR LEMAN spoke in support of the legislation on behalf of the sponsor. She observed that Senator Leman was contacted by constituents regarding the loss of the longevity bonus to veterans entering nursing homes because their stay in the nursing home was being paid by their veteran's benefits. The Division of Longevity Bonus' interpretation of a private source was the cause of the problem. "Private source" is anything paid directly by an individual. If an individual's care is paid by a private source they are able to keep their longevity bonus check. Senate Bill 247 restores the eligibility of certain veterans who are being cared for in nursing homes to receive longevity bonus payments. Veterans' benefits are federal benefits earned by those who have served our country in the armed forces. It is not fair to include veterans' benefits in the same category as needs-based state benefits such as Medicaid, the receipt of which disqualifies a nursing home patient from receiving longevity bonus payments. The longevity bonus payments are prospective from the time of re-qualification; the bill is not retroactive. Those veterans disqualified under the existing statute could reapply for qualification for bonus payments beginning July 1, 2000. Six veterans are estimated to be affected by the bill and the estimated cost is $12 thousand dollars. Representative Williams MOVED to report CSSB 247 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSB 247 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Administration, published date 3/20/00. ADJOURNMENT The meeting was adjourned at 4:40 p.m.