Legislature(2009 - 2010)HOUSE FINANCE 519

04/14/2010 08:30 AM House FINANCE

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-- Continued at 8:00 pm Today --
Heard & Held
Moved Out of Committee
Moved Out of Committee
Moved HCS SB 235(FIN) Out of Committee
Moved Out of Committee
Heard & Held
Moved CSHB 69(FIN) Out of Committee
Moved CSHB 317(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                      April 14, 2010                                                                                            
                         9:10 a.m.                                                                                              
9:10:51 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 9:10 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Mike Hawker, Co-Chair                                                                                            
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas Jr., Vice-Chair                                                                                      
Representative Allan Austerman                                                                                                  
Representative Mike Doogan                                                                                                      
Representative Anna Fairclough                                                                                                  
Representative Neal Foster                                                                                                      
Representative Les Gara                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Representative  Jay   Ramras;  Senator  Joe   Thomas;  James                                                                    
Armstrong, Staff,  Co-Chair Stoltze; Tim  Benintendi, Staff,                                                                    
Senator  Donny Olsen;  Devin  Mitchell, Executive  Director,                                                                    
Alaska  Municipal Bond  Bank,  Department  of Revenue;  Mark                                                                    
Davis,  Economic  Development   Officer,  Alaska  Industrial                                                                    
Development  and Export  Authority, Department  of Commerce,                                                                    
Community  and Economic  Development;  Senator Kevin  Meyer,                                                                    
Sponsor;  Jomo  Stewart,  Staff, Senator  Kevin  Meyer;  Sam                                                                    
Kito, School  Facilities Engineer, Department  of Education;                                                                    
Katie  Koester,  Staff,  Representative  Paul  Seaton;  Eddy                                                                    
Jeans, Director, School  Finances and Facilities, Department                                                                    
of  Education and  Early  Development; Representative  Chris                                                                    
Tuck, Sponsor;  Aurah Landeau, Staff, Representative   Chris                                                                    
Tuck;  Senator   Bert  Stedman,  Co-Chair,   Senate  Finance                                                                    
Committee,  Sponsor;  Senator   Joe  Paskvan;  Roger  Marks,                                                                    
Petroleum Economist,  Legislative Budget &  Audit Committee;                                                                    
Chuck  Logsdon, Petroleum  Economist,  Legislative Budget  &                                                                    
Audit   Committee;   Kevin  Brooks,   Deputy   Commissioner,                                                                    
Department  of  Administration;  Chris  Christensen,  Deputy                                                                    
Administrative Director, Alaska  Court System; Senator Lesil                                                                    
McGuire, Sponsor; Esther Cha,  Staff, Senator Lesil McGuire;                                                                    
Martha  Moore, Chair,  Alaska Brain  Injury Network;  Angela                                                                    
Salerno,   Division  of   Senior   &  Disability   Services,                                                                    
Department of Health and Social Services.                                                                                       
PRESENT VIA TELECONFERENCE                                                                                                    
Debbie  Baldwin, Director,  Division  of Child  Development,                                                                    
Rural  Alaska  Community  Action  Program;  Steve  Williams,                                                                    
Program Officer, Alaska Mental  Health Trust Authority; Jill                                                                    
Hodges,  Executive Director,  Alaska  Brain Injury  Network;                                                                    
Dr.  Christie   Artuso,  Director,   Neuroscience  Services,                                                                    
Providence   Alaska  Medical   Center,  Anchorage;   Kristin                                                                    
English, Chief Operating Office, Cook Inlet Tribal Council.                                                                     
HB 69     EARLY CHILDHOOD ED: PARENTS AS TEACHERS                                                                               
          CSHB 69(FIN) was REPORTED out  of Committee with a                                                                    
          "do  pass" recommendation  and  with attached  new                                                                    
          fiscal impact note by  the Department of Education                                                                    
          and Early Development.                                                                                                
HB 317    EDUC. FUNDING: BASIC/SPEC NEEDS/TRANSPORT                                                                             
          CSHB 317(FIN)  was REPORTED out of  Committee with                                                                    
          no recommendation, with a Letter  of Intent by the                                                                    
          Education    Committee,   and    with   previously                                                                    
          published fiscal notes: FN1 (EED), FN2 (EED).                                                                         
HB 421    PUBLIC EMPLOYEE SALARIES                                                                                              
          HB 421  was REPORTED out  of Committee with  a "do                                                                    
          pass" recommendation  and with three  attached new                                                                    
          fiscal impact notes by  the Legislature, the Court                                                                    
          system, and the Office of the Governor.                                                                               
CSSB 144(FIN)                                                                                                                   
          MUSK OXEN PERMITS                                                                                                     
          SB 144  was REPORTED out  of Committee with  a "do                                                                    
          pass"    recommendation   and    with   previously                                                                    
          published fiscal note: FN1 (DFG).                                                                                     
CSSB 219(FIN)                                                                                                                   
          TRAUMATIC BRAIN INJURY: PROGRAM/MEDICAID                                                                              
          CSSB 219(FIN)  was REPORTED out of  Committee with                                                                    
          a  "do  pass"  recommendation  and  with  attached                                                                    
          previously published fiscal  notes: FN1 (DHS), FN2                                                                    
SB 230    BUDGET: CAPITAL, SUPP. & OTHER APPROPS                                                                                
          SB  230  was  HEARD  and  HELD  in  Committee  for                                                                    
          further consideration.                                                                                                
SB 235    CHARTER/ALTERNATIVE SCHOOL FUNDING                                                                                    
          HCSSB 235(FIN) was REPORTED  out of Committee with                                                                    
          a "do  pass" recommendation and with  attached new                                                                    
          fiscal  note by  the Department  of Education  and                                                                    
          Early Development and  previously published fiscal                                                                    
          note: FN1 (EED).                                                                                                      
CSSB 269(FIN)                                                                                                                   
          ECON. STIMULUS BONDS: REALLOCATION/WAIVER                                                                             
          CSSB 269(FIN)  was REPORTED out of  Committee with                                                                    
          no recommendation and  previously published fiscal                                                                    
          notes: FN 1 (CED), FN2 (REV).                                                                                         
SB 305    SEPARATE OIL & GAS PRODUCTION TAX                                                                                     
          SB  305  was  HEARD  and  HELD  in  Committee  for                                                                    
          further consideration.                                                                                                
SENATE BILL NO. 230                                                                                                           
     "An Act  making and amending  appropriations, including                                                                    
     capital  appropriations,  supplemental  appropriations,                                                                    
     and  other  appropriations;  making  appropriations  to                                                                    
     capitalize  funds;  and   providing  for  an  effective                                                                    
9:11:23 AM                                                                                                                    
JAMES  ARMSTRONG, STAFF,  CO-CHAIR  STOLTZE, introduced  the                                                                    
9:12:10 AM          AT EASE                                                                                                   
9:12:36 AM          RECONVENED                                                                                                
Co-Chair Hawker MOVED to ADOPT  CS SB 230(FIN) (26-GS2824\P)                                                                    
as working document before the committee.                                                                                       
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
Mr. Armstrong  provided a sectional analysis  of the capital                                                                    
budget  using  the  spreadsheet  "2010  Legislature  Capital                                                                    
Budget: Statewide Totals,  Senate Structure" (4/13/10; 13:07                                                                    
by  the  Legislative Finance  Division,  copy  on file).  He                                                                    
explained  that  the   spreadsheet  details  the  difference                                                                    
between  the governor's  request and  the Senate  version of                                                                    
the bill.                                                                                                                       
Mr.  Armstrong began  with Section,  noting that  earlier in                                                                    
the legislative session the governor  had put capital budget                                                                    
money into  the supplemental bill. The  supplemental portion                                                                    
was  put into  the Senate  version of  the capital  bill and                                                                    
totaled $118 million. Section 2  is the deferred maintenance                                                                    
portion of the  governor's request and was  increased by the                                                                    
Senate by  roughly $19 million  to a total of  $124 million.                                                                    
Section 3 is  the governor's main request  and totals $1.631                                                                    
million.  Section 4  includes the  Senate  additions to  the                                                                    
bill and totals $472,574,000 in  general funds. Section 5 is                                                                    
the cruise ship  money; the Senate added  $20 million cruise                                                                    
ship funds for projects  mainly in Southeast Alaska. Section                                                                    
6  is appropriating  language for  the education  bonds, the                                                                    
Senate's  version;  he  noted that  the  language  would  be                                                                    
amended in  another version based  on what the  House passed                                                                    
out the  previous day. Section  7 is total spending  for the                                                                    
Senate,  or   $2,771,481.2.  Section   8  compares   to  the                                                                    
governor's request of $1,921,212.0.                                                                                             
Mr.  Armstrong pointed  out that  there  are also  technical                                                                    
corrections that would be addressed in a forthcoming CS.                                                                        
9:16:14 AM                                                                                                                    
Representative   Fairclough  asked   for  more   information                                                                    
regarding duplicated  funds. Mr.  Armstrong replied  that he                                                                    
would get the information.                                                                                                      
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further  OBJECTION,   the  CS  was  ADOPTED   as  a  working                                                                    
CSSB 230(FIN)  was HEARD and  HELD in Committee  for further                                                                    
CS FOR SENATE BILL NO. 144(FIN)                                                                                               
     "An Act relating to hunting permits and tag fees for                                                                       
     musk oxen."                                                                                                                
9:18:00 AM                                                                                                                    
TIM BENINTENDI,  STAFF, SENATOR DONNY OLSEN,  explained that                                                                    
the bill  would authorize a  second permit for  resident and                                                                    
subsistent  hunters to  take musk  oxen. He  added that  the                                                                    
bill  would double  the  chances of  getting  an animal  but                                                                    
would  not change  the current  bag limit  of one  per year,                                                                    
either a  cow or a  bull. The  second permit applies  when a                                                                    
hunter is  unable to get a  musk ox under the  first permit.                                                                    
He  stressed  that  non-resident   hunters  could  not  take                                                                    
advantage of the second permit.                                                                                                 
Mr.  Benintendi informed  the committee  that musk  oxen are                                                                    
the  only  game animal  left  in  Alaska with  a  one-permit                                                                    
restriction.  He reviewed  the  four  game management  areas                                                                    
musk  oxen  are  located  in  and  noted  that  the  current                                                                    
estimation  of  the size  of  the  herd is  4,400;  annually                                                                    
between  325 and  350 are  available for  harvest. He  noted                                                                    
that  wildlife biologist  regulators  in  the Department  of                                                                    
Fish and  Game have determined  that the size and  health of                                                                    
the  herd   would  allow  for  expansion   of  hunting.  The                                                                    
department estimates  that the minimum number  of additional                                                                    
permits would be 50 to  60 and that approximately 25 animals                                                                    
would be harvested per year under SB 144.                                                                                       
Mr. Benintendi  remarked that the  Board of Game  would have                                                                    
authority under the bill to  reduce or eliminate subsistence                                                                    
tag and  fee requirements.  The bill  would also  change the                                                                    
calendar year to a regulatory  year, which would accommodate                                                                    
August to March hunts and allow  hunters to pay once for the                                                                    
season. The  legislation would take effect  August 2010. The                                                                    
fiscal  note  is zero.  The  bill  has  the support  of  the                                                                    
department and several hunting groups.                                                                                          
Vice-Chair Thomas acknowledged the  Tenakee Springs group in                                                                    
the audience.                                                                                                                   
9:22:11 AM                                                                                                                    
Co-Chair  Stoltze stated  that  he  supported the  residence                                                                    
preference provision in SB 144.                                                                                                 
Representative Fairclough  questioned whether  the provision                                                                    
meets   constitutionality  since   a   recent  ruling.   Mr.                                                                    
Benintendi  replied that  out-of-state residents  could take                                                                    
part in  drawing hunts (as  opposed to permit hunts)  and so                                                                    
are accommodated.                                                                                                               
Co-Chair Stoltze  asked whether  there could be  a situation                                                                    
in which non-resident hunters  would feel disadvantaged. Mr.                                                                    
Benintendi answered  that the provision would  not take away                                                                    
existing rights  but only adds to  opportunities for Alaskan                                                                    
resident hunters; other hunts would not be impacted.                                                                            
Co-Chair  Stoltze referred  to challenges  from non-resident                                                                    
Representative Fairclough stated that  she preferred to have                                                                    
Alaskan preference.                                                                                                             
Co-Chair Stoltze closed public testimony.                                                                                       
9:25:02 AM                                                                                                                    
Vice-Chair Thomas  MOVED to report  SB 144 out  of Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
SB  144 was  REPORTED  out  of Committee  with  a "do  pass"                                                                    
recommendation  and with  previously published  fiscal note:                                                                    
FN1 (DFG).                                                                                                                      
CS FOR SENATE BILL NO. 269(FIN)                                                                                               
     "An Act relating to the waiver of volume cap of                                                                            
     recovery zone economic development bonds authorized by                                                                     
     26 U.S.C. 1400U-2 and reallocation by the Alaska                                                                           
     Municipal Bond Bank Authority of the waived volume                                                                         
     cap; relating to the waiver of volume cap of recovery                                                                      
     zone facility bonds authorized by 26 U.S.C. 1400U-3                                                                        
     and reallocation by the Alaska Industrial Development                                                                      
     and Export Authority of the waived volume cap;                                                                             
     increasing the total amount of bonds and notes that                                                                        
     the Alaska Municipal Bond Bank Authority may have                                                                          
     outstanding; relating to revenue bonds and to                                                                              
     obligations secured by lease that are issued by the                                                                        
     Alaska Municipal Bond Bank Authority; relating to                                                                          
     allocations of tax credit and bonding limits imposed                                                                       
     by the federal government; and providing for an                                                                            
     effective date."                                                                                                           
9:26:00 AM                                                                                                                    
DEVIN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK,  DEPARTMENT  OF  REVENUE, reported  that  the  primary                                                                    
portion  of  the  bill  would  use  federal  allocations  to                                                                    
finance  certain recovery  zone bonds  and other  tax credit                                                                    
structures. There are also  aspects that relate specifically                                                                    
to the  bond bank,  including an  increase in  the borrowing                                                                    
level of the bank from $750  million to $1 billion. He added                                                                    
that the  bond bank  issues obligation  bonds to  the state.                                                                    
The cap has  been increased several times over  the past six                                                                    
years.  The  revolving  balance is  currently  approximately                                                                    
$120 million.                                                                                                                   
Mr. Mitchell explained that the  increase is being requested                                                                    
in light of  historical community need as  well as projected                                                                    
need and  opportunities. Other changes  related to  the bond                                                                    
bank  are in  the  revenue bond  allowances. Currently,  the                                                                    
bond  bank is  not allowed  to participate  in hydroelectric                                                                    
project  loans; SB  269  would  eliminate that  restriction.                                                                    
Restrictions against loaning to  the state and participating                                                                    
in revenue  bond loans buying existing  buildings would also                                                                    
be  eliminated.  He thought  the  restrictions  were put  in                                                                    
place  when revenue  bond statutes  of the  corporation were                                                                    
created  and were  outdated. The  ability of  communities to                                                                    
borrow money would be improved.                                                                                                 
Mr.  Mitchell spoke  to American  Recovery and  Reinvestment                                                                    
Act (ARRA) allocations  made to the Department  of Labor and                                                                    
Workforce  Development  (DLWD)   for  labor  statistics.  He                                                                    
explained the Build America Bond  Program, which provided an                                                                    
opportunity  for the  issuer of  tax-exempt debt  to benefit                                                                    
through a direct subsidy from  the U.S. Treasury rather than                                                                    
selling the  tax exempt debt  to an investor and  having the                                                                    
investor  benefit.  The  rate  on the  bond  program  is  35                                                                    
percent. Billions  of dollars have  been issued in  2009 and                                                                    
2010. He  explained the structure  as a combination  of tax-                                                                    
exempt and  taxable bonds; there  is a yield curve  in every                                                                    
market that  typically starts with lower  interest rates and                                                                    
climbs  to  higher rates  later  in  the maturity  schedule.                                                                    
There has  been a break-over  point between years  eight and                                                                    
twelve of  the maturity  schedule; switching over  the Build                                                                    
America  Bond Program  during that  time is  beneficial. The                                                                    
investor  has to  pay taxes,  but the  department gets  a 35                                                                    
percent subsidy. The  benefit has been as much  as 2 percent                                                                    
in  interest  rate  reduction. The  recovery  zone  economic                                                                    
development  bond  allocation  provides  for  a  45  percent                                                                    
subsidy rather than 35 percent.                                                                                                 
Mr. Mitchell related that the  bill would provide ability to                                                                    
use the  allocations. The final  portion of the bill  is the                                                                    
allocation of other tax credit  structures through the state                                                                    
bond  committee,  including  qualified  school  construction                                                                    
bonds  and energy  credit bonds.  There is  a $28.9  million                                                                    
allocation for the school  construction bond program without                                                                    
a  means  to allocate  the  money  to communities,  who  are                                                                    
eligible for 100 percent reimbursement on interest expense.                                                                     
9:34:48 AM                                                                                                                    
Representative  Fairclough asked  when  municipal bank  bond                                                                    
authority was  last raised. Mr.  Mitchel1 replied two  and a                                                                    
half years ago.                                                                                                                 
MARK DAVIS, ECONOMIC  DEVELOPMENT OFFICER, ALASKA INDUSTRIAL                                                                    
DEVELOPMENT  AND  EXPORT  AUTHORITY (AIDEA),  DEPARTMENT  OF                                                                    
COMMERCE,  COMMUNITY AND  ECONOMIC  DEVELOPMENT, added  that                                                                    
AIDEA  would undertake  the  reallocation  of recovery  zone                                                                    
facility  bonds. He  detailed  that the  bonds are  tax-free                                                                    
bonds  that could  cover private  activity  bonds. He  noted                                                                    
that the problem with the  allocation is that some cannot be                                                                    
used and some are too small.  He provided the example of the                                                                    
Aleutians East  Borough receiving a zero  allocation because                                                                    
of  unemployment,  while  the  Aleutians  West  census  area                                                                    
received a $7  million allocation that cannot be  used as it                                                                    
is  not a  governmental entity.  In addition,  the City  and                                                                    
Borough of Yakutat received an  allocation of only $148,000,                                                                    
which  is too  small to  use.  Senate Bill  269 would  allow                                                                    
AIDEA  to  reallocate  funds  to  boroughs  that  could  not                                                                    
otherwise use them.                                                                                                             
Mr. Davis  stressed that  timing is  important as  the bonds                                                                    
will expire January 1, 2011;  the facility bonds will not be                                                                    
used without SB  269. He noted that the  facility bonds that                                                                    
AIDEA would  acquire are  tax exempt and  could be  used for                                                                    
any industrial,  commercial, retail, or office  use (country                                                                    
clubs and massage parlors are  excluded). The bonds would be                                                                    
used  as  private activity  conduit  bonds  as AIDEA's  bond                                                                    
authority has sunset. Regulations  would be issued; AIDEA is                                                                    
directed  on page  7 to  use regulations  that would  try to                                                                    
reallocate  the bonds  back  to the  areas  from which  they                                                                    
Representative Doogan  requested more information  about the                                                                    
building segment  in Section 4. Mr.  Mitchell explained that                                                                    
the typical issue  with the language is the  partnering of a                                                                    
community  with   a  state  agency.  For   example,  when  a                                                                    
department rents  office space from a  municipality the bond                                                                    
bank is  not allowed  to provide  lower-cost capital  to the                                                                    
community for the project.                                                                                                      
9:39:38 AM                                                                                                                    
Representative  Doogan   wanted  a  specific   example.  Mr.                                                                    
Mitchell  relayed being  approached  by  Bethel regarding  a                                                                    
building  that  would  have accommodated  a  combination  of                                                                    
state  agencies and  city agencies;  the bond  bank was  not                                                                    
able to help.                                                                                                                   
Representative Doogan queried the  issue with equipment. Mr.                                                                    
Mitchell  responded that  the intent  of  the amendment  was                                                                    
that there is no need  to exclude equipment. Certificates of                                                                    
participation can theoretically be  issued for equipment, or                                                                    
a lease  for equipment can  be entered into. The  ability to                                                                    
help with lower-cost capital for equipment is limited.                                                                          
Representative  Doogan pointed  to two  possible definitions                                                                    
of "equipment."  The first is  buying a fire  truck; another                                                                    
is  equipment  to finish  buildings.  He  asked whether  the                                                                    
legislation was  looking for  a way to  bond fire  trucks or                                                                    
assist  in  the expensive  process  of  equipment to  get  a                                                                    
project  up  and running.  Mr.  Mitchell  believed the  fire                                                                    
truck example was more fitting.  He alluded to safely checks                                                                    
that  limit  the  ability  to   fund  anything  through  the                                                                    
program.  For example,  there is  a  credit review  process.                                                                    
There must  be an ability  to repay. Secondly,  when issuing                                                                    
tax-exempt debt,  an entity  is limited  in various  ways by                                                                    
the  necessity of  having an  obligation in  compliance with                                                                    
Internal Revenue  Service (IRS) rules. For  example, what is                                                                    
financed  must  be durable;  the  life  of the  debt  cannot                                                                    
exceed the life of the assets.  He did not think the program                                                                    
would be used to replace  other means of financing equipment                                                                    
like computers.                                                                                                                 
9:43:48 AM                                                                                                                    
Representative Austerman asked for  a clearer explanation of                                                                    
what  the legislation  would do.  Mr. Mitchell  replied that                                                                    
the $750  million borrowing limit  could be  exceeded, based                                                                    
on the historical use of  the program by communities and the                                                                    
projected  need around  the state.  He  emphasized that  the                                                                    
bond bank  is a moral  obligation of  the state; there  is a                                                                    
statutory requirement for a reserve  fund that is pledged to                                                                    
the  bond issue  and about  one  year of  debt service.  The                                                                    
pooled reserve is  larger than any one bond  issue. The bond                                                                    
bank is  required to  ask the  state for  replenishment when                                                                    
there is a draw on the  reserve due to borrower default. The                                                                    
statutory framework creates a  moral obligation or intent to                                                                    
replenish.  He noted  that there  has never  been a  need to                                                                    
Representative  Gara  remarked  that  the  federal  proposal                                                                    
seemed useful.  He asked whether  there was interest  in the                                                                    
bond projects.  Mr. Mitchell  believed that  the allocations                                                                    
would  be utilized,  particularly  the economic  development                                                                    
bonds. He  noted that there  are boroughs that  have already                                                                    
used the  bonds: Ketchikan Gateway Borough  had a $3,744,000                                                                    
allocation and  Juneau has  a $7,586,000  allocation planned                                                                    
for May. Ketchikan was able to  get cost of capital on a 30-                                                                    
year  note at  3.35 percent,  for example.  He detailed  the                                                                    
financing  strategy  to  get   the  greatest  benefit  where                                                                    
interest rates  would be highest. He  believed any community                                                                    
issuing debt would welcome the opportunity.                                                                                     
9:48:24 AM                                                                                                                    
Representative Foster  summarized that the bill  would raise                                                                    
the cap  so that local  governments could take  advantage of                                                                    
lower  interest  rate   economic  development  and  facility                                                                    
bonds.  He queried  the risk  of increasing  the cap  on the                                                                    
maximum authority  of the bond bank.  Mr. Mitchell responded                                                                    
that  there were  layers of  credit in  between the  state's                                                                    
general fund and the particular  obligation. He believed the                                                                    
risk was not significant.                                                                                                       
Mr. Davis added  that AIDEA's bonds would  be conduit bonds;                                                                    
there would  be no  risk to AIDEA.  The bond  obligations go                                                                    
from the bond holder to the  bond issuer; AIDEA steps out of                                                                    
the process.                                                                                                                    
Representative  Austerman spoke  of the  debt in  California                                                                    
and  wondered  how  high Alaska's  guarantee  of  the  bonds                                                                    
should go.  Mr. Mitchell replied  that the $750  million cap                                                                    
has  developed over  40 years.  Borrowers  have become  more                                                                    
self-reliant  in recent  years  as  obtaining capital  funds                                                                    
from the  state has  become more  difficult. He  stated that                                                                    
his comfort  level was high  compared with  the alternatives                                                                    
because  communities  would  be   paying  more  without  the                                                                    
program. For  example, the  bond bank  worked with  the City                                                                    
and  Borough  of  Juneau  to  fund  the  Bartlett  [Regional                                                                    
Hospital] expansion; the revenue bond  on its own would have                                                                    
paid about  $10 million  more in interest  over the  life of                                                                    
the  bond without  the bond  bank. The  projects would  have                                                                    
been accomplished  but at higher  cost to the  state through                                                                    
higher interest  rates. He emphasized  that the  program has                                                                    
already  been successful  and is  an alternative  that would                                                                    
help communities save money.                                                                                                    
Co-Chair Stoltze closed public testimony.                                                                                       
9:53:22 AM                                                                                                                    
Representative  Doogan   pointed  to  the  density   of  the                                                                    
language in the first line of the fiscal note.                                                                                  
Co-Chair Hawker explained that  the fiscal note acknowledges                                                                    
that a  legal framework and  advisory costs would  be needed                                                                    
in order  to accommodate the  reallocation of the  funds. He                                                                    
thought the $80,000  was a fair price and that  it was worth                                                                    
the investment to help communities.                                                                                             
Vice-Chair  Thomas  MOVED to  report  CSSB  269(FIN) out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSSB  269(FIN)  was  REPORTED  out   of  Committee  with  no                                                                    
recommendation and  previously published fiscal notes:  FN 1                                                                    
(CED), FN2 (REV).                                                                                                               
9:55:35 AM          AT EASE                                                                                                   
10:00:14 AM         RECONVENED                                                                                                
SENATE BILL NO. 235                                                                                                           
     "An Act relating to charter school approval and                                                                            
10:00:23 AM                                                                                                                   
Co-Chair Hawker  MOVED to ADOPT  Work Draft  HCSSB 235(FIN),                                                                    
Version  26-LS1256\E  as  a   working  document  before  the                                                                    
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
SENATOR KEVIN MEYER, SPONSOR, explained  that the bill would                                                                    
help  charter   schools  get   started.  He   discussed  the                                                                    
challenges charter schools  experience in finding affordable                                                                    
buildings.  Senate  Bill  235  would  amend  existing  state                                                                    
statute  to  allow the  Department  of  Education and  Early                                                                    
Childhood Development (DEED) to  compete on behalf of Alaska                                                                    
charter  schools  for   facility  maintenance  and  start-up                                                                    
grants  nationally  available  to  the  U.S.  Department  of                                                                    
Education.  Currently,  Alaskan   charter  schools  are  not                                                                    
eligible.  The bill would  first remove the statutory cap of                                                                    
60 charter  schools (there are currently  26 charter schools                                                                    
in  Alaska).  Second,  the  bill   would  create  a  statute                                                                    
requiring some  sort of state  mechanism to comply  with the                                                                    
federal  grant program,  amending current  law to  establish                                                                    
the  per person  facilities aid  program required  under the                                                                    
U.S. Department of Education eligibility requirements.                                                                          
Senator Meyer  noted that the  cost would be  nominal ($1.00                                                                    
per pupil) in order to  keep overall costs down. He believed                                                                    
minimal  state involvement  would maximize  local incentive.                                                                    
He  emphasized that  local school  district  would have  the                                                                    
final say regarding which charter  schools are accepted. The                                                                    
bill  would improve  the state's  ability to  secure federal                                                                    
start-up  funds, make  charter schools  eligible to  compete                                                                    
for  federal   grants,  reduce  a   major  barrier   in  the                                                                    
development  of charter  schools,  and increase  educational                                                                    
choices  for  parents  and opportunities  for  students.  He                                                                    
requested the committee's support.                                                                                              
JOMO STEWART, STAFF,  SENATOR KEVIN MEYER, spoke  to the CS.                                                                    
He pointed  to a clarification  on page 2, lines  19 through                                                                    
25,  regarding  the  90/10 split  between  federal  funding,                                                                    
state funding, and the obligations  of the school districts.                                                                    
Line 22  clarifies through language. The  phrase reads: "The                                                                    
department  shall  provide  a participating  share  that  is                                                                    
equal to  the difference  between the  allowable costs  of a                                                                    
project  and  the  combined available  federal  funding  and                                                                    
state  aid  provided."  He   stressed  that  the  obligation                                                                    
regarding the match is the  remainder after accruing federal                                                                    
and state funding.                                                                                                              
Representative  Gara queried  the  $1.00  per pupil  amount.                                                                    
Senator  Meyer  replied  that some  state  contribution  was                                                                    
required; since the amount was  not stipulated, the sponsors                                                                    
tried to do the minimum.                                                                                                        
Representative  Gara  affirmed  that  the  contribution  was                                                                    
necessary to  participate in the  federal grant  program. He                                                                    
asked  whether the  federal grant  program was  dedicated to                                                                    
charter schools. Senator Meyer  replied that charter schools                                                                    
would be  allowed to apply  through DEED for  federal grants                                                                    
for charter school facilities.                                                                                                  
Representative Gara asked whether  there was a grant program                                                                    
specifically for charter schools.  Senator Meyer answered in                                                                    
the affirmative.                                                                                                                
Representative  Gara  supported  providing state  funds  for                                                                    
charter schools.  He asked  whether a  state match  would be                                                                    
required. Senator Meyer responded  that the only state match                                                                    
was  the $1.00  per student;  the rest  would come  from the                                                                    
federal government.                                                                                                             
10:07:01 AM                                                                                                                   
Vice-Chair  Thomas   queried  the  drop-out  rate   in  high                                                                    
schools. Senator Meyer did not know.                                                                                            
Representative Fairclough believed the  number was around 40                                                                    
percent  but has  been on  the decline.  She noted  that the                                                                    
drop-out rate was much lower for charter schools.                                                                               
Vice-Chair   Thomas  thought   there  would   be  a   bigger                                                                    
difference.  Senator Meyer  thought the  rate was  typically                                                                    
less in charter schools.                                                                                                        
Co-Chair Stoltze  reported that charter schools  in the Mat-                                                                    
Su Borough  have the highest  rate of achievement.  He added                                                                    
that not  all charter  schools go through  grade 12,  but he                                                                    
believed the drop-out  rate was very low  in charter schools                                                                    
ending in the eighth grade.                                                                                                     
Vice-Chair Thomas stated  that he had not  originally been a                                                                    
fan  of charter  schools but  that  he had  come to  support                                                                    
them.  Senator Meyer  concurred that  he had  been skeptical                                                                    
but now believed they served a good purpose.                                                                                    
Representative Joule asked  Representative Kelly whether the                                                                    
charter school  in Fairbanks had affected  the drop-out rate                                                                    
there.  Representative  Kelly  answered that  the  rate  was                                                                    
better but he did not know the number.                                                                                          
Representative Gara elaborated that  there were two kinds of                                                                    
optional schools in Anchorage,  optional schools and charter                                                                    
schools. He  thought charter schools provided  an option for                                                                    
parents;  however, he  pointed  out that  the most  actively                                                                    
involved  parents tended  to opt  for  charter schools,  and                                                                    
that  affected the  graduation rate.  He stated  support for                                                                    
the charter school system and the legislation.                                                                                  
Co-Chair  Stoltze noted  that optional  and charter  schools                                                                    
are not the same as far as funding goes.                                                                                        
10:11:35 AM                                                                                                                   
Representative  Kelly   asked  whether  conforming   to  the                                                                    
national  model  to  get federal  funding  would  negatively                                                                    
impact charter  schools. Senator  Meyer replied that  he had                                                                    
had  similar concerns  about  possible  strings attached  to                                                                    
federal  money.  He  believed  the  program  wanted  charter                                                                    
schools to remain autonomous. He  assured the committee that                                                                    
the local school district still  has the final say about the                                                                    
charter schools.                                                                                                                
Representative Kelly verified that  Alaska was under the cap                                                                    
by about half.                                                                                                                  
Representative  Salmon  remarked  that  there  had  been  no                                                                    
options in  earlier days in  rural communities.  He believed                                                                    
improving  charter schools  would benefit  young people  who                                                                    
could not thrive in regular schools. He supported the idea.                                                                     
Co-Chair Stoltze  spoke in support  of providing  more money                                                                    
for charter  school facilities. He believed  charter schools                                                                    
had been effective.                                                                                                             
10:15:07 AM                                                                                                                   
Representative  Foster  queried   the  interest  in  charter                                                                    
schools in  rural communities and whether  schools have said                                                                    
they  would  go  after  the  federal  funds.  Senator  Meyer                                                                    
answered that he had not  heard from all 26 charter schools,                                                                    
but  the more  active schools  were very  interested in  and                                                                    
supportive  of the  bill. He  had  not heard  from the  Nome                                                                    
charter school.                                                                                                                 
Mr. Stuart  pointed out  that there  had been  much response                                                                    
throughout the process.                                                                                                         
Co-Chair Hawker remarked on the  fiscal note for $150,000 to                                                                    
administrate  the program.  He  communicated concerns  about                                                                    
the  increment  to  state costs  and  wondered  whether  the                                                                    
fiscal note  could be program  receipts rather  than general                                                                    
SAM   KITO,  SCHOOL   FACILITIES  ENGINEER,   DEPARTMENT  OF                                                                    
EDUCATION  AND EARLY  DEVELOPMENT, detailed  that 5  percent                                                                    
would be allowed for administrative  costs if the grant were                                                                    
received.  He provided  more  information  about the  grant.                                                                    
Competition  for  a  federal  program  implemented  in  2001                                                                    
through the  No Child  Left Behind  program resulted  in two                                                                    
recipients,  California  and  Indiana.  In  2009,  the  U.S.                                                                    
Department  of Education  offered another  grant competition                                                                    
for four  grants between  $2 million and  $10 million  for a                                                                    
charter school assistance program,  but there was no funding                                                                    
Mr.  Kito told  the  committee that  SB  235 would  increase                                                                    
DEED's  ability  to  get competitive  facility  funding.  He                                                                    
noted  that there  was  no guarantee  that  the state  would                                                                    
receive the funding. The bill  would establish the structure                                                                    
of a  program that  would not  function until  federal money                                                                    
was received.  In order to  have the ability to  receive the                                                                    
money,  regulations  would  have to  be  established,  which                                                                    
would   cost  an   initial  $150,000.   He  estimated   that                                                                    
additional  staff of  one and  one-half  employees would  be                                                                    
necessary  to administer  the program  for five  years until                                                                    
the sunset  date. He based  the estimate on  experience with                                                                    
other federal grants.                                                                                                           
Co-Chair  Hawker asked  whether the  fiscal note  summarized                                                                    
costs  for a  grant that  had yet  to be  awarded. Mr.  Kito                                                                    
responded  that the  Senate Finance  Committee had  modified                                                                    
the fiscal  note so  that in the  first year  the department                                                                    
would develop regulations and would  not apply for the grant                                                                    
program.  He  stressed that  personnel  would  not be  hired                                                                    
until  the   state  successfully  competed  for   the  grant                                                                    
funding. The initial cost would  be to establish regulations                                                                    
to administer the program.                                                                                                      
10:21:49 AM                                                                                                                   
Co-Chair  Hawker summarized  that the  regulations would  be                                                                    
written, the  grant would be  applied for, and  people would                                                                    
be  needed  to administer  the  program  if the  grant  were                                                                    
received. He  asked for more information.  Mr. Kito answered                                                                    
that the  amount would be  for reimbursable services  to the                                                                    
Department of Law for promulgating the regulations.                                                                             
Co-Chair Hawker  thought contractual services would  be more                                                                    
correct  than  personal  services.   He  asked  why  it  was                                                                    
necessary to  write the regulations before  applying for the                                                                    
grant. Mr. Kito  believed that the regulations had  to be in                                                                    
place before funding could be received.                                                                                         
Co-Chair Hawker was still uncomfortable.                                                                                        
10:23:46 AM                                                                                                                   
Representative  Kelly described  concerns regarding  federal                                                                    
control  coming with  federal money.  He thought  there were                                                                    
too  many   regulations.  He   asked  whether   the  federal                                                                    
government could  be charged  back for  the cost  of writing                                                                    
regulations.  Mr.  Kito responded  that  that  there was  no                                                                    
guarantee  that Alaska  could win  a  competitive grant;  he                                                                    
pointed out that if the grant  money was won there might not                                                                    
be enough time to write the regulations.                                                                                        
Representative  Kelly asked  whether there  were regulations                                                                    
already existing  that could apply. Mr.  Kito responded that                                                                    
the  state  does  not  have a  program  with  a  competitive                                                                    
process  that matches  the  requirements. Regulations  would                                                                    
have to  be written to  describe a process  for prioritizing                                                                    
project applications  for charter  school facilities  in the                                                                    
event  that there  is not  enough money  between the  state,                                                                    
local, and federal sources.                                                                                                     
Representative Kelly reiterated his frustrations.                                                                               
10:27:18 AM                                                                                                                   
Co-Chair Hawker asked  whether the time needed  to write the                                                                    
regulations could be  part of the process  instead of trying                                                                    
to  implement the  program  immediately; the  administrative                                                                    
money  could be  requested  as part  of  the regular  budget                                                                    
cycle after the grant was  awarded. Mr. Kito replied that he                                                                    
was  not comfortable  relying  on funding  that  may not  be                                                                    
available.  Co-Chair  Hawker  stressed   that  he  was  also                                                                    
uncomfortable relying on money that might not be available.                                                                     
Representative  Gara   suggested  using  the   same  process                                                                    
municipalities  use when  they  get capital  money from  the                                                                    
legislature. He  suggested writing a provision  stating that                                                                    
the  department  would  allow  charge-backs  to  the  extent                                                                    
permitted by  federal law  to recoup  the on-going  costs of                                                                    
grant administration. Mr. Kito  thought the course of action                                                                    
could  work for  the  five  years the  program  would be  in                                                                    
effect.  The federal  program is  intended as  a step-up  or                                                                    
start-up  program.  He  believed  the intent  was  that  the                                                                    
federal program  would participate  at decreasing  levels of                                                                    
funding  as the  state funding  levels increased,  until the                                                                    
state had a viable facilities program for charter schools.                                                                      
10:30:38 AM                                                                                                                   
Representative  Fairclough  suggested changing  the  debate.                                                                    
She proposed  zeroing out the  additional staff for  the out                                                                    
years and keep the $150,000  for the regulations period. She                                                                    
maintained  that  charter   schools  had  proven  successful                                                                    
already,  and  there should  be  a  mechanism to  fund  such                                                                    
success as  there is currently  funding inequity.  She spoke                                                                    
in support of the legislation.                                                                                                  
Vice-Chair  Thomas  agreed  that   charter  schools  were  a                                                                    
success and  supported a  fiscal note  that allowed  for the                                                                    
writing of the regulations and went out two more years.                                                                         
Co-Chair  Hawker   asked  committee   to  consider   a  zero                                                                    
appropriation in FY 11 and  then indeterminates for FY 12 to                                                                    
FY 16; if a significant  grant is received, more money might                                                                    
be needed.                                                                                                                      
Representative Doogan  thought the  first $150,000 in  FY 12                                                                    
was to  write the proposal and  subsequent increasing fiscal                                                                    
notes  were for  the costs  of  running the  program in  the                                                                    
event that the  grant was received. Mr.  Kito responded that                                                                    
the first $150,000  was to write the  regulations that would                                                                    
establish the  program. He noted  that the  department would                                                                    
still  be able  to  apply for  the grant  if  there were  no                                                                    
appropriation this year, but would  not be able to start the                                                                    
regulation   process  until   the  grant   was  successfully                                                                    
Representative Doogan queried the  advantage of the original                                                                    
proposal.  Mr.  Kito responded  that  the  program would  be                                                                    
established and  the funding could  immediately be  used for                                                                    
school district  projects. Representative  Doogan understood                                                                    
that the issue was timing.                                                                                                      
10:36:57 AM                                                                                                                   
Representative Joule queried the  mechanism already in place                                                                    
with the  public school districts.  Mr. Kito  responded that                                                                    
currently districts can apply for  grants that can cover all                                                                    
facilities,  but  charter  schools have  not  received  much                                                                    
support related to facilities.                                                                                                  
Representative  Joule established  that charter  schools are                                                                    
under  the umbrella  of the  school district  in which  they                                                                    
reside. Mr.  Kito explained that  there are  charter schools                                                                    
that  are the  responsibility  of the  school districts  but                                                                    
charter school facilities are not getting much attention.                                                                       
Representative Foster  asked whether having  the regulations                                                                    
in  place  would enhance  the  state's  ability to  get  the                                                                    
federal funds. Mr.  Kito responded that the  more robust the                                                                    
program, the better the applicant  scores. He thought that a                                                                    
program  in   regulation  might  affect  the   scores  in  a                                                                    
Mr. Stuart  added that some of  the eligibility requirements                                                                    
are universal.  He stated that  writing the  regulations now                                                                    
would enhance the state's ability to pursue other grants.                                                                       
10:40:13 AM                                                                                                                   
Representative  Kelly suggested  that  the school  districts                                                                    
apply  to prove  motivation  at the  local  level. Mr.  Kito                                                                    
supported   opening  up   the  opportunity   for  additional                                                                    
funding. He noted that currently  schools would be competing                                                                    
against all  other state projects.  He had not  seen charter                                                                    
school applications  through the existing grant  program and                                                                    
thought a specific program would be good.                                                                                       
Representative Kelly wanted to send  a signal of support for                                                                    
the  program and  for taking  off  the cap.  He also  wanted                                                                    
local  communities to  do the  work of  selling the  need to                                                                    
local districts. He  stated that he supported  either a zero                                                                    
or indeterminate  fiscal note.  He stressed  his frustration                                                                    
about  the  need to  fund  a  person  for  a year  to  write                                                                    
Senator  Meyer agreed  that the  charter school  process has                                                                    
been  frustrating as  some school  districts do  not embrace                                                                    
the idea.  He believed  that the  program could  get dropped                                                                    
without  adequate funding.  He  supported Co-Chair  Hawker's                                                                    
proposal of the indeterminate fiscal note.                                                                                      
Representative Kelly  stated his support of  charter schools                                                                    
and agreed with Co-Chair Hawker's plan.                                                                                         
Co-Chair Hawker requested a new  fiscal note with a zero for                                                                    
FY  11  and  indeterminates  for  FY 12  through  FY  16  to                                                                    
emphasize the  expectation that  schools would  get involved                                                                    
and drive the program.                                                                                                          
10:45:00 AM                                                                                                                   
Co-Chair Stoltze  did not want  the costs to be  forced back                                                                    
on school districts that did not support charter schools.                                                                       
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
further   OBJECTION,  the   CS  (Version   26-LS1256\E)  was                                                                    
Co-Chair Stoltze closed public  testimony. He emphasized his                                                                    
support of charter schools.                                                                                                     
Vice-Chair  Thomas MOVED  to report  HCSSB  235(FIN) out  of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
HCSSB  235(FIN) was  REPORTED out  of Committee  with a  "do                                                                    
pass" recommendation  and with  attached new fiscal  note by                                                                    
the  Department  of  Education  and  Early  Development  and                                                                    
previously published fiscal note: FN1 (EED).                                                                                    
10:47:20 AM         RECESSED                                                                                                  
11:21:02 AM         RECONVENED                                                                                                
HOUSE BILL NO. 317                                                                                                            
     "An Act  increasing the special needs  funding and base                                                                    
     student  allocation for  public schools,  and extending                                                                    
     the adjustment for  student transportation funding; and                                                                    
     providing for an effective date."                                                                                          
11:21:11 AM                                                                                                                   
Co-Chair  Hawker MOVED  to ADOPT  Work  Draft CSHB  317(FIN)                                                                    
(Version  26-LS1378\P,   Mischel,  4/13/10)  as   a  working                                                                    
document before the committee. There  being NO OBJECTION, it                                                                    
was so ordered.                                                                                                                 
KATIE KOESTER, STAFF,  REPRESENTATIVE PAUL SEATON, explained                                                                    
that the committee substitute would  first increase the base                                                                    
student allocation (BSA)  by $125 per year for FY  12 and FY                                                                    
13  and  second  increase  the  block  funding  for  special                                                                    
education  gifted  and  talented  vocational  and  bilingual                                                                    
education by  1.5 percent for  FY 12  and FY 13.  The intent                                                                    
was  to have  the money  spent on  vocational education,  as                                                                    
stated in  the Letter of  Intent by the  Education Committee                                                                    
(copy on file).                                                                                                                 
Ms. Koester noted  that the CS deletes Section  1, which had                                                                    
extended inflation  adjustment for pupil  transportation and                                                                    
correlated to  the adjustment to  increases in  the consumer                                                                    
price index (CPI).                                                                                                              
Representative   Gara   questioned  whether   deleting   the                                                                    
inflation  adjustment would  allow for  cost increases.  Ms.                                                                    
Koester replied  that the deletion  would remove  changes in                                                                    
the CPI. She  believed there might not be  much inflation in                                                                    
some years. She pointed out that  Section 1 was put in place                                                                    
in  2008  as  a  recommendation  of  the  Joint  Legislative                                                                    
Education Funding Task Force.                                                                                                   
Vice-Chair  Thomas commented  that the  increases should  be                                                                    
adjusted to  graduation rates rather  than to  inflation. He                                                                    
thought the goal of the  Education Committee was success; he                                                                    
did not think increasing the BSA had resulted in success.                                                                       
Co-Chair Stoltze  acknowledged concern related  to improving                                                                    
graduation rates.                                                                                                               
11:26:06 AM                                                                                                                   
EDDY  JEANS,  DIRECTOR,   SCHOOL  FINANCES  AND  FACILITIES,                                                                    
DEPARTMENT  OF  EDUCATION  AND EARLY  DEVELOPMENT,  remarked                                                                    
that most  pupil transportation contracts in  the state have                                                                    
an  automatic inflationary  adjustment  built  in. He  noted                                                                    
that the contracts are increased  each year by the Anchorage                                                                    
CPI.  He pointed  out that  the previous  version of  HB 317                                                                    
repealed a  sunset clause on  applying the Anchorage  CPI to                                                                    
the pupil transportation contracts;  the new version removed                                                                    
the adjustment  to transportation except related  to student                                                                    
Representative  Gara   opined  that   as  costs   for  pupil                                                                    
transportation go up, districts  will have to decrease staff                                                                    
and supply funding if the  legislature does not increase the                                                                    
increment.  He  liked  the  pupil  transportation  inflation                                                                    
adjustment and did  not like betting on  inflation in coming                                                                    
years. He suggested putting Section 1 back in the bill.                                                                         
11:29:30 AM              AT EASE                                                                                              
11:39:59 AM              RECONVENED                                                                                           
Co-Chair Stoltze MOVED Conceptual Amendment 3:                                                                                  
     Page 2, following line 24 Insert:                                                                                          
     Sec. 7. Section 11, ch. 9, SLA 2008, is amended to                                                                         
          Sec. 11 AS 14.09.010©, added by sec. 2, ch.9, SLA                                                                   
          2008 [OF THIS ACT] is repealed June 30, 2013                                                                        
Co-Chair Hawker OBJECTED for discussion.                                                                                        
Co-Chair  Stoltze  detailed   that  Conceptual  Amendment  3                                                                    
corrects  a  mistake  that  removed  the  sunset  extension;                                                                    
without  the  extension,  the   program  would  sunset.  The                                                                    
amendment  would give  the program  an additional  two years                                                                    
before considering the policy measure.                                                                                          
Co-Chair Hawker  noted that the amendment  restores language                                                                    
that was in the Education Committee version of the bill.                                                                        
Co-Chair  Hawker  WITHDREW  his OBJECTION.  There  being  no                                                                    
further objection, Conceptual Amendment 3 was ADOPTED.                                                                          
Representative Gara MOVED new Amendment 2:                                                                                      
     Page 2, line 17:                                                                                                           
          Delete "$5,805"                                                                                                     
          Insert "5,830"                                                                                                      
     Page 2, lines 21-22:                                                                                                       
          Delete "5,930 [$5,805]"                                                                                             
          Insert "5,980 [$5,830]"                                                                                             
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
Representative Gara explained  the amendment. Currently, the                                                                    
proposal is for the  BSA for the next two years  to go up by                                                                    
$125 per  year. He was  concerned that  the BSA has  gone up                                                                    
$100  over the  last two  years, slightly  behind inflation.                                                                    
Over  the  next  three  years  the  BSA  should  lag  behind                                                                    
inflation at $125 per year.  The $125 increase on the $5,800                                                                    
BSA  is less  than 2  percent.  He stressed  that since  the                                                                    
actual  inflation rate  is unknown,  he was  concerned about                                                                    
setting the rate for three years out.                                                                                           
Representative Gara  stated concerns about  other reductions                                                                    
that  would become  necessary if  the BSA  does not  keep up                                                                    
with  inflation.  The  Department  of  Education  and  Early                                                                    
Development  normally  uses  the  previous  three  years  to                                                                    
establish   an   average   inflation  rate   for   Anchorage                                                                    
projections; for the  past three years the  average has been                                                                    
2.7 percent.  He pointed to a  chart on page 2  and asserted                                                                    
that a 2.7 increase over the  next three years would come to                                                                    
$151 to  $155 BSA  increase. He  noted that  the incremental                                                                    
cost  of increasing  the  BSA  from $125  to  $150 would  be                                                                    
approximately $6 million per year.                                                                                              
Representative Gara  believed the  Education Task  Force had                                                                    
done an important thing when  they added funding for special                                                                    
needs and  the area  cost differential.  He did  not believe                                                                    
the additional funds  were intended to be  lost to inflation                                                                    
11:44:24 AM                                                                                                                   
Co-Chair Hawker  MAINTAINED his  OBJECTION. He  believed the                                                                    
topic had been thoroughly  discussed by committed people and                                                                    
he wanted to respect their determination.                                                                                       
Co-Chair Stoltze also objected to  the amendment. He did not                                                                    
want  to  bind  any  future  legislature  to  an  amount  in                                                                    
statute. He  observed that education  funding only  went up,                                                                    
not down,  except an administrative  formula decrease  in FY                                                                    
Mr. Jeans agreed  that the only time  the foundation program                                                                    
was reduced was in 1987 under Governor Sheffield.                                                                               
11:48:26 AM                                                                                                                   
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Foster, Gara, Doogan                                                                                                  
OPPOSED:  Kelly,  Salmon,   Thomas,  Austerman,  Fairclough,                                                                    
Hawker, Stoltze                                                                                                                 
Absent from the vote: Joule                                                                                                     
The MOTION FAILED (7-3).                                                                                                        
Representative Thomas  emphasized that his vote  against the                                                                    
amendment was not a vote against education.                                                                                     
Co-Chair Hawker explained the fiscal notes.                                                                                     
Co-Chair Hawker  MOVED to ADOPT  the Letter of  Intent [from                                                                    
the  House Education  Committee]  dated  February 10,  2010.                                                                    
There being no OBJECTION, it was so ordered.                                                                                    
Co-Chair  Hawker  MOVED  to  report  CSHB  317(FIN)  out  of                                                                    
Committee  with individual  recommendations,  the Letter  of                                                                    
Intent, and  the accompanying fiscal  notes. There  being NO                                                                    
OBJECTION, it was so ordered.                                                                                                   
CSHB  317(FIN)  was  REPORTED  out   of  Committee  with  no                                                                    
recommendation,  with a  Letter of  Intent by  the Education                                                                    
Committee, and  with previously published fiscal  notes: FN1                                                                    
(EED), FN2 (EED).                                                                                                               
HOUSE BILL NO. 69                                                                                                             
     "An  Act establishing  in the  Department of  Education                                                                    
     and  Early  Development  a voluntary  parent  education                                                                    
     home   visiting   program   for   pre-elementary   aged                                                                    
     children; and  establishing a  rating system  for early                                                                    
     childhood education."                                                                                                      
11:51:50 AM                                                                                                                   
REPRESENTATIVE CHRIS TUCK, SPONSOR,  explained that the bill                                                                    
was  also  known  as  the  "Parents  as  Teachers  Act."  He                                                                    
described  parents as  a child's  first  and most  important                                                                    
teachers.  House  Bill 69  would  empower  parents with  the                                                                    
knowledge and resources to help  their children develop into                                                                    
successful students  with stronger  scholastic achievements.                                                                    
Research has  shown that the  early years are critical  in a                                                                    
child's  development  and  lay   the  foundation  for  later                                                                    
success  in  school  and  life. The  bill  would  allow  the                                                                    
Department  of  Education  and Early  Childhood  Development                                                                    
(DEED)  to offer  early  childhood  learning methodology  to                                                                    
parents as  an education  option for families  with children                                                                    
ages zero to  five. Parents who choose  to participate would                                                                    
be  supported by  local  childhood development  specialists.                                                                    
Parents as  Teachers uses a research-based  model that helps                                                                    
parents and  other family members understand  what to expect                                                                    
during each  state of development,  how to promote  the best                                                                    
development  in children,  and how  to prepare  children for                                                                    
success  in learning  in the  future. The  program can  save                                                                    
money for  schools by helping families  detect problems that                                                                    
can be  corrected before starting  school. The  program fits                                                                    
with many educational philosophies.                                                                                             
Representative  Tuck  noted  that the  program  would  offer                                                                    
resources  to families  to help  parents  learn about  child                                                                    
development and opportunities to  network with other parents                                                                    
in groups. Children are also  given opportunities to develop                                                                    
social  skills through  interactions  with peers.  Referrals                                                                    
are made  with the consent  of the  family and are  based on                                                                    
the family's needs. Currently the  program is serving nearly                                                                    
50 communities  throughout the state  and is  funded through                                                                    
federal  grants,   in-kind  donations,   and  public/private                                                                    
partnerships. Parents  as Teachers  works through  any local                                                                    
entity,  including school  districts,  tribal councils,  and                                                                    
other community  organizations. The bill intends  to develop                                                                    
local  partnerships   that  will  increase   local  control,                                                                    
maximize  in-kind support,  and more  fully integrate  early                                                                    
education into communities.                                                                                                     
Representative Tuck informed the  committee that the average                                                                    
cost would  be $3,000  per family,  reflected in  the fiscal                                                                    
note  as a  total  of  $4 million  per  year for  state-wide                                                                    
coverage.  About  12  percent  of the  amount  would  go  to                                                                    
materials  for  the  parents  and  4  percent  would  go  to                                                                    
11:56:26 AM                                                                                                                   
Co-Chair  Hawker  MOVED to  ADOPT  Work  Draft CSHB  69(FIN)                                                                    
(Version  26-LS0281\W)  as  a working  document  before  the                                                                    
committee. There being NO OBJECTION, it was so ordered.                                                                         
Representative Tuck  detailed that  the CS was  a simplified                                                                    
version  of the  CS  forwarded by  the Education  Committee.                                                                    
Both  versions   establish  a  Parents  as   Teachers  early                                                                    
childhood  education  system through  DEED  for  ages 5  and                                                                    
under; however, the previous  version was more prescriptive.                                                                    
The  proposed CS  before the  Finance  Committee would  give                                                                    
DEED the flexibility  to do the program as it  works best in                                                                    
various communities while still meeting quality standards.                                                                      
Representative  Tuck  noted  that  Section  1  provides  the                                                                    
title. Section 2 establishes  a statewide voluntary learning                                                                    
system;  subsection (a)  requires  that  there is  evidence-                                                                    
based  education,  parental  involvement, and  adherence  to                                                                    
accepted  best  practices  and  early  learning  guidelines;                                                                    
subsection (b)  directs DEED  to develop  local partnerships                                                                    
to implement the program; and subsection (c) adds a three-                                                                      
year sunset  clause. He underlined  that a  previous version                                                                    
provided  that the  bill would  serve 650  children for  the                                                                    
first two years and then  be expanded statewide; the current                                                                    
CS would  take a more  simple approach by providing  for the                                                                    
program state-wide and providing for  a sunset date in 2013.                                                                    
He believed extending  the date for three  years would allow                                                                    
for measurable results in childhood education.                                                                                  
Co-Chair  Stoltze  acknowledged  the number  of  people  who                                                                    
support the bill.                                                                                                               
11:59:39 AM                                                                                                                   
Representative Fairclough asked  whether Representative Tuck                                                                    
had attended  budget discussions  for a  K through  12 pilot                                                                    
program. Representative Tuck responded that he had not.                                                                         
Representative  Fairclough queried  results  from the  pilot                                                                    
program. Representative  Tuck replied  that he did  not have                                                                    
the  results immediately  available but  he understood  that                                                                    
the program provided many  early education opportunities; he                                                                    
viewed the bill as one more tool.                                                                                               
AURAH LANDEAU,  STAFF, REPRESENTATIVE CHRIS  TUCK, responded                                                                    
that  the  pilot  program serves  several  hundred  children                                                                    
state wide. The  two-year program is in its  second year and                                                                    
the results  would be  forthcoming. She  pointed out  that a                                                                    
main difference  between the pilot  program and  the Parents                                                                    
as Teachers program  is that through the  later families are                                                                    
offered resources  to create  an early  environment wherever                                                                    
families are.                                                                                                                   
Representative Fairclough  asked for  a comparison  with the                                                                    
Best  Beginnings program.  Ms.  Landeau  answered that  Best                                                                    
Beginnings  provides  the   Imagination  Library  and  other                                                                    
things  while Parents  as Teachers  is a  model that  entity                                                                    
could provide.                                                                                                                  
Representative  Fairclough  pointed  out  that  the  federal                                                                    
government  is  ramping  down  funding  on  the  Parents  as                                                                    
Teachers  program the  state  currently  has; the  education                                                                    
subcommittee had  looked at that  and did not want  to start                                                                    
new  pilot programs  until results  were received  from DEED                                                                    
regarding the pre-K pilot program,  which was in the current                                                                    
operating budget  at $2 million.  She did not  believe there                                                                    
were  results from  the $2  million  investment. She  voiced                                                                    
caution about  investing in another  pre-K program  in spite                                                                    
of fact that Parents as Teachers does a good job.                                                                               
Representative  Fairclough  referred  to an  amendment  that                                                                    
Representative Gara  had proposed at a  subcommittee meeting                                                                    
for  $600,000   that  included  Parents  as   Teachers.  She                                                                    
questioned additional  funding of another pre-K  program. In                                                                    
addition to the $2 million  for the pre-K pilot, funding for                                                                    
the Best Beginnings programs was  increased from $200,000 to                                                                    
$380,000  as  well  as adding  $600,000  for  another  pre-K                                                                    
Representative  Fairclough emphasized  her support  of early                                                                    
childhood   education   but    reiterated   concerns   about                                                                    
additional spending.                                                                                                            
12:04:16 PM                                                                                                                   
Representative  Tuck informed  the committee  that the  bill                                                                    
was first introduced the year  previously in order to expand                                                                    
the program statewide  to respond to a need.  Because of the                                                                    
success   rate,  other   communities  wanted   the  program.                                                                    
Expansion is  limited by the  federal funds. He  referred to                                                                    
experience  serving on  a school  board,  where people  knew                                                                    
that providing  early learning opportunities leads  to later                                                                    
success. He  had proposed using school  facilities that were                                                                    
empty  during   the  summer   period  for   early  childhood                                                                    
programs. The Alaska Association  of School Boards wanted to                                                                    
implement  the  program  statewide.  He  asserted  that  the                                                                    
Parents as  Teachers program  was the  right program,  as it                                                                    
involves   the  parents   and  provides   opportunities  for                                                                    
communities. He pointed out that  the recent Moore vs. State                                                                    
case demonstrated that pre-K with  parental involvement is a                                                                    
key factor.                                                                                                                     
Vice-Chair  Thomas spoke  as a  co-sponsor and  supporter of                                                                    
the bill.  He reported that  five parents from  his district                                                                    
had  flown to  Juneau  to speak  to him  in  support of  the                                                                    
program.  He referred  to another  $42 million  program that                                                                    
has  not  been  successful.  He wanted  to  start  education                                                                    
earlier to improve graduation rates.  He pointed out that in                                                                    
a small community, everyone can help the children.                                                                              
12:08:04 PM                                                                                                                   
Representative  Fairclough   agreed  that  the   Parents  as                                                                    
Teachers program  was wonderful; constituents  had advocated                                                                    
to her  about the program  as well. However,  she reiterated                                                                    
concerns  that almost  $3 million  new  funding was  already                                                                    
being allowed  in the operating  budget for  pre-K programs.                                                                    
She  also worried  about choosing  money  for an  individual                                                                    
program   rather  than   letting  communities   decide  what                                                                    
programs  are  best  for   their  particular  location.  She                                                                    
pointed out  that Head Start, Best  Beginnings, Campfires of                                                                    
Alaska, and others were also trying to get state money.                                                                         
Co-Chair Hawker opened public testimony.                                                                                        
DEBBIE  BALDWIN, DIRECTOR,  DIVISION  OF CHILD  DEVELOPMENT,                                                                    
RURAL  ALASKA  COMMUNITY  ACTION PROGRAM  (RURAL  CAP)  (via                                                                    
teleconference), spoke  in support  of the  legislation. She                                                                    
informed  the committee  that RurAL  CAP  serves over  1,500                                                                    
children  between  the  ages  of zero  and  five  and  their                                                                    
families  in  29  communities   throughout  the  state.  The                                                                    
program  provides  early   childhood  education  and  family                                                                    
support  services  through  Head Start,  Early  Head  Start,                                                                    
Parents as Teachers, child care,  and the pre-K program. She                                                                    
stated that  RurAL CAP believes  the Parents as  Teachers is                                                                    
one of the best early  childhood and family support programs                                                                    
offered   in   the   home  environment.   The   program   is                                                                    
internationally   recognized  as   a  program   that  serves                                                                    
families   from   pregnancy   until   kindergarten   through                                                                    
voluntary  visits and  group  socialization  conducted by  a                                                                    
certified parent educator.                                                                                                      
Ms. Baldwin  asserted that the  family environment can  be a                                                                    
major   predictor  of   cognitive,  social,   and  emotional                                                                    
abilities; some believe  it can be a predictor  of crime and                                                                    
educational   attainment.  Parents   as  Teachers   provides                                                                    
parents  with  information  and  age-appropriate  activities                                                                    
based  on  brain research  and  windows  of opportunity  for                                                                    
development, which  improves parent  practices and  leads to                                                                    
both  school  readiness  and  educational  achievement.  The                                                                    
program has  existed for  over 25 years  in the  country and                                                                    
RurAL CAP has  over 11 years of  experience offering Parents                                                                    
as  Teachers  programs  in  Alaska.  In  1999,  the  program                                                                    
started  with  27 families;  today  450  families are  being                                                                    
served in 19 communities.                                                                                                       
Ms.  Baldwin reported  that the  program works  because pre-                                                                    
and  post-screening  and  assessment results  show  children                                                                    
achieving gains  in all areas  of development.  In addition,                                                                    
developmental   data   and  interviews   with   kindergarten                                                                    
teachers  show   that  Parents  as  Teachers   children  are                                                                    
transitioning to kindergarten with  key indicators of school                                                                    
readiness   as  defined   by  the   Alaska  Early   Learning                                                                    
Guidelines.  Pre- and  post-parent surveys  document changes                                                                    
in parental  attitudes and beliefs about  child-rearing. The                                                                    
results are used to individualize parent education.                                                                             
Ms. Baldwin  stressed that the program  is results oriented.                                                                    
RurAL  CAP  can  demonstrate  the number  and  frequency  of                                                                    
positive   interactions  between   parent  and   child  upon                                                                    
entering and  exiting the program  and how many  parents are                                                                    
reading to their children more  often. Parents report having                                                                    
more confidence in their parenting  practices as a result of                                                                    
learning  about  early  brain  development  and  other  age-                                                                    
appropriate information.                                                                                                        
Ms.  Baldwin stated  that  a  voluntary, high-quality  early                                                                    
learning  system for  any  state should  have  a variety  of                                                                    
programs  offering  options   in  intensity,  duration,  and                                                                    
comprehensiveness.  She  recognized  that not  all  families                                                                    
want or need  a four-hours-per-day, four-days-per-week, out-                                                                    
of-the-home preschool experience for  their young child. The                                                                    
wait  list for  the  Parents as  Teachers program  indicates                                                                    
that  there are  many families  who would  like support  and                                                                    
partnership developed in their home environment.                                                                                
Ms. Baldwin relayed experience in  a small community outside                                                                    
Bethel where  she attended a  parent involvement  meeting at                                                                    
the K-12 school.  A parent from the  early childhood program                                                                    
was sharing with other parents  what a window of opportunity                                                                    
meant for parents working with a young child.                                                                                   
Ms. Baldwin  responded to earlier remarks  by Representative                                                                    
Fairclough.  She testified  that the  federal government  is                                                                    
not ramping  down support for  Parents as  Teachers; rather,                                                                    
all entities  are competing for  the money through  the DEED                                                                    
Alaska  Native   Education  Equity  Programming   Fund.  The                                                                    
program supports increasing  educational outcomes for Alaska                                                                    
Native students  from birth  to post-secondary.  Grants have                                                                    
been  awarded over  the past  two years.  She stressed  that                                                                    
money is available, but has already been earmarked.                                                                             
Ms.  Baldwin  maintained that  there  are  results from  the                                                                    
Parents as  Teachers program  and that  the program  is very                                                                    
different than  the pre-K  pilot program,  as it  focuses on                                                                    
the home environment.                                                                                                           
Ms.  Baldwin   supported  the  $600,000  increase   to  Best                                                                    
Beginnings and/or Parents as Teachers.  She noted that RurAL                                                                    
CAP   is  looking   at  shutting   down  services   in  five                                                                    
communities to  about 100 children and  families starting in                                                                    
August  2010  because  there  is  not  sustainability  under                                                                    
current federal funding.                                                                                                        
12:17:35 PM                                                                                                                   
Co-Chair Hawker closed public testimony.                                                                                        
Co-Chair Hawker  addressed the fiscal  note. He  pointed out                                                                    
that it was outdated and needed to be updated.                                                                                  
EDDY  JEANS,  DIRECTOR,   SCHOOL  FINANCES  AND  FACILITIES,                                                                    
DEPARTMENT  OF  EDUCATION  AND EARLY  DEVELOPMENT,  detailed                                                                    
that in  the new fiscal note  the numbers for FY  12 through                                                                    
FY 14  would be the FY  13 number from the  old fiscal note,                                                                    
or  $4,124,400. He  explained that  the previous  version of                                                                    
the bill  had a  phase-in provision  limiting the  number of                                                                    
participants for the first couple of years.                                                                                     
Co-Chair  Hawker asked  how  the  department determined  the                                                                    
amount  of money  that would  be required  per student.  Mr.                                                                    
Jeans replied that the fiscal  note was based on the current                                                                    
Parents  as Teachers  program, which  cost about  $3,000 per                                                                    
Representative Foster  spoke in  support of the  program and                                                                    
pointed  out  that  there was  higher  unemployment  in  the                                                                    
Native  community and  that fewer  young people  make it  to                                                                    
college  or vocational  school.  He noted  that more  Native                                                                    
people went  to jail and  had to rely on  public assistance.                                                                    
He  emphasized the  critical importance  of early  childhood                                                                    
development especially for Native  Alaskans. He informed the                                                                    
committee that 60 percent of  participants in the Parents as                                                                    
Teachers program were Alaskan Native.                                                                                           
12:20:53 PM                                                                                                                   
Representative  Gara  queried  the timing.  Co-Chair  Hawker                                                                    
felt time was  needed for accurate analysis.  He stated that                                                                    
one of  the things he  liked about early  childhood programs                                                                    
such  as Best  Beginnings  and the  Imagination Library  was                                                                    
that  they  were  not   government  programs;  parents  were                                                                    
involved. He  was concerned that the  legislation was making                                                                    
the program a government program.                                                                                               
Representative Gara stated that  he supported Head Start and                                                                    
traditional  pre-K programs.  He  acknowledged citizens  who                                                                    
wanted programs like Parents  as Teachers because government                                                                    
was  less  involved.  He  thought the  program  was  a  good                                                                    
compromise for  many people. He  acknowledged those  who had                                                                    
supported   the  development   of   the   program  and   the                                                                    
Co-Chair  Hawker wondered  whether the  bill represented  an                                                                    
acknowledgment that  the current  pre-K pilot program  was a                                                                    
failure. Representative Gara did  not believe so. He thought                                                                    
there  were   many  ways   to  accomplish   early  childhood                                                                    
education. He  pointed out that  the program cost  less than                                                                    
Head  Start  and was  still  effective.  He noted  that  the                                                                    
legislation  was  not  intended  to  make  the  program  the                                                                    
state's model  for pre-K education,  but would be part  of a                                                                    
range of options.                                                                                                               
12:25:14 PM                                                                                                                   
Vice-Chair  Thomas voiced  disappointment about  funding for                                                                    
the programs that resulted in  success. He hoped the program                                                                    
would help.                                                                                                                     
HB 69 was SET ASIDE until later in the meeting.                                                                                 
12:27:20 PM              RECESSED                                                                                             
1:45: 33 PM              RECONVENED                                                                                           
SENATE BILL NO. 305                                                                                                           
     "An Act relating to the tax on oil and gas production;                                                                     
     and providing for an effective date."                                                                                      
1:46:04 PM                                                                                                                    
Co-Chair  Hawker   explained  that  SB  305   addresses  the                                                                    
decoupling of  oil from gas  as related  to the oil  and gas                                                                    
production tax  and the interplay  of the issue  with Alaska                                                                    
Gasline   Inducement   Act   (AGIA)   legislation   in   the                                                                    
forthcoming open season. He reported  that the bill had been                                                                    
thoroughly  vetted  on  the  Senate   side  with  a  lot  of                                                                    
technical  analysis   and  that  the  bill   had  also  been                                                                    
carefully reviewed in the House Resources Committee.                                                                            
Co-Chair Hawker stated his intent  to accomplish the mission                                                                    
of  the sponsors.  He anticipated  a  difference of  opinion                                                                    
from  the administration  on the  necessity  of passing  the                                                                    
bill.  He  outlined his  plan  for  the  bill in  the  House                                                                    
Finance Committee.                                                                                                              
1:50:55 PM                                                                                                                    
SENATOR  BERT STEDMAN,  CO-CHAIR, SENATE  FINANCE COMMITTEE,                                                                    
SPONSOR,  provided  an  overview   of  the  history  of  the                                                                    
legislation. His  initial concern  was looking at  the issue                                                                    
from a  fiscal position and  determining that the  state was                                                                    
potentially  at  a  fiscal  disadvantage  at  the  level  of                                                                    
billions  of  dollars.  He   recognized  the  difficulty  of                                                                    
communicating  the magnitude  of the  fiscal challenges.  He                                                                    
explained Senator Paskvan's  role as a legal  advisor on the                                                                    
legislation. He  believed Senator Paskvan had  the advantage                                                                    
of  entering the  legislature after  the discussions  on the                                                                    
Petroleum   Production  Tax   (PPT),   Alaska's  Clear   and                                                                    
Equitable Share  (ACES), and AGIA;  he believed a  fresh eye                                                                    
would be helpful.                                                                                                               
1:54:13 PM                                                                                                                    
Senator  Stedman  referred  to   the  time  when  the  state                                                                    
functioned under the Economic Limit  Factor (ELF) or tax and                                                                    
royalty  regime  and  was  transitioning  to  a  production-                                                                    
sharing  arrangement.   He  noted  that  North   America  is                                                                    
basically structured under the  tax and royalty approach and                                                                    
most  of  the  global hydrocarbon  basins  have  production-                                                                    
sharing  or profit-sharing  arrangements.  He recalled  that                                                                    
after  extensive legislative  review of  the ELF  structure,                                                                    
the fiscal  regime of Alaska was  restructured to production                                                                    
sharing. He noted that months  were spent in the legislature                                                                    
adjusting   the  new   structure,   especially  related   to                                                                    
progressivity.  The  royalties  had   been  left  in  place;                                                                    
however, it became  clear that the share going  to the state                                                                    
would decline  when the price  of oil  went from $60  to $80                                                                    
per barrel. Concern about the  decline led to progressivity,                                                                    
an added  tax that would  protect the state when  oil prices                                                                    
were high.  The decision had  been made  to stop the  PPT at                                                                    
$60 per  barrel; in  hindsight that was  too low.  There was                                                                    
debate about progressivity.                                                                                                     
Senator  Stedman referred  to  negotiations for  a gas  line                                                                    
under the  Murkowski administration  and a proposal  to take                                                                    
20 percent  of the gas  (12.5 percent of royalties  plus 7.5                                                                    
percent severance),  own 20 percent  of the pipe, have  a 20                                                                    
percent capital credit, and a  20 percent base tax. The base                                                                    
tax was increased  to 25 percent. At the time,  there was no                                                                    
gas  to  speak  of.  Cook   Inlet  was  separated  from  the                                                                    
discussion as  an old, declining  basin; the new  tax regime                                                                    
did not apply to  it. The only gas in the  state was in Cook                                                                    
Inlet and  in the Arctic. The  gas field in Prudhoe  Bay was                                                                    
going  to  be  taken  in-kind.  All  of  the  focus  of  the                                                                    
discussions at  the time was  on oil. Gas  was intentionally                                                                    
set aside.                                                                                                                      
1:58:09 PM                                                                                                                    
Senator  Stedman   continued  that  adjustments   were  made                                                                    
through ACES and AGIA; the  20 percent ownership in pipe and                                                                    
the 20 percent ownership in  gas fell away. However, the gas                                                                    
tax structure was still left in place.                                                                                          
Senator   Stedman  underlined   that  the   legislature  had                                                                    
structured progressivity  around oil. He described  gas as a                                                                    
lower-valued  hydro-carbon;  oil  produces  six  times  more                                                                    
energy per volume  than gas, and is eight or  ten times more                                                                    
valuable. In  the eight to ten  range there is not  a lot of                                                                    
impact on  the fiscal  regime. There  has been  a structural                                                                    
change within the  economy and the energy world  in the past                                                                    
three or four past years.  Vast supplies of natural gas have                                                                    
been  discovered globally,  lowering  the  pressure on  gas,                                                                    
while upward  pressure has been  put on oil.  Currently, oil                                                                    
is valued at about $80 per barrel  and gas is at $4, a 20 to                                                                    
1 ratio.                                                                                                                        
Senator  Stedman relayed  that a  couple of  years ago,  the                                                                    
Legislative Budget  and Audit  Committee found  a consultant                                                                    
to make  a mathematical model  of Prudhoe Bay,  Kuparuk, and                                                                    
Alpine  fields so  that the  legislature  could measure  and                                                                    
evaluate  a potential  gasline  proposal.  He had  requested                                                                    
that the  consultant review  the oil  tax structure  and the                                                                    
gas  tax structure  and measure  the offset  (or subsidy  or                                                                    
dilution) resulting from large  gas volumes and oil volumes;                                                                    
the total revenue was going down instead of up.                                                                                 
Senator Stedman referred to a  March 2, 2010 memorandum from                                                                    
Dr. David  Wood, a  consultant to  the legislature  (copy on                                                                    
file) calculating the impact over  the past couple of years.                                                                    
Dr. Wood had  presented his findings to  the House Resources                                                                    
Committee. Some  believed the policy implications  were huge                                                                    
and asked  for a presentation before  the Legislative Budget                                                                    
and Audit Committee.                                                                                                            
Senator  Stedman   reported  that  he  had   become  greatly                                                                    
concerned about  Dr. Wood's analysis of  the dilution effect                                                                    
in terms  of the fiscal impact  to the state but  also about                                                                    
the lack of recognition in  the legislature of the potential                                                                    
impact.  He  emphasized  that  the  mechanism  is  extremely                                                                    
complicated and the numbers are unbelievably large.                                                                             
Senator  Stedman continued  that the  AGIA open  season came                                                                    
around and Mr. Tony Palmer  from TransCanada came before the                                                                    
legislature to  discuss potential costs of  a mainline pipe.                                                                    
Mr.  Palmer   referred  to   estimated  tariffs   and  price                                                                    
2:03:50 PM                                                                                                                    
Senator  Stedman maintained  that under  the AGIA  terms the                                                                    
state faced a contractual obligation  to lock in the gas tax                                                                    
by May 1,  2010. He noted that the state  has the ability to                                                                    
adjust oil tax up or down, but not gas tax.                                                                                     
Senator Stedman explained that  the Senate Finance Committee                                                                    
had spent several weeks  studying the information available,                                                                    
starting with  the basic structure  of the oil and  gas tax.                                                                    
Oil was covered in the  first week and then the hypothetical                                                                    
4.5  billion cubic  feet  per day  (Bcf/day)  gas model.  He                                                                    
underlined  that  the  conclusions were  "not  pretty."  The                                                                    
administration did a review as  well, but their numbers were                                                                    
not any better.                                                                                                                 
Senator  Stedman  emphasized  that  the  state  had  a  good                                                                    
revenue  stream with  oil, but  when  oil is  15 times  more                                                                    
valuable than  gas, the total  dollars to the  treasury went                                                                    
down  with gas.  He was  alarmed  that the  state has  spent                                                                    
thirty  years  waiting for  a  gas  line  and a  strong  gas                                                                    
economy, when it  was clear that without  gas revenue, there                                                                    
would be no gas economy.                                                                                                        
Senator Stedman  pointed to current numbers,  stressing that                                                                    
what  matters  is  the  relationship  between  oil  and  gas                                                                    
prices. With oil  standing alone, the state  would make $8.6                                                                    
billion;  with  gas,  the state  would  make  $330  million.                                                                    
Noting that  the progressivity calculations are  based on 30                                                                    
days, with 30  days before first gas at ten  to twelve years                                                                    
out, the  revenue stream would  be $8.6  billion (annualized                                                                    
over 12  months). Given that  number, the  legislature might                                                                    
work the budget details.                                                                                                        
2:08:22 PM                                                                                                                    
Senator  Stedman continued  that first  gas could  come, and                                                                    
thirty days  later the  state might  find out,  for example,                                                                    
that  the same  volume of  oil (500,000  barrels) was  being                                                                    
pumped and gas was flowing  well, but the revenue would then                                                                    
be only $5.2 billion. He  warned that under the example, the                                                                    
state could  suddenly lose $3.4  billion and make  only $330                                                                    
million in gas. The net loss  could be $3.1 billion. The gas                                                                    
line would have  to be shut down and there  would be serious                                                                    
budget  problems. Nothing  could be  done because  the state                                                                    
would be under contractual  obligation for the following ten                                                                    
Senator Stedman questioned how  the legislature could answer                                                                    
to  future generations  for such  a  significant loss  after                                                                    
waiting thirty to forty years  for gas to flow. He commented                                                                    
that  he  and  other  legislators  had  traveled  throughout                                                                    
Canada  and  the United  States  to  energy conferences  and                                                                    
looked   carefully   at   the   models.   There   had   been                                                                    
consideration  about  how  to   incentivize  an  oil  basin,                                                                    
including  adjusting progressivity,  production-sharing, and                                                                    
base tax numbers or shifting  property taxes for things like                                                                    
a gas treatment plant.                                                                                                          
Senator Stedman  stressed that the Arctic  has a world-class                                                                    
oil  basin. He  argued that  the state  was not  creating an                                                                    
incentive,  but  giving  away   revenue  at  a  "staggering"                                                                    
magnitude.  For  example,  the  state  could  build  a  $100                                                                    
million road to encourage  drilling and exploration or build                                                                    
a port at Anchorage for  several hundred million. He did not                                                                    
want the state  to give away billions of  dollars year after                                                                    
Senator Stedman  suggested buying equity in  a project, such                                                                    
as buying  10 or 20 percent  of the pipe, so  that the state                                                                    
would make  the 12  or 13 percent  regulated rate  of return                                                                    
rather than handing the cash to others.                                                                                         
Senator Stedman emphasized that  the problem was the quickly                                                                    
approaching lock-down date on May  1, 2010, the first day of                                                                    
binding open season.                                                                                                            
2:14:04 PM                                                                                                                    
Senator Stedman warned that the  magnitude of the problem is                                                                    
so severe that  if AGIA succeeds and the  first binding open                                                                    
season succeeds, the industry could  lock the state down and                                                                    
it  would be  "game  over."  He pointed  out  that the  only                                                                    
leverage the state has left is  oil, if gas cannot be moved.                                                                    
He argued  that politically, oil  taxes could not  be raised                                                                    
by one third (the amount required  to make up the gap in the                                                                    
previous example).  Compared to other structures  around the                                                                    
world, he believed the current  tax structure in Alaska is a                                                                    
burden. He felt that the  state was currently giving its oil                                                                    
away  and  that oil  revenue  had  to be  protected  through                                                                    
adjustments and incentives,  and the gas pipeline  had to be                                                                    
made competitive and attractive.                                                                                                
Senator Stedman  stated that he  did not want the  legacy of                                                                    
giving away  the state's  oil. He noted  that the  state can                                                                    
legally decouple  at any time, but  he argued that if  it is                                                                    
done before  May 1,  2010, there would  be less  fiscal risk                                                                    
than  waiting until  after the  date. He  thought the  state                                                                    
could gamble that the price of  gas would go higher than the                                                                    
price  of  oil,  but  he   did  not  think  the  projections                                                                    
supported such a gamble. He  believed there would be higher-                                                                    
valued  oil  and lower-valued  natural  gas  because of  the                                                                    
amount of gas available.                                                                                                        
2:18:43 PM                                                                                                                    
Co-Chair Hawker  stated for the  record that he  agreed with                                                                    
the problem  identified by Senator Stedman.  He relayed that                                                                    
he had participated in the  discussions about PPT, ACES, and                                                                    
AGIA.  In 2006,  there was  a session  during which  the new                                                                    
proposal for  the profit-sharing production tax  was vetted.                                                                    
He noted that  it had been universally  appreciated that the                                                                    
ELF  had  become  outdated  and needed  to  be  replaced.  A                                                                    
special  session  was  called where  the  debate  continued.                                                                    
During  the interim  between two  special  sessions, he  and                                                                    
others met  to consider  the deadlocked bill;  the "producer                                                                    
pay plan" was crafted as  an evolution of the profit-sharing                                                                    
production  tax involving  an incentive  to lower  tax rates                                                                    
for producers increasing production.                                                                                            
Co-Chair Hawker continued that the  new bill made it through                                                                    
the House  and was  fine-tuned by  the Senate;  the producer                                                                    
pay plan  developed into  the profit-sharing  production tax                                                                    
(PPT).  The  bill  was  crafted   in  his  office  with  the                                                                    
Department of Revenue  (DOR) to address the oil  ELF, but as                                                                    
time passed,  it became clear  that the gas ELF  also needed                                                                    
to be  addressed through a  different formula.  He witnessed                                                                    
that the crafters  of the legislation had  believed they did                                                                    
not have  to worry about the  gas tax for another  15 years.                                                                    
They understood that  it would be complex  to structure both                                                                    
a new tax  on oil and on  gas and decided to  put them under                                                                    
the same  tax regime, although  there was a  different price                                                                    
structure on  oil than on  gas; one  was sold by  the barrel                                                                    
and the  other by  thousands or millions  of cubic  feet. In                                                                    
addition,  there was  a  significant  value difference.  The                                                                    
same tax rate could not be put on the different values.                                                                         
Co-Chair Hawker recalled that the  crafters came up with the                                                                    
idea of the British  Thermal Unit (BTU) equivalency formula.                                                                    
However, that  would work  only if  the BTU  equivalency was                                                                    
the same as the price  equivalency. They knew that combining                                                                    
low-value gas and  high-value oil would result  in a diluted                                                                    
tax structure,  but knew also  that there would be  15 years                                                                    
to deal with the problem.                                                                                                       
2:23:13 PM                                                                                                                    
Co-Chair Hawker  noted that the progressivity  feature added                                                                    
by  ACES exacerbated  the problem  as it  triggered profound                                                                    
value  differences.  Next,  AGIA  was  passed  and  provided                                                                    
"fiscal certainty"  for the players: the  gas-production tax                                                                    
would be fixed at the start  of the first day of the binding                                                                    
open season.  The lock-in  provision based  on the  start of                                                                    
the first  open season  suddenly reduced  the 15  years they                                                                    
had  previous assumed  they had  to 15  months. He  admitted                                                                    
that when AGIA  passed, he had not made  the connection that                                                                    
the time would be shortened.                                                                                                    
Co-Chair Hawker agreed that on  May 1, 2010, the state would                                                                    
be locked  in to  the gas  tax structure  for ten  years. He                                                                    
emphasized  that  the  crafters  of the  structure  had  not                                                                    
intended the outcome.                                                                                                           
SENATOR  JOE  PASKVAN informed  the  committee  that he  had                                                                    
arrived at the same  conclusion as Senator Stedman regarding                                                                    
the  need  for decoupling  gas  and  oil.  He had  begun  by                                                                    
reading the  AGIA statutes to  understand the extent  of the                                                                    
lock-in that the state was facing  on May 1. He had reviewed                                                                    
the  opinion  of  Attorney General  David  Marquez  and  his                                                                    
analysis under the Stranded Gas  Development Act of the risk                                                                    
to the state of Alaska.                                                                                                         
Senator  Paskvan reported  that  he had  called the  current                                                                    
Attorney General  Dan Sullivan two  months ago and  told him                                                                    
he believed there was a tremendous  risk and that he was not                                                                    
legally  comfortable  with.  He emphasized  that  the  legal                                                                    
issues were complex. He thought  the number one issue before                                                                    
the  current legislature  was the  fiscal  issue. He  agreed                                                                    
that  the magnitude  of the  problem  was so  great that  it                                                                    
could  result  in  Alaska  giving  up  100  percent  of  any                                                                    
production  tax  on  natural  gas and  100  percent  of  its                                                                    
royalty. The state  would have to use oil  savings while the                                                                    
gas flows.                                                                                                                      
2:27:57 PM                                                                                                                    
Senator Paskvan  stressed that the  monthly analysis  of the                                                                    
situation was  that Alaska would  be bringing in  about $725                                                                    
million per month in the first  30 days before the 4.5 Bcf/d                                                                    
of gas flows;  after the gas flows, the  state would receive                                                                    
less than  $500 million per  month. Hundreds of  millions of                                                                    
dollars would be lost each  month. He called the situation a                                                                    
"third-world  resource  extraction  model" where  the  state                                                                    
would pay while the resource leaves the state.                                                                                  
Senator  Paskvan argued  that decoupling  gas and  oil would                                                                    
result in  absolutely no  increase in oil  tax and  that the                                                                    
trigger point at  25 percent and the  slope of progressivity                                                                    
would remain  the same. The  gas tax would remain  the same,                                                                    
at  25 percent  with the  same slope  of progressivity.  The                                                                    
state would  be protected if  gas became more  valuable than                                                                    
Senator  Paskvan underlined  the conclusion  that decoupling                                                                    
is necessary. He added that  the only other issue before the                                                                    
legislature  was   the  question   of  the   methodology  of                                                                    
determining the  gas production tax  obligation specifically                                                                    
referenced in  AGIA statute  Section 320.  He referred  to a                                                                    
presentation by  DOR Commissioner  Pat Galvin to  the Senate                                                                    
Finance Committee.  Commissioner Galvin had used  the point-                                                                    
of-production  tax  (the system  put  in  by regulation  15,                                                                    
AAC.90.220) and  arrived at a gas  production tax obligation                                                                    
of $1.2 billion. Decoupling  and using a point-of-production                                                                    
analysis, using the same structure  used by the commissioner                                                                    
would allocate 78 percent of the  cost to oil and 22 percent                                                                    
of the cost to gas. The  tax obligation on a decoupled basis                                                                    
would be approximately $1,015,500.  He stressed that that is                                                                    
the beginning point for negotiation.                                                                                            
Senator  Paskvan concluded  that the  state should  keep its                                                                    
eye on the top line for  gross revenues for both products on                                                                    
a decoupled basis and then  look at the negotiation position                                                                    
by making  sure that  the starting point  is at  the billion                                                                    
dollar range.                                                                                                                   
Co-Chair Hawker noted that SB  305 was the proposed solution                                                                    
and would be presented by the consultants.                                                                                      
2:32:18 PM                                                                                                                    
Representative Gara commented on  the difficulty of shifting                                                                    
ideologies without  preconceptions. He noted that  with some                                                                    
language  changes  he  might agree  with  the  senators  and                                                                    
Representative  Hawker.  He pointed  out  that  he had  been                                                                    
present  throughout the  PPT and  ACES debates  and had  not                                                                    
been told once  that Alaska could have a gas  pipeline and a                                                                    
oil  pipeline  that  produced  less   revenue  than  an  oil                                                                    
pipeline alone. He believed the issue was very important.                                                                       
Representative Gara  stated that he, Senator  Hollis French,                                                                    
and others had tried to push  for separate oil and gas taxes                                                                    
and were told that it could  not be done. He wanted to enter                                                                    
into  gasline  negotiations   from  the  strongest  position                                                                    
possible.  He   listed  previous  concerns  that   had  been                                                                    
addressed,   including  that   it   made   sense  to   leave                                                                    
progressivity in.  He had committed  to let  industry deduct                                                                    
gas field  costs from oil taxes  in order to move  a gasline                                                                    
forward, and he  thought it would be wise  to craft language                                                                    
so that the small amount of  gas produced on the North Slope                                                                    
would  not  have  to  be burdened  with  decoupling  in  the                                                                    
Vice-Chair Thomas  stated concerns  about the timing  of the                                                                    
legislation; he  worried that the  House would not  have the                                                                    
time with  the legislation  that the  Senate had.  He agreed                                                                    
that the issue was huge. He  did not want to lose money, but                                                                    
he wanted  more information  about the  gas taxes  and urged                                                                    
proceeding with caution.                                                                                                        
2:37:34 PM                                                                                                                    
Senator Stedman pointed out that  currently there was cross-                                                                    
subsidy going  on as there  was gas  in the Arctic  and Cook                                                                    
Inlet as  well as  Prudhoe Bay-Kuparik, but  emphasized that                                                                    
SB 305  was revenue-neutral.  He recalled  that in  the last                                                                    
three  years the  impact to  the treasury  has been  roughly                                                                    
$250 million without gas. There  was language in the bill to                                                                    
protect  the   industry  so  they  would   get  the  current                                                                    
dilution.  The crafters  did not  want to  "rock the  boat";                                                                    
they wanted  to protect  the state from  being locked  in on                                                                    
May 1.                                                                                                                          
Co-Chair  Stoltze emphasized  the importance  of the  May 1,                                                                    
2010  date  and  the   consequences  of  the  administration                                                                    
deciding  not  to  sign the  bill.  Senator  Stedman  agreed                                                                    
regarding the importance of the date.                                                                                           
Co-Chair  Hawker   reported  that  the   administration  had                                                                    
testified that it views the problem as less severe.                                                                             
Vice-Chair Thomas queried what  could happen if the governor                                                                    
vetoed the  bill. He wondered whether  the legislature could                                                                    
override the veto in time.  Senator Paskvan did not know. He                                                                    
believed the effective date on the statute was January 1.                                                                       
Co-Chair  Stoltze  hoped  there   would  be  more  testimony                                                                    
related to the importance of timing.                                                                                            
2:42:07 PM               AT EASE                                                                                              
2:42:22 PM               RECONVENED                                                                                           
Representative  Fairclough believed  there  was time  before                                                                    
May 1 to fully understand the issue.                                                                                            
Co-Chair Hawker pointed to  extensive testimony and analysis                                                                    
on the bill's website.                                                                                                          
ROGER  MARKS,  PETROLEUM  ECONOMIST,  LEGISLATIVE  BUDGET  &                                                                    
AUDIT  COMMITTEE,  introduced  himself and  his  partner  as                                                                    
being from Logsdon & Associates  and under contract with the                                                                    
Legislative  Budget  and  Audit   Committee  to  assist  the                                                                    
legislature in gas taxation matters.                                                                                            
Co-Chair Hawker queried their  qualifications related to oil                                                                    
and gas issues.  Mr. Marks replied that they  had worked for                                                                    
the Tax  Division of DOR for  many years on the  oil and gas                                                                    
production tax and issues of gas commercialization.                                                                             
CHUCK  LOGSDON, PETROLEUM  ECONOMIST,  LEGISLATIVE BUDGET  &                                                                    
AUDIT COMMITTEE,  added that  they had  over fifty  years of                                                                    
experience between  the two of them  in evaluating petroleum                                                                    
taxation related to the Alaska fiscal system.                                                                                   
Mr. Marks  provided a summary  of the premise  and rationale                                                                    
for the bill and a description  of how the bill works, using                                                                    
a PowerPoint  presentation, "SB 305: The  De-Coupling of Oil                                                                    
from  Gas for  the Oil  and  Gas Production  Tax, Logsdon  &                                                                    
Associates, House  Finance Committee, April 14,  2010" (copy                                                                    
on file). He began with Slide 2, "Acronyms":                                                                                    
     BBL       barrel                                                                                                           
     BCF       billions of cubic feet                                                                                           
     MMBTU     millions of BTUs                                                                                                 
     BOE       barrel of oil equivalent                                                                                         
Mr. Marks detailed that a barrel  (bbl) is how the volume of                                                                    
oil is  measured and the unit  of how oil is  sold. Billions                                                                    
of  cubic feet  (Bcf) refers  to how  the volume  of gas  is                                                                    
measured.  He explained  that  natural  gas contains  mostly                                                                    
methane but also butane and  heavier hydrocarbons; while the                                                                    
volume is  measured in cubic  feet, it  is sold in  terms of                                                                    
the millions of British  Thermal Unit (BTU) content (MMBTU).                                                                    
Finally, the barrel of oil  equivalent (BOE) puts gas on the                                                                    
same basis  of oil so  they can  be added up,  measured, and                                                                    
compared  by converting  MMBTUs of  gas  to bbls  of oil.  A                                                                    
barrel of oil has 6 million  BTUs; taking the amount of BTUs                                                                    
of gas  and dividing by  6 puts the gas  on a barrel  of oil                                                                    
equivalent (BOE).                                                                                                               
2:47:29 PM                                                                                                                    
Mr. Marks turned to Slide 3, "The Problem":                                                                                     
   • The progressivity part of the production tax rate is                                                                       
     based on per barrel oil or per BTU gas profitability                                                                       
   • Under current law oil and gas are combined for                                                                             
     calculating the progressivity                                                                                              
   • Oil is worth much more than gas                                                                                            
   • With a major gas sale, combining the lower value gas                                                                       
     with the higher value oil will "dilute" the per barrel                                                                     
     oil profitability:                                                                                                         
        - Driving down the progressivity factor                                                                                 
        - Materially reducing production taxes                                                                                  
Mr. Marks detailed  that there is currently a  base tax rate                                                                    
of  25   percent  on  the   oil  and  gas   production  tax;                                                                    
progressivity is added to that to  give a higher rate if the                                                                    
value of the oil or gas is above a certain rate.                                                                                
Co-Chair Hawker summarized  that when gas comes  on the unit                                                                    
higher values of the oil are diluted.                                                                                           
Mr. Marks reviewed Slide 4, "Oil vs. Gas Value":                                                                                
   • Now:                                                                                                                       
        - Gas: $4/mmbtu                                                                                                         
        - Oil: $80/bbl ($13/mmbtu)                                                                                              
   • Department of Energy forecast for 2020:                                                                                    
        - Gas: $8/mmbtu                                                                                                         
        - Oil: $120/bbl ($20/mmbtu)                                                                                             
   • Transportation cost deductions:                                                                                            
        - Gas: $5.00/mmbtu to Lower 48                                                                                          
        - Oil: $6.00/bbl ($1.00/mmbtu)                                                                                          
Mr. Marks detailed that on a  straight BTU to BTU basis, oil                                                                    
is currently  worth about  three times as  much as  gas. The                                                                    
U.S.  Department of  Energy forecast  for 2020  (when it  is                                                                    
hoped that a major gas  sale would start) is $8/MMBTU, while                                                                    
the  forecast for  oil  is around  $20/MMBTU,  or about  2.5                                                                    
times  as   much  as  gas.   In  addition,  in   Alaska  the                                                                    
differences  are exacerbated  by  transportation costs.  The                                                                    
tax  is based  on net  value. Gas  will have  a much  higher                                                                    
transportation cost than oil per  MMBTU, about five times as                                                                    
2:50:52 PM                                                                                                                    
Mr. Marks directed  attention to Slide 5, "How  the Tax Rate                                                                    
is Determined":                                                                                                                 
   • Base 25% rate                                                                                                              
   • Plus progressivity                                                                                                         
        - Progressivity is based on the net value per BOE:                                                                      
             • Oil Alone: Total oil value / Total oil                                                                           
             • Combined Oil & Gas: Total oil and gas net                                                                        
              value / Total oil and gas BOE's                                                                                   
        - When lower value gas is added to the higher value                                                                     
          oil the average net value of the combined oil and                                                                     
          gas goes down                                                                                                     
Representative  Doogan asked  whether  part  of the  problem                                                                    
would be a lot of  low-value gas compared to relatively less                                                                    
high-value oil. Mr. Marks responded  that he was correct and                                                                    
suggested thinking  of the relationship  as a  fraction with                                                                    
the numerator being the value  and the denominator being the                                                                    
amount of production.                                                                                                           
Representative  Doogan noted  that  a lot  of  the issue  is                                                                    
related to the  theory that there would be  a lock-down when                                                                    
companies  nominate gas  during  the open  season. He  asked                                                                    
whether  the problem  would be  exacerbated as  more gas  is                                                                    
nominated.  Mr. Marks  responded  that he  was correct;  the                                                                    
greater  the  difference  between  oil and  gas  value,  the                                                                    
larger the  problem, and the  more gas there is  relative to                                                                    
oil, the greater the problem.                                                                                                   
Mr. Marks  turned to Slide  6, "Reference Case," or  how the                                                                    
world might look in 2020:                                                                                                       
   • Oil                                                                                                                        
        - 500,000 barrels per day                                                                                               
        - $120/bbl market price                                                                                                 
   • Gas                                                                                                                        
        - 4.5 bcf/day                                                                                                           
        - $8/mmbtu market price                                                                                                 
   • Upstream costs                                                                                                             
        - $2.2 billion capital                                                                                                  
        - $2.2 billion operating                                                                                                
2:54:39 PM                                                                                                                    
Co-Chair Hawker  noted that the  same reference  numbers had                                                                    
been used  in the previous  committee. He asked  whether the                                                                    
upstream  operating  and  capital expenses  were  reasonable                                                                    
costs  to anticipate.  Mr. Marks  believed the  numbers were                                                                    
reasonable and  consistent with current costs,  adjusted for                                                                    
inflation  plus additional  costs  that may  occur with  new                                                                    
fields like Pt. Thompson.                                                                                                       
Representative Austerman  asked whether the  500,000 barrels                                                                    
per day was  taxable oil. Mr. Marks agreed;  the numbers are                                                                    
DOR's forecast for production in 2020.                                                                                          
Mr. Marks  moved on to  Slide 7, "What Happens  under Status                                                                    
   • Oil taxes under status quo prior to gas production:                                                                        
          Net value of oil = $86/bbl (tax rate 47%)                                                                             
          Oil Tax = $6.1 billion                                                                                            
   • Add a 4.5 bcf/day of gas:                                                                                                  
          Combined net value of oil and gas = $47/bbl (tax                                                                      
          rate 32%)                                                                                                             
          Total oil & gas taxes: $5.5 billionBottom line: The drop in the tax rate of oil more than                                                                 
     offsets all the  the taxes on gas. Not only does the                                                                       
     state not received any additional revenues from the                                                                        
     gas, but oil revenues drop as well.                                                                                        
Mr. Marks  detailed that the  numbers assume  oil production                                                                    
similar to  present levels and  no gasline,  500,000 barrels                                                                    
per day  and the  $120 Lower  48 price.  When the  costs are                                                                    
subtracted to  get to the  net or production tax  value, the                                                                    
net   value  is   approximately  $86/bbl.   Given  the   way                                                                    
progressivity works,  when the  amount above $30  is subject                                                                    
to  a 0.4  percent  slope per  dollar, the  tax  rate is  47                                                                    
percent  at $86/bbl.  The  tax rate  would  be $6.1  billion                                                                    
Mr. Marks  explained that  adding a  4.5 Bcf/day  gasline on                                                                    
top  of  the  oil  production  would  not  affect  oil;  but                                                                    
combining  the lower-value  gas  with  the higher-value  oil                                                                    
would reduce the $86/bbl average BOE value down to $47/bbl.                                                                     
Co-Chair Hawker asked whether the  scenario would occur when                                                                    
the  switch is  flipped on  and gas  is produced.  Mr. Marks                                                                    
agreed; the  prices would  occur when  the average  value of                                                                    
the oil  is diluted by the  gas. Without the gas,  oil would                                                                    
have  the  $86/bbl  tax  value   at  47  percent  tax  rate;                                                                    
switching on  the gas  would bring  the combined  value down                                                                    
from $86/bbl to $47/bbl (tax rate at 32 percent).                                                                               
Mr. Marks  highlighted that  the total  taxes would  then be                                                                    
$5.5 billion  for both the oil  and the gas. There  would be                                                                    
no additional taxes  from the gas and the  oil revenue would                                                                    
drop as well.                                                                                                                   
Mr.  Marks reported  that over  the past  months he  and Mr.                                                                    
Logsdon  had  looked   extensively  at  other  international                                                                    
petroleum fiscal regimes. They could  find no other place on                                                                    
the  planet  where  a jurisdiction  combines  substances  of                                                                    
different values and the basis  for taxation is the combined                                                                    
per unit value.                                                                                                                 
Co-Chair Hawker  clarified that the comparisons  referred to                                                                    
annualized  numbers.  Mr.  Marks concurred,  and  emphasized                                                                    
that the $5.5  billion was the total taxes from  the oil and                                                                    
the  gas both,  compared to  the $6.1  billion that  was oil                                                                    
2:59:11 PM                                                                                                                    
Representative  Kelly queried  writing regulations  [adopted                                                                    
by  DOR  during  AGIA]  related to  changing  the  point  of                                                                    
production  and the  BTU oil  equivalent. Mr.  Marks replied                                                                    
that he would get to the issue.                                                                                                 
Representative  Doogan  asked  the   value  of  gas  in  the                                                                    
example. Mr. Marks replied that the  value of gas on a MMBTU                                                                    
basis would  be about $1.60  and on a  BTU basis $9  to $10.                                                                    
The dilution  effect drags  the oil taxes  down and  the gas                                                                    
taxes  up,  but  the  net  effect is  that  the  oil  effect                                                                    
overwhelms  the  gas  effect,  which  creates  the  drop  in                                                                    
revenue when oil and gas are both being produced.                                                                               
Vice-Chair  Thomas asked  what would  motivate a  person who                                                                    
voted  against  ACES  to  vote  for  decoupling.  Mr.  Marks                                                                    
replied that  the issue was a  policy call. He stated  as an                                                                    
analyst that whether a person liked  ACES or not, it was the                                                                    
law of the land. He stressed  that ACES would stay in effect                                                                    
just as it was passed except  that it would apply to oil and                                                                    
gas distinctly.                                                                                                                 
Co-Chair Hawker agreed that the  question was on his mind as                                                                    
well. He reiterated  that the crafters of PPT  knew that the                                                                    
dilution problem  would have to  be dealt with.  He believed                                                                    
the issue  was a long-term  consistency one and that  SB 305                                                                    
would "buy an insurance policy, just in case."                                                                                  
3:04:39 PM                                                                                                                    
Representative Austerman  asked for clarification  about the                                                                    
numbers arrived  at. Mr. Marks replied  that the assumptions                                                                    
start with $86/bbl oil and the gas  at $9 on a BOE basis and                                                                    
ends up with  and average of $47 for per  unit value oil and                                                                    
gas combined.                                                                                                                   
Representative Austerman  queried the  value of the  $8 when                                                                    
oil  and gas  are  combined. Mr.  Marks  responded that  the                                                                    
value was about $1.60.                                                                                                          
Representative  Gara  went  back to  Representative  Kelly's                                                                    
question. He  summarized that (related  to valuing  the gas)                                                                    
the Senate  had passed a version  on a BTU basis;  the House                                                                    
Resources Committee worked with  the administration and came                                                                    
up with  a point-of-production basis for  the value. Whether                                                                    
there is a  BTU basis that results  in a lower gas  tax or a                                                                    
point-of-production  basis that  is higher,  the goal  is to                                                                    
not start the open season with a  gas tax that is too low as                                                                    
it might  only go  lower with  negotiations. He  queried the                                                                    
regulations passed with a definition  of gas taxes. He asked                                                                    
whether the  DOR regulations would  be overridden if  SB 305                                                                    
were passed.                                                                                                                    
Mr. Marks  clarified that there  were two  different issues.                                                                    
With  decoupling, there  would  be the  issue of  allocating                                                                    
costs between  oil and gas.  The regulations adopted  by DOR                                                                    
several weeks ago stipulate that  under AGIA the gas part of                                                                    
the tax  is locked in. Since  under the status quo  there is                                                                    
one total  tax that does not  separate gas tax and  oil tax,                                                                    
the department  needs to come up  with a way to  ascribe how                                                                    
much of  the $5.5  billion is gas.  Tax is  being allocated,                                                                    
not  costs, using  gross value.  He  agreed that  if SB  305                                                                    
passed,  the  adopted  regulations  would  not  make  sense.                                                                    
Decoupling would make clear how much the gas taxes are.                                                                         
3:09:12 PM                                                                                                                    
Representative Gara  wanted assurance  that Mr.  Marks would                                                                    
work  with  the  administration  if SB  305  says  that  the                                                                    
regulations are  no longer necessary. Mr.  Marks thought the                                                                    
question was for the administration.                                                                                            
Representative Fairclough summarized  her understanding: the                                                                    
oil tax  at $6.1  billion is an  equivalent when  taken into                                                                    
barrels; when  the 4.5 Bcf/day  gas is added, which  will be                                                                    
taxed at  the combined  rate, the  new combined  rate equals                                                                    
the  $47 per  barrel (taxed  at 32  percent). She  asked the                                                                    
values of  the oil and the  gas. Mr. Marks replied  that the                                                                    
value of oil has not changed.                                                                                                   
Representative Fairclough queried the  difference in the tax                                                                    
rate. Mr. Marks replied that the  tax rate on the $86 oil is                                                                    
47 percent.                                                                                                                     
Representative  Fairclough  asked   for  clarification.  Mr.                                                                    
Marks  explained that  the tax  went from  47 percent  to 32                                                                    
percent  because  of  progressivity. Even  though  there  is                                                                    
higher value for  the oil, dropping the tax  rate 15 percent                                                                    
on the total value accounts for the $1.6 billion less.                                                                          
Mr. Logsdon  added that the  weight average should  come out                                                                    
to $47/bbl if  the volume in barrels were  multiplied by the                                                                    
barrel  price  for  oil  and  the volume  of  the  gas  were                                                                    
multiplied by  the barrel equivalent  price of the  gas. Mr.                                                                    
Marks elaborated that if the 4.5  Bcf/day on a BOE basis was                                                                    
divided by  6, the  result would be  about 750,000  BOEs per                                                                    
day;  750,000 BOEs  of gas  and 500,000  BOEs of  oil, or  a                                                                    
production ratio of 60 percent gas and 40 percent oil.                                                                          
Mr. Marks continued  that the other side  is relative value.                                                                    
He compared  $86/bbl oil;  at a BOE  equivalent, the  gas is                                                                    
about $9 ($1.66/MMBTU). He stressed  that to put oil and gas                                                                    
on  an  equivalent basis,  the  $8  gas with  transportation                                                                    
costs subtracted is worth about $1.66/MMBTU.                                                                                    
3:14:47 PM                                                                                                                    
Mr. Marks turned  to Slide 8, "What  Happens with Decoupling                                                                    
[Using relative gross value to allocate cost]":                                                                                 
   • $120 oil and $8 gas                                                                                                        
        - Status quo taxes    = $5.5 billion                                                                                    
        - De-coupled taxes    = $7.9 billion                                                                                    
     $2.4 billion difference                                                                                                
   • Annual difference at other prices:                                                                                         
        - $100 oil / $8 gas: $1.4 billion                                                                                   
        - $80 oil / $8 gas:   $0.8 billion                                                                                  
Mr. Marks  detailed that the  difference between  the status                                                                    
quo  and  decoupling  would be  around  $2.4  billion.  When                                                                    
decoupling, the costs  need to be allocated  between oil and                                                                    
gas.  He  referred  to  a  recent  amendment  by  the  House                                                                    
Resources Committee to allocate  based on the relative gross                                                                    
value of oil  and gas (the gross value is  market price less                                                                    
transportation).  Using  the  gross  value,  the  difference                                                                    
would   be  $2.4   billion  between   the  status   quo  and                                                                    
decoupling. He noted that the  bigger difference between oil                                                                    
and gas value, the bigger  the difference between the status                                                                    
quo  and decoupling.  He covered  the  annual difference  at                                                                    
other prices for oil.                                                                                                           
Co-Chair  Hawker queried  the  break-even  point. Mr.  Marks                                                                    
replied progressivity is not  linear. Co-Chair Hawker stated                                                                    
that the closer oil and gas  come in price, there is less of                                                                    
a problem.  Mr. Marks  thought the question  was how  SB 305                                                                    
would decouple oil from gas.                                                                                                    
Co-Chair Hawker contended that SB  305 is hard to understand                                                                    
and must  be taken  in context with  the entire  statute; he                                                                    
believed  the  presentation   defined  the  simpler  concept                                                                    
embodied in the bill.                                                                                                           
Representative  Austerman   asked  whether   the  PowerPoint                                                                    
information was based on the  amended bill coming out of the                                                                    
House  Resource Committee  or the  Senate version.  Co-Chair                                                                    
Hawker answered that the two  versions were the same for the                                                                    
purposes of  the current conversation; the  major difference                                                                    
in the  House Resources  Committee version is  an additional                                                                    
mechanism  that would  make the  tax take  effect for  about                                                                    
three days, go  away, and then take effect ten  years in the                                                                    
future. The mechanism remained unchanged.                                                                                       
3:18:10 PM                                                                                                                    
Mr. Marks asserted that SB  305 was changing one small thing                                                                    
in  how the  production tax  works, which  would make  a big                                                                    
difference. He  directed attention to  Slide 9, "How  SB 305                                                                    
Works," highlighting  the difference in  calculation between                                                                    
the current tax regime and decoupling:                                                                                          
   • Currently                                                                                                                  
        - Each    company     calculates    one    statewide                                                                
          progressivity rate based on all combined oil and                                                                      
          gas activity (oil, Cook Inlet gas, other in-state                                                                     
   • Under SB 305: Two Progressivity Calculations                                                                           
        - Bucket 1: Same current activity (oil, CI gas,                                                                     
          other in-state gas) will continue to be                                                                               
          calculated together                                                                                                   
             • No tax increase on current activity                                                                              
        - Bucket 2: Progressivity on export gas will be                                                                     
          calculated distinctly (same formula)                                                                                  
            • Will not dilute oil progressivity                                                                                 
Mr.   Marks   detailed   that   currently   there   is   one                                                                    
progressivity  rate  based  on  all  combined  oil  and  gas                                                                    
activity.  Progressivity under  SB 305,  by contrast,  would                                                                    
use two calculations, first  separating current activity and                                                                    
export gas  into two "buckets."  Bucket 1 would  contain all                                                                    
current activity; there would be no tax increase.                                                                               
Co-Chair  Hawker stated  that there  would be  no change  in                                                                    
activity and no change in taxes.                                                                                                
Mr.  Marks continued  that without  SB 305,  there would  be                                                                    
only  one  statewide  bucket  and  when  a  major  gas  deal                                                                    
happens,  the gas  exported would  dilute the  value of  the                                                                    
oil. Senate  Bill 305 would set  up a new bucket  (Bucket 2)                                                                    
containing  only  the  export gas;  progressivity  would  be                                                                    
calculated on  the export  gas exactly  as it  is calculated                                                                    
under ACES.  He underlined  that calculating the  export gas                                                                    
separately would  prevent the export  gas from  diluting the                                                                    
oil activity.                                                                                                                   
Co-Chair   Hawker   summarized   that  the   oil   activity,                                                                    
calculated  as it  is currently  would remain  in Bucket  1,                                                                    
while  the new  export  gas  would be  in  Bucket  2 with  a                                                                    
separate calculation.                                                                                                           
3:20:54 PM                                                                                                                    
Representative Gara  asked whether gas that  is not exported                                                                    
but used  in the state  would remain under the  current ACES                                                                    
tax. Mr. Marks responded in the affirmative.                                                                                    
Co-Chair  Hawker  noted  that  Cook  Inlet  gas  would  stay                                                                    
permanently  under ELF.  Mr. Marks  added that  it would  be                                                                    
calculated under progressivity but would pay under ELF.                                                                         
Representative   Austerman  asked   how  "export   gas"  was                                                                    
defined.  Mr. Marks  replied  that export  gas  is gas  that                                                                    
leaves the  state and  is used outside  the state,  with the                                                                    
exception of Cook Inlet gas.                                                                                                    
Co-Chair Hawker clarified that the  gas referred to would be                                                                    
from  the North  Slope.  Mr. Marks  agreed  that the  liquid                                                                    
natural  gas (LNG)  is part  of Bucket  1; export  gas would                                                                    
come from  outside of Cook  Inlet and leave the  state, such                                                                    
as North  Slope gas that  would go  to Canada and  the Lower                                                                    
Representative Gara  pointed out that  there could not  be a                                                                    
separate, lower tax  on gas used in-state.  He asked whether                                                                    
the Bucket 2 language  could stipulate that decoupling would                                                                    
begin  when North  Slope gas  began to  be exported.  He was                                                                    
concerned  with constitutional  issues. Mr.  Marks responded                                                                    
that Bucket 2 would be empty  until a major gas sale is made                                                                    
and that the in-state gas would be Bucket 1.                                                                                    
3:24:16 PM                                                                                                                    
Mr.  Marks  pointed   to  Slides  10  and   11  with  visual                                                                    
illustrations of the two buckets.                                                                                               
Representative Fairclough asked whether  Bucket 1 would have                                                                    
the  combined tax  rate and  Bucket 2  would not.  Mr. Marks                                                                    
answered  in   the  affirmative;   the  combined   tax  rate                                                                    
currently in effect would be in Bucket 1.                                                                                       
Co-Chair Hawker  added that pure decoupling,  or putting all                                                                    
gas in  one bucket  and all oil  in another,  would penalize                                                                    
the  companies that  are currently  producing  both oil  and                                                                    
Mr. Marks reported that the  bucket system was structured in                                                                    
the Senate Finance Committee; the  intent was that there not                                                                    
be a tax increase at this time.                                                                                                 
Vice-Chair Thomas queried the tax  rate for spur lines taken                                                                    
off  the main  gasline. He  wondered what  the royalty  rate                                                                    
would be  to the  in-state users.  Mr. Marks  responded that                                                                    
under the  current production  tax, all  in-state gas  has a                                                                    
tax rate  that is subject to  old ELF provisions, a  low tax                                                                    
of $0.17/MMBTU regardless of the price.                                                                                         
Vice-Chair  Thomas clarified  that the  rate applied  to any                                                                    
gas used in the state.                                                                                                          
Co-Chair  Hawker  acknowledged  that current  statute  could                                                                    
face  federal constitutional  challenges,  as different  tax                                                                    
structures  are  set  up  for in-state  gas  from  the  same                                                                    
source.  He stated  that the  possibility  would not  become                                                                    
real until the  state has actually exported  gas. He thought                                                                    
the  issue did  not have  to be  dealt with  in the  current                                                                    
legislative session.                                                                                                            
3:28:28 PM                                                                                                                    
Representative Gara  wanted the bill  written in a  way that                                                                    
is constitutional. He fully intended  to leave the lower tax                                                                    
rate on in-state use of gas as long as possible.                                                                                
Representative Gara  summarized that by mixing  oil and gas,                                                                    
the state  essentially short-changes  itself on the  oil tax                                                                    
rate  in cases  where  there is  low-priced  gas. Mr.  Marks                                                                    
Representative Gara stated for the  record that the state is                                                                    
currently giving a benefit  to companies like ConocoPhillips                                                                    
by allowing them to dilute  oil tax payments with Cook Inlet                                                                    
gas costs. Mr. Marks agreed.                                                                                                    
Co-Chair  Hawker  took  issue   with  the  language  "short-                                                                    
changing" the state, which implied  a motive that he did not                                                                    
think existed.                                                                                                                  
Representative  Gara restated  that one  of the  benefits to                                                                    
producers who provide  in-state gas is a  slightly lower tax                                                                    
rate. Mr. Marks responded that PPT was designed as a state-                                                                     
wide  tax based  on state-wide  activity. Combining  oil and                                                                    
gas does reduce the tax.                                                                                                        
Co-Chair Hawker  explained that the  sponsor's bill  did not                                                                    
intend  to  fiscally  impact current  producers  relying  on                                                                    
current law.  The bill intended  to accommodate  the interim                                                                    
period  and not  disrupt producers  from developing  new gas                                                                    
sources.  He  noted  that   the  House  Resources  Committee                                                                    
addressed the  issue by  creating a  window that  would open                                                                    
and then close  through a trigger mechanism.  He referred to                                                                    
concerns about the mechanism and  hoped to find a better one                                                                    
allowing a durable statute that would provide the hold-                                                                         
harmless  for  existing  producers.  He  reported  that  his                                                                    
office  had been  working closely  with the  consultants and                                                                    
DOR;  both had  arrived  at  a similar  concept  on a  joint                                                                    
proposal that would address the issue.                                                                                          
3:33:58 PM                                                                                                                    
Representative Kelly  asked whether  the major  players from                                                                    
the industry  would be present for  the discussion. Co-Chair                                                                    
Hawker anticipated that they could  join in public testimony                                                                    
voluntarily   or   they   could   be   required   to   join.                                                                    
Representative  Kelly wanted  a  complete  record and  hoped                                                                    
they would be required to participate.                                                                                          
Representative Austerman  asked for  clarification regarding                                                                    
LNG. Mr.  Marks explained that  the portion of the  gas that                                                                    
stayed in-state would be Bucket  1; North Slope gas that was                                                                    
exported through  an in-state line through  Southcentral and                                                                    
Valdez would be Bucket 2.                                                                                                       
Co-Chair Stoltze  stated that he  did not want  producers to                                                                    
be compelled to testify.                                                                                                        
3:37:17 PM                                                                                                                    
Representative Kelly  maintained that it would  be a mistake                                                                    
to  leave out  information  from the  group  because of  the                                                                    
short time allowed.                                                                                                             
Representative  Fairclough  agreed  with  comments  on  both                                                                    
sides  of the  issue  and  suggested that  a  time could  be                                                                    
specified for testimony from the players.                                                                                       
Co-Chair Hawker spoke to the timeline for the amendment.                                                                        
SB  305  was  HEARD  and   HELD  in  Committee  for  further                                                                    
3:40:22 PM               AT EASE                                                                                              
4:03:00 PM               RECONVENED                                                                                           
HOUSE BILL NO. 69                                                                                                             
     "An  Act establishing  in the  Department of  Education                                                                    
     and  Early  Development  a voluntary  parent  education                                                                    
     home   visiting   program   for   pre-elementary   aged                                                                    
     children; and establishing a rating system for early                                                                       
     childhood education."                                                                                                      
4:03:28 PM                                                                                                                    
Co-Chair Hawker expressed reservations  about the $4 million                                                                    
per year fiscal note.                                                                                                           
Vice-Chair Thomas  MOVED to  report HB  69 out  of Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
Representative  Fairclough  OBJECTED   for  discussion.  She                                                                    
noted that  she and Representative Thomas  had met regarding                                                                    
the  bill  and  had   agreed  to  address  violence  against                                                                    
children in the home.                                                                                                           
Representative Thomas agreed that  he would do everything he                                                                    
Representative  Fairclough  removed   her  objection.  There                                                                    
being NO further OBJECTION, it was so ordered.                                                                                  
CSHB 69(FIN) was REPORTED out  of Committee with a "do pass"                                                                    
recommendation and  with attached new fiscal  impact note by                                                                    
the Department of Education and Early Development.                                                                              
HOUSE BILL NO. 421                                                                                                            
     "An Act relating to the  compensation of certain public                                                                    
     officials,  officers,  and  employees  not  covered  by                                                                    
     collective bargaining agreements;  and providing for an                                                                    
     effective date."                                                                                                           
4:05:48 PM                                                                                                                    
KEVIN   BROOKS,    DEPUTY   COMMISSIONER,    DEPARTMENT   OF                                                                    
ADMINISTRATION,  stated  that the  bill  would  provide a  2                                                                    
percent  increase over  each  of the  next  three years  for                                                                    
employees  of  the   legislative,  judicial,  and  executive                                                                    
branches  who  are  not  covered  by  collective  bargaining                                                                    
agreements.  Approximately 800  employees would  be affected                                                                    
in the judicial  branch, 500 in the  legislative branch, and                                                                    
1,700 in the executive branch.                                                                                                  
CHRIS  CHRISTENSEN, DEPUTY  ADMINISTRATIVE DIRECTOR,  ALASKA                                                                    
COURT SYSTEM,  testified in support  of the  legislation. He                                                                    
stated that the  court system has the largest  group of non-                                                                    
union employees. He  noted that court system  employees as a                                                                    
group are the lowest paid  branch; about 70 percent of court                                                                    
employees are range  15 or less, which  causes problems with                                                                    
turnover and  training. He stated  that court  employees are                                                                    
hard-working and dedicated.  He added that over  the past 20                                                                    
to   25    years,   non-union   employees    have   received                                                                    
substantially lower  pay increases than actual  increases in                                                                    
the  cost of  living.  For  example, a  range  10A today  is                                                                    
making more  than 20 percent  less than  a range 10A  in the                                                                    
mid-1980s (not  taking into  account reductions  in benefits                                                                    
such as health insurance).                                                                                                      
4:09:09 PM                                                                                                                    
Co-Chair Hawker noted  that there was a fiscal  note for the                                                                    
legislative branch and stated  his concerns regarding rising                                                                    
costs. He wanted  to zero out the  executive and legislative                                                                    
branches  as  he  did not  like  passing  additional  salary                                                                    
increments when  unemployment was so  high in the  state. He                                                                    
acknowledged that  all the employees deserved  to be treated                                                                    
Co-Chair  Stoltze  hoped  there   would  be  a  fiscal  note                                                                    
reflecting true costs related  to a constitutional amendment                                                                    
on increasing the legislature.                                                                                                  
Vice-Chair  Thomas MOVED  to report  HB421 out  of Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
notes. There being NO OBJECTION, it was so ordered.                                                                             
HB  421 was  REPORTED  out  of Committee  with  a "do  pass"                                                                    
recommendation  and with  three attached  new fiscal  impact                                                                    
notes by the  Legislature, the Court system,  and the Office                                                                    
of the Governor.                                                                                                                
Representative  Kelly  commented   that  he  had  difficulty                                                                    
supporting  the  bill  but  he  wanted  to  treat  the  non-                                                                    
bargaining employees  in the same  manner as  the bargaining                                                                    
Co-Chair  Stoltze  acknowledged  the   hard  work  of  court                                                                    
4:12:59 PM               RECESSED                                                                                             
4:20:03 PM               RECONVENED                                                                                           
CS FOR SENATE BILL NO. 219(FIN)                                                                                               
     "An Act establishing a traumatic or acquired brain                                                                         
     injury program and registry within the Department of                                                                       
     Health and Social Services; and relating to medical                                                                        
     assistance coverage for traumatic or acquired brain                                                                        
     injury services."                                                                                                          
4:20:30 PM                                                                                                                    
SENATOR  LESIL MCGUIRE,  SPONSOR,  spoke to  the subject  of                                                                    
traumatic brain  injury (TBI). She reported  that Alaska has                                                                    
the  highest incidence  of TBI  in the  nation. There  are a                                                                    
variety  of   causes,  including  accidents,   snow  machine                                                                    
crashes,  and domestic  violence; in  addition, many  senior                                                                    
citizens  have  brain  injuries   as  a  result  of  stroke,                                                                    
aneurism,  and  tumors.  She highlighted  that  the  numbers                                                                    
increase  as  veterans  return from  service  in  Iraq.  She                                                                    
reminded  the   committee  of  a  past   presentation  where                                                                    
soldiers  with  TBI had  testified.  She  noted that  Alaska                                                                    
Natives in particular have been affected by TBI.                                                                                
Senator  McGuire informed  the committee  that SB  219 would                                                                    
establish a  new brain injury program  within the Department                                                                    
of Health and  Social Services (DHSS) as well  as a registry                                                                    
for TBI. Alaska  has not had such a program  in its history.                                                                    
She added  that Alaska leads  the nation in  TBI, especially                                                                    
in  the  categories of  veterans,  the  elderly, and  Alaska                                                                    
Senator McGuire pointed out that  the fiscal note was fairly                                                                    
minimal. She felt  the program was sustainable.  The goal is                                                                    
to have  a place for citizens  to go to access  resource and                                                                    
information  about TBI.  The  Alaska  Brain Injury  Network,                                                                    
Inc. (ABIN) was founded by  people who were affected by TBI.                                                                    
She  hoped the  new program  in DHSS  would allow  access to                                                                    
federal Medicaid dollars in the  form of matching money. She                                                                    
referred  to an  earlier plan  to create  a waiver;  she had                                                                    
come up with a solution  with less fiscal impact in response                                                                    
to concerns.  She noted that  the program  coordinator would                                                                    
access  other  Medicaid  funds   already  in  existence  and                                                                    
harness them  for families who  cannot afford  treatment for                                                                    
TBI; federal funds matched 50/50 with state funds.                                                                              
4:25:49 PM                                                                                                                    
Senator  McGuire  hoped  that  Alaska could  become  part  a                                                                    
larger information and resource  network. She hoped that the                                                                    
DHSS coordinator  for the program  would network  with other                                                                    
groups, including  the Department  of Military  and Veterans                                                                    
Affairs (DMVA),  the Native  corporations, and  the survivor                                                                    
network.  She  concluded  that TBI  is  a  permanent,  life-                                                                    
altering  injury;  there  is no  way  to  re-generate  brain                                                                    
cells.  However,  with  early  intervention  and  treatment,                                                                    
people can live productive lives.                                                                                               
Co-Chair  Stoltze asked  whether  the bill  was endorsed  by                                                                    
ESTHER CHA,  STAFF, SENATOR LESIL MCGUIRE,  replied that the                                                                    
sponsor had  been in contact  with veterans who  suffer from                                                                    
TBI;  the ATBI  has  been  working with  DMVA  and hoped  to                                                                    
increase cooperation.                                                                                                           
Vice-Chair  Thomas  asked  whether  Fetal  Alcohol  Spectrum                                                                    
Disorder (FASD)  and Alzheimer's disease were  covered under                                                                    
the  bill. Ms.  Cha replied  that FASD  and Alzheimer's  and                                                                    
other  degenerative  diseases  are  not  covered  under  the                                                                    
program  because  they  are  covered  under  other  Medicaid                                                                    
waiver services.                                                                                                                
Vice-Chair  Thomas queried  a letter  by  the Department  of                                                                    
Corrections stating that 42 percent  of the population has a                                                                    
diagnosable  mental health  disorder.  Ms.  Cha thought  the                                                                    
statistic  was  correct.  Vice-Chair  Thomas  was  concerned                                                                    
about co-mingling in the prisons.                                                                                               
4:30:31 PM                                                                                                                    
Co-Chair Stoltze opened public testimony.                                                                                       
STEVE WILLIAMS, PROGRAM OFFICER,  ALASKA MENTAL HEALTH TRUST                                                                    
AUTHORITY (via teleconference), testified  on behalf of Jeff                                                                    
Jesse in  support of the  legislation. He reported  that the                                                                    
Alaska Mental Health Trust  Authority (AMHTA) in partnership                                                                    
with  DHSS,  ABIN,  and  other  community  stakeholders  and                                                                    
providers  have   worked  for  several  years   towards  the                                                                    
improvement  of  service  for  Alaskans  with  traumatic  or                                                                    
acquired  brain   injuries.  Unfortunately,   a  significant                                                                    
number of Alaskans suffer from  TBI; DHSS reports that there                                                                    
are  800 cases  per  year  that result  in  either death  or                                                                    
hospitalization. It  is estimated that 3,000  Alaskans visit                                                                    
a  hospital emergency  room each  year with  a mild  TBI and                                                                    
over  10,000  Alaska  are  estimated to  be  living  with  a                                                                    
disability resulting from a TBI.                                                                                                
Mr. Williams stated  that AMHTA supports SB 219  and sees it                                                                    
as an  integral step for  Alaska towards the  development of                                                                    
an integrated system of care  for Alaskans with traumatic or                                                                    
acquired  brain injuries,  including partnering  with tribal                                                                    
organizations, DMVA,  and community and  non-profit partners                                                                    
who   are   providing   services  and   support   to   these                                                                    
individuals.  The trust does  not think that it is efficient                                                                    
for  different entities  develop their  own systems  of care                                                                    
for  folks with  TBI; SB  219  is an  integral step  towards                                                                    
pulling the groups together to increase efficiency.                                                                             
Mr. Williams  noted that the 42  percent statistic mentioned                                                                    
by  Representative Thomas  regarding  the  number of  prison                                                                    
inmates with  mental health  disorders came  out of  a study                                                                    
done in  December 2007.  He offered to  send the  results of                                                                    
the study.                                                                                                                      
4:34:30 PM                                                                                                                    
JILL  HODGES,   EXECUTIVE  DIRECTOR,  ALASKA   BRAIN  INJURY                                                                    
NETWORK (via teleconference), spoke  in support of the bill.                                                                    
She  explained that  ABIN has  traveled to  many communities                                                                    
and heard  from thousands  of Alaskans who  have experienced                                                                    
brain  injury.  She  relayed  that  every  brain  injury  is                                                                    
unique,  but the  needs and  concerns  have been  consistent                                                                    
across the  state. There is  not an official home  in Alaska                                                                    
state government to  address the concerns; there  is also no                                                                    
rehabilitation program.                                                                                                         
Ms. Hodges  noted that  there are  both long-term  goals and                                                                    
short-terms components  of the legislation.  She highlighted                                                                    
the case management  aspect of the bill,  which she believed                                                                    
to  be  a  good  starting point  for  state  government;  it                                                                    
utilizes  a  significant  number  of  federal  receipts  and                                                                    
provides a service that can  be accessible to both rural and                                                                    
urban Alaskans.  The services would  be put in the  hands of                                                                    
community providers.                                                                                                            
Ms.  Hodges   continued  that   the  military   has  brought                                                                    
attention to brain  injury and also the  development of case                                                                    
management.  Studies have  shown that  the approach  reduces                                                                    
emergency  room visits  and deters  more  costly care.  Most                                                                    
importantly,   the   approach    increases   readiness   for                                                                    
employment  and   vocational  rehabilitation   efforts.  The                                                                    
network has consistently heard that  people with TBI want to                                                                    
return to work,  military personnel want to  return to duty,                                                                    
and  Alaska  Natives  want  to  participate  in  subsistence                                                                    
activities  again.  Case  management   can  help  build  the                                                                    
ability to do these things.                                                                                                     
Ms.  Hodges   referred  to  research  showing   the  amazing                                                                    
abilities and the elasticity of  the brain. She informed the                                                                    
committee that ABIN strongly supports SB 219.                                                                                   
DR.  CHRISTIE   ARTUSO,  DIRECTOR,   NEUROSCIENCE  SERVICES,                                                                    
PROVIDENCE   ALASKA    MEDICAL   CENTER,    ANCHORAGE   (via                                                                    
teleconference), testified  in support  of SB 219.  She told                                                                    
the  committee  that  Alaska   has  outstanding  acute  care                                                                    
services but  there is  a shortage  of the  services needed.                                                                    
She  noted  that  Alaskan   youth,  athletes,  and  military                                                                    
personnel are affected. She relayed  the story of a 41-year-                                                                    
old man  who suffered TBI  who was re-hospitalized  27 times                                                                    
in 18 months; there were no appropriate services for him.                                                                       
Dr.  Artuso  reported  that the  Providence  Alaska  Medical                                                                    
Center  neuroscience services  department  wants to  partner                                                                    
with the  state, the AMHTA,  and ABIN to develop  the needed                                                                    
services.   She  urged   the   committee   to  support   the                                                                    
4:41:30 PM                                                                                                                    
KRISTIN ENGLISH,  CHIEF OPERATING OFFICE, COOK  INLET TRIBAL                                                                    
COUNCIL (via  teleconference), spoke  in support of  SB 219.                                                                    
She  explained  that  the  tribal  council  provides  social                                                                    
services for  many in the  Anchorage area, but  also provide                                                                    
services to  primarily Alaska Natives throughout  the state.                                                                    
She  pointed to  a correlation  between substance  abuse and                                                                    
TBI; 46  percent of  clients in  the residential  and de-tox                                                                    
center have  self-reported TBI and 36  percent have reported                                                                    
TBI  in  outpatient  services.  She  pointed  out  that  the                                                                    
numbers are probably low.                                                                                                       
Ms. English noted that TBI  has been linked to mood, stress,                                                                    
and  behavior  disorders,  which   are  in  turn  linked  to                                                                    
substance abuse.  The tribal council believes  the bill will                                                                    
provide support to the substance abuse community.                                                                               
MARTHA MOORE, CHAIR, ALASKA  BRAIN INJURY NETWORK, testified                                                                    
in support of the legislation.                                                                                                  
Co-Chair Stoltze closed public testimony.                                                                                       
Representative Fairclough  queried the two positions  in the                                                                    
fiscal note.                                                                                                                    
ANGELA SALERNO,  DIVISION OF  SENIOR &  DISABILITY SERVICES,                                                                    
DEPARTMENT OF  HEALTH AND SOCIAL SERVICES,  replied that the                                                                    
department  did  not  request  the  positions  because  they                                                                    
believed existing staff could do the work.                                                                                      
Representative Fairclough MOVED to  report CSSB 219(FIN) out                                                                    
of  Committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
CSSB  219(FIN) was  REPORTED  out of  Committee  with a  "do                                                                    
pass" recommendation and  with attached previously published                                                                    
fiscal notes: FN1 (DHS), FN2 (DHS).                                                                                             
4:47:24 PM               RECESSED                                                                                             
The meeting was adjourned at 8:08 PM.                                                                                           

Document Name Date/Time Subjects
HB 69 CS WORKDRAFT 26 LS0281 W.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 317 CS WORKDRAFT 26-1378 P.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
2009 SB 144 sponsor stmt & sectional.doc HFIN 4/14/2010 8:30:00 AM
SB 144
2009 SB 144 Musk Ox poster.pdf HFIN 4/14/2010 8:30:00 AM
SB 144
SB230 SpreadSheet.pdf HFIN 4/14/2010 8:30:00 AM
SB 230
00 Sponsor Statement CSSB219.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
05 Sectional Analysis.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
06 Alaska Data Graphs.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
07 TBI Scorecard and Dashboard 032009.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
08 Medicaid BrainInjury Program Costs.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
09 StateofAlaska_Services_Congenital_Degenerative_BrainInjury.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
10 Acquired Brain Injury Definition.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
SB305 sponsor statement.docx HFIN 4/14/2010 8:30:00 AM
SB 305
11 Letters of Support.pdf HFIN 4/14/2010 8:30:00 AM
SB 219
HCS CSSB305(RES)(title am)-REV-TAX-04-13-10 decoupling.pdf HFIN 4/14/2010 8:30:00 AM
SB 305
2010 03 02 D Wood Calculations FY2008_09.pdf HFIN 4/14/2010 8:30:00 AM
SB 305
HB 317 Amendment #2 Gara.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
SB 235 - Sponsor Statement.PDF HFIN 4/14/2010 8:30:00 AM
SB 235
SB 235 - Sectional Analysis.PDF HFIN 4/14/2010 8:30:00 AM
SB 235
HB338_SB269 Supporting Documents - AIDEA (2) (2)[1].pdf HFIN 4/14/2010 8:30:00 AM
HB 338
SB 269
SB269 Supporting Documents Letter FNSB EDC Resolution.pdf HFIN 4/14/2010 8:30:00 AM
SB 269
Sponsor Statement HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
SB235 CS WORKDRAFT 26-LS1256 E VERSION.pdf HFIN 4/14/2010 8:30:00 AM
SB 235
Sectional HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Changes from HB 69 to HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB069-EED-TLS-3-23-10.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Sectional HB 69(EDC).pdf HFIN 4/14/2010 8:30:00 AM
HB 69
Sectional CS HB 69 Version W.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69(EDC) Fiscal Note Summary.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69 Support Letters.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 69(EDC) FIN Background.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB 317 Conceptual Amendment Stoltze Hawker.pdf HFIN 4/14/2010 8:30:00 AM
HB 317
Logsdon&Associates SB305 HsFin 041410.pptx HFIN 4/14/2010 8:30:00 AM
SB 305
CSHB069(FIN)-EED-TLS-4-14-2010.pdf HFIN 4/14/2010 8:30:00 AM
HB 69
HB421-LEG-LEG-4-14-10.pdf HFIN 4/14/2010 8:30:00 AM
HB 421
SB 220 Amendment #5 Gara.pdf HFIN 4/14/2010 8:30:00 AM
SB 220