Legislature(2021 - 2022)ADAMS 519

03/17/2022 09:00 AM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 135 GEOTHERMAL RESOURCES TELECONFERENCED
Heard & Held
+= HB 273 INCREASE BASE STUDENT ALLOC. INFLATION TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 17, 2022                                                                                            
                         9:06 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:06:23 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster  called the  House Finance Committee  meeting                                                                   
to order at 9:06 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick,  Co-Chair (via teleconference)                                                                    
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative DeLena Johnson                                                                                                   
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen (via teleconference)                                                                              
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Dan Ortiz, Vice-Chair                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Sean  Clifton, Policy  and  Program Specialist,  Division  of                                                                   
Oil    and   Gas,    Department    of   Natural    Resources;                                                                   
Representative   Andi   Story,   Sponsor;   Alexei   Painter,                                                                   
Director,  Legislative   Finance  Division;   Ariel  Svetlik,                                                                   
Staff, Representative Andi Story.                                                                                               
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
David   Lepain,   Director,    Division   of   Geological   &                                                                   
Geophysical Surveys,  Department of Natural  Resources; Chris                                                                   
Reitan,  Superintendent  Craig   City  School  District;  Jim                                                                   
Anderson,   Chief   Financial   Officer,   Anchorage   School                                                                   
District;  Heidi  Teshner,  Director,   Finance  and  Support                                                                   
Services, Department of Education and Early Development.                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 135    GEOTHERMAL RESOURCES                                                                                                  
                                                                                                                                
          HB 135 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 273    INCREASE BASE STUDENT ALLOC. INFLATION                                                                                
                                                                                                                                
          HB 273 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
HOUSE BILL NO. 135                                                                                                            
                                                                                                                                
     "An Act  relating to  geothermal resources;  relating to                                                                   
     the   definition   of   'geothermal    resources';   and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
9:07:26 AM                                                                                                                    
                                                                                                                                
Co-Chair Foster  indicated the committee had heard  a portion                                                                   
of  the  presentation  on  HB  135 in  the  prior  week.  The                                                                   
presenter would continue with his presentation.                                                                                 
                                                                                                                                
9:07:59 AM                                                                                                                    
                                                                                                                                
SEAN  CLIFTON, POLICY  AND  PROGRAM SPECIALIST,  DIVISION  OF                                                                   
OIL  AND  GAS, DEPARTMENT  OF  NATURAL  RESOURCES,  continued                                                                   
with  his   PowerPoint  presentation,   "HB  135   Geothermal                                                                   
Resources:  House Finance  Committee,"  dated  March 9,  2022                                                                   
(copy on  file). He wanted to  clarify some items on  slide 9                                                                   
of the presentation. The slide read as follows:                                                                                 
                                                                                                                                
     New language  added: A prospecting  license or  lease is                                                                   
     not  required   under  this  section  to   explore  for,                                                                   
     develop, or  use geothermal resources if  the geothermal                                                                   
     resource  is intended  for  domestic, noncommercial,  or                                                                   
     small-scale industrial use.                                                                                                
                                                                                                                                
     ?  This  explicitly excludes  private  geothermal  users                                                                   
    from a requirement to apply for a license or lease.                                                                         
                                                                                                                                
Mr. Clifton  clarified that  it was  not that the  department                                                                   
did  not want  to regulate  small-scale users,  but that  the                                                                   
department aimed  to address the commercial users  so that it                                                                   
could  properly  manage  natural  resources  as  the  [state]                                                                   
constitution  mandated.  The department  also  hoped to  reap                                                                   
some royalties to gain revenue for the state.                                                                                   
                                                                                                                                
9:09:29 AM                                                                                                                    
                                                                                                                                
Mr.  Clifton  moved  to  slide  10.  The  slide  showed  some                                                                   
examples of different  styles of ground source  heat projects                                                                   
for residential  use. All  of the styles  on the  slide could                                                                   
effectively heat small buildings with fairly low heat.                                                                          
                                                                                                                                
Representative  Wool   asked  if  the  department   was  just                                                                   
considering basic  heat pumps that  use heat from  the earth.                                                                   
He wondered if heat pumps were  considered geothermal power.                                                                    
                                                                                                                                
Mr.  Clifton explained  that even  though  there were  small-                                                                   
scale  users that  might  be receiving  heat  from the  earth                                                                   
through  mechanisms  like  heat  pumps,  they  would  not  be                                                                   
generating power  through a turbine.  There was  no mechanism                                                                   
for the state  to exact royalties in these  situations, which                                                                   
is why the  department was not trying to  regular small-scale                                                                   
users.  He clarified  that  there  may be  other  regulations                                                                   
enacted   from   entities   such   as   the   Department   of                                                                   
Environmental  Conservation  or the  Department  of Fish  and                                                                   
Game, but the Division of Oil and Gas was not involved.                                                                         
                                                                                                                                
9:12:55 AM                                                                                                                    
                                                                                                                                
Representative   Wool  brought  up   Chena  Hot   Springs  in                                                                   
Fairbanks as an  example of geothermal heat.  Through the use                                                                   
of  the hot  water, there  was  a small  and low  temperature                                                                   
power  generation.  He  wondered  if  it  was  considered  an                                                                   
example of a commercial system.                                                                                                 
                                                                                                                                
Mr.  Clifton  replied  that  Chena Hot  Springs  was  a  good                                                                   
example of  a power generating  system that was using  a more                                                                   
modern  understanding  of  how geothermal  systems  could  be                                                                   
utilized  for   power.  However,   Chena  was  not   a  state                                                                   
resource,  and  the Department  of  Natural  Resources  (DNR)                                                                   
could  not regulate  it. Also,  Chena was  not selling  power                                                                   
which would not trigger the department to get involved.                                                                         
                                                                                                                                
9:14:39 AM                                                                                                                    
                                                                                                                                
Mr. Clifton  turned to slide 11  and indicated that  the bill                                                                   
would  eliminate   the  preferential  rights   division.  The                                                                   
current  statute granted  preferential  rights  to a  surface                                                                   
owner  to apply  for  a  geothermal prospecting  permit  once                                                                   
notice was  received of  an existing  application. He  stated                                                                   
that  this  was  potentially  problematic.  If  a  commercial                                                                   
developer  wanted  to  build   a  multi-million-dollar  power                                                                   
generating  system  and part  of  the application  covered  a                                                                   
surface  owner's  area,  the  statute  as  it  was  currently                                                                   
written could be  interpreted to allow for  the surface owner                                                                   
to  invoke their  preferential  right, take  the permit,  and                                                                   
resell it back to the original applicant.                                                                                       
                                                                                                                                
Mr. Clifton  continued on slide  11. He thought  preferential                                                                   
rights  was  a  discouraging  provision  for  applicants  and                                                                   
wanted  to  avoid  ambiguity in  statute.  He  also  reminded                                                                   
members  there  were  existing  provisions  in  statute  that                                                                   
would  protect  surface  owners.  He indicated  that  if  the                                                                   
preferred site for  a project was on a surface  owner's land,                                                                   
the  developer would  typically  attempt to  reach a  private                                                                   
agreement  with  the owner.  If  an  agreement could  not  be                                                                   
reached,  another   site  would   likely  be  selected.   For                                                                   
example,  private agreements  were commonly  sought after  to                                                                   
negotiate cell  phone tower sites.  Most of the  time private                                                                   
surface owners were open to reaching amicable agreements.                                                                       
                                                                                                                                
9:18:37 AM                                                                                                                    
                                                                                                                                
Representative  Josephson  asked  who  owned  the  subsurface                                                                   
rights  in  Alaska.  He  mentioned   ongoing  disputes  about                                                                   
natural  gas operations  in the  states  of Pennsylvania  and                                                                   
New York.                                                                                                                       
                                                                                                                                
Mr. Clifton  replied  that it  depended on  the title  or the                                                                   
patent  held by  the  owner of  the land.  In  most cases  in                                                                   
Alaska,  private surface  owners did not  own the  subsurface                                                                   
or the  minerals. There  were some  exceptions that  occurred                                                                   
before  1959, prior  to Alaska's  statehood, of  homesteaders                                                                   
who possessed  land titles  that stated  they owned  the land                                                                   
wholly. A  landowner should know  who owned the title  to the                                                                   
subsurface based on the title documentation.                                                                                    
                                                                                                                                
9:21:06 AM                                                                                                                    
                                                                                                                                
Representative Josephson  recalled the Cold Bay  methane case                                                                   
that  he thought  caused typically  conservative  individuals                                                                   
to   become  conservationists.   It  was   a  concerted   and                                                                   
aggressive effort  by the state to develop  Cold Bay methane.                                                                   
He asked  how his fears could  be assuaged that this  kind of                                                                   
circumstance could not arise from the bill.                                                                                     
                                                                                                                                
Mr.  Clifton  was  not intimately  familiar  with  the  issue                                                                   
Representative  Josephson was  referring  to. However,  there                                                                   
had  been  discussion  that  arose  in  public  meetings  the                                                                   
department  held with  respect  to Susitna  Valley  licensing                                                                   
for gas  development. The regulatory  apparatus of  the state                                                                   
sought  to protect  the  state's resources  and  environment.                                                                   
There  were multiple  entities  that  worked to  protect  the                                                                   
state's  interests  in  subsurface  resources.  He  explained                                                                   
that  when  wells  were  drilled,  the  Alaska  Oil  and  Gas                                                                   
Conservation  Commission  would  analyze  the safety  of  the                                                                   
well  and  would take  note  of  any  resources that  may  be                                                                   
impacted  by the  well.  There were  overlapping  authorities                                                                   
and  state agencies  that were  monitoring the  environmental                                                                   
impacts.                                                                                                                        
                                                                                                                                
9:23:56 AM                                                                                                                    
                                                                                                                                
Representative LeBon  recalled Mr. Clifton's  earlier example                                                                   
of  cell   towers.  He  added   that  there  may   be  zoning                                                                   
limitations  for   cell  towers.   There  would  be   a  more                                                                   
complicated  legal arrangement  involving  the  banks if  the                                                                   
desired  area  for  the  cell   tower  was  on  a  commercial                                                                   
property.                                                                                                                       
                                                                                                                                
Mr. Clifton  responded that  he had a  good point.  The state                                                                   
had to  honor municipal zoning  laws that might  involve more                                                                   
stringent requirements.                                                                                                         
                                                                                                                                
Representative LeBon  added that if there was a  bank loan on                                                                   
the property, the bank would have to be consulted as well.                                                                      
                                                                                                                                
9:25:43 AM                                                                                                                    
                                                                                                                                
Mr. Clifton  continued to  address slide 11.  In the  case of                                                                   
the  state not  being  able to  reach  an amenable  agreement                                                                   
with  a  private  owner, there  was  regulatory  guidance  in                                                                   
statute that  dictated how a  dispute would be  addressed. He                                                                   
added that homestead  landowners were not required  to report                                                                   
the transfer  of land. Public  notice was part of  the entire                                                                   
process  and  surface  owners  that might  be  affected  were                                                                   
directly  notified. The  only  exception was  when a  surface                                                                   
owner  was unreachable,  which has  happened, but  developers                                                                   
were  required to  prove that  they had  repeatedly tried  to                                                                   
contact the surface owner.                                                                                                      
                                                                                                                                
Representative LeBon  noted that title searches  would likely                                                                   
have to be conducted as well.                                                                                                   
                                                                                                                                
9:28:23 AM                                                                                                                    
                                                                                                                                
Representative  Wool  returned  to  the topic  of  Chena  Hot                                                                   
Springs. He  asked why the state  did not own  the subsurface                                                                   
rights to the springs.                                                                                                          
                                                                                                                                
Mr. Clifton  responded that  he was  unsure of the  ownership                                                                   
of the  subsurface rights at  Chena Hot Springs.  However, he                                                                   
indicated  that the state  would need  to own the  subsurface                                                                   
in order  for DNR to  be triggered to  become involved  in an                                                                   
operation.  If  it was  discovered  that  there was  a  large                                                                   
geothermal  system that  was  shared by  multiple  subsurface                                                                   
owners,  there  would  be a  unitization  process.  He  would                                                                   
cover this  topic in  more detail  later in the  presentation                                                                   
particularly regarding correlated rights.                                                                                       
                                                                                                                                
9:30:51 AM                                                                                                                    
                                                                                                                                
Mr. Clifton  moved to  slide 12  to address work  commitments                                                                   
in Section  3 of the  bill. The  department wanted  to change                                                                   
the  prospecting  permit in  order  to license  and  increase                                                                   
terms from 2 to  5 years. The change would  provide a greater                                                                   
opportunity  for   success  and  ensured  they   were  making                                                                   
progress. There would  be a trigger that would  transform the                                                                   
permit into a lease for long-term use.                                                                                          
                                                                                                                                
9:33:26 AM                                                                                                                    
                                                                                                                                
Mr.  Clifton moved  to  Sections  7 and  8  on  slide 13.  He                                                                   
explained   that   these   sections   were   added   due   to                                                                   
recommendations  from  the  House  Resources  Committee.  The                                                                   
sections would  add two additional  steps for  public notice.                                                                   
When  a proposal  was  received,  a  public notice  would  be                                                                   
issued  as well  as  a  call to  ensure  that  there were  no                                                                   
competing proposals.  If there were competing  proposals, the                                                                   
lease  sale   model  would  be   utilized,  which   has  been                                                                   
successful in the  past. Next, a final best  interest funding                                                                   
would  be  issued, which  included  another  opportunity  for                                                                   
public  comment.  Throughout   the  process,  the  department                                                                   
would seek input from cooperating agencies.                                                                                     
                                                                                                                                
9:34:54 AM                                                                                                                    
                                                                                                                                
Representative  Josephson referred  to the  third section  on                                                                   
slide 13  which stated  that geothermal  licenses and  leases                                                                   
were not  surface use authorizations.  The slide  also stated                                                                   
that licenses  and leases only  provided the  exclusive right                                                                   
to  explore for  and  develop  the subsurface  resources.  He                                                                   
wondered how  it was  possible to  "explore for and  develop"                                                                   
if there was no surface use authorization.                                                                                      
                                                                                                                                
Mr.  Clifton  responded  that  just  because  the  department                                                                   
might issue a  disposal for access to the  subsurface, it did                                                                   
not mean  that there  was an explicit  authorization  for the                                                                   
use  of the  surface. There  might  be a  variety of  surface                                                                   
owners  and   competing  interests  at  play.   A  subsurface                                                                   
authorization,  particularly  under  an  expiration  license,                                                                   
could be half  a million acres. Realistically,  an expiration                                                                   
program  would not  touch every  acre of the  land. The  plan                                                                   
would  be to  target  specific  areas. The  department  would                                                                   
review the plan  and any competing interests  and might issue                                                                   
an authorization  that did not  authorize the entire  plan. A                                                                   
subsurface disposal  did not guarantee  access to  the entire                                                                   
surface  area.   The  state  had  very   important  competing                                                                   
surface interests.                                                                                                              
                                                                                                                                
Representative  Josephson  asked  if  the  bill  provided  an                                                                   
opportunity that might not come to fruition.                                                                                    
                                                                                                                                
Mr. Clifton  responded that it  could be interpreted  in that                                                                   
way and he would  not argue the point. He noted  that part of                                                                   
the  purpose of  the  subsurface disposals  was  to grant  an                                                                   
exclusive right  to prevent  other entities from  encroaching                                                                   
on  an  existing operation.  It  was  in  some ways  still  a                                                                   
property right.  The department  did not want  inefficient or                                                                   
damaging development of the state's resources.                                                                                  
                                                                                                                                
9:38:40 AM                                                                                                                    
                                                                                                                                
Representative  LeBon  indicated  that  the final  bullet  on                                                                   
slide 13  also caught his  attention. The bullet  stated that                                                                   
surface  use   authorizations  required  public   notice  and                                                                   
direct notice  to any  affected surface  owners. He  referred                                                                   
to slide 11 and read from it as follows:                                                                                        
                                                                                                                                
     ? If the Commissioner concurs, developer posts a bond                                                                      
     to compensate landowner for any impacts and work                                                                           
     progresses.                                                                                                                
                                                                                                                                
Representative  LeBon  shared   his  understanding  that  the                                                                   
slide suggested  that property could  be seized if  the owner                                                                   
was not reachable.  He had experience with not  being able to                                                                   
find  property  owners  to obtain  permission.  He  asked  if                                                                   
there was a  scenario in which the commissioner  could permit                                                                   
projects to take place on a private property owner's land.                                                                      
                                                                                                                                
Mr.  Clifton   indicated  that  the  scenario   could  happen                                                                   
hypothetically,  but  it  was  unlikely.  Typically,  private                                                                   
property   was  a  small   amount  of   acreage,  though   he                                                                   
understood that  some people owned  large swaths of  land. He                                                                   
explained that there  would usually be opportunity  to access                                                                   
subsurface  resources without  needing to  interfere with  an                                                                   
unreachable surface  owner's land. The  issue had come  up in                                                                   
public   testimony  for   the   Susitna  Valley   exploration                                                                   
license.  In this  situation, agriculture  would be  affected                                                                   
and community  members were  concerned with  the notion  of a                                                                   
road being placed  across their fields. The  state would work                                                                   
to avoid  damaging the  surface of a  land and would  exhaust                                                                   
every  alternative. He  presumed there  were other  solutions                                                                   
and  damaging   private  owners'  properties   would  not  be                                                                   
required.                                                                                                                       
                                                                                                                                
Representative LeBon  noted that there were large  parcels of                                                                   
land  that belong  to the  state  for agricultural  purposes.                                                                   
The  state patent  for agricultural  land  would not  include                                                                   
this  purpose. He  wondered whether  the agricultural  patent                                                                   
would prevent commercial development on state land.                                                                             
                                                                                                                                
Mr.  Clifton  had  not  heard of  a  competing  interest  and                                                                   
assured  him that  the state  had the  resources to  evaluate                                                                   
such a  situation. The department  would not move  swiftly or                                                                   
recklessly.                                                                                                                     
                                                                                                                                
9:43:10 AM                                                                                                                    
                                                                                                                                
Mr.  Clifton  continued to  address  slide  13. The  two  new                                                                   
steps  in the  public notice  process proposed  by the  House                                                                   
Resource Committee read as follows:                                                                                             
                                                                                                                                
     ? NEW The exploration license is issued                                                                                    
     ? NEW The license is extended or converted to a lease                                                                      
                                                                                                                                
Mr. Clifton emphasized  that there was ample  opportunity for                                                                   
surface  owners to  become aware  of a  situation that  might                                                                   
affect  their   land  before   surface  authorizations   were                                                                   
issued.                                                                                                                         
                                                                                                                                
Mr.  Clifton  turned   the  presentation  over   to  his  co-                                                                   
presenter.                                                                                                                      
                                                                                                                                
9:44:29 AM                                                                                                                    
                                                                                                                                
DAVID   LEPAIN,   DIRECTOR,    DIVISION   OF   GEOLOGICAL   &                                                                   
GEOPHYSICAL  SURVEYS, DEPARTMENT  OF  NATURAL RESOURCES  (via                                                                   
teleconference), advanced  to slide 14 addressing  Section 12                                                                   
of the bill. He read the slide:                                                                                                 
                                                                                                                                
     AS  41.06.060(4)  is amended  to read:  (4)  "geothermal                                                                   
     fluid"  means  liquids,  brines,  water, gases,  or  and                                                                 
     steam   naturally   or   artificially   present   in   a                                                                   
     geothermal system;  "geothermal fluid" does  not include                                                                   
     oil,   hydrocarbon    gases,   or   other    hydrocarbon                                                                   
     substances                                                                                                                 
                                                                                                                                
     ?  Aligns  with  modernized  definition  for  geothermal                                                                   
     resources.                                                                                                                 
     ?   Not   limited   by   temperature   because   current                                                                   
     technology  enables  development  of  cooler  geothermal                                                                   
     systems.                                                                                                                   
     ?  Distinguishes  geothermal   fluids  from  hydrocarbon                                                                   
     resources.                                                                                                                 
                                                                                                                                
9:45:53 AM                                                                                                                    
                                                                                                                                
Representative  Carpenter asked  if  the definition  included                                                                   
bodies  of water  that lay  on  the surface  such as  rivers,                                                                   
lakes, or the ocean.                                                                                                            
                                                                                                                                
Mr. Lepain deferred to Mr. Clifton.                                                                                             
                                                                                                                                
Mr.  Clifton responded  that  he did  not  think it  included                                                                   
surface water  bodies. If there  were a case where  a surface                                                                   
pool or hot spring  was present, it likely would  not be used                                                                   
to  drive  a power  generating  turbine.  The pool  would  be                                                                   
noted,  but  the  hottest  source   would  be  found  through                                                                   
drilling and  testing. This  would produce hotter  geothermal                                                                   
fluids  from the heart  of the  resource to  obtain the  best                                                                   
resource  rather than  trying  to capitalize  on the  surface                                                                   
pooling.                                                                                                                        
                                                                                                                                
Representative  Carpenter  suggested that  heat  was not  the                                                                   
only  source of  energy that  may be  valuable. He  mentioned                                                                   
tidal  energy as  a potential  geothermal  fluid source  that                                                                   
could also  be tapped and  monetized. The state  tapped wind,                                                                   
which  he  considered  to  be  a  fluid,  and  monetized  the                                                                   
energy.   He  thought   there   was  a   difference   between                                                                   
extracting  oil from the  ground and  monetizing the  oil and                                                                   
extracting heat from  the ground and monetizing  the heat. He                                                                   
wondered who  would own  the heat. He  was struggling  to see                                                                   
reasoning  behind  the differing  approaches  between  fossil                                                                   
fuel  extraction   and  royalties  and   naturally  occurring                                                                   
resource extraction such as geothermal fluids.                                                                                  
                                                                                                                                
Mr. Clifton  confirmed Representative  Carpenter was  correct                                                                   
that air  was a fluid.  If it  could be interpreted  broadly,                                                                   
wind  turbines  could  be  brought   into  the  conversation.                                                                   
However,  he did  not think  the  broad interpretation  would                                                                   
hold  weight  in  court  nor   would  the  interpretation  be                                                                   
acceptable  by DNR.  He was  unsure of  how tidal  generation                                                                   
turbines were  permitted and could  not speak to  the example                                                                   
specifically.                                                                                                                   
                                                                                                                                
9:51:11 AM                                                                                                                    
                                                                                                                                
Mr.  Lepain  advanced   to  slide  15  which   showed  a  new                                                                   
definition of  geothermal resources  in Sections 9 and  13 of                                                                   
the bill. He read from the slide:                                                                                               
                                                                                                                                
     "Geothermal  resources" means  the natural  heat  of the                                                                   
     earth; the  energy, in whatever form, below  the surface                                                                   
     of  the earth  present in,  resulting  from, or  created                                                                   
     by, or which  may be extracted from, such  natural heat;                                                                   
     and  all   minerals  in   solution  or  other   products                                                                   
     obtained   from   naturally   heated   fluids,   brines,                                                                   
     associated  gases, and  steam, in  whatever form,  found                                                                   
     below  the  surface of  the  earth; but  excluding  oil,                                                                   
    hydrocarbon gases, or other hydrocarbon substances.                                                                         
                                                                                                                                
       Modern definition for geothermal resources.                                                                              
     ?   Not   limited   by   temperature   because   current                                                                   
     technology  enables  development  of  cooler  geothermal                                                                   
     systems.                                                                                                                   
     ? Ensures all  the State's mineral estate  resources are                                                                   
     captured in definition.                                                                                                    
     ?  Same definition  being applied  to both  DNR &  AOGCC                                                                   
     statutes.                                                                                                                  
                                                                                                                                
Mr.  Lepain elaborated  that this  specifically pertained  to                                                                   
heated fluid in the subsurface.                                                                                                 
                                                                                                                                
9:52:53 AM                                                                                                                    
                                                                                                                                
Representative  Carpenter  thought the  state  was missing  a                                                                   
portion  of  geothermal  resources  if  the  state  was  only                                                                   
looking   underground.   He   was  struggling   to   find   a                                                                   
connection.                                                                                                                     
                                                                                                                                
Mr.  Lepain replied  that  he  believed it  was  a matter  of                                                                   
definition,  and that  he was  defining geothermal  resources                                                                   
to  be a  subsurface  resource.  He  noted that  Mr.  Clifton                                                                   
mentioned  that heat pumps  in private  homes that  pull heat                                                                   
from the  air were technically  considered geothermal  energy                                                                   
but were  not regulated  under the  bill. He reiterated  that                                                                   
he  thought  the  issue  came   down  to  the  definition  of                                                                   
geothermal resources.                                                                                                           
                                                                                                                                
Representative Carpenter  agreed that a line had  to be drawn                                                                   
somewhere.                                                                                                                      
                                                                                                                                
Mr.  Clifton drew  attention  to the  fact  that the  natural                                                                   
heat  of  the  earth  and  the  surface  of  the  earth  were                                                                   
contained within  the definition of geothermal  resources. He                                                                   
clarified  that the subsurface  estate  was the only  element                                                                   
that applied to the statutes.                                                                                                   
                                                                                                                                
9:55:27 AM                                                                                                                    
                                                                                                                                
Representative  Wool   asked  if  there  was   a  temperature                                                                   
trigger.                                                                                                                        
                                                                                                                                
Mr. Clifton deferred to Mr. Lepain.                                                                                             
                                                                                                                                
Mr.   Lepain   replied   that   the   modernized   definition                                                                   
explicitly   removed  a   temperature  cutoff   due  to   the                                                                   
technology advancements  in the last  15 to 20 years.  Due to                                                                   
these  advancements,  it  was  possible  to  pull  heat  from                                                                   
relatively  low temperature  subsurface fluids  or soil  on a                                                                   
small scale. The  question of whether commercial  power could                                                                   
be  generated  using this  method  was  unclear to  him.  The                                                                   
temperature-based  provision  had been  removed  specifically                                                                   
because   of    technology   advancements,    and   therefore                                                                   
restricting  it  to  a  particular  temperature  would  be  a                                                                   
mistake.                                                                                                                        
                                                                                                                                
Representative  Wool was aware  of a  project in Juneau  that                                                                   
was  going to  run  a  loop through  the  ocean  and use  the                                                                   
ambient heat of  the ocean to produce power.  He was thinking                                                                   
of situations involving the private individual.                                                                                 
                                                                                                                                
Mr. Lepain  advanced to  slide 16  and referenced  the fiscal                                                                   
impact  note  [control  code  svNTz]  by  the  Department  of                                                                   
Natural Resources.  He commented that Alaska  had significant                                                                   
geothermal  energy  potential   around  the  state.  At  most                                                                   
geothermal   sites,   the   state   had   relatively   little                                                                   
information and  the sites had  not been studied  thoroughly.                                                                   
Some   sites  had   been  studied   significantly,  but   the                                                                   
department did  not have enough  information to  decide which                                                                   
sites had  potential to  be a  significant geothermal  energy                                                                   
source.   As   presently   constituted,   the   Division   of                                                                   
Geological & Geophysical  Surveys (DGGS) did not  have enough                                                                   
staff  to  appropriately  grow  its  knowledge  of  potential                                                                   
resources.                                                                                                                      
                                                                                                                                
10:00:18 AM                                                                                                                   
                                                                                                                                
Mr. Lepain  explained that  the fiscal note  would add  a new                                                                   
Geologist 3 position  within DGGS's Energy  Resources Section                                                                   
in Fairbanks.  The addition  of the  position would  help re-                                                                   
start the division's  geothermal program. The  position would                                                                   
coordinate  with   agencies  and  industry  to   publish  new                                                                   
geologic  data   to  further  the  development   of  Alaska's                                                                   
geothermal   energy   resources.   He   read  the   list   of                                                                   
responsibilities of the new geologist from slide 16:                                                                            
                                                                                                                                
     This will enable DGGS to restart its geothermal                                                                            
     program. The new geologist would:                                                                                          
                                                                                                                                
         Coordinate with agencies and industry  to publish                                                                   
          new geologic data to further development of                                                                           
          Alaska's geothermal energy resources                                                                                  
         Maintain and update  geologic  data  on  Alaska's                                                                   
          geothermal systems in a geothermal database                                                                           
         Attract federal funds  to  characterize  Alaska's                                                                   
          geothermal systems and resources                                                                                      
         Monitor developments    in   geothermal   systems                                                                   
          technology                                                                                                            
         Conduct geologic   investigations   of   Alaska's                                                                   
          geothermal systems                                                                                                    
         Publish geologic maps, reports and data on Alaska                                                                   
          geothermal systems                                                                                                    
         Advise DNR  and  other  state  agencies   on  the                                                                   
          state's geothermal resources                                                                                          
         Support the Department's geothermal leasing                                                                         
          program                                                                                                               
         Support and supply information to explorers and                                                                     
          developers of Alaska's geothermal resources                                                                           
         Support and advise DNR Commissioner's Office and                                                                    
          Governor's Office on geothermal policy                                                                                
                                                                                                                                
Mr. Clifton emphasized  that the purpose of  the position was                                                                   
to grow knowledge  of Alaska's geothermal  resource potential                                                                   
through  hard  data.  This  would   inform  the  decision  on                                                                   
whether to develop a specific site.                                                                                             
                                                                                                                                
Co-Chair Foster  indicated that  there were two  fiscal notes                                                                   
total. He asked  Mr. Clifton to review the  other fiscal note                                                                   
by DNR.                                                                                                                         
                                                                                                                                
Mr.  Clifton reviewed  the  zero  fiscal note  [control  code                                                                   
pRsYR]  by  the  Division  of  Oil and  Gas  within  DNR.  He                                                                   
emphasized  that it  had  zero fiscal  impact  and would  not                                                                   
cause any additional burdens to the division.                                                                                   
                                                                                                                                
10:04:17 AM                                                                                                                   
                                                                                                                                
Representative  Wool noted  that  the fiscal  note  mentioned                                                                   
that the bill  would double the acreage limit  for geothermal                                                                   
projects from  51,200 to  100,000 acres.  He asked  if 50,000                                                                   
acres was considered small.                                                                                                     
                                                                                                                                
Mr. Clifton was  not certain and did not know  the conversion                                                                   
of  acreage  to  square miles.  However,  he  commented  that                                                                   
geothermal  systems  tend to  cover  much larger  areas  than                                                                   
were  perhaps conceived  when  the laws  were first  written.                                                                   
Granting the security  of a larger area made  much more sense                                                                   
for developers.  It also  adhered to the  way in  which other                                                                   
states had been updating their laws.                                                                                            
                                                                                                                                
10:05:49 AM                                                                                                                   
                                                                                                                                
Representative Josephson  noted that  he had spent time  at a                                                                   
family  ranch  which was  300  acres.  He thought  the  lease                                                                   
would cover scores of properties and many miles.                                                                                
                                                                                                                                
Mr.  Clifton indicated  the maximum  was  being increased  to                                                                   
100,000  acres.  He stated  that  640  acres was  one  square                                                                   
mile, which  he thought might  be a good frame  of reference.                                                                   
He  explained  that  this  was  specific  to  the  expiration                                                                   
licenses,  which  were  not  permanent.  Even  if  the  state                                                                   
issued  a   license  for  100,000   acres,  that   would  not                                                                   
necessarily mean  that a lease  would also be granted  at the                                                                   
end of  the license's  term. The  details  of the lease  that                                                                   
might  be   issued  long-term   would  be  dictated   by  the                                                                   
resources  that had been  demonstrated to  be located  at the                                                                   
site. In  a situation where all  100,000 acres were  issued a                                                                   
lease,  all   of  the  acreage   would  not   necessarily  be                                                                   
utilized.  The subsurface  area might  be impacted more  than                                                                   
the surface  area, and it was  unlikely that more than  a few                                                                   
acres on the surface would be impacted.                                                                                         
                                                                                                                                
10:09:02 AM                                                                                                                   
                                                                                                                                
Co-Chair  Foster  referenced the  other  fiscal  note by  DNR                                                                   
that added  the position that  was previously  discussed. The                                                                   
fiscal note had a control code of svNTz.                                                                                        
                                                                                                                                
Mr. Lepain  deferred to  Mr. Clifton,  as he  did not  have a                                                                   
clear copy of the fiscal note.                                                                                                  
                                                                                                                                
Mr.  Clifton  addressed   the  fiscal  note  which   added  a                                                                   
position  of  a  geologist.  The   impact  of  the  note  was                                                                   
$150,000.                                                                                                                       
                                                                                                                                
Mr.  Clifton  appreciated  the  opportunity  to  present  the                                                                   
bill.  He was happy to answer any follow-up questions.                                                                          
                                                                                                                                
HB  135  was   HEARD  and  HELD  in  committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster would take a brief at ease.                                                                                     
                                                                                                                                
10:11:52 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:15:02 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Foster indicated  the  committee  would be  hearing                                                                   
HB 273.                                                                                                                         
                                                                                                                                
HOUSE BILL NO. 273                                                                                                            
                                                                                                                                
     "An Act relating to education; increasing the base                                                                         
     student allocation; and providing for an effective                                                                         
     date."                                                                                                                     
                                                                                                                                
10:15:48 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  ANDI STORY,  SPONSOR,  thanked the  committee                                                                   
for   hearing   the   bill.   She   provided   a   PowerPoint                                                                   
presentation  titled "HB  273:  Increasing  the Base  Student                                                                   
Allocation  and Accounting  for  Inflation"  (copy on  file).                                                                   
She explained  that the  bill would  help maintain  stability                                                                   
in the school system  to allow for districts to  focus on the                                                                   
more  substantial work,  such as  educating students,  rather                                                                   
than focusing  on the following  year's budget  and potential                                                                   
required cuts.                                                                                                                  
                                                                                                                                
10:18:09 AM                                                                                                                   
                                                                                                                                
Representative  Story began  the presentation  with slide  2.                                                                   
She reminded  the committee that  there was a  constitutional                                                                   
obligation to maintain  the school system. The  bill proposed                                                                   
inflation-proofing the  Base Student Allocation  (BSA), which                                                                   
would  help  ensure  strong  schools  and  protect  important                                                                   
programs.  She mentioned  the  importance  of knowing  future                                                                   
costs  when designing  a  budget, whether  it  be a  personal                                                                   
budget  or governmental.  The  bill would  implement a  "wise                                                                   
educational  policy,"  which  related  to the  importance  of                                                                   
working together.                                                                                                               
                                                                                                                                
Representative  Story indicated  that  district budgets  were                                                                   
assembled in  November and were  often due to  municipalities                                                                   
in  March. However,  the legislative  process  was often  not                                                                   
completed before  the budget due date, which  meant adjusting                                                                   
the  budget and  making the  applicable  reductions based  on                                                                   
budget numbers. The  district would often plan  for cuts, and                                                                   
the community  would have to  come together and  decide which                                                                   
services to cut.  She noted that these cuts  often undermined                                                                   
public  confidence. Working  together  as  policy makers  was                                                                   
very important.  The legislature had heard from  school board                                                                   
members for a  number of years that the ability  to determine                                                                   
a fixed  portion  of the  budget was  favored. She  mentioned                                                                   
that in  order to receive federal  funding, the state  had to                                                                   
abide by  federal laws, and  there were accountability  plans                                                                   
in place  that must  be followed.  Every school  was given  a                                                                   
star rating  out of five, and  schools were required  to have                                                                   
a plan to increase their star rating.                                                                                           
                                                                                                                                
10:23:35 AM                                                                                                                   
                                                                                                                                
Representative  Story continued  to  slide 3  to discuss  the                                                                   
increment  of  inflation  proofing.  She  explained  that  by                                                                   
introducing inflation  proofing to the BSA formula,  the bill                                                                   
provided  fair   and  steady  revenue  that  would   be  tied                                                                   
directly to  Alaska's economy.  This would  be done  by using                                                                   
the  Consumer Price  Index (CPI)  for urban  Alaska from  the                                                                   
United States Borough  of Labor Statistics. She  relayed that                                                                   
Legislative  Finance  Division  (LFD) recommended  using  the                                                                   
CPI  because  it  was more  reflective  of  Alaska's  economy                                                                   
rather than  national trends.  She reminded the  committee of                                                                   
a study  by the  Institute for  Social and Economic  Research                                                                   
(ISER)  that  had been  shared  in  a previous  meeting  that                                                                   
found, based on  the CPI, that Alaska was  just below average                                                                   
when it came to school funding.                                                                                                 
                                                                                                                                
10:24:44 AM                                                                                                                   
                                                                                                                                
Co-Chair  Foster noted  Co-Chair  Merrick and  Representative                                                                   
Rasmussen were online.                                                                                                          
                                                                                                                                
Representative  Wool asked if  she had considered  using core                                                                   
inflation  for the  formula  instead,  which represented  CPI                                                                   
minus  energy and  food. He  believed  that it  was what  the                                                                   
federal government used.                                                                                                        
                                                                                                                                
Representative  Story   responded  that  she   had  not.  She                                                                   
explained  that  the  formula  would  be  discussed  in  more                                                                   
detail later in the presentation.                                                                                               
                                                                                                                                
Co-Chair Foster  commented that the inflation  proofing would                                                                   
be tied to  CPI in urban Alaska.  He wondered if there  was a                                                                   
CPI for rural Alaska.                                                                                                           
                                                                                                                                
Representative  Story  indicated  that  LFD  had  recommended                                                                   
using  CPI, and  the term  "urban Alaska"  related simply  to                                                                   
the  name.  She  differed  to  Alexei  Painter  from  LFD  to                                                                   
explain the choice in more detail.                                                                                              
                                                                                                                                
Co-Chair Foster asked if there was a rural CPI for Alaska.                                                                      
                                                                                                                                
ALEXEI  PAINTER,  DIRECTOR,  LEGISLATIVE   FINANCE  DIVISION,                                                                   
responded    that    urban   Alaska    reflected    Anchorage                                                                   
specifically,  and that there  was not a  rural CPI or  a CPI                                                                   
calculated for  other communities  in Alaska. There  had been                                                                   
studies   that   looked  at   those   costs,   such  as   the                                                                   
aforementioned  study by  ISER, but  there was  not a  formal                                                                   
CPI.                                                                                                                            
                                                                                                                                
Representative  Story thought  that was  why Dr. Dayna  DeFeo                                                                   
from ISER had  adjusted for Anchorage and adjusted  for other                                                                   
economic  cost   factors  in  the  formula.   The  adjustment                                                                   
acknowledged  the  cost  of  doing  business  in  more  rural                                                                   
communities.                                                                                                                    
                                                                                                                                
ARIEL SVETLIK,  STAFF, REPRESENTATIVE  ANDI STORY,  explained                                                                   
how inflation  was used to calculate  BSA for a  fiscal year.                                                                   
The   bill  averaged   three  previous   calendar  years   of                                                                   
inflation  against   the  fiscal  year  used   in  Alaska  as                                                                   
recommended by LFD.  This smoothed out significant  jumps and                                                                   
drops  in inflation.  She pointed  out there  was a gap  year                                                                   
added into the  formula which would allow  school communities                                                                   
to know their  allocation ahead of time. This  would help the                                                                   
schools craft  their budgets and  better meet  student needs.                                                                   
She addressed slide  4 which showed inflation  in Alaska over                                                                   
the  last  decade.  The  chart  was  sourced  from  LFD.  She                                                                   
pointed out  that the headings  included both  calendar years                                                                   
(CY)  and  fiscal  years  (FY)  and that  the  CPI  data  was                                                                   
provided  by the  Department  of Labor  and  related only  to                                                                   
Anchorage.  Any price  fluctuation  in  Anchorage would  move                                                                   
out to  other locations,  and the BSA  formula would  help to                                                                   
adjust for the needs of other communities.                                                                                      
                                                                                                                                
10:29:40 AM                                                                                                                   
                                                                                                                                
Representative  Wool asked  Ms.  Svetlik to  explain the  CPI                                                                   
data in more detail.                                                                                                            
                                                                                                                                
Ms. Svetlik deferred to Mr. Painter.                                                                                            
                                                                                                                                
10:30:16 AM                                                                                                                   
                                                                                                                                
Mr.  Painter explained  that  CPI  calculation  had an  index                                                                   
year, which  was set at 100.  He believed the number  was set                                                                   
during the  1980s. The CPI was  calculated as an  increase to                                                                   
the index  and represented the  full index going back  to the                                                                   
reference year.                                                                                                                 
                                                                                                                                
10:30:45 AM                                                                                                                   
                                                                                                                                
Representative  Wool asked for  more information on  when the                                                                   
index year was set.                                                                                                             
                                                                                                                                
Mr. Painter  did not remember the  exact year, but  it was in                                                                   
the 1980s.                                                                                                                      
                                                                                                                                
Representative  Wool shared  his  understanding  that if  the                                                                   
CPI was  at 220, that  would mean that  it was a  little more                                                                   
than  double  the   price  it  was  when  it   was  initiated                                                                   
considering  that 100  was the  index. He  asked if LFD  ever                                                                   
used core inflation or just CPI.                                                                                                
                                                                                                                                
Mr. Painter  indicated that CPI  was used because it  was the                                                                   
most easily found  and available number. He  thought it would                                                                   
be  a  policy   call  if  the  legislature   wanted  to  pull                                                                   
additional  costs. During  the  last district  cost study  in                                                                   
2005,  costs specific  to the  school  district were  studied                                                                   
and a  new index was  formed based on  those costs.  He noted                                                                   
that  would be  more  time consuming,  but  it  was a  policy                                                                   
decision.                                                                                                                       
                                                                                                                                
10:32:16 AM                                                                                                                   
                                                                                                                                
Ms.  Svetlik pointed  to  the  numbers in  the  side bars  on                                                                   
slide  4. She  explained that  the numbers  referred to  what                                                                   
the percentage  of growth would  be per fiscal year  based on                                                                   
the preceding calendar  years. For FY 22, the  increase would                                                                   
be  1.11  percent,  which  resulted   from  averaging  CY  18                                                                   
through CY 20.  The idea was to make these  numbers available                                                                   
prior to the finalization of the following year's budget.                                                                       
                                                                                                                                
Ms.  Svetlik  advanced  to  slide  5  and  relayed  that  the                                                                   
example on  the slide related  to FY  23. The reason  she was                                                                   
using  FY   23  was  because   the  numbers   were  currently                                                                   
available  in order  to  make  accurate projections.  If  the                                                                   
legislature were  to increase the  BSA, there would be  a $66                                                                   
increase  in the  BSA.  She reiterated  that  by averaging  3                                                                   
years  together, the  formula  would smooth  out  significant                                                                   
swings and dips in inflation.                                                                                                   
                                                                                                                                
10:35:05 AM                                                                                                                   
                                                                                                                                
Representative  Story  addressed  slide 6  which  highlighted                                                                   
that  school funding  was  a fundamental  statewide  economic                                                                   
issue.  She  surmised  that  the  best  way  to  attract  new                                                                   
residents, build  a skilled workforce, and maintain  a strong                                                                   
economy was  ensure the  quality of schools  in the  area. It                                                                   
was a  way to  provide a solid  base and  a way of  providing                                                                   
some stability. She indicated there was invited testimony.                                                                      
                                                                                                                                
Co-Chair  Foster asked  if the  bill  had been  heard by  the                                                                   
House  Education  Committee. He  wondered  if  she had  heard                                                                   
from rural  schools about  the Anchorage  CPI being  used. He                                                                   
noted  the costs in  rural Alaska  were higher.  He asked  if                                                                   
$66  per  student  would  be enough  for  rural  schools  and                                                                   
whether  rural schools  thought  the formula  would work  for                                                                   
them.                                                                                                                           
                                                                                                                                
Representative  Story  reminded the  committee  that the  $66                                                                   
BSA  increase  would be  adjusted  for  school size  and  the                                                                   
applicable multipliers.                                                                                                         
                                                                                                                                
10:38:58 AM                                                                                                                   
                                                                                                                                
Representative  Carpenter referred  to slide  4. He  averaged                                                                   
the   3   years  together,   which   were   the   percentages                                                                   
highlighted  in yellow on  the slide. He  calculted it  was a                                                                   
1.58 or  1.6 percent average inflation  over the 3  years. He                                                                   
suggested  that 6 out  of the  10 years  were less  than what                                                                   
the  average was,  and in  only  3 out  of the  10 years  was                                                                   
there  inflation  that  was  greater  than  the  average.  He                                                                   
wondered what  the bill's goal  was. He thought if  the state                                                                   
was covering  cost increases  and fluctuations  from  year to                                                                   
year, then  it would  be looking at  a cost adjustment  every                                                                   
year  that  would  reflect the  inflation  change  for  every                                                                   
year. He  drew attention to  CY 20 [FY  22] on the  slide and                                                                   
pointed out  that the CPI percent  change was negative.  In a                                                                   
year  like  CY  20,  an increase  would  not  be  needed.  He                                                                   
wondered  why  the  legislature  would  not  just  raise  the                                                                   
budget.                                                                                                                         
                                                                                                                                
Representative Story  responded that she averaged  3 years of                                                                   
data for  the purpose of  preventing large swings.  She noted                                                                   
that  the  invited  testifiers  later in  the  meeting  would                                                                   
attest to the  importance of an average. Also,  she wanted to                                                                   
leave room  for the  legislature to adjust  the BSA  to allow                                                                   
for  other targeted  funding for  things  like investment  in                                                                   
reading programs.  These adjustments  were reflective  of the                                                                   
Alaska  economy rather  than the  national  economy. She  was                                                                   
not  trying  to solve  all  of  the problems  with  education                                                                   
funding,  but she was  simply acknowledging  that there  were                                                                   
fixed costs, and the costs could rise.                                                                                          
                                                                                                                                
10:42:58 AM                                                                                                                   
                                                                                                                                
Representative Carpenter  agreed that costs increased  due to                                                                   
inflation.  He was trying  to explain  that the rising  costs                                                                   
for inflation  were sometimes  less than a single  percentage                                                                   
point, as seen  on slide 4 from CY 15 to CY  17. However, the                                                                   
budget would  be increased by  an average of 1.5  percent for                                                                   
CY 15 through  CY 17 because there  was a desire to  grow the                                                                   
budget as  opposed to covering  the cost increase in  a given                                                                   
year.                                                                                                                           
                                                                                                                                
Representative  Story  deferred to  Ms.  Svetlik because  she                                                                   
understood that Ms. Svetlik did the math on the slide.                                                                          
                                                                                                                                
Ms. Svetlik  clarified that  LFD did the  math on  the slide.                                                                   
She explained  that  the 1.5 percent  average  was for  CY 18                                                                   
through  CY 22.  Representative Carpenter  was talking  about                                                                   
CY 15 through CY  17. She agreed that the  average that would                                                                   
come  from CY  15 through  CY 17  would be  much smaller.  In                                                                   
FY20 [CY18], there  would only be about 0.5  percent increase                                                                   
of the  BSA even  though there  was a  3 percent increase  in                                                                   
CPI.  There  was a  slight  lag  in  the  rate of  growth  as                                                                   
compared to the  rate of inflation because she  was used real                                                                   
number  to  make  projections   rather  than  making  up  the                                                                   
numbers. It  was not  a perfect system,  and the  sponsor was                                                                   
open to  other suggestions.  However,  budget growth  was not                                                                   
always  necessarily a  1.5 percent  average  as that  average                                                                   
reflected only 3  years of data. She suggested  that he could                                                                   
ask  LFD to  create a  projection for  all of  the years  for                                                                   
extended clarity.                                                                                                               
                                                                                                                                
10:45:02 AM                                                                                                                   
                                                                                                                                
Representative   Carpenter  thanked   Ms.  Svetlik   for  the                                                                   
correction. He did  not mean to imply that  the average would                                                                   
be  1.5  percent  for  all  years   and  understood  that  it                                                                   
represented  a  3-year   average.  He  was  using   it  as  a                                                                   
demonstration  that  the  bill  would  grow  the  BSA  by  an                                                                   
arbitrary percent  that would  not necessarily relate  to the                                                                   
cost  increase   for  that   particular  year.   Instead,  it                                                                   
represented a  cost increase over  multiple years. If  in the                                                                   
2  previous  years  the legislature  had  already  spent  the                                                                   
money, then  budgeted costs  may not be  covered in  the cost                                                                   
increase. He suggested  that a conversation should  be had to                                                                   
discuss a different mechanism to cover the costs.                                                                               
                                                                                                                                
Representative  Story  appreciated   the  comments.  She  had                                                                   
talked  to  districts  that  reported  that  the  large  4.88                                                                   
percent CPI  increase [in  CY 21/FY 23]  would be  spread out                                                                   
and  help the  prior years  as well.  It was  what the  chief                                                                   
financial officers  thought would work best as  a predictable                                                                   
number.  She hoped  the committee  would get  to the  invited                                                                   
testifiers in the present meeting.                                                                                              
                                                                                                                                
10:46:49 AM                                                                                                                   
                                                                                                                                
CHRIS  REITAN,  SUPERINTENDENT  CRAIG  CITY  SCHOOL  DISTRICT                                                                   
(via  teleconference),  spoke   in  support  of  HB  273.  He                                                                   
indicated that the  bill would provide the  mechanism for the                                                                   
State of  Alaska to help  address the annual  inflation costs                                                                   
that  Kindergarten  through  grade   12  schools  endure  for                                                                   
education.   The  BSA   had  not   been   addressed  by   the                                                                   
legislature  since  2017. It  was  necessary  to address  the                                                                   
increasing fixed  costs that were imbedded in  school budgets                                                                   
that reduced the  amount of funds that could  be dedicated to                                                                   
classroom  instruction and to  improved educational  content.                                                                   
He  relayed  that  medical  insurance  was one  of  the  most                                                                   
expensive  fixed   costs  within   school  budgets,   and  it                                                                   
increased annually.  It accounted for more than  12.5 percent                                                                   
of  the Craig  City School  District's  budget. Heating  fuel                                                                   
oil  had increased  more than  25 percent  since 2015,  which                                                                   
represented an  increase that  occurred prior to  the current                                                                   
oil increases. Since  FY 21, heating oil costs  had increased                                                                   
by 64 percent.  Freight had increased by 6  percent [since FY                                                                   
21]. He  noted that these were  only a few examples  of fixed                                                                   
cost increases  to which  school districts  must respond.  He                                                                   
thought  that  HB  273 provided  a  consistent  and  reliable                                                                   
mechanism for  the state to  invest in the educational  needs                                                                   
of  children.  He  thanked members  for  the  opportunity  to                                                                   
testify in support of the bill.                                                                                                 
                                                                                                                                
10:49:40 AM                                                                                                                   
                                                                                                                                
Representative  Josephson asked  Mr. Reitan  to restate  some                                                                   
of the figures he had mentioned.                                                                                                
                                                                                                                                
10:50:21 AM                                                                                                                   
                                                                                                                                
JIM  ANDERSON,  CHIEF  FINANCIAL  OFFICER,  ANCHORAGE  SCHOOL                                                                   
DISTRICT (via  teleconference), spoke  in support of  HB 273.                                                                   
He  referred to  a graph  titled, "ASD  School Funding  since                                                                   
2017,"  which  he had  provided  to  the committee  (copy  on                                                                   
file).  He  hoped  the  visual would  show  how  the  "fiscal                                                                   
cliff"  would  affect  Anchorage specifically,  and  why  the                                                                   
fiscal  cliff existed.  He pointed  out the  red line  at the                                                                   
top  of the  chart, which  reflected  the BSA's  inflationary                                                                   
increase based on  Anchorage's CPI from FY 17  through FY 22.                                                                   
He  noted  that the  rates  from  January  of FY  22  through                                                                   
January of FY 24  were estimates based on a  2 percent steady                                                                   
inflation  rate,  but it  was  likely  that  FY 22  might  be                                                                   
significantly higher than estimated.                                                                                            
                                                                                                                                
Mr. Anderson  continued  by explaining  that the grey,  light                                                                   
blue, and gold  bars showed BSA equivalent  funds that helped                                                                   
offset structural  deficits over the last several  years. The                                                                   
Anchorage School  District (ASD) had an applied  fund balance                                                                   
for two  years as  well as federal  relief money  to maximize                                                                   
educational  opportunities  for   the  past  five  years.  He                                                                   
indicated  that FY  22 and FY  23 relied  heavily on  federal                                                                   
Elementary  and  Secondary  School   Emergency  Relief  Funds                                                                   
(ESSER),  however   there  were  not  enough   federal  funds                                                                   
remaining  to account for  the structural  deficit in  FY 24.                                                                   
The  inflationary  costs  for  ASD had  averaged  around  $10                                                                   
million to $12  million dollars per year for the  last 6 or 7                                                                   
years. He explained  that while one-time funds  were helpful,                                                                   
those  funds hid  the  structural deficit  of  more than  $40                                                                   
million.                                                                                                                        
                                                                                                                                
Mr.  Anderson noted  the district's  liability insurance  had                                                                   
increased  by  100 percent  in  the  last  few years  due  to                                                                   
nationwide  challenges.  It had  cost Anchorage  $21,000  per                                                                   
school   district  employee   per  year   to  cover   medical                                                                   
benefits.  He compared  this number  to Seattle,  Washington,                                                                   
which was  $12,000 per year  and Atlanta, Georgia,  which was                                                                   
$11,000  per year.  The red  line  on the  graph showed  gaps                                                                   
between  the  one-time funding  that  had  been used  by  the                                                                   
district.  Since  2017,  the   district  implemented  several                                                                   
measures  to  reduce   the  rate  of  increase   for  medical                                                                   
insurance  costs.  He emphasized  that  this  did not  reduce                                                                   
costs,  but  simply  reduced  the rate  at  which  the  costs                                                                   
increased.  He explained  that  the inception  of the  Alaska                                                                   
Middle  College  School  had  a low  overhead  and  cost  the                                                                   
district  about $10,000  per student.  He compared this  cost                                                                   
to  the district's  8  brick and  mortar  high schools  which                                                                   
cost  an   average  of  $13,000   to  $18,000   per  student,                                                                   
depending  on the other  forms of  money that were  dedicated                                                                   
to those  schools.  The  Alaska Middle College  School helped                                                                   
increase  revenue  as  well  as reduce  costs  for  over  200                                                                   
students.                                                                                                                       
                                                                                                                                
Mr.  Anderson  indicated  that   the  district  had  built  a                                                                   
relationship  with the Lower  Yukon School District's  (LYSD)                                                                   
Kusilvak Career  Academy, which benefited students  from both                                                                   
districts.  The LYSD  allowed  ASD students  to take  courses                                                                   
and get  certifications for a quarter  of a school  year at a                                                                   
time.  It opened  up many  slots  for ASD  students, so  both                                                                   
districts benefited  from the  relationship. The  reality was                                                                   
the  school district  had been  hiding  a growing  structural                                                                   
deficit and there  had to be measures taken in  order to move                                                                   
forward  and allow the  district to  enact multi-year  plans.                                                                   
It  typically  took  at  least  3 years  to  see  changes  in                                                                   
student  outcomes   from  a  new  program.  The   first  year                                                                   
involved  training  school  district  employees,  the  second                                                                   
year   was   when  students   started   to   get   consistent                                                                   
instruction through  the new program, and the  third year was                                                                   
generally  when  improvement could  be  seen.  When only  one                                                                   
year  of  money  was  provided,  it did  not  allow  for  the                                                                   
implementation  of three-year  programs  because  it was  too                                                                   
uncertain.  He hoped  Alaska  would implement  an  inflation-                                                                   
proof  BSA  so  that  districts  could  implement  multi-year                                                                   
strategies for  improved student outcomes. He  concluded that                                                                   
HB 273 and HB  272 would help accomplish the  necessary first                                                                   
steps.                                                                                                                          
                                                                                                                                
10:57:59 AM                                                                                                                   
                                                                                                                                
HEIDI  TESHNER,  DIRECTOR,  FINANCE   AND  SUPPORT  SERVICES,                                                                   
DEPARTMENT   OF   EDUCATION  AND   EARLY   DEVELOPMENT   (via                                                                   
teleconference),  reviewed the  two fiscal  notes for  HB 273                                                                   
by the  Department of  Education and  Early Development.  The                                                                   
first was  a zero  fiscal note with  the control  code vICxU.                                                                   
The  fiscal note  was  for  informational purposes  only  and                                                                   
showed a general  fund transfer to the Public  Education Fund                                                                   
(PEF).                                                                                                                          
                                                                                                                                
Ms.  Teshner reviewed  the second  fiscal note,  also by  the                                                                   
Department  of Education  and  Early Development,  which  had                                                                   
the control  code  RIhvb. The  fiscal note  used the CPI  for                                                                   
urban Alaska  as prepared by  the United State  Department of                                                                   
Labor  for  2019  through  2021 and  arrived  at  an  average                                                                   
percentage   difference   of   1.72  percent.   The   average                                                                   
percentage difference  was applied to  the BSA for FY  23 and                                                                   
totaled  $5,930, which  resulted in  a CPI  of $6,032.  Using                                                                   
the FY 23  projected average daily membership  counts and the                                                                   
CPI adjusted  BSA of  $6,032, the  new estimated total  state                                                                   
entitlement  would increase by  approximately $26.1  million.                                                                   
The effective date  of this bill would be July  1, 2024 in FY                                                                   
25. She added that  the third page of the fiscal  note showed                                                                   
the projected fiscal breakdown by school district.                                                                              
                                                                                                                                
Representative  Story  noted there  were  a couple  of  other                                                                   
handouts in member packets.                                                                                                     
                                                                                                                                
Ms. Svetlik  indicated  that LFD had  provided a  theoretical                                                                   
fiscal  note  for  the  committee's   review,  titled,  "K-12                                                                   
Foundation  Formula  BSA  Adjusted  for Inflation  -  3  Year                                                                   
Average"  (copy  on file).  She  explained that  the  handout                                                                   
showed what the  growth would look like if HB  273 were to be                                                                   
combined with  HB 272. She noted  that it was  an incremental                                                                   
increase,  and that the  chart showed  the projected  ways in                                                                   
which the increments would grow.                                                                                                
                                                                                                                                
11:02:00 AM                                                                                                                   
                                                                                                                                
Representative  Wool shared  his  understanding  that HB  273                                                                   
added an  inflation formula using  CPI and 3  previous years'                                                                   
averages.  He  compared this  to  HB  272, which  he  thought                                                                   
proposed  an  adjustment to  the  BSA  starting in  2017  and                                                                   
using a  similar formula. He  asked if his understanding  was                                                                   
correct.                                                                                                                        
                                                                                                                                
Representative  Story suggested that  he refer to  the packet                                                                   
for HB 272 (copy  on file) which showed how  the numbers were                                                                   
determined. She explained  that she did not go  back to 2017.                                                                   
She  started in  FY  20, which  included  around $30  million                                                                   
that was  outside of  the formula.  However, this  was vetoed                                                                   
by the  governor, so the $30  million was inserted  back into                                                                   
the  formula  when doing  the  calculations.  The  increments                                                                   
showed   about  a   $30  million   increase  when   inflation                                                                   
proofing.  The  $30  million being  inserted  back  into  the                                                                   
formula allowed for  inflation proofing for FY 21  and FY 22.                                                                   
She  explained  that  that  is  how  the  $232  BSA  increase                                                                   
projection  came about.  Then, three years  were averaged  to                                                                   
arrive at the  $14 million projected increment for  the FY 24                                                                   
BSA with inflation.  The chart showed a minus  inflation year                                                                   
as  well,   which  meant  that   there  was  a   $71  million                                                                   
cumulative  increase.  She hoped  to forward  fund  education                                                                   
within the  formula by  $57 million.  The bills  complimented                                                                   
one another  and gave an idea  of what it might look  like to                                                                   
inflation proof.  It was important to note  that some members                                                                   
wanted  to  see  certain  programs funded,  and  by  doing  a                                                                   
modest  adjustment it  left room  for  strategic funding  for                                                                   
the  programs   in  which   members  might  be   particularly                                                                   
invested.  She  thought  it  was  important  to  think  about                                                                   
educational policy and how the bodies affect one another.                                                                       
                                                                                                                                
Co-Chair  Foster  thanked  the presenters  and  reviewed  the                                                                   
agenda  for  the  afternoon.   He  reminded  members  of  the                                                                   
amendment deadline for the operating budget.                                                                                    
                                                                                                                                
HB 273 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
11:06:58 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 11:06 a.m.                                                                                         

Document Name Date/Time Subjects
HB 272 & HB 273 Public Testimony Rec'd by 031422.pdf HFIN 3/17/2022 9:00:00 AM
HB 272
HB 273
HB 273 Theoretical Fiscal Note.pdf HFIN 3/17/2022 9:00:00 AM
HB 273
HB 272 HB 273 Public Testimony Rec'd by 031622.pdf HFIN 3/17/2022 9:00:00 AM
HB 272
HB 273
HB 273 Public Testimony incl Ktkn Resolution Rec'd by 031722.pdf HFIN 3/17/2022 9:00:00 AM
HB 273