Legislature(2001 - 2002)
04/30/2001 02:04 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 30, 2001
2:04 PM
TAPE HFC 01 - 107, Side A
TAPE HFC 01 - 107, Side B
TAPE HFC 01 - 108, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 2:04 PM.
MEMBERS PRESENT
Representative Bill Williams, Co-Chair
Representative Eldon Mulder, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Don Smith, Staff, Senator Cowdery; Barbara Miklos, Director,
Child Support Enforcement Division, Department of Revenue;
Douglas Gardner, Assistant Attorney General, Department of
Law; Darwin Peterson, Staff, Senator John Torgerson,
PRESENT VIA TELECONFERENCE
Larry Smith, President, D and L Construction, Kenai; Dick
Cattanach, Executive Director, Associated General
Contractors of Alaska, Anchorage; Michael Swalling,
President, Swalling Construction, Anchorage; Kevin Brady,
Attorney, Olds, Morrison, Rinker and Baker, Anchorage; Bill
Renno, Olds, Morrison, Rinker and Baker, Anchorage; Fred
Thompson, Herman and Thompson, Homer; Brad Finney, South
Coast Construction, Ketchikan; Jerry Renich, President,
South Coast Constructions, Ketchikan; Diane Wendlandt; Bill
Britt, State Pipeline Coordinator, Department of Natural
Resources.
SUMMARY
CSSB 19(HES)
"An Act relating to federal child support
enforcement requirements regarding social security
number information, employer reports about
employees, and certain kinds of automated data
matching with financial institutions; repealing
the termination date of changes made by ch. 87,
SLA 1997, and ch. 132, SLA 1998, regarding child
support enforcement and related programs;
repealing the nonseverability provision of ch.
132, SLA 1998; repealing uncodified laws relating
to ch. 87, SLA 1997, and ch. 132, SLA 1998; and
providing for an effective date."
HCS CSSB 19(HES) was REPORTED out of Committee
with a "do pass" recommendation and with a
previously published zero fiscal note (#2) by the
Department of Revenue.
SENATE BILL NO. 143
"An Act authorizing the Department of Natural
Resources to enter into agreements with a person
or persons desiring to own an oil or natural gas
pipeline proposed to be located on state land for
the purposes of providing for payment of the
reasonable costs incurred in preparing for
activities before receipt of an application under
the Alaska Right-of- Way Leasing Act and for
activities relating to the processing of an
application under that Act; and providing for an
effective date."
SB 143 was REPORTED out of Committee with a "do
pass" recommendation and with a new fiscal impact
note by the Department of Natural Resources.
SB 152 "An Act relating to the handling of and interest
on contract controversies involving the Department
of Transportation and Public Facilities or state
agencies to whom the Department of Transportation
and Public Facilities delegates the responsibility
for handling the controversies."
SB 152 was heard and HELD in Committee for further
consideration.
HCR 10 Suspending Rules 24(c), 35, 41(b), and 42(e),
Uniform Rules of the Alaska State Legislature,
concerning Senate Bill No. 19, relating to certain
federal child support enforcement requirements, so
that the phrase "relating to child support
payments" may be added to the bill's title.
HCR 10 was REPORTED out of Committee with a "do
pass" recommendation.
SENATE BILL NO. 152
"An Act relating to the handling of and interest on
contract controversies involving the Department of
Transportation and Public Facilities or state agencies
to whom the Department of Transportation and Public
Facilities delegates the responsibility for handling
the controversies."
DON SMITH, STAFF, SENATOR COWDERY explained that the
legislation would require the Department of Transportation
and Public Facilities to pay interest on disputes, which are
settled in favor of the contractor. Interest accrues at a
rate applicable to judgments. Interest accrues on the date
the claim is filed and continues until the date of
settlement. The interest rate would be guided by AS
09.30.70, which is three percentage points above the 12th
Federal Reserve District discount rate. He stressed that the
current situation is unfair to contractors in dispute with
the state of Alaska. Disputes are taking too long to settle.
The state of Alaska earns money while the case proceeds.
Contractors may be forced to settle because they cannot
afford to carry the burden of the expense.
BRAD FINNEY, SOUTH COAST CONSTRUCTION, KETCHIKAN testified
via teleconference in support of the legislation. He
recounted an incident with the Department of Transportation
and Public Facilities. He observed that it should take 9
months for a claim to go to a hearing officer. It took four
years for his claim to receive a hearing, which resulted in
a $400,000 thousand dollar settlement with prejudgment
interest of $240 thousand dollars in his favor. The state
has refused to pay the interest. He maintained that the best
way to resolve a contract issue is through negotiation. He
asserted that without a prejudgment interest award the state
has nothing to risk and no incentive to equitably and timely
settle disputes.
Mr. Finney reviewed the timeline of the claim process. He
noted that it is difficult to formulate amounts until the
project is complete.
Representative John Davies clarified that the claim is
denied by the on site project manager before it is submitted
for further review.
Representative Hudson questioned if there would be cases
where the contractor would owe the state and if interest
would be assessed if there were. Mr. Finney pointed out that
it is not in the contractor's best interest to submit a
frivolous claim. Minor issues are not worth the lawyer fees.
He added that the state might be able to introduce punitive
or liquidated damages if the project is not completed
timely.
JERRY RENICH, PRESIDENT, SOUTH COAST CONSTRUCTIONS,
KETCHIKAN testified via teleconference. He expressed concern
that the state has protected itself. The legislation would
put the state and the contractor on a reasonable level
playing field.
LARRY SMITH, PRESIDENT, D AND L CONSTRUCTION, KENAI
testified via teleconference in support of the legislation.
He suggested that it be amended to cover all claims to the
date of the legislation. He recounted his experience with
claims before the Department of Transportation and Public
Facilities. The legislation would provide equity for
contractors. Most other tort claims and contract actions in
the state of Alaska pay prejudgment interest. The hearing
officer awarded them all but $50 thousand dollars of their
$900 thousand dollar claim. The commissioner reduced the
claim by $100 thousand dollars. They collected $750 thousand
dollars, but the state of Alaska did not pay the $93
thousand dollars owed in interest.
Vice-Chair Bunde questioned why persons with pending claims
would be excluded.
FRED THOMPSON, HERMAN AND THOMPSON, HOMER testified via
teleconference in support of the legislation. He asserted
that the claims process can be unfair. He maintained that
the process would be fairer if the state had an incentive to
settle. He felt that it was unfair for private business to
sponsor the claims process and to be punished by a refusal
of interest payment. He spoke in support of amending the
legislation to cover all pending claims.
DICK CATTANACH, EXECUTIVE DIRECTOR, ASSOCIATED GENERAL
CONTRACTORS OF ALASKA, ANCHORAGE, testified via
teleconference in support of the legislation. He pointed out
that contractors have already spent thousands of dollars by
the time the claim comes to judgment. He questioned why the
Department of Law feels that the construction industry
should be discriminated against.
Representative Hudson asked if the federal government
authorizes interest from the date the claim is made when the
contractor prevails. Mr. Cattanach affirmed that the federal
Highway Administration and the Federal Aviation
Administration (FAA) include interest. He noted that the
model procurement code calls for a payment of interest.
MICHAEL SWALLING, PRESIDENT, SWALLING CONSTRUCTION,
ANCHORAGE, testified via teleconference in support of the
legislation. He noted that funds have been spent in advance.
He observed that his banker expects to be paid if he has
borrowed funds. The lack of interest amounts to no penalty
and no compensation for the time and money spent redeeming
the funds.
In response to a question by Representative Hudson, Mr.
Swalling noted that municipal contracts do provide for
interest on claims settled.
KEVIN BRADY, ATTORNEY, OLDS, MORRISON, RINKER AND BAKER,
ANCHORAGE testified via teleconference. He clarified that
the state demands interest on cases where the state is owed
funds. He maintained that the state should pay interest if
it expects to collect interest. Small independent
contractors are financing state projects interest free. This
is unfair and anti business.
BILL RENNO, ATTORNEY, OLDS, MORRISON, RINKER AND BAKER,
ANCHORAGE testified via teleconference in support of the
legislation. He recommended that the legislation be amended
to affect pending claims. Pending claims would have to
appeal to the Supreme Court if the legislation is not
applicable to all claims. He maintained that Supreme Court
appeals would be unnecessary, which would reduce the state's
legal costs.
DOUGLAS GARDNER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW provided information. He clarified that punitive damages
do not pertain. If it were made retroactive for all pending
claims, the date would have to go to 1996. The state would
also have to treat with other contractors that have settled
claims but were similarly situated at the time of
settlement. The fiscal note would be huge [if pending claims
were included]. There would be no participation in
retroactive payouts by the federal government. He discussed
the Kennicott case, which started as a $50 million dollar
claim against the state of Alaska. The claim came in with
eight pages without documentation. The Department of Law
already has difficulty obtaining documentation for claims
and questioned if the legislation would encourage poor
documentation. Few states have similar provisions. The
department must ascertain that the claims are sound.
Municipalities don't enjoy sovereign immunity as the state.
The state cannot consent to pay administrative claims.
There are several constitutional problems with equal
protection. The bill would single out construction claims.
Other claimants in a wide variety of issues will argue that
construction contractors should not be singled out. A court
may decide that interest should be paid on all claims, which
could amount to a large general fund amount.
It is true that the Federal Highway Administration and the
FAA has a restricted ability to participate in interest.
However, the bill covers all buildings. There is no federal
agency with additional funds to pay the interest. Interest
payments would come from general funds.
There are a number of construction projects that are not
subject to AS 36.30, including new vessel construction. Mr.
Gardner noted that because projects by the Alaska Railroad
Corporation (ARRC) or Alaska Aerospace Development
Corporation generally have to follow procurement code that
they would also be subject to interest payments.
Representative Croft questioned if the date of a decision of
an administrative officer had been considered. He referred
to the Kennicott claim. Mr. Gardner noted that the claim
came in the form of an 8 - 10 page letter without
documentation. After two years of working with the case a
large amount of documentation has been submitted.
Representative Croft felt that contractors raise a good
point that once the administrative process is completed that
payment should occur. He questioned the affect of an
amendment [to make interest due from the date of the
procurement officer's decision].
Mr. Gardner noted that there are three levels before an
administrative case goes to Superior Court.
TAPE HFC 01 - 107, Side B
Mr. Gardner noted that 80 percent of cases are solved at the
first step: the Engineer's report. The second step is the
contracting officer's decision. Then the director of a
region will evaluate the engineer's decision. In some cases
a contracting officer's decision may change the engineer's
decision and settle the case. Representative Davies
clarified that the contracting officer is the procurement
officer, which is the last division level. Mr. Gardner
explained that the next level goes to the commissioner. If
the party is still not satisfied it is appealed to the
Superior Court.
Mr. Gardner referred to a possible amendment to run the
interest from the time the contracting officer or the
procurement officer issues their decision. He explained that
administrative claims process is an alternate dispute
resolution process. It is a way to settle cases before they
go to court and carries a high success rate. The policy
concern is: should the state be exposed to interest on a
claim that has not been documented.
Vice-Chair Bunde questioned if the federal government would
pay 90 percent of the interest that accrues on prospective
application of the law. Mr. Gardner clarified that the
federal government would only pay on projects where the
Federal Highway Administration is the participating agency.
If the law were retroactive the same funds would not be
available from federal highway payments.
Vice-Chair Bunde asked if this is a good idea why should it
not apply to all state agencies. Mr. Gardner noted that all
departments that perform construction work would be covered.
He added that there might be situations where the claims
were not allowed. Contractors can incur costs due to their
own lack of due diligence. Disputes are not always the
state's fault. Mr. Gardner argued against having interest
running from the beginning of the case.
In response to a question by Representative Hudson, Mr.
Gardner noted that interest is paid on overdue liquidated
claims.
In response to a question by Representative Hudson, Mr.
Gardner explained that the procurement officer is the last
staff level person that makes a decision on behalf of the
department.
Mr. Smith summarized that the bill is about fairness. It was
introduced as a response to requests from the contractor
community. He maintained that the state of Alaska has no
incentive to move the process along. Years can pass before
payment occurs. Contractors would be required to pay
interest on their bank loans during the time.
Representative John Davies did not think that there was
evidence that the state is trying to draw out the process
and questioned if it was fair for the state to pay on cases
where there is a legitimate dispute.
Representative Lancaster MOVED to ADOPT Amendment 1.
APPLICABILITY.
(a) AS 36.30.623 and 36.30.625(c), added by this
Act, and AS 36.30.625(a), as amended by this Act, apply
to controversies
(1) That are pending before an agency on the
effective date of this Act; or
(2) For which a claim is filed with an agency
under AS 36.30.620 on or after the effective date of
this Act.
(b) In this section, "agency" means the Department
of Transportation and Public Facilities or a state
agency to whom the responsibility for handling the
controversy is delegated by the Department of
Transportation and Public Facilities under AS
36.30.632.
Representative Lancaster explained that the amendment would
make the bill retroactive.
Representative Croft acknowledge the need for the
legislation but pointed out that every case would have to be
reviewed for equal protection.
Mr. Gardner argued that the amendment would require a search
of all the claims.
Representative Croft gave the hypothetical case were two
claims were submitted at the same time. One claimant
provides all the necessary documentation and the case is
resolved. The other fails to submit the necessary
documentation and the case is dragged on [until the passage
of SB 152]. The first case would not receive interest
because it was settled before the effective date of the
legislation. The second settles after the date [in the favor
of the contractor] and is awarded interest. He suggested
that the first claimant would seek interest through
litigation.
Co-Chair Mulder questioned the state's exposure if the
amendment were adopted. Mr. Gardner stated that he could not
quantify the exposure. He observed that if interest were
applied in only the three cases represented by previous
testifiers that there would be well over million and a half
dollars in owed interest. He stressed that the number could
be quite large if previous settled cases came forward.
Claims that were entered but not settled through litigation
would also be subject to the amendment.
Representative Hudson questioned if the Kennicott claim
would be at risk if the amendment were adopted. Mr. Gardner
noted that the Kennicott case has been posed hypothetically
and that he did not have any information on how it would be
affected.
Mr. Gardner explained that the retroactive problem was with
subsection (1).
Representative Whitaker MOVED a conceptual amendment to
amend Amendment 1 by deleting subsection (1). There being
NO OBJECTION, it was so ordered.
Representative Hudson WITHDREW Amendment #2: Insert "from
the date the procurement officer's decision is issued in
accordance with AS 36.30.620."
Representative John Davies MOVED to ADOPT #2. Co-Chair
Mulder OBJECTED for the purpose of discussion.
Representative John Davies spoke to the amendment. He
observed that documentation must be in place before the
claim can be settled. He suggested that the procurement
officer's decision is the earliest bright line decision
point in the process and the last staff level decision.
Representative Croft noted that AS 36.36.20 was attached to
the fiscal note and that the decision should be made no more
than 90 days after the waiver. He pointed out that good
timelines are included to assure that everything necessary
to determine the claim is available.
Representative Hudson suggested that "up to 30 days after
the claim was filed" could be added to give the department
30 days to move the claim to the final adjudication point.
Representative Croft argued against the change. He pointed
out that the claim could be submitted without proper
documentation.
Representative Whitaker asked clarification of the proposed
language. Representative John Davies referred to subsection
(b) of AS 36.36.20. The contractor has 90 days to submit
material. The contracting officer then has 90 days from the
time that they agree the materials are complete to make a
decision. John Davies noted that there might be additional
time between these timelines. Representative Whitaker
thought that 180 days would be enough time to address the
dispute. Discussion occurred between Representative John
Davies and Representative Whitaker regarding the 90-day
concern.
Representative Croft noted that under AS 36.30.620 (b) that:
"The decision shall be made no more than 90 days after
receipt by the procurement officer of all necessary
information from the contractor." He observed that the issue
is with the receipt of all necessary information from the
claimant.
Representative John Davies pointed out that: "Failure of the
contractor to furnish necessary information to the
procurement officer constitutes a waiver of the claim." The
only time the case would be delayed would be at the
contractor's request. The state may grant a delay requested
by the contractor. He questioned why interest should run
during this period.
Representative Whitaker asked what would preclude the state
officer from being unreasonable in their request for
information. Representative John Davies pointed out that the
contractor could litigate against unreasonable requests.
SB 152 was heard and HELD in Committee for further
consideration.
SENATE BILL NO. 143
"An Act authorizing the Department of Natural Resources
to enter into agreements with a person or persons
desiring to own an oil or natural gas pipeline proposed
to be located on state land for the purposes of
providing for payment of the reasonable costs incurred
in preparing for activities before receipt of an
application under the Alaska Right-of- Way Leasing Act
and for activities relating to the processing of an
application under that Act; and providing for an
effective date."
DARWIN PETERSON, STAFF, SENATOR JOHN TORGERSON, testified in
support of the legislation on behalf of the sponsor. He
observed that the legislation was introduced to facilitate
the state's effort to issue right-of-way leases for a gas
pipeline project. Any sponsor of the pipeline project would
have to obtain a right-of-way lease across state lines. The
legislation would authorize the state to be reimbursed by
work performed by the State Pipeline Coordinator's Office in
processing an application for a right-of-way lease. The
current law allows the collection of a fee for submitted
applications. The legislation would allow the reimbursement
for fees before an application has actually been filed.
There must be agreement by the pre-applicant and the
department. The state incurs a financial burden from the
preliminary activities of processing of a right-of-way
application before it is issued. The legislation lifts the
burden from the state and facilitates the process by
allowing the applicant to pay in advance for what they would
have to pay for anyway.
Co-Chair Williams asked the type of work that would be
required. Mr. Peterson explained that the work would be for
technical assistance and consultation. He referred to the
fiscal note by the Department of Natural Resources and noted
that costs include work to establish a Gas Pipeline Office,
provide technical assistance to proponents, reimburse
efforts related to permit process streamlining, and
consultation with the state's federal and Canadian
counterparts.
BILL BRITT, STATE PIPELINE COORDINATOR, DEPARTMENT OF
NATURAL RESOURCES, ANCHORAGE, testified via teleconference.
He observed that there are a variety of activities that
occur before the permit application is received; all are
directed toward receiving a complete permit application. The
better the application the faster the processing. It is in
the interest of all parties to resolve questions before the
application is received.
TAPE HFC 01 - 108, Side A
Co-Chair Williams asked what would happen if the application
were not granted. Mr. Peterson clarified that the state
would keep any money given to the State Pipeline
Coordinator's Office for pre-application work.
In response to a question by Representative Lancaster, Mr.
Peterson observed that the practice has already occurred and
is supported by industry.
Representative Whitaker asked if existing gas pipeline
permits and leases are in place. Mr. Britt stated that the
pre-application agreements have been related to all the oil
and gas lines on the North Slope in the last 5 - 7 years.
He observed that there is one conditional state right-of-way
in place, which is held by Yukon Pacific Lines for the tag
lines. He clarified that Foothills Pipe Lines Alaska Inc.
went through an extensive amount of processing but has not
completed the process or been given a state right-of-way for
the alignment. They completed the federal process and were
granted a federal right-of-way. The state would probably
enter into a pre-application agreement with the gas
producer's consortium and Foothills Pipe Lines Alaska Inc.
He did not anticipate an agreement with the Yukon Pacific
Lines.
Representative Lancaster MOVED to report SB 143 out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
SB 143 was REPORTED out of Committee with a "do pass"
recommendation and with a new fiscal impact note from the
Department of Natural Resources.
CS FOR SENATE BILL NO. 19(HES)
"An Act relating to federal child support enforcement
requirements regarding social security number
information, employer reports about employees, and
certain kinds of automated data matching with financial
institutions; repealing the termination date of changes
made by ch. 87, SLA 1997, and ch. 132, SLA 1998,
regarding child support enforcement and related
programs; repealing the nonseverability provision of
ch. 132, SLA 1998; repealing uncodified laws relating
to ch. 87, SLA 1997, and ch. 132, SLA 1998; and
providing for an effective date."
BARBARA MIKLOS, DIRECTOR, CHILD SUPPORT ENFORCEMENT
DIVISION, DEPARTMENT OF REVENUE provided information on SB
19 (HES). Congress passed welfare reform legislation in
1996. The legislation's intent was to reduce the number of
people receiving public assistance. Regulations relating to
work and child support programs were initiated to support
reforms. States were required to pass laws to help collect
child support. Alaska passed laws in response to federal
requirements in 1996 - 1998 and were compliant with federal
requirements. She maintained that the programs have been
effective. The state collected and dispersed $81 million
dollars in child support. In 2000 the state collected $85
million dollars and it expects to collect $91 million
dollars in the current year. She observed that legislation
passed in 1997 and 1998 would sunset in the current year.
The law has to be reenacted to continue the programs.
Without these programs the state could be in jeopardy of
losing all the money that goes to child support and public
assistance: $70 million dollars.
Ms. Miklos discussed provisions of the bill. She observed
that the Senate placed a 5-year sunset on the use of social
security numbers on applications and the financial data
match program. These were changed to a two-year sunset in
the House Health and Social Service Committee. Two new
provisions were also added. Section 11 would provide that a
violation does not give rise to a private cause of action.
This means that a private individual could not sue an
employer that did not properly report. Section 12 would
prevent the situation where three payrolls are received in
one month from resulting in a shortage on the following
month. Extra payments in one month would be held and
accounted against the subsequent month.
Ms. Miklos explained that provisions removing social
security numbers from statutes take affect in 2003.
Ms. Miklos noted that the Division's would prefer not to
have a sunset date on any of the provisions.
Representative Davies observed that use of social security
numbers referenced in sections 1 - 10 are required by
federal law. Ms. Miklos did not know of any pending
legislation to change federal requirements.
Co-Chair Mulder asked if the legislation meets all the
requirements of the federal guidelines. Ms. Miklos affirmed
that the legislation would bring the state into compliance
for the next two years.
Co-Chair Mulder suggested that the two-year sunset might be
good with the complexity of the provisions contained in the
bill.
Representative John Davies asked how long the existing
provisions have been in place, if there have been any
problems and if they have been effective. Ms. Miklos
responded that the provisions have been in effect for the
last 3 years. There have been no problems and they have been
helpful. She acknowledged that there have been concerns
expressed by individuals, but there have not been a problem
in any cases.
Representative John Davies MOVED to amend the legislation by
deleting "2003" and inserting "2006" on line 16, page 6. Co-
Chair Williams OBJECTED for the purpose of discussion.
Representative John Davies argued that the legislation has
been effective and that the use of social security numbers
is essential in making the connections between cases. There
doesn't seem to be any change in the federal requirement and
the state would be out of compliance if the requirement were
deleted. The use of social security numbers has been
effective in getting payments to children. He noted that the
provisions have worked for the past three years and that the
Senate agreed to a 2006 sunset date. Co-Chair Mulder felt
more comfortable with the 2003 sunset date. He acknowledged
that the division has done a good job, but noted that it is
a contentions issue and asserted that it would be good to
review it in two years.
A roll call vote was taken on the motion to change the
sunset date to "2006".
IN FAVOR: Lancaster, Davies
OPPOSED: Hudson, Whitaker, Bunde, Croft, Harris, Mulder,
Williams
Representatives Moses and Foster were absent from the vote.
The MOTION FAILED (2-7).
Vice-Chair Bunde MOVED to report HCS CSSB 19 (HES) out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
HCS CSSB 19(HES) was REPORTED out of Committee with a "do
pass" recommendation and with a previously published zero
fiscal note (#2) by the Department of Revenue.
HOUSE CONCURRENT RESOLUTION NO. 10
Suspending Rules 24(c), 35, 41(b), and 42(e), Uniform
Rules of the Alaska State Legislature, concerning
Senate Bill No. 19, relating to certain federal child
support enforcement requirements, so that the phrase
"relating to child support payments" may be added to
the bill's title.
Vice-Chair Bunde MOVED to report HCR 10 out of Committee.
There being NO OBJECTION, it was so ordered.
HCR 10 was REPORTED out of Committee with a "do pass"
recommendation.
ADJOURNMENT
The meeting was adjourned at 4:00 p.m.
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