Legislature(1995 - 1996)

04/23/1996 08:45 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                         April 23, 1996                                        
                            8:45 a.m.                                          
  SFC-96, #90-B, Sides 1 and 2                                                 
  SFC-96, #91, Side 1 (000-462)                                                
  CALL TO ORDER                                                                
  Senator  Steve Frank,  Co-chairman, convened the  meeting at                 
  approximately 8:45 a.m.                                                      
  In addition  to Co-chairman Frank,  Senators Donley,  Sharp,                 
  and  Zharoff  were present.    Senators Phillips  and Rieger                 
  arrived soon after  the meeting began.   Co-chairman Halford                 
  arrived  and  assumed  the  chair  as  the  meeting  was  in                 
  ALSO ATTENDING:   Representative  Carl Moses;  Keith Laufer,                 
  assistant  Attorney  General, Governmental  Affairs Section,                 
  Dept. of Law;  Lamar Cotten,  Deputy Commissioner, Dept.  of                 
  Community and Regional  Affairs; Dave Wilder, Vice-chairman,                 
  Alaska   Seafood   Marketing    Institute;   Chris    Gates,                 
  representing The Aleut Company; Randy Simmons, Alaska Energy                 
  Authority,   Alaska   Industrial   Development  and   Export                 
  Authority, Dept. of Commerce  and Economic Development; Nico                 
  Bus, Acting Director, Division of Support Services, Dept. of                 
  Natural Resources; Sharon Young, State Recorder, Division of                 
  Support   Services,   Dept.   of   Natural  Resources;   Tim                 
  Benintendi,  aide  to  Representative  Moses; and  aides  to                 
  committee members and other members of the legislature.                      
  SUMMARY INFORMATION                                                          
  SB  51 -  DISPOSITION OF PERMANENT FUND INCOME                               
            Senator  Rieger  moved  to  report the  bill  from                 
            committee.  The motion failed on a vote of 3 to 4.                 
  SB 275 -  STATE PROCUREMENT PRACTICES & PROCEDURES                           
            Discussion  was  had with  Dave  Wilder.   Senator                 
            Donley  distributed  an  Amendment  for review  by                 
            members.    The  bill was  held  in  committee for                 
            further discussion.                                                
  SB 283 -  DOCUMENT FILING, INDEXING, & RECORDING                             
            Discussion was had with Sharon Young and Nico Bus.                 
            The  bill   was  subsequently   REPORTED  OUT   of                 
            committee with a  zero fiscal note from  the Dept.                 
            of Natural Resources.                                              
  SB 284 -  FOUR DAM POOL: RELATED FUNDS & BONDS                               
            Discussion was had  with Randy Simmons.   CSSB 284                 
            (Res) was  subsequently REPORTED OUT  of committee                 
            with zero fiscal notes from the Dept. of Community                 
            and  Regional Affairs  and  Dept. of  Commerce and                 
            Economic Development.                                              
  SB 303 -  MANAGEMENT OF CONSTIT BUDGET RESERVE FUND                          
            Co-chairman Frank spoke to  permissive rather than                 
            mandatory provisions  of a  new draft.   CSSB  303                 
            (Fin) was then  REPORTED OUT  of committee with  a                 
            zero fiscal note from the Dept. of Revenue.                        
  HB 466 -  ADAK REUSE AUTHORITY                                               
            Discussion  was  had  with  Representative  Moses,                 
            Lamar Cotten, Chris Gates, and Tim Benintendi.  An                 
            Amendment by Senator Rieger was adopted.  SCS CSHB
            466 (Fin) was then REPORTED  OUT of committee with                 
            a $281.0 fiscal  note from  the Dept. of  Commerce                 
            and Economic Development and a  zero note from the                 
            Dept. of Community and Regional Affairs.                           
  SENATE BILL NO. 283                                                          
       An Act relating  to filing, recording, and  indexing of                 
       documents  with  or  by   the  Department  of   Natural                 
       Resources;   repealing   certain   filing  requirements                 
       concerning property involving  nonresident aliens;  and                 
       providing for an effective date.                                        
  Co-chairman  Frank directed  that SB  283 be brought  on for                 
  discussion.  NICO BUS, Acting  Director, Division of Support                 
  Services, Dept.  of Natural Resources, came before committee                 
  accompanied by  SHARON  YOUNG, State  Recorder, Division  of                 
  Support  Services,  Dept.  of Natural  Resources.    Mr. Bus                 
  explained that the  bill represents an effort  to streamline                 
  department  operations.    Due  to  budget  reductions,  the                 
  department  has  explored means  by  which it  might improve                 
  processes.  While much may be done internally to re-engineer                 
  the  work flow,  certain statutes  must be modified  to gain                 
  efficiencies.   The department  worked with  title companies                 
  and banks to produce the proposed legislation which will:                    
       1.   Streamline the recording process.                                  
       2.   Reduce  requirements  documents  must  meet to  be                 
       3.   Allow  a   broader  number  of  documents   to  be                 
       4.   Reduce  the  likelihood  that  documents  will  be                 
       5.   Make  basic  recording  requirements specific  and                 
                 to understand.                                                
  With the  foregoing changes,  the division  believes it  can                 
  process more work and make recording easier  for the public.                 
  Sharon  Young  advised  that  Section  1 relates  to  mining                 
  documents.  It streamlines the process  and changes the date                 
  by which mining records are recorded.  The  principal thrust                 
  of AS 40.170.030  is contained within Section 3,  which sets                 
  forth basic recording  criteria.  The  proposed bill adds  a                 
  few sections to existing criteria, but its major function is                 
  to resolve some of  the ambiguities in current statutes.   A                 
  further provision  of the bill eliminates the classification                 
  statute.     That  statute  identifies   specific  documents                 
  eligible for recording.  It has been difficult to administer                 
  because  while 59  documents  are identified,  "hundreds and                 
  perhaps  thousands of  different types  of documents"  reach                 
  recording offices each year.  Provisions within SB 283 would                 
  do away with the classification and  broaden law so that any                 
  document is  recordable if  specific recording criteria  are                 
  met.  It is estimated that 30 percent of all  documents that                 
  are now  rejected would be recordable.   Other provisions of                 
  the bill  are housekeeping  and involve  minor word  changes                 
  that  will  clarify  the  recording   process  in  terms  of                 
  recording criteria and Uniform Commercial Code filings.                      
  Brief discussion followed  regarding signature  requirements                 
  for documents.   Ms.  Young advised  that the proposed  bill                 
  identifies documents that require acknowledgements and would                 
  limit acknowledgements to those documents.                                   
  Senator  Sharp MOVED  that SB  283 pass from  committee with                 
  individual  recommendations  and accompanying  fiscal notes.                 
  No objection having been raised, SB  283 was REPORTED OUT of                 
  committee with a zero fiscal note  from the Dept. of Natural                 
  Resources.   Co-chairman Frank  signed the  committee report                 
  with  a  "do  pass"  recommendation.   All  other  committee                 
  members signed "no recommendation."                                          
  SENATE BILL NO. 284                                                          
       An Act relating to the four  dam pool transfer fund and                 
       the power development fund.                                             
  Co-chairman Frank  directed that  SB 284  be brought  on for                 
  discussion.  RANDY  SIMMONS came before committee  on behalf                 
  of the  Alaska Industrial Development  and Export  Authority                 
  and  was accompanied  by  KEITH  LAUFER, Assistant  Attorney                 
  General, Governmental Affairs  Section, Dept.  of Law.   Mr.                 
  Simmons explained that  the proposed bill would  allow AIDEA                 
  or AEA  to issue bonds  to make repairs  to two of  the four                 
  projects which comprise the four dam pool.  Repairs would be                 
  made to  the Tyee  Lake project  (which serves Wrangell  and                 
  Petersburg)  and  the  Terror  Lake  project  (which  serves                 
  Kodiak).  Five utilities presently operate the four projects                 
  (owned by  AEA) through  a long-term  power sales  agreement                 
  with AEA.  Under  that power sales agreement, the  state has                 
  certain obligations which include  making major repairs  per                 
  the proposed bill.  The utilities have an obligation to:                     
       1.   Make  payments that  cover  debt services  on  the                 
            (Payments range  between $8  and  $11 million  per                 
       2.   Cover   day-to-day   operational   costs  of   the                 
  Under  1993  legislation  (AS 42.45.050),  amounts  paid  by                 
  utilities on debt service are pre-appropriated:                              
       40% to PCE                                                              
       40% to the Southeast Intertie                                           
       20% to the power development fund within the Dept. of                   
           Community and  Regional Affairs for  small projects                 
  The  proposed bill  addresses approximately  $17  million of                 
  repairs to the  Tyee Lake Intertie.   Over the last  several                 
  years,  that  intertie has  been  out  of service  on  three                 
  different  occasions,  cutting  off power  from  the  dam to                 
  communities.  The  $3.5 million relates  to the Terror  Lake                 
  tunnel.  To meet  contractual obligations, AEA can make  the                 
  repairs in one of three ways:                                                
       1.   A capital appropriation                                            
       2.   Through the issue of bonds                                         
       3.   Allow utilities  to use  "self-help" rights  under                 
  the power           sales agreement.                                         
  The third option  allows utilities to withhold  debt service                 
  payments if the state  does not meet its obligations.   Last                 
  year,  the  state started  repairs.   Utilities  withheld $4                 
  million "to get  the engineering  done."   A limited  "self-                 
  help" arrangement was thus in effect last year.                              
  Two things must occur before AEA may issue the needed bonds:                 
       1.   Utilities  must agree  to limit  their "self-help"                 
  rights         for the amount of bond payments.  Mr. Simmons                 
                 cited an  example of how the  agreement would                 
                 work.  He  said that if bond  repayment costs                 
                 total $5 million of the debt service now paid                 
                 by utilities,  the utilities have  agreed not                 
                 to exercise "self-help"  withholdings against                 
                 that  $  5  million.    It  is  necessary  to                 
                 guarantee a stream of repayment on the  bonds                 
                 in order to sell them in the market.                          
       2.   A  guaranteed revenue  stream  must be  available.                 
  Since          present  debt  service   payments  are   pre-                 
                 appropriated by statute, AEA must ensure that                 
                 it  receives  a  portion  of  that  for  bond                 
  The propose bill  changes the  40/40/20 allocation to  allow                 
  AEA  first  priority on  debt  service payments.   Remaining                 
  amounts will then be allocated per the 40/40/20 arrangement.                 
  The  bill  also says  that AEA  cannot  issue the  bonds for                 
  longer than eight years.   That ensures a rough  estimate of                 
  bond  payments of $4.3  to $4.6 million  a year.   The total                 
  cost of the bond issue is approximately $35 million.                         
  Under the foregoing  change, PCE and the  Southeast Intertie                 
  will not receive  $1.8 million a  year, each, and the  power                 
  development fund will not receive  $900.0, annually, for the                 
  term of  the eight-year bonds.  Per  current allocations, if                 
  $11 million in debt  service is paid, PCE and  the Southeast                 
  Interties  receive $4.4  million and  the power  development                 
  fund receives  $2.2 million.   Mr.  Simmons reiterated  that                 
  annual debt  service payments range  from $8 million  to $11                 
  million, depending upon the amount of power purchased.  Last                 
  year payments totaled $10.5 million.                                         
  If the proposed bill does  not pass, utilities are  expected                 
  to  utilize  their  "self-help" rights.    Discussions  with                 
  utilities are ongoing regarding how repairs would be made if                 
  they proceed per "self-help" rights.   AEA believes it could                 
  make the repairs  within two  years.  If  the utilities  use                 
  "self help" for two years, no  moneys would flow to PCE, the                 
  Southeast  Intertie,  or  power development.    Mr.  Simmons                 
  further advised that  at the time  the bonding approach  was                 
  undertaken, the state was in  negotiations with utilities to                 
  buy the dams.  AEA  hoped to return to the  legislature next                 
  year with a  long-term solution,  divesting the projects  to                 
  utilities or  other parties.   While bonding would  cost the                 
  state an additional  $13 million for financing,  no payments                 
  would be made for a year or  two, and it would allow AEA  to                 
  come  back  to the  legislature  with a  long-term solution.                 
  Negotiations broke down  soon after  SB 284 was  introduced.                 
  AEA no longer  has high hopes  a long-term solution will  be                 
  forthcoming  next  year,  but  it  will continue  to  pursue                 
  divesting to the utilities or other parties.  The intent was                 
  to maintain  the revenue stream for a  two-year period until                 
  another solution could be found.                                             
  Senator  Rieger  suggested that  the proper  thing to  do is                 
  allow  the utilities to invoke their  "self-help" rights.  A                 
  transfer of  all projects  to the utilities  is in  process.                 
  The  capital  budget  contains  a  request  for  funding  to                 
  facilitate the transfer.  An additional bond issue will only                 
  complicate the situation.                                                    
  In response to  additional comments  by Senator Rieger,  Mr.                 
  Simmons advised that AEA will  make the repairs under either                 
  the "self-help" or  bond scenario.  Utilities  will withhold                 
  the payments and transfer the moneys to AEA.  The state owns                 
  the  projects,  and  it  is  the state's  responsibility  to                 
  oversee repairs.                                                             
  As further support for bonding over "self-help," Mr. Simmons                 
  expressed a reluctance to "tie up these other entities  such                 
  as PCE, the Southeast  Intertie, and all the small  projects                 
  that are being done by DCRA."                                                
  Mr. Simmons referenced recent correspondence from  utilities                 
  inquiring  about the  possibility of  resuming negotiations.                 
  AEA replied that it would be "happy  to go back to the table                 
  but both sides  are going to  have to move somewhat  because                 
  we're so far apart on the  purchase price . . . ."   AEA is,                 
  at the present time, "getting ready for full self-help."                     
  In response  to a question  from Senator Sharp,  Mr. Simmons                 
  explained  that  the  proposed bill  would  not  exclude any                 
  option.   It does set  AEA on a  course where it  would most                 
  likely  "do the  bonding."   It  would be  better to  make a                 
  decision at  this time  whether to  utilize bonding or  full                 
  Senator Sharp  voiced his belief that it  appears cheaper to                 
  utilize the "self-help" approach.  He acknowledged that PCE,                 
  the  Southeast  Intertie,  and  power development  would  be                 
  severely impacted  the first  two years,  but that  approach                 
  might be preferable to eight-year bonds.                                     
  Responding to  a further  question from  Senator Sharp,  Mr.                 
  Simmons advised that  while in negations with  utilities, it                 
  was anticipated that divesture could  be worked out so  that                 
  utilities could assume the bonds if they chose to do so, or,                 
  in  the  alternative,  not  take  on  the  bonds.    Further                 
  discussion of divesture negotiations followed.   Mr. Simmons                 
  advised that  PCE and  Southeast Intertie  funding were  not                 
  part of the negotiations.                                                    
  Additional discussion followed concerning existing statutory                 
  authority for repairs and yearly maintenance.                                
  Senator  Zharoff  inquired  concerning potential  litigation                 
  from four dam pool  members.  Mr. Simmons attested to a past                 
  agreement with utilities to limit  "self-help" to $2 million                 
  to commence the  engineering process.   That agreement  fell                 
  through,  and  the utilities  filed  suit and  employed full                 
  "self-help" rights, withholding  all moneys last year.   AEA                 
  achieved an agreement  with the utilities for  a withholding                 
  of $4 million from last year's payment to start engineering,                 
  with the understanding that the  state would work with  them                 
  toward divesture and accomplishment of repairs.  That is how                 
  the proposed bill  developed.   If the bill  does not  pass,                 
  full "self help" will be implemented.                                        
  Senator Sharp inquired regarding  the remaining balance owed                 
  on the projects.  Mr. Simmons  said that, depending upon the                 
  discount value used, the present value of debt service today                 
  is "roughly $165 to $170 million."   The actual principal is                 
  $180 million.  That  amount was part of the  negotiations on                 
  the sale price.   Liabilities  associated with the  projects                 
  are subtracted  from the present  value of the  debt service                 
  In the course of further discussions, Mr. Simmons  said that                 
  the problem with the  agreement signed by the state  is that                 
  the amount of money  set aside yearly to provide  repairs is                 
  wholly inadequate.  Utilities put aside approximately $500.0                 
  a year.  That does not come close to meeting repair costs.                   
  [Co-chairman Halford  assumed the chair at this point in the                 
  Senator Sharp MOVED that CSSB 284 (Res) pass  from committee                 
  with individual recommendations.  Senator Rieger said he did                 
  not believe that  bill was moving  in the right  directions.                 
  He  advised  that  he  would not  object  to  movement  from                 
  committee, but he would sign "do  not pass" on the committee                 
  report.   Co-chairman  Halford called for  a show  of hands.                 
  The motion CARRIED on  a vote of 5 to 2, and  CSSB 284 (Res)                 
  was REPORTED  OUT of committee  with zero fiscal  notes from                 
  the Dept. of  Community and  Regional Affairs  and Dept.  of                 
  Commerce  and Economic Development.   Senator Zharoff signed                 
  the committee report  with a "do pass" recommendation.   Co-                 
  chairmen Halford  and Frank and  Senators Donley,  Phillips,                 
  and Sharp signed "no recommendation."  Senator Rieger signed                 
  "do not pass."                                                               
  SENATE BILL NO. 303                                                          
       An Act  relating to  management of  the budget  reserve                 
       fund; and providing for an effective date.                              
  Co-chairman Frank  directed attention  to a  draft CSSB  303                 
  (Fin) (9-LS1697\F, Cook, 4/19/96) which he explained  allows                 
  the Dept.  of Revenue to transfer  management responsibility                 
  over all or part of the budget reserve fund to the permanent                 
  fund  corporation.   It  is  left to  the  administration to                 
  determine  the  amount  and   the  appropriateness  of   the                 
  transfers.  The Co-chairman voiced his belief that the state                 
  could  substantially  increase  its  yield  by  making  such                 
  transfers  without  incurring  any  risk  to  the  state  or                 
  permanent fund.  It is not  necessary for the legislature to                 
  outline  details  of the  transfer in  law.   The  new draft                 
  merely contains  permissive  language.    Co-chairman  Frank                 
  MOVED for adoption of CSSB 303  (Fin) as a working document.                 
  No objection having been raised, CSSB 303 (Fin) was ADOPTED.                 
  Co-chairman  Halford  voiced  his  understanding  that   the                 
  legislation is permissive rather than a mandate.                             
  Senator  Donley  inquired  concerning  the  administration's                 
  position on the  bill.  Co-chairman Frank  acknowledged that                 
  representatives  of  the administration  had  earlier raised                 
  questions about how the transfer would  be made and what the                 
  impact might be.  He further acknowledged that nothing would                 
  happen if the  department chose not  to implement the  bill.                 
  The  Co-chairman  expressed  his belief  that  transfer  and                 
  management by the  permanent fund corporation could  add $40                 
  million to the state treasury.  He then MOVED for passage of                 
  CSSB 303 (Fin). No  objection having been raised,   CSSB 303                 
  (Fin) was REPORTED OUT of committee  with a zero fiscal note                 
  from the  Dept. of Revenue.  Co-chairman  Frank and Senators                 
  Donley,  Phillips, Rieger,  and  Sharp signed  the committee                 
  report with a "do pass" recommendation.  Co-chairman Halford                 
  and Senator Zharoff signed "no recommendation."                              
  SENATE BILL NO. 51                                                           
       An Act relating  to income of  the permanent fund;  and                 
       providing for an effective date.                                        
  Senator Rieger referenced  additional legislation  involving                 
  the Alaska Permanent  Fund and MOVED  for passage of SB  51,                 
  relating  to inflation proofing for the fund.  Senator Sharp                 
  OBJECTED and  Co-chairman Halford joined  in the  objection.                 
  The Co-chairman then called for a show of hands.  The motion                 
  failed on a vote of 3 to 4 with Senators Rieger, Donley, and                 
  Phillips voting in support of passage.                                       
  [Senator Rieger  subsequently withdrew  the bill  on May  4,                 
  CS FOR HOUSE BILL NO. 466(FIN) am                                            
       An Act establishing the Adak Reuse Authority.                           
  Co-chairman Halford directed that CSHB 446(Fin)am be brought                 
  on for discussion.   REPRESENTATIVE  CARL MOSES came  before                 
  committee  accompanied  by his  aide,  TIM BENINTENDI.   The                 
  Representative  advised that Adak  could become  a showpiece                 
  for the nation, demonstrating what could be done with a base                 
  closure.    He   suggested  that  the  magnitude   would  be                 
  comparable  to  closure of  Elmendorf  or Eielson  Air Force                 
  While some question the opportunity at Adak, future economic                 
  opportunity is limited only  by imagination.  Fresh  fish to                 
  the  Orient  presents  great   opportunity  because  of  the                 
  adequate airport.   Representative Moses  specifically noted                 
  that  tuna  could  be flown  from  the  site  since, in  the                 
  summertime, the tuna industry is "considerably closer to the                 
  Aleutians"  than  to Midway  where  the product  is normally                 
  Representative    Moses    referenced    information    from                 
  representatives of the Aleut Corporation suggesting that the                 
  state would  become a "deep  pocket" for U.S.  Department of                 
  Defense involvement at  Adak.  He countered  that statement,                 
  saying that  the opposite is true.   HB 466 would  enable an                 
  unbiased public authority to work toward the future of Adak.                 
  The Navy will be much more lenient in dealing with  a public                 
  authority, in terms of what the military will leave  behind.                 
  It will not  be a black hole  for the state.   The authority                 
  would be in a position to  dispose of property to commercial                 
  interests  to support  management expenses of  the authority                 
  until adequate municipal entities develop.                                   
  Representative  Moses  expressed resentment  regarding false                 
  information indicating  that Senator  Stevens had  suggested                 
  creation of  a  profit or  non-profit entity.   The  Senator                 
  merely suggested  that that  approach should  be considered.                 
  Technically,  the proposed  authority is a  non-profit which                 
  would  operate for the benefit  of the future  of Adak.  The                 
  Congressional delegation and  the U.S. Navy are  waiting for                 
  HB 466 to pass.  Time is of the essence.                                     
  Representative Moses  next referenced concern  raised by the                 
  Aleut Corporation that stripping  of facilities might occur.                 
  He said  he  did not  believe  an authority  delegated  with                 
  economic   development   of  Adak   would  do   anything  to                 
  disadvantage that goal.   Much equipment left behind by  the                 
  U.S. Navy will  be sold to commercial  interests moving into                 
  Adak.  The Representative termed  "ridiculous" a caveat that                 
  equipment  could not leave the island.   Much equipment will                 
  be surplus  to needs on Adak.  He  said he was a stockholder                 
  of  the Aleut Corporation, and  he suggested that a majority                 
  of the members were in favor of the proposed bill.  He urged                 
  passage as soon as possible.                                                 
  Senator  Zharoff  asked  if   the  authority  would  receive                 
  ownership of the land.  Representative Moses said that would                 
  have to be decided by Congressional legislation.                             
  END:      SFC-96, #90-B, Side 1                                              
  BEGIN:    SFC-96, #90-B, Side 2                                              
  Senator  Zharoff  attested  to problems  associated  with  a                 
  similar   transfer   at  Kodiak.      He  then   voiced  his                 
  understanding that if the Aleut  Corporation has "top filed"                 
  on  the land,  and it is  vacated by the  present owner, the                 
  corporation  would   have   first  option   on   the   land.                 
  Representative  Moses  acknowledged  that   possibility  but                 
  reiterated  that  the  final  decision   would  be  made  by                 
  Congress.    He  then  described  past  discussion  of  land                 
  selections   with   the  corporation.      He  attested   to                 
  difficulties that would arise should one entity own the land                 
  while another owns the improvements.                                         
  Further  discussion followed  regarding the  impact of  "top                 
  filing,"  using  both Ft.  Richardson,  Adak, and  Kodiak as                 
  examples.  Senator Zharoff suggested that the proposed reuse                 
  authority  would   merely  add   an   additional  layer   of                 
  LAMAR  COTTEN, Deputy Commissioner,  Dept. of  Community and                 
  Regional Affairs, came before committee.   He explained that                 
  discussions relate to an exchange  rather than "top filing."                 
  The exchange involves land that would revert from withdrawal                 
  status  from  the refuge  back  into  the refuge.    It then                 
  becomes the property of the U.S. Department of the Interior.                 
  Interior  has expressed  interest  in undertaking  exchanges                 
  with the Aleut  Corporation for over-selection.  In light of                 
  that, the state initiated  discussions involving itself, the                 
  U.S. Navy, and the Aleut Corporation.  Discussion focused on                 
  the proper configuration of land status, in the future,  for                 
  Adak.  The state recognizes that consensus on status must be                 
  reached.  Senator  Stevens would then introduce  legislation                 
  to make appropriate exchanges and/or transfers.                              
  Mr. Cotten said  the state is  not interested in becoming  a                 
  participant  in  a   situation  where  the  base  is  to  be                 
  transferred to the Aleut Corporation  and an authority is in                 
  place.  If there is an economic value to parts of  the base,                 
  and two-years of revenue stream can be demonstrated to cover                 
  operating costs, the  authority would  want to choose  those                 
  lands.   The problem between  the Aleut Corporation  and the                 
  authority  (or  the  state)  rests  in  the  fact  that  the                 
  corporation would prefer that "We take over things  that are                 
  traditional  municipal  or  state  responsibility."    Those                 
  things (breakwaters, roads,  etc.) do not  make money.   The                 
  department believes the authority should acquire  properties                 
  that can produce a revenue  stream to cover responsibilities                 
  that do not produce income.                                                  
  The proposed bill reflects a conservative approach for state                 
  review of  pros  and cons  and to  ensure a  cash flow  from                 
  properties  it  acquires  through the  authority.    Under a                 
  likely  scenario,  the  authority would  not  take  over the                 
  entire  base.  Mr. Cotten  referenced over 500 housing units                 
  and many  buildings for which  no use  is envisioned.    The                 
  premise is private  sector interest in renting,  leasing, or                 
  buying certain facilities:   the  fuel station, water  front                 
  property,  warehousing,  the  school,  buildings  near   the                 
  airport, machine shops, etc.                                                 
  Mr. Cotten  directed attention to  page 13, lines  9 through                 
  16, and noted  that if  a municipality other  than a  second                 
  class  city  is  created  or  the   area  is  annexed  by  a                 
  municipality to the east, the  authority would be integrated                 
  into  that municipal government  within a year.   The assets                 
  and   liabilities  assumed   by  the   authority   would  be                 
  transferred to the municipality.                                             
  Senator Rieger asked if establishment of the authority could                 
  evolve into a situation similar to the Alaska Railroad.  Mr.                 
  Cotten  said  he  was  unfamiliar  with  operations  of  the                 
  railroad.   He advised  that any  bonded indebtedness to  be                 
  issued by  the authority would require legislative approval.                 
  Tim Benintendi added that referenced language at page 13 was                 
  tightened  to  accommodate  the concern  raised  by  Senator                 
  Rieger.   The authority  would not linger  in the wake  of a                 
  viable municipality.                                                         
  Discussion  of  annexation  followed.    Two  entities  have                 
  expressed  interest:     Unalaska  and  the  Aleutians  East                 
  Co-chairman  Halford suggested  that  the ultimate  means of                 
  bringing the issue  back before the  legislature would be  a                 
  four-year  sunset provision.   Representative Moses  said he                 
  was so optimistic about  the future of Adak he  did not feel                 
  sunset would be necessary.   The Aleutians East  Borough has                 
  already  prepared  annexation  paperwork,  and  the City  of                 
  Unalaska  is having a  study conducted.   Mr. Cotten advised                 
  that  he  had   written  to   the  Aleutians  East   Borough                 
  registering concern over annexation.  Concern has less to do                 
  with Adak than state policy regarding "leapfrogging" over an                 
  existing municipality (Unalaska).   The department is  leery                 
  about setting that precedent.                                                
  Senator Zharoff referenced ability of the authority to bond.                 
  He  further  referenced  succession  on  dissolution  of the                 
  authority    providing for  the  municipality to  succeed to                 
  authority assets, liabilities,  rights and powers.   He then                 
  pointed  to  exemptions  from  taxation  and asked  how  all                 
  aspects  of the foregoing  would fit  together.   Mr. Cotten                 
  explained  that   issuance  of  debt   would  require  state                 
  approval.   The authority would be exempt from taxation, but                 
  those who lease or buy could be taxed.  Assets would consist                 
  of  properties  and revenue  streams;  liabilities  would be                 
  contracts or bonded indebtedness.                                            
  Mr. Cotten stressed  the unknown nature of  the undertaking.                 
  At the present time, there is  an idea of what the authority                 
  would acquire and what it would not,  but that is the extend                 
  of  what is  known.   The  state, the  U.S. Navy,  the Aleut                 
  Corporation, and the  Department of Interior are  attempting                 
  to "look  at what's realistic."   The Aleut  Corporation has                 
  some "chips" to  deal with  Interior.   Mr. Cotten  stressed                 
  that the state is  not going to be  a "cash cow" to pay  for                 
  the operating expenses of somebody to become a capitalist.                   
  He   further  advised   that  frustration  with   the  Aleut                 
  Corporation  approach  stems from  the  fact that  while the                 
  corporation  anticipates   taking  over  a  portion  of  the                 
  facilities,  it  expects the  state  to operate  the airport                 
  through  state  general funds.    The  state would  need  to                 
  balance that general fund expenditure  with a revenue stream                 
  from the area.  Co-chairman Halford suggested that  once the                 
  area is incorporated  within a municipality, it  is eligible                 
  for revenue sharing,  community grants,  equal treatment  in                 
  terms of airports and roads.  It appears  that the U.S. Navy                 
  is giving the state a multi-billion dollar asset which could                 
  become a multi-million dollar annual  drain on the treasury.                 
  As  the Navy  moves  out,  the  department  will  not  allow                 
  creation of a city of twenty-five  people.  A minimum of 400                 
  people  is  needed  for  a  first   class  city  capable  of                 
  incorporating and taking over  the assets of the base.   Mr.                 
  Cotten  acknowledged  that, in  theory,  the state  might be                 
  obligated to take on certain operations such as the airport.                 
  He voiced a reluctance to do so unless an offsetting revenue                 
  stream could be developed.                                                   
  Representative  Moses   stressed   that   need   for   state                 
  participation  would  triple  under  the  Aleut  Corporation                 
  proposal.  He  voice need for a state authority to lease the                 
  fuel facilities  for  which four  different concessions  are                 
  bidding.  The authority would  be delegated with development                 
  of Adak for the benefit of the future.  Representative Moses                 
  noted that it would be  difficult for Alaska's Congressional                 
  delegation to  obtain federal  transitional  moneys if  take                 
  over is by  a private entity.   That is  the reason for  the                 
  proposed bill.                                                               
  Discussion    followed    between   Senator    Zharoff   and                 
  Representative Moses regarding responsibility  for hazardous                 
  cleanup.   Representative Moses advised that the $90 to $100                 
  million in  federal cleanup  over the  next two years  would                 
  jump  start  the economy  of Adak.    Mr. Cotten  added that                 
  cleanup  is to be  coordinated with state  selection of what                 
  has  the highest  reuse.  As  an example, he  noted that the                 
  existing waterline goes  through the landfill and  would not                 
  meet  EPA  standards.   Representative  Moses cited  factory                 
  trawler interest in renting warehouses  for base operations.                 
  The 1,000 units  of housing are  worth $50 million at  "rock                 
  bottom prices."                                                              
  Co-chairman Frank asked what would happen to properties that                 
  are not acquired.   Mr. Cotten said that the  property would                 
  be transferred to the Department of  Interior.  The Navy and                 
  Interior will then  determine whether  facilities remain  or                 
  are demolished.  Since the area is within a wildlife refuge,                 
  the  Department of Interior  would probably  prefer removal.                 
  The  U.S. Fish and Wildlife Services  wishes to continue its                 
  presence  on   the  island.     Representative  Moses  cited                 
  difficulty  in  determining  what  might  be useful  in  the                 
  Discussion followed regarding approval of  a majority of the                 
  membership of the authority prior to disposal of property or                 
  facilities.   Senator Zharoff  asked if  more than  a simple                 
  majority should be required.  Representative Moses expressed                 
  reluctance  to  tie  the  hands  of the  unbiased  authority                 
  delegated to what is best for the future of Adak.                            
  CHIS GATES,  representing the  Aleut Corporation, next  came                 
  before committee.  Senator Zharoff  again posed the question                 
  of  the  majority  needed  to  approve  a  disposal.     Tim                 
  Benintendi clarified that it  would not be possible to  move                 
  on an action  on a tie vote  or less than a  majority of the                 
  board.    Mr. Gates  voiced his  understanding that  Senator                 
  Stevens believes  consideration of a  non-profit corporation                 
  instead of an authority might have merit.  He then read from                 
  correspondence  from the Senator  indicating that  the Aleut                 
  Corporation proposal "offers  a mechanism to jump  start the                 
  process of attracting commercial enterprises to Adak."                       
  Further,  while the  fiscal note  is for $600.0,  real state                 
  expenditures for operation  of the airport and  seaport will                 
  total  millions.     The  Aleut  non-profit  (including  the                 
  Aleutians East Borough, Dutch Harbor, state  representation,                 
  and  villages  of the  region)  proposes that  a corporation                 
  operate the airport.   That would  save millions of  general                 
  fund dollars.   Mr. Gates  noted that reuse  arrangements in                 
  Alaska   generally   utilize    non-profits   rather    than                 
  authorities.   He expressed his  hope that the proposed bill                 
  would not allow ability to "strip  out the assets" without a                 
  super majority  (three-quarter) vote  of the  board.   There                 
  will be great incentive  to "sell stuff that we're  going to                 
  need to make that town work."                                                
  Co-chairman  Halford asked  if it  was the  intent  that the                 
  state  maintain   the   airport.      Representative   Moses                 
  acknowledged that someone would have to operate  it since it                 
  is  the  mainstay  of  Adak.    He  said  he  anticipated  a                 
  substantial  amount of  help  from  the federal  government.                 
  Under a public authority, the  Navy, other federal agencies,                 
  and the  Congressional delegation  would be  better able  to                 
  assist the  future of Adak than if  it is in the  hands of a                 
  private entity.                                                              
  Co-chairman Halford  referenced the $281.0  fiscal note  and                 
  voiced  his  understanding  that  $100.0  of  the  total  is                 
  federal.  He sought assurance that only that amount would be                 
  spent.  Representative Moses noted that, one way or another,                 
  the  airport  would  be kept  open  since  it  serves as  an                 
  alternate for all  planes to the  Orient.  He stressed  that                 
  the proposed bill  provides a vehicle  to take in moneys  to                 
  support public needs until a municipality is in place.                       
  Discussion   followed   regarding   activities  leading   to                 
  establishment of a new town.   Representation Moses stressed                 
  that that would happen.  The proposed bill would allow it to                 
  happen  along  an  organized  path.    Once  seed  money  is                 
  provided,  the  authority  will  be  self-supporting.    The                 
  authority must be  in place for  the Navy and  Congressional                 
  delegation to commence transition.  The Navy will be gone by                 
  January of 1998.  Senator  Randy Phillips inquired regarding                 
  a five or  ten-year sunset.  Representative Moses said while                 
  he  did  not  think  it  was  necessary, he  would  have  no                 
  objection.  He added that "Things are going to happen  a lot                 
  faster  than that."    Senator  Zharoff voiced  concern that                 
  sunset provisions  might impact ability to bond.  Mr. Cotten                 
  concurred in that concern.                                                   
  END:      SFC-96, #90-B, Side 2                                              
  BEGIN:    SFC-96, #91,   Side 1                                              
  Senator Rieger  expressed concern  that bonded  indenture or                 
  lease obligations not prevent transfer of the authority to a                 
  successor.  Co-chairman Halford agreed  with the concern and                 
  voiced his belief that pledge of  the state language at page                 
  9 has problems.  It appears that the authority could enter a                 
  covenant that supercedes state ability  to change the powers                 
  and duties of the authority at a later date.                                 
  Discussion followed regarding transition  language to ensure                 
  that bond holders  would not  lose their investments,  since                 
  the state  would pick up the obligation, in the event of any                 
  change.      Representative   Moses   reiterated  that   the                 
  legislature  would  have to  approve  any bonding.   Further                 
  discussion followed regarding bond issues by AIDEA.                          
  Senator Rieger suggested  that pledge of the  state language                 
  might work if  coupled with a restriction on  bond indenture                 
  language so  as  not  to preclude  eventual  transfer  to  a                 
  municipality or other entity.                                                
  Co-chairman  Halford  observed   that  wording  within   the                 
  succession  section  at  page 13  appears  in  conflict with                 
  pledge of  the state  language at  page 9.   If  language in                 
  these  sections  is read  so  as not  to  include transition                 
  provisions, it may work as is.                                               
  Referencing  AIDEA  financing,  Senator  Rieger  voiced  his                 
  understanding that the  state has  always been obligated  to                 
  defer to language in  a contract or a bond indenture.   That                 
  is  governed  by  a  breach  of  contract  provision  in the                 
  Constitution.  Co-chairman Halford suggested that if general                 
  language  covers  the  issue, perhaps  pledge  of  the state                 
  language  is  not necessary.    He concurred  that necessary                 
  provisions  could  be  added  when  bonds  come  before  the                 
  legislature for approval.                                                    
  Senator   Rieger  MOVED   for  adoption  of   the  following                 
       Page 5, line 17, after "transfer" insert:                               
            (d) The  authority may not  enter into a                           
            trust  indenture  or contract  which has                           
            the effect of precluding the transfer of                           
            the  assets  and   liabilities  of   the                           
            authority to a successor.                                          
  No objection having been raised,  the AMENDMENT was ADOPTED.                 
  Senator  Rieger  directed  attention to  page  11,  lines 23                 
  through 29,  and advised that  provisions set  forth do  not                 
  reflect  a "good deal"  for the authority.   Risk associated                 
  with loans  often occurs  in the  outer years.   There is  a                 
  large differential in risk between  initial and outer years.                 
   He suggested  that  no state  agency should  enter such  an                 
  arrangement.  Co-chairman Frank acknowledged the concern and                 
  commented that AIDEA presently has such authority.                           
  Senator Sharp MOVED for  passage of SCS CSHB 466  (Fin) with                 
  individual  recommendations  and accompanying  fiscal notes.                 
  No objection  having been  raised, SCS CSHB  466, (Fin)  was                 
  REPORTED OUT of committee with a $281.0 fiscal note from the                 
  Dept. of Commerce  and Economic Development and  a zero note                 
  from the  Dept.  of Community  and  Regional Affairs.    All                 
  members present signed the committee report with a "do pass"                 
  recommendation.   Senator  Randy  Phillips  was  temporarily                 
  absent and did not sign.                                                     
  SENATE BILL NO. 275                                                          
       An  Act relating  to  state  procurement practices  and                 
       procedures; and providing for an effective date.                        
  Co-chairman Halford directed  that SB 275 be  brought on for                 
  hearing.  Senator  Donley referenced his amendment  relating                 
  to  employment of  staff  outside of  Alaska.   DAVE WILDER,                 
  Vice-chairman,  Alaska  Seafood  Marketing  Institute,  came                 
  before  committee.   He  explained  that as  a  fisherman in                 
  Bristol  Bay  for  30  years,   he  has  great  interest  in                 
  legislation impacting the industry.                                          
  Mr. Wilder noted that  ASMI saved approximately $200.0 as  a                 
  result of last  year's exemption from the  procurement code.                 
  That allowed for hire of  an additional field representative                 
  in  Southeast.   In  addition to  ASMI  staff in  Juneau and                 
  Seattle,  three  representatives  presently   market  Alaska                 
  seafood  products  domestically.     ASMI  manages  its  own                 
  Mr.  Wilder remarked  on industry  distress  and competition                 
  from farmed salmon in both domestic and export markets.  The                 
  declining value of  the product is having  a "very stressful                 
  impact on the  industry."   ASMI must  remain responsive  to                 
  opportunities.  The  institute does  as much contracting  as                 
  possible within the  state.  The  majority of the board  are                 
  Alaska residents, and half  of the members of the  board are                 
  fishermen.   Mr. Wilder  again attested  to savings  derived                 
  from exemption from the procurement code.                                    
  Senator Donley voiced his understanding  that CSSB 275 (STA)                 
  would not return  ASMI to  the procurement code.   It  would                 
  merely place it back under the bidder preference for Alaskan                 
  products.   Mr. Wilder  concurred but  added that  inclusion                 
  would add  costs to  future contracts.   He  cited a  recent                 
  advertising  contract  as  an example  and  said  the bidder                 
  preference would have made no difference.  He again stressed                 
  need to timely and efficiently respond to the market.   ASMI                 
  is becoming less dependent  on the state as it  improves its                 
  processes.  More  regulations do  not improve that  process.                 
  Senator Donley voiced his belief that all should comply with                 
  the bidder preference.                                                       
  Discussion  of   past  practices  relating   to  advertising                 
  contracts followed  between Senator Randy  Phillips and  Co-                 
  chairman Halford.                                                            
  Senator Donley noted  that the  5 percent bidder  preference                 
  applies "if everything else is equal."  Bidders have to meet                 
  the basic contract criteria before they are eligible for the                 
  preference.    If  they   do  not  have  expertise   in  the                 
  marketplace (in the  instance of  a foreign campaign),  they                 
  will not meet  qualifications, and the 5  percent preference                 
  would make no difference.                                                    
  Mr. Wilder cited  an instance  in which an  Alaska firm  was                 
  hired for a project.  The Alaska firm then "went outside and                 
  got all the expertise . . . ."  The state ended up paying an                 
  "extra $100.0, plus, a year to honor the bidder preference."                 
  If that $100.0 could have been  put into marketing, it would                 
  have been  much more responsive  to the legislature  and the                 
  industry.  Senator Donley suggested that  bid specifications                 
  could be crafted to require greater involvement.                             
  Co-chairman Halford noted  need to recess for  attendance at                 
  the  Senate  floor session  and  suggested that  the meeting                 
  reconvene at 4:00 p.m.                                                       
  The meeting was recessed at approximately 11:00 a.m.                         

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