Legislature(1999 - 2000)

03/20/2000 09:02 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE                                                                                                        
March 20, 2000                                                                                                                  
9:02 AM                                                                                                                         
SFC-00 # 53, Side A and Side B                                                                                                  
CALL TO ORDER                                                                                                                   
Co-Chair John Torgerson convened the meeting at                                                                                 
approximately 9:02 AM.                                                                                                          
PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell,                                                                         
Senator Al Adams, Senator Lyda Green, Senator Pete Kelly,                                                                       
Senator Gary Wilken and Senator Leman were present when the                                                                     
meeting started. Senator Phillips arrived later.                                                                                
Also Attending: SENATOR ROBIN TAYLOR; SENATOR KIM ELTON; SUE                                                                    
MOSSGROVE, Aide, Senator Taylor; SHARON CLARK, Aide, Senator                                                                    
Miller; DON LOVATNY, Volunteer, American Diabetes                                                                               
Association, Board Member, Pacific Northwest Board of ADA;                                                                      
CHRIS HOLZWARTH; JULIE BURNS; MICHELLE CASSANO; GORDON                                                                          
EVANS, Lobbyist representing the Health Insurance                                                                               
Association of America; KEVIN RITCHIE, Executive Director,                                                                      
Alaska Municipal League                                                                                                         
Attending via Teleconference: From Anchorage: JANICE ADAIR,                                                                     
Director, Division of Environmental Health, Department of                                                                       
Environmental Conservation; STEVE VAN SANT, State Assessor,                                                                     
Division of Municipal and Regional Assistance, Department of                                                                    
Community and Economic Development; from Glennallen: DOUG                                                                       
RHODES; From Fairbanks: BONNIE WILLIAMS, Assembly Member,                                                                       
Fairbanks Northstar Borough and Chair, Finance Committee                                                                        
SUMMARY INFORMATION                                                                                                             
SB 271-FEES FOR FOOD ESTABLISHMENT INSPECTIONS                                                                                  
The Committee heard from the sponsor, the Department of                                                                         
Environmental Conservation and a bar/restaurant owner. The                                                                      
bill was HELD in Committee.                                                                                                     
SB 276-REQUIRE HEALTH INS COVERAGE FOR DIABETES                                                                                 
The Committee heard from the sponsor and various members of                                                                     
the public. The bill was HELD in Committee.                                                                                     
SB 227-MUNICIPAL PROPERTY TAX LEVY LIMITATION                                                                                   
The Committee heard from the sponsor, the Department of                                                                         
Community and Economic Development, the Municipal League and                                                                    
members of the public. The bill was HELD in Committee.                                                                          
SENATE BILL NO. 271                                                                                                             
"An Act relating to fees charged for inspections by the                                                                         
Department of Environmental Conservation; and providing                                                                         
for an effective date."                                                                                                         
This was the second hearing for this bill in the Senate                                                                         
Finance Committee.                                                                                                              
SUE MOSSGROVE, Aide to Senator Taylor, testified the sponsor                                                                    
introduced SB 271 as a matter of fairness for all businesses                                                                    
providing food services, from restaurants to day care                                                                           
centers. Currently, she stated food inspection fees are                                                                         
included as a part of the permit process within the                                                                             
Department of Environmental Conservation Food Safety and                                                                        
Sanitation program. However, she noted some establishments                                                                      
were charged the fees but not receiving services. She said                                                                      
this legislation was introduced to separate the inspection                                                                      
fee from the permit process so establishments were not                                                                          
charged a fee unless they were actually inspected.                                                                              
Co-Chair Torgerson noted that the member's packets included                                                                     
information in response to requests made at the previous                                                                        
hearing by the Committee to the department. He relayed the                                                                      
Committee's intent at the last meeting was to follow the                                                                        
sponsor's intent to charge for actual inspections but also                                                                      
to identify the high risk health areas to possibly adopt                                                                        
statutes to exempt some facilities from inspections or                                                                          
require biannual inspections for others.                                                                                        
JANICE ADAIR, Director, Division of Environmental Health,                                                                       
Department of Environmental Conservation testified via                                                                          
teleconference from Anchorage and reviewed the handout                                                                          
provided to the Committee by her division. [Copy on file].                                                                      
Part 1: Risk Based Inspection Frequency Protocol, Risk                                                                          
Level = # of routine inspections per year - this showed                                                                         
how the division views food service facilities to                                                                               
determine the relative risk it may pose to public                                                                               
health. It also shows the process preparation or what                                                                           
was being done with the food, or what types of                                                                                  
physical, microbial and chemical hazards might be                                                                               
generally present.                                                                                                              
Ms. Adair noted that the number of annual inspections shown                                                                     
on this chart was the ideal not the actual.                                                                                     
Second page of Part 1 showed the considerations that                                                                            
may increase or decrease the optimal number of annual                                                                           
routine inspections.                                                                                                            
Ms. Adair told the Committee that the division was currently                                                                    
reviewing compliance history and targeted populations to see                                                                    
if a facility should be given a lessor or higher risk level                                                                     
Part 2: Inspection Risk Levels by Office - shows where                                                                          
division offices are located, the numbers of inspectors                                                                         
in those offices and how the overseen facilities are                                                                            
divided between each office by the risk level. This                                                                             
shows the total of risk levels two through four, what                                                                           
the division concentrates on and then the average                                                                               
number of facilities per inspector.                                                                                             
Part 3: Food Safety and Sanitation Office Jurisdictions                                                                         
- a map showing the jurisdiction areas of each office.                                                                          
Ms. Adair pointed out that the Nome office was run by the                                                                       
Norton Sound Health Corporation and that the state has a                                                                        
designated grant to the corporation to operate the program                                                                      
in that area.                                                                                                                   
Second page of Part 3 - listing of those communities                                                                            
shown on the map and which office oversees them.                                                                                
Part 4: 1999 Food Safety and Sanitation Facilities -                                                                            
this breaks down the different types of facilities,                                                                             
gives a count by facility type, whether or not they are                                                                         
permitted and whether or not they pay a fee. These are                                                                          
divided by their risk level.                                                                                                    
Ms. Adair noted that several of these facility types were                                                                       
not permitted and did not pay fees. She directed attention                                                                      
to exempted facilities.                                                                                                         
Part 5: Number of Inspections, Fee'd Facilities and                                                                             
Inspectors by Year - showing the percentages of fee's                                                                           
facilities that were inspected in the years 1997                                                                                
through 1999.                                                                                                                   
Ms. Adair corrected an error on this page changing the                                                                          
number of Fee'd Facilities in calendar year 1999 to 5022.                                                                       
She told of the inspectors who took advantage of the                                                                            
Retirement Incentive Program (RIP) and of other vacant                                                                          
positions. She also talked about the reduction of the                                                                           
program. She said the combination of these factors took a                                                                       
toll on the number of inspections that were performed.                                                                          
Co-Chair Torgerson asked about the increase of facilities                                                                       
during the time indicated on the handouts and if these were                                                                     
new facilities or if the department added existing                                                                              
facilities to their inspection list. Ms. Adair assured that                                                                     
this was a dynamic industry with many new businesses                                                                            
entering continually and that the department had not added                                                                      
any existing facilities to the program. She said seafood                                                                        
processors add to the fluctuation because they don't always                                                                     
operate every year. She explained permits are issued every                                                                      
year so if a processor does not open in a particular year,                                                                      
there would be no permit applied for and the facility would                                                                     
not be counted.                                                                                                                 
Co-Chair Parnell asked of the number of facilities inspected                                                                    
each year, what percentages were in Anchorage, Fairbanks and                                                                    
Juneau. Ms. Adair responded to the facilities in Anchorage                                                                      
saying the only inspections done in the Municipality of                                                                         
Anchorage were processors involved in inter-state commerce                                                                      
and the railroad. She said she would provide information on                                                                     
Juneau and Fairbanks.                                                                                                           
Co-Chair Parnell wanted to know if the state was performing                                                                     
restaurant inspections in Anchorage, Chugiak or Girdwood.                                                                       
Ms. Adair replied that Anchorage is the only community that                                                                     
has adopted its own program and does its own restaurant                                                                         
inspections. All other restaurant inspections were performed                                                                    
by the state, she said.                                                                                                         
Co-Chair Parnell asked if it wasn't more common in the US                                                                       
that the local government do restaurant inspections. Ms.                                                                        
Adair said it was but there are so few facilities in                                                                            
communities to generate the fees to support a local program.                                                                    
She stressed that even Anchorage has to fund 50 percent of                                                                      
the inspection program from its general fund. She estimated                                                                     
that Juneau could only minimally fund a program and that                                                                        
other communities could not. She said state inspectors are                                                                      
sent to communities when needed and can cover several                                                                           
Co-Chair Torgerson asked if any other communities had                                                                           
provided the services in the past but then turned the                                                                           
program back to the state. Ms. Adair responded that the City                                                                    
of Fairbanks had collected fees and paid $60,000 to contract                                                                    
with the state for the inspections. However, she said the                                                                       
program was dropped after the state fees were increased                                                                         
because the state could collect more revenue through                                                                            
increased fees than what could be collected from the city.                                                                      
Part 6: Revenue Lost from Exempt Food Facilities - this                                                                         
included Headstart programs in schools and other                                                                                
charitable food service organizations and the revenues                                                                          
lost to the program                                                                                                             
Co-Chair Torgerson asked if these facilities are exempt from                                                                    
paying the fee but not from being inspected. Ms. Adair said                                                                     
that was correct.                                                                                                               
Co-Chair Torgerson asked how this information tied into the                                                                     
information of Part 4, which showed the exempt facilities                                                                       
broken down by type of facility. Ms. Adair replied that the                                                                     
information on Part 6 was reflected on the Part 4 chart                                                                         
except for temporary food service facilities, which did not                                                                     
fit into any of the categories.                                                                                                 
Senator Adams asked if the Anchorage inspectors did                                                                             
inspections of seafood processors in Dutch Harbor and                                                                           
Unalaska. Ms. Adair said that was correct however she noted                                                                     
that currently, the inspector from Valdez was doing the                                                                         
Aleutian Peninsula inspections because his wife was                                                                             
currently living there.                                                                                                         
Senator Adams asked the frequency of the visits to this                                                                         
largest seafood processing area in the state. Ms. Adair                                                                         
explained that Dutch Harbor mostly produces fresh frozen                                                                        
seafood, which is a very low risk. The remainder of the                                                                         
processing, such as surimi imitation crab, requires an                                                                          
inspector to visit three times annually.                                                                                        
Ms. Adair clarified that the retail restaurant fees had                                                                         
increased and are expected to cover more services that just                                                                     
the cost of inspections.  She stated that the fees cover the                                                                    
entire cost of the program with the exception of recovery of                                                                    
travel costs, which is prohibited by statute. She detailed                                                                      
the other services such as training, response to an                                                                             
emergency, and resolving complaints. She noted that it is                                                                       
just as important to a facility to know it is not the cause                                                                     
of a food borne illness.                                                                                                        
Co-Chair Torgerson asked about putting exemptions into                                                                          
statute for facilities with a low risk level that may not                                                                       
require an inspection every year.                                                                                               
Ms. Adair responded that there was currently no statutory                                                                       
requirement for an inspection and that the inspection is                                                                        
what the department performs to verify compliance to the                                                                        
food safety requirement. While she was aware that other                                                                         
states had laws that dictated the number and frequency of                                                                       
inspections based on the type of facility, she stressed the                                                                     
system needed to be flexible. She gave as an example, the E.                                                                    
coli outbreak that was traced to undercooked ground beef.                                                                       
Before this outbreak, she explained, ground beef was not                                                                        
considered a threat by the general public. Since the 1993                                                                       
incidence at Jack-in-the-Box restaurants, those facilities                                                                      
that serve hamburgers were given a higher risk level, which                                                                     
requires more frequent inspections.                                                                                             
Co-Chair Torgerson wanted to know why the fiscal note did                                                                       
not indicate a loss of revenue considering the provision of                                                                     
SB 271 to inspect only certain facilities. He noted that the                                                                    
division only performed half of the ideal number of                                                                             
inspections. Ms. Adair responded that when the vacant                                                                           
positions were filled, the division hoped to increase the                                                                       
number of inspections. She warned that if the fees were                                                                         
taken away, the number of positions would need to be                                                                            
reduced. She told the Committee that she had figured how to                                                                     
change the program so everyone pays a flat fee whether or                                                                       
not the facility was inspected. She added that those                                                                            
facilities that are inspected would then pay an additional                                                                      
cost. Therefore, she calculated if the number of inspections                                                                    
stayed the same, about half of the facilities would pay an                                                                      
inspection fee and the remaining facilities would pay a flat                                                                    
fee to support the entire program.                                                                                              
Co-Chair Torgerson asked if the Committee were to consider                                                                      
the flat fee and also keep Senator Taylor's bill in mind,                                                                       
the Committee would need to know what the flat fee would pay                                                                    
Ms. Adair was concerned about charging an extra fee whenever                                                                    
an inspection was performed. She understood the complaints                                                                      
that caused the bill to be introduced, but thought it would                                                                     
only change the complaint. She explained the complaint would                                                                    
change from "I'm paying for inspections that I'm not                                                                            
getting" to "Every time they come in and do an inspection,                                                                      
they hand be a bill even if they don't find anything.                                                                           
They're in here to pad their budget."                                                                                           
Co-Chair Torgerson agreed in part but did not think the                                                                         
witness was making the case as to what services the fees                                                                        
covered. He stated that many facilities do not know what                                                                        
functions the fee goes to pay for. He wanted to find a                                                                          
compromise for the department and the bill's sponsor.                                                                           
Senator Leman asked if it was reasonable to implement a flat                                                                    
fee or whether some facilities cause the department to exert                                                                    
more effort and if the fee system should be framed                                                                              
Ms. Adair responded that was the reason the department used                                                                     
permitting time and inspection time to calculate the fee.                                                                       
She explained that some canneries took up to 18 hours to do                                                                     
an inspection as opposed to a convenience store that may                                                                        
only take 30 minutes. The theory, she said was that there                                                                       
are some kinds of services and some compliance issues that                                                                      
take more time for the department to process than others.                                                                       
She noted that is the purpose for the different risk levels.                                                                    
She added that some facilities that have a proven compliance                                                                    
record would not need inspections as frequently as others                                                                       
Co-Chair Torgerson did not think there would be that hard of                                                                    
time proving the need for different fees for the risk                                                                           
levels. He did not mind charging more of restaurants for re-                                                                    
inspections for restaurants with low scores. Ms. Adair noted                                                                    
there are re-inspection fees already in place for those                                                                         
facilities that score low and must be revisited to ensure                                                                       
Co-Chair Torgerson stated the reason behind the bill was a                                                                      
small espresso stand that is charged the same amount as a                                                                       
200-seat restaurant. He surmised that the risk was                                                                              
undeniably different.                                                                                                           
Senator Green wanted to confirm the exemptions shown on Part                                                                    
6 and whether the lost revenues represented by the $300,000                                                                     
lost fees were then calculated into the for-profit fees. Ms.                                                                    
Adair noted there are general funds in the program but that                                                                     
most went to support seafood related activities. She said                                                                       
the lost revenues were off set by higher fees charged to the                                                                    
retail food service facilities.                                                                                                 
Co-Chair Torgerson tried to clarify the $279,920 was the                                                                        
current amount collected or the total of all costs. Ms.                                                                         
Adair responded that amount is what the department would                                                                        
collect if all the facilities were charged a fee, including                                                                     
the currently exempted facilities.                                                                                              
Co-Chair Torgerson asked what would be the revenue loss if                                                                      
the additional exemptions were permitted. Ms. Adair answered                                                                    
Co-Chair Torgerson requested exploring the flat fee for                                                                         
health services related to facilities by risk and also the                                                                      
intent of the bill to pay for inspections when they occur                                                                       
instead of across the board. He asked for another summary                                                                       
that incorporates these scenarios and includes the current                                                                      
amount of general fund support for the program.                                                                                 
DOUG RHODES testified via teleconference from Glennallen                                                                        
about his concerns of the price of the inspections. He told                                                                     
of being charged for two inspections of his facility, one                                                                       
for the kitchen portion and the other for the bar portion,                                                                      
saying the two are located in the same building within ten                                                                      
feet of each other. He warned this expense would result in                                                                      
no more small roadside businesses. He thought there were too                                                                    
many Department of Environmental Conservation employees in                                                                      
his area and spoke of the frequent travel of inspectors.                                                                        
Co-Chair Torgerson assured the witness that Committee was                                                                       
trying to work through his concerns.                                                                                            
Senator Green asked if the two places were inspected on the                                                                     
same day or different times. Mr. Rhodes said the inspections                                                                    
were done on the same day.                                                                                                      
SENATOR ROBIN TAYLOR did not oppose a flat rate for an                                                                          
annual permit that included the cost of inspections. He was                                                                     
concerned about the ability of the department to raise the                                                                      
fees to cover the costs of the department's program. He                                                                         
complained that the inspectors were driving new Ford                                                                            
Explorers to perform the inspections and he understood why                                                                      
the small operators questioned the amount of their fees.                                                                        
Senator Taylor continued that the legislature's intent is to                                                                    
downsize the department but that the department would not                                                                       
Senator Leman clarified that the previous year the                                                                              
Department of Environmental Conservation budget was actually                                                                    
Co-Chair Torgerson ordered the bill HELD in Committee.                                                                          
SENATE BILL NO. 276                                                                                                             
"An Act requiring that health care insurers provide                                                                             
coverage for treatment of diabetes."                                                                                            
This was the first hearing for this bill in the Senate                                                                          
Finance Committee.                                                                                                              
SHARON CLARK, Aide to Senator Miller read the sponsor                                                                           
statement into the record.                                                                                                      
SB 276 would require that health insurers in Alaska                                                                             
provide coverage for diabetes equipment, training and                                                                           
education as deemed necessary by state licensed health                                                                          
care providers. To date, 37 states have enacted                                                                                 
legislation providing similar diabetes coverage.                                                                                
Over 30,000 Alaskans are affected by diabetes. Without                                                                          
education or proper treatment, diabetes can lead to                                                                             
kidney failure, amputation, nerve damage, blindness and                                                                         
other associated suffering; and the resulting costs are                                                                         
often avoidable through patient education on proper                                                                             
nutrition, exercise, blood sugar monitoring and                                                                                 
Education is the foundation of quality diabetes care.                                                                           
It is the process of providing the person with diabetes                                                                         
the knowledge and skills needed to perform self-care,                                                                           
prevent crisis and make important life style changes                                                                            
required to effectively avoid complications.  Through                                                                           
proper education, the diabetic may assume his/her                                                                               
appropriate role as an active participant in the                                                                                
treatment plan.                                                                                                                 
A number of published studies by the American Diabetes                                                                          
Association (ADA) show decreased in health care                                                                                 
utilization for people with diabetes receiving                                                                                  
appropriate education and access to supplies.                                                                                   
A Milliman study for the ADA estimates annual savings                                                                           
of $917 per person with diabetes that translates into                                                                           
savings for the insurance industry as well.                                                                                     
SB 276 promotes better health, and ultimately, lower                                                                            
health costs for the people of Alaska.                                                                                          
I urge your support of SB 276.                                                                                                  
She told of Ms. Betsy Turner-Bogren and her son, Max                                                                            
Bogren's visit to Juneau and the Senate Labor and Commerce                                                                      
Committee to testify about Max's experiences with diabetes.                                                                     
She referred to a handout detailing the visit. [Copy on                                                                         
She mentioned two concerns voiced in the previous committee.                                                                    
One dealt with whether the coverage should be mandated and                                                                      
the other was raised by Senator P. Kelly and related to the                                                                     
use of the word "nutrition". She stated the concerns were                                                                       
addressed in two proposed amendments before the Committee.                                                                      
Co-Chair Torgerson stated his intent was not to consider any                                                                    
amendments at this meeting to allow members an opportunity                                                                      
to review them.                                                                                                                 
Senator Leman supported the bill in concept but was                                                                             
concerned that if the coverage is provided, the door is                                                                         
opened for reimbursement of all types of charges without                                                                        
Tape: SFC - 00 #53, Side B    9:49 AM                                                                                           
Senator Leman mentioned a pump that cost $5,600, as an                                                                          
example. He was also concerned about the amount of time                                                                         
necessary to provide education. He had initially heard that                                                                     
an average of six hours of training per year at $250 would                                                                      
be average, but had since heard that training could go much                                                                     
longer and cost up to $1500.                                                                                                    
Ms. Clark remembered when the issue was raised in the Senate                                                                    
Labor and Commerce Committee but noted that different                                                                           
patients had different needs, different types of diabetes                                                                       
and therefore, different amounts of training. She agreed                                                                        
there would be situations where some patients would require                                                                     
more training than just six hours per year. She said that                                                                       
Senator Miller thought there would be justification for the                                                                     
additional training for some people.                                                                                            
Co-Chair Torgerson thought this was an important bill but                                                                       
also thought the education provision was broad based. He                                                                        
suggested that a patient could go to college to learn about                                                                     
diabetes and the insurance company would have to pay the                                                                        
Ms. Clark said Senator Miller had stated in the previous                                                                        
committee that he hoped health care providers would be self-                                                                    
limiting and that statute would not impose a limit to the                                                                       
amount of money to reimburse training. She deferred to                                                                          
members in the audience waiting to testify who live with                                                                        
diabetes every day.                                                                                                             
Co-Chair Torgerson wanted to know how other states and other                                                                    
insurance carriers addressed this issue.                                                                                        
DON LOVATNY, Volunteer, American Diabetes Association, Board                                                                    
Member, Pacific Northwest Board of ADA testified that he has                                                                    
had diabetes for 21 years and that diabetes takes a lot of                                                                      
time in one's life. He explained there are two types of                                                                         
diabetes: Type 2 affects about 80 percent of those with the                                                                     
disease and usually requires no insulin treatment and Type 1                                                                    
does require insulin and also extends hospital stays by an                                                                      
average of one day per visit.  He stated that                                                                                   
hospitalization costs about $1620 per day in Alaska for a                                                                       
patient with diabetes. His organizations' goals are to keep                                                                     
those people out of the hospital.                                                                                               
Mr. Lovatny told the Committee that diabetes is on the rise                                                                     
and is the seventh leading cause of death in Alaska,                                                                            
according to the Bureau of Vital Statistics. He listed                                                                          
percentages of those affected and the costs for treatment.                                                                      
Mr. Lovatny stressed that rationing of services was not the                                                                     
answer and urged the Committee to pass the legislation.                                                                         
CHRIS HOLZWARTH passed out buttons to the Committee members.                                                                    
He spoke of his history with diabetes and how his recently                                                                      
acquired insulin pump has improved his life. He stated that                                                                     
different people require different amounts of care and that                                                                     
the educational needs differ for different patients to learn                                                                    
what they need to know to survive the disease. He stated                                                                        
that Mr. Lovatny had given up much of his time to assist                                                                        
with learning how to use the pump and give general insight                                                                      
on living with the disease.                                                                                                     
Senator Leman clarified that he was not opposed to funding                                                                      
the education, but warned that without some constraint, the                                                                     
highest costing method of service would always be utilized.                                                                     
He praised Mr. Lovatny for donating his time to Mr.                                                                             
Hollsworth in helping educate Mr. Hollsworth.                                                                                   
JULIE BURNS Mother of Chris Hollsworth, talked about Mr.                                                                        
Lovatny's assistance. However, she noted that it was only                                                                       
because of his employment with the provider of the pump that                                                                    
he was able to help them.                                                                                                       
She stressed that family members need training as well. As                                                                      
the family cook, she said it is important for her to know                                                                       
what to feed her son and the implications his diet has on                                                                       
his health.                                                                                                                     
She then talked about the amount of time diabetics must                                                                         
spend on insurance matters to obtain coverage for daily                                                                         
needs. She went into detail about the supplies, such as                                                                         
syringes and test strips, that are not covered by insurance                                                                     
yet still necessary.                                                                                                            
MICHELLE CASSANO spoke of her appreciation that 37 other                                                                        
states adopted similar legislation to what was before the                                                                       
Committee. She noted that of these states, there have been                                                                      
no repeals of these statutes.                                                                                                   
Ms. Cassano stressed that a diabetic has diabetes every day                                                                     
and that there is no cure. She added there have been no                                                                         
reports of abuse of the new laws in other states.                                                                               
She told of studies showing that when a patient properly                                                                        
cares for diabetes, the incidence of related complications                                                                      
is greatly decreased.                                                                                                           
GORDON EVANS, Lobbyist representing the Health Insurance                                                                        
Association of America (HIAA) testified that his                                                                                
organization opposed any mandate but had since made some                                                                        
concessions. He told of how he proposed to his client, a cap                                                                    
of $250 per person per year. He said he then agreed to a                                                                        
$1000 cap with a sunset clause to review the appropriateness                                                                    
of the amount that but his client said he had spoken out of                                                                     
line and could only offer a maximum of $750. He stated that                                                                     
the average annual cost for these diabetes-related services                                                                     
is $1000 and that his client directed him to meet the amount                                                                    
halfway at $500. He had warned his client that the                                                                              
legislation would be adopted in some form, either with a                                                                        
reasonable cap or no cap at all and insurance would be                                                                          
required to pay the entire amount.                                                                                              
Mr. Gordon relayed that the HIAA was in support of the                                                                          
proposed Amendment #2.                                                                                                          
Co-Chair Torgerson commented that it was not his intent to                                                                      
negotiate a cap amount. He stated that the Committee planned                                                                    
to research the matter, learn what other states allow and                                                                       
discuss the merits of the coverage.                                                                                             
Co-Chair Torgerson ordered the bill HELD in Committee.                                                                          
SENATE BILL NO. 227                                                                                                             
"An Act relating to the limitation of levy of municipal                                                                         
ad valorem taxes in home rule and general law                                                                                   
municipalities; and providing for an effective date."                                                                           
This was the first hearing for this bill in the Senate                                                                          
Finance Committee. Co-Chair Torgerson stated his intent for                                                                     
the Committee to learn about the upcoming ballot initiative,                                                                    
99PTAR - An Act providing property tax and assessment                                                                           
relief, which this bill would amend if both measures were                                                                       
adopted into statute.                                                                                                           
STEVE VAN SANT, State Assessor, Division of Municipal and                                                                       
Regional Assistance, Department of Community and Economic                                                                       
Development testified via teleconference from Anchorage                                                                         
about what the initiative would accomplish. He said the                                                                         
initiative would provide that the assessors will assess                                                                         
property at its market value until 2002 when assessments                                                                        
could be increased but only by two percent annually. He                                                                         
stated that the only exceptions to this was when a property                                                                     
sells or in the case of new construction. He was uncertain                                                                      
whether a major remodel would constitute a change in                                                                            
Mr. Van Sant listed the second implication of the initiative                                                                    
as a provision that would require a reassessment for                                                                            
properties that decrease in value in order to "follow that                                                                      
decrease down."                                                                                                                 
Mr. Van Sant stated the initiative also requires that                                                                           
municipalities may not levy an ad valorem tax for any                                                                           
purpose in excess of one-percent, which he explained was a                                                                      
change from the current three-percent provision. He detailed                                                                    
that a one-percent ad valorem equaled ten mils and three-                                                                       
percent ad valorem equaled thirty mils.                                                                                         
Mr. Van Sant continued that the bonded indebtedness is                                                                          
included in the ten-mil cap under the provisions of the                                                                         
initiative. Currently, he said bonded indebtedness was                                                                          
outside of the thirty-mil ceiling. He elaborated that the                                                                       
average mil rate in the state in 1999 was about 15 1/2 mils.                                                                    
He noted that several municipalities were under the ten mils                                                                    
but that several others were over.                                                                                              
Mr. Van Sant pointed out a typographical error in the                                                                           
initiative language made by the measure's sponsor that                                                                          
nonetheless would change the municipalities' ability to                                                                         
assess business inventory based on a monthly assessment as                                                                      
opposed to the current January 1 assessment date. He relayed                                                                    
a question by an Anchorage Assembly Member to a state                                                                           
assessor about changing the city's methodology to the                                                                           
average monthly basis because most retailers tried to reduce                                                                    
most of their inventory as of January 1 and pay less tax.                                                                       
Mr. Van Sant shared that currently, statute requires that                                                                       
"all taxes will be at the same rate." This initiative                                                                           
changes that language, he stated so theoretically, a city                                                                       
could charge a different rate to different property uses,                                                                       
such as commercial property versus personal property. He                                                                        
gave an example of the Kenai Peninsula Borough that might                                                                       
decide to charge commercial facilities at ten mils and                                                                          
residential property at five mils. He said the problem was                                                                      
the ten-mil cap remained.                                                                                                       
Mr. Van Sant told the Committee that statute does not                                                                           
require property sales to be reported to an assessor, which                                                                     
would make it difficult to track such transactions in order                                                                     
to reassess property values. He stated that he has heard the                                                                    
argument claiming that the passage of the initiative would                                                                      
reduce the amount of staff needed in the assessor's office.                                                                     
He disagreed, saying that tracking property ownership                                                                           
transactions would require a great deal of effort. He added                                                                     
that the initiative still required the assessor to assess                                                                       
property to determine the increased or decreased value every                                                                    
year with the restriction of only raising the assessed value                                                                    
by two-percent per year.                                                                                                        
Mr. Van Sant relayed another question he has been asked                                                                         
about how much money the state would realize out of oil and                                                                     
gas revenues if the measure passed. His answer was that for                                                                     
the first 5 years, there would not much new revenue from oil                                                                    
and gas. He explained that the North Slope and Valdez                                                                           
garnered the most revenues from "AS.43.56 properties," the                                                                      
oil and gas property. Most of that revenue from the North                                                                       
Slope goes to pay dept service, he noted and if the                                                                             
initiative passed, he predicted that Valdez would realize                                                                       
revenues that would have been received anyway.                                                                                  
Co-Chair Torgerson noted the initiative allows a                                                                                
differential rate for commercial and personal property. He                                                                      
asked if the ten-mil provision applied to the total or to                                                                       
each category. He wondered if an average could be applied                                                                       
thus allowing a tax of 15 mils on commercial property and                                                                       
only five mils on personal property so long as the total of                                                                     
the jurisdiction was ten mils.                                                                                                  
Mr. Van Sant responded that no more than ten mils could be                                                                      
charged because the total amount any local government could                                                                     
charge was ten mils. He did point out that in certain areas                                                                     
of the state governed by both a city and a borough                                                                              
government, the mil rate could be as high as 20 with each                                                                       
governing unit allowed ten mills. He gave an example of the                                                                     
City of Kenai, which could levy ten mils and the Kenai                                                                          
Peninsula Borough, which could levy another ten mils on the                                                                     
same property that was within both jurisdictions. This was                                                                      
allowed under the current thirty mils statutes, but he                                                                          
stressed this has never been realized. He warned that with                                                                      
the other ramifications of the initiative, twenty mils could                                                                    
begin to be levied where possible.                                                                                              
Co-Chair Torgerson did not know why different mil rates                                                                         
could not be charged by category if the provision allowed a                                                                     
differential rate.                                                                                                              
Mr. Van Sant conceded that Co-Chair Torgerson's comment was                                                                     
an argument that could be made. Mr. Van Sant also pointed                                                                       
out that the initiative read that many service areas could                                                                      
be lost because, under the total ten-mil cap, these areas                                                                       
would push the levy over the ten-mil cap. Something would                                                                       
have to give, he warned, either the service area or revenues                                                                    
for local government.                                                                                                           
Co-Chair Torgerson then asked about bonded to indebtedness                                                                      
and if the witness had a legal opinion on whether or not                                                                        
voter approved debt would fall under the cap of the                                                                             
jurisdiction. He was unsure if the mill rate cap was                                                                            
Mr. Van Sant had not yet received a legal opinion specific                                                                      
to Co-Chair Torgerson's concerns but predicted there would                                                                      
be many legal questions to be resolved including this                                                                           
matter. He shared that the consensus was to wait and see                                                                        
what happened with the election and address the concerns if                                                                     
the measure were adopted.                                                                                                       
Senator Phillips asked under what authority could an                                                                            
unincorporated resident vote on a measure that would affect                                                                     
only incorporated residents. He relayed that he was                                                                             
receiving complaints from constituents saying that residents                                                                    
of unincorporated areas had no business voting on this                                                                          
initiative. Mr. Van Sant said there were legal questions                                                                        
about this as well, but that the ability to tax was a                                                                           
statewide ability and the proposed tax limit was a statewide                                                                    
limit rather than for a particular local government.                                                                            
Co-Chair Torgerson suggested the Legislature's legal council                                                                    
could give some advice on these concerns.                                                                                       
Senator Phillips requested a written legal opinion from the                                                                     
Division of Legal Services.                                                                                                     
Senator Wilken questioned whether this initiative would                                                                         
actually be approved and placed on the ballot. Mr. Van Sant                                                                     
was unaware of any challenge to placing initiative on the                                                                       
SENATOR KIM ELTON testified that under the current system,                                                                      
local voters could vote whether to raise or lower their mil                                                                     
rate cap. Under the provisions of the initiative, he                                                                            
stressed the only local choice would be whether to lower the                                                                    
tax rate below ten mils.                                                                                                        
Senator Elton then addressed SB 227 before the Committee                                                                        
saying it would make two significant amendments to the                                                                          
initiative. First, he said it would allow local voters to                                                                       
set a higher mil rate for their community. Secondly, he                                                                         
continued the bill would remove from the initiative, a                                                                          
portion of the provision that states future bonded debt must                                                                    
be held under the ten-mil cap. He explained that the deleted                                                                    
portion would be debt for schools so that when a school bond                                                                    
is placed on the ballot, voters don't' have to chose between                                                                    
schools and other essential services, such as public safety.                                                                    
Senator Elton agreed with the Alaska Municipal League                                                                           
position that voters in other parts of the state have no                                                                        
right to set tax rates for communities they don't reside in                                                                     
without recourse by local voters.                                                                                               
Senator Elton stated that the initiative creates a                                                                              
significant constitutional problem. He referred to Article                                                                      
10 Section 1.                                                                                                                   
Tape: SFC - 00 #54, Side A    10:36 AM                                                                                          
Senator Elton warned that the initiative would discourage                                                                       
communities from consolidating. He used Ketchikan as an                                                                         
example, telling of discussions to merge the borough                                                                            
government and the city government. If the initiative passed                                                                    
and the two governments consolidated, he stated that local                                                                      
government would have lost its ability to tax at a higher                                                                       
than ten-mil rate.                                                                                                              
He detailed the backup information that included legal                                                                          
opinions from the Division of Legal Services. [Copy on file]                                                                    
One opinion addressed the legislature's ability to amend the                                                                    
language of an initiative.                                                                                                      
Co-Chair Torgerson asked if that opinion actually said the                                                                      
legislature could amend initiative language. Senator Elton                                                                      
Senator Elton continued that the other opinion speaks of                                                                        
whether an effective date of a bill could be predicated upon                                                                    
the passage of an initiative. The Division of Legal Services                                                                    
gave the opinion that the legislature has that ability as                                                                       
well. Senator Elton noted this was not an unusual provision                                                                     
reminding the Committee of the Frank Initiative that was                                                                        
predicated upon voter approval of a capital move.                                                                               
Co-Chair Torgerson asked if the legislature has a history of                                                                    
amending the language of an initiative. Senator Elton was                                                                       
There was some discussion about previous campaign finance                                                                       
reform issues.                                                                                                                  
Senator Elton continued detailing the backup material that                                                                      
showed different communities, their current tax rates and                                                                       
the effects of the mill rate cap.                                                                                               
Co-Chair Torgerson asked if the sponsor's intent with this                                                                      
legislation was to amend the law if the initiative were                                                                         
adopted but not to change the initiative itself. Senator                                                                        
Elton affirmed.                                                                                                                 
KEVIN RITCHIE, Executive Director, Alaska Municipal League                                                                      
testified about the negative affects the initiative would                                                                       
have on municipalities. He stressed that local taxation is a                                                                    
local issue. He added that most of the larger communities in                                                                    
the state already had established tax caps. He listed those                                                                     
boroughs and municipalities that have charter or voter                                                                          
established tax caps.                                                                                                           
Mr. Ritchie compared the initiative to Proposition 13 that                                                                      
was adopted several years before in the State of California.                                                                    
However, he pointed out that Alaska was not like California                                                                     
in many ways and also that voters in the State of Idaho had                                                                     
rejected a similar measure.                                                                                                     
Mr. Ritchie detailed the impacts this initiative would have                                                                     
on the State Of Alaska including that the loss in the first                                                                     
year would add $125 to $150 million to the fiscal gap. He                                                                       
shared that the reason the amount was not certain was                                                                           
because of the uncertainty of whether the cap would be a                                                                        
maximum of ten mils or a total of 20 mils depending on the                                                                      
location of the property. According to the Department of Law                                                                    
this matter would most likely be litigated because the                                                                          
premise of a ten-mil cap in some places and a 20-mil cap in                                                                     
others did not make sense, he said.                                                                                             
Mr. Ritchie continued with the impacts noting the two-                                                                          
percent assessment increase restriction. He relayed that                                                                        
California has had a 500 percent increase in property                                                                           
values, which was the inspiration behind Proposition 13.                                                                        
However, he noted that while Alaska sometimes has changes in                                                                    
property values these are never increases, only decreases.                                                                      
He referred to the economic difficulties in 1986 when                                                                           
Anchorage property lost approximately 50 percent of the                                                                         
assessed value. Since the property values have recovered, he                                                                    
elaborated existing property owners would have essentially a                                                                    
large tax break while others building new facilities or just                                                                    
bought a new house would not. Therefore, he said the                                                                            
individual tax burdens would be unequal.                                                                                        
Mr. Ritchie stated that the initiative's bond provision were                                                                    
radical in that it would require all new bond provisions to                                                                     
be included under the ten-mil property tax cap even if                                                                          
approved by the local voters. He explained that this would                                                                      
require communities to eliminate some teachers and education                                                                    
programs to fund new school construction.                                                                                       
Mr. Ritchie described the impacts to each community,                                                                            
specifically Anchorage and the municipality's current mil                                                                       
rate of 17.9 that included a debt service of 3.25 mils and                                                                      
the remainder going to other services. He noted that                                                                            
previous debt service was exempt from the cap under the                                                                         
provisions of the initiative, but noted that the deletion of                                                                    
the remaining 4.9 mils over the cap would cost $73 million                                                                      
dollars the next year. He calculated how this would affect                                                                      
the school district funding.                                                                                                    
Co-Chair Torgerson clarified that the initiative does not                                                                       
prevent municipalities from imposing a different type of                                                                        
tax. Mr. Ritchie answered that was correct.                                                                                     
Senator Phillips asked if the League planned to educate the                                                                     
public on the repercussions of the initiative before the                                                                        
election was held. Mr. Ritchie said it would.                                                                                   
Senator Green knew there were many people who were                                                                              
discouraged by the cost of local government and their                                                                           
property taxes. She asked what the implications of the                                                                          
initiative would do to the real estate market saying she                                                                        
thought it was onerous.                                                                                                         
Mr. Ritchie responded that if the initiative passed, there                                                                      
would be a strong incentive to not sell and to not build new                                                                    
buildings. He doubted there would be much growth in the                                                                         
construction industry.                                                                                                          
Co-Chair Torgerson noted the bill's effective date is                                                                           
January 1, 2001 and asked if the severability clause in the                                                                     
legislation was standard with an initiative. Mr. Ritchie did                                                                    
not know.                                                                                                                       
BONNIE WILLIAMS, Assembly Member, Fairbanks Northstar                                                                           
Borough, Chair, Finance Committee testified via                                                                                 
teleconference from Fairbanks in support of the bill. She                                                                       
encouraged the legislature to take a leadership role after                                                                      
the session ended to get information regarding the                                                                              
initiative to the voters.                                                                                                       
Ms. Williams detailed the affect of the initiative on her                                                                       
borough. It was noted that a written description of the                                                                         
impacts was in the possession of the Committee. [Copy on                                                                        
file] She stressed that the community would have to come up                                                                     
with $16.9 million, lose road services, fire services and                                                                       
that generally, the ten-mil rate cap was a potential                                                                            
disaster for the borough. She noted that even if all                                                                            
nonessential services were eliminated, such as libraries and                                                                    
parks and recreation, only half of the needed money would be                                                                    
saved. She said the obvious loser would be the local school                                                                     
system because that was the only budget with adequate money                                                                     
to fill the gap. She added that the local voters have always                                                                    
supported funding for education and that the initiative                                                                         
would take away the ability for local support.                                                                                  
Ms. Williams noted that the revenue tax had been in place,                                                                      
which has worked well. She stated that the borough attorney                                                                     
has advised the assembly that if the initiative passed both                                                                     
the tax cap and the revenue cap would be in place and the                                                                       
borough would not have an opportunity to obtain alternative                                                                     
revenue sources.                                                                                                                
Co-Chair Torgerson asked how many jurisdictions have revenue                                                                    
caps. Mr. Ritchie listed the Fairbanks Northstar Borough,                                                                       
the Municipality of Anchorage, the City and Borough of                                                                          
Juneau, the Ketchikan Gateway Borough, Wrangell, Sitka,                                                                         
Petersburg, the Kodiak Island Borough and possibly the Kenai                                                                    
Peninsula Borough.                                                                                                              
Co-Chair Torgerson stated that Ms. Williams' argument was                                                                       
that other revenues could not be implemented without a                                                                          
change to the local tax code, which would require local                                                                         
voter approval.                                                                                                                 
Co-Chair Torgerson ordered the bill HELD in Committee.                                                                          
Senator Torgerson adjourned the meeting at 10:56 AM.                                                                            
SFC-00 (18) 03/20/00                                                                                                            

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