Legislature(1999 - 2000)
04/17/2000 09:30 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE April 17, 2000 9:30 AM TAPES SFC-00 # 94, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:30 AM. PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Al Adams, Senator Pete Kelly, Senator Loren Leman, Senator Gary Wilken, Senator Phillips, Senator Green, Senator Donley. Also Attending: REPRESENTATIVE LISA MURKOWSKI; JOHN SHERWOOD, Division of Medical Assistance, Department of Health and Social Services; LISA KIRSCH, Assistant Attorney General, Department of Law. Attending via Teleconference: STEVEN WEISE, ABA Advisor to Article 9, Involved in drafting Revised Article 9, Heller Ehrman White & McAuliffe, Los Angeles, California; LEONARD ANDERSON, Representing the State of Alaska, Third Party Recovery Agent in Medicaid Matters, Anchorage; Keith Lauffer, Financial & Legal Affairs Manager, Alaska Industrial Development & Export Authority (AIDEA), Department of Community & Economic Development, Anchorage. SUMMARY INFORMATION HB 239-UCC SECURED TRANSACTIONS Co-Chair Torgerson noted that HB 239 would be HELD in Committee for further consideration. HB 325-MEDICAL ASSISTANCE: LIENS & CLAIMS Co-Chair Torgerson advised that HB 325 would be HELD in Committee for further consideration. HB 446-PCE FUND/SALE OF 4 DAM POOL/ENERGY FUND HB 447-PCE APPROPRIATION Co-Chair Torgerson stated that HB 446 & HB 447 would be HELD in Committee for further consideration. CS FOR HOUSE BILL NO. 239(FIN) "An Act relating to the Uniform Commercial Code; relating to secured transactions; amending Rule 79, Alaska Rules of Civil Procedure; and providing for an effective date." Co-Chair Torgerson reported that objections had been raised about the bill from the State Bond Counsel. REPRESENTATIVE LISA MURKOWSKI explained that trillions of dollars of commercial and consumer credit are granted each year in secured transactions under Article 9 of the Uniform Commercial Code (UCC). UCC Article 9-Secured Transactions provide a statutory framework that governs transactions in which a creditor takes a security interest in specific property of a debtor, allowing the creditor to take the property in the event the debtor defaults on the debt. Article 9 of the UCC has been adopted in every state and was last revised in 1972. Major revisions to Article 9 by the Uniform Law Commissioners were completed in 1998. The st revisions will bring Article 9 into the 21 Century. Representative Murkowski outlined the reasons that the revised Article 9 should be adopted: · Technology · Volume · New Collateral · Certainty of Perfection · New Liens · Clarification of Rules · Simplified Filing · Consumer Impact · Commitment to Uniformity Co-Chair Torgerson referenced Page 121, Lines 18-21, the "retroactivity clause" and asked what that would do. Representative Murkowski explained that was a reference to a complicated flow chart. It refers to an existing security interest and does not mean that anyone would need to refile. STEVEN WEISE, (Testified via Teleconfernce), ABA Advisor to Article 9, Involved in drafting Revised Article 9, Heller Ehrman White & McAuliffe, Los Angeles, California, added that in the uniform version, there was another section that deals more directly with the issue, Section 705(c). That section clarifies that if a person filed under the current Article 9, the filing would remain valid and that person would not be at risk. Co-Chair Torgerson questioned why that section had been included in the bill. Mr. Weise replied that the bill needs to address the old and new Article 9 and how to go about guaranteeing that there are not misunderstandings regarding the old financing statements. Co-Chair Torgerson argued that section does not indicate that concern. Mr. Weise replied that there is another section which identifies the security issues perfected under current Article 9. He suggested that would be one of the alternatives for keeping the security issue in place. Co-Chair Parnell asked why one-section states that the security interest becomes unperfected and then Subsection (c) stipulates that it does not render effective. Mr. Weise clarified that the first clause of Subsection (a) would not apply when there is a filing of a finance statement. In that situation, Subsection (c) would apply. He agreed that the system was quite complex. Co-Chair Torgerson referenced a letter included in member's files from Cynthia Weed at the State Bond Counsel. The letter states that the exemption would not provide a comprehensive exclusion to exempt pledges and liens granted by the State and local government issuing revenue bonds. The letter indicates that the language in the bill would impact future bond issues and would place revenue bond issues that are outstanding in the hands of investors. Co-Chair Torgerson recommended further work done on the bill in regards to the impact of outstanding revenue bonds in the hands of investors. Representative Murkowski interjected that the project originated during an interim committee. She noted that Cynthia Weed had been present at that Committee meeting. The conversation at that time indicated that this was not significant in the event of creating or continuing the extension. She stated that this was the first time the issue had arisen. Representative Murkowski urged members to pass the bill, suggesting the issue could be resolved as an exemption next year. Co-Chair Torgerson maintained that the language was "strong" and that the issue must be addressed before the bill moves from the Senate Finance Committee. Co-Chair Torgerson stated that HB 239 would be HELD in Committee for further consideration. CS FOR HOUSE BILL NO. 325(JUD) "An Act relating to priorities, claims, and liens for payment for certain medical services provided to medical assistance recipients; and providing for an effective date." JOHN SHERWOOD, Division of Medical Assistance, Department of Health and Social Services, commented that the proposed legislation has two main purposes. · To improve the third party recovery effort for medical assistance; and · Changes to the claim filing provisions. Mr. Sherwood mentioned that HB 325 was a companion bill to SB 233. Mr. Sherwood proceeded to explain the second provision of the bill. He noted that currently, the Department allows health care providers six months to make payments on claims for medical assistance from the date of service or twelve months, as the provider must bill the private insurance company first. The legislation would extend the filing deadline to twelve months for all claims, elevating the Department to the industry standard. Additionally, the bill would allow the Department to pay 100% of a late claim if the Commissioner finds that the provider has "good cause" for missing a timely filing deadline. LISA KIRSCH, Assistant Attorney General, Department of Law, explained the third party recovery provision. She noted that the second part of the bill addresses strengthening the existing rights in which Medicaid must recover payments of those that have been made. Currently, there is a subrogation right, which has been difficult to enforce as it is not explicitly in statute. Co-Chair Torgerson inquired if that was Section 8 of the bill. Ms. Kirsch stated the provision in Section 8 would allow the State to waive the right if there were a case where work would cause a hardship against the Medicaid recipient. The primary section that changes authority to provide a lien right would be to Section 9, Pages 3 & 4. The changes requested would allow the Department flexibility to adjust the claims. Ms. Kirsch advised that as it stands, there are references made to the civil rule, which is intended to clarify existing law. Senator Phillips referenced Section 1. He asked to what extent would the involvement be contained in that process. He was trying to determine if he had a conflict of interest. Ms. Kirsch stated that Section 1 deals with the priority of the lien. A lien right was created for the Department and the Division of Medical Assistance had to be placed in the list of existing liens. She suspected that the concern would not come up often. She interjected that Medicaid does pay the hospital. Senator Phillips asked for consent that he be allowed to refrain from voting because of a conflict of interest. Co-Chair Parnell admitted that he could have a conflict of interest also. He voiced concern that the Department would be receiving priority over the hospital, nurses and physicians. He warned that there is much Medicaid money that needs to be recovered. Co-Chair Parnell asked when the priority would come into play. Ms. Kirsch replied that the placement in the list would depend on the type of placement coming up. She noted that a number one placement would be to the list of medical services. In most cases, if the person was Medicaid eligible, they would be covered and the provider would be paid. Co-Chair Parnell questioned why that language was necessary in the legislation. Ms. Kirsch replied that the State has to place themselves somewhere, a vacuum can not be left. She understood the problem to be that when the State has a subrogation right, the argument is that you have no right at all once the plaintiff recovers 100%. Co-Chair Parnell believed that requesting a right lien priority was the most extreme way to address the concern. LEONARD ANDERSON, (Testified via Teleconference), Representing the State of Alaska, Third Party Recovery Agent in Medicaid Matters, Anchorage, testified that there are general problems with the present statute. The first concern is the notice problem. Currently, when a Medicaid recipient requests Medicaid, they have already signed up and contractually agreed to include any Medicaid amount that they received as part of the claim against a third party. Part of the problem is getting the notice and then action when the notice is received. Typically, it is well into a tort case before the State of Alaska ever finds out that there is potentially a liable third party out there. It is not uncommon that the notice of that fact is received after the settlement has taken place. He stated that the new bill would address that issue. The legislation places into statute a requirement that the Medicaid recipient or his attorney notify the Department of any claim that is being made against a potentially liable third party. Mr. Anderson added, a second portion of the proposed legislation would address the subrogation issue. The real issue is that attorneys privately argue that equitable principles of subrogation apply. That means that if an injured third party is not made whole, then the State of Alaska can not get anything until the party is made whole. The lien will require dialogue between the injured party, their attorney and the State of Alaska. There is a "hardship" waiver provision in the bill which will provide some flexibility to it. Co-Chair Parnell questioned the position of the insurance companies. He used the example of a child hit on a bike. He reiterated why should the State have a higher right than any other party trying to recover their fees. Mr. Anderson did not agree that the State was on a "level playing field". Various courts have found that there are different policy reasons for where the insurance company sets. The courts that have addressed the issue have found that based upon that insurance company's base "risk" into the rates charged, they are different than the State that does not use the risk factor. He hesitated to compare the State and the insurance company. Tape: SFC - 00 #94, Side B 10:17 am Co-Chair Torgerson understood that there would only be a couple cases a year that this clause would apply to. Mr. Anderson argued that was inaccurate. He noted that weekly, he is involved in subrogation issues. He interjected, the Plaintiff's Bar is not happy with Alaska in the recovery of funds. Based on current statute weakness, they are waiting for the right case to bring it to the Supreme Court. If that were to happen, the outcome would not be good. Mr. Anderson believed that was part of the reason that State had made it a priority to settle claims. Co-Chair Torgerson suggested that the most important part of the bill was from Sections 3 on. He proposed removing Sections 1 & 2. Representative Murkowski stated that there needs to be some standing in the list, otherwise, the lien right would cause a great deal of confusion. Senator Green declared a conflict of interest. She asked if the legislation would address mainly the person covered by Medicaid and/or private insurance. Representative Murkowski stated that was a possibility. It could also be a circumstance where a Medicaid recipient was not covered by any other insurance but instead a third party who was responsible for their injury. Senator Green asked if the person had no coverage or no secondary coverage would Medicaid then be designed to repay. Representative Murkowski stressed that this was "third party" recovery. Senator Green inquired if the State could require a payment from a Medicaid recipient. Representative Murkowski mentioned that a couple of years ago, there had been a legislative change made to allow people who are disabled to go back to work, and by virtue of going back to work, they loose their coverage. The legislation would allow the disabled to enter into a contract. Mr. Sherwood stated that the Department is allowed and that they do charge nominal co-payments. Under federal law those payments are restricted to 5% of the persons total income. Senator Green argued that it is difficult to compare Medicaid to private insurance. Representative Murkowski stressed that Medicaid is not an insurer. That relationship is contractual and it is not meant to offset insurance. Co-Chair Parnell clarified that creating a lien would have other ramifications. Giving the State a lien priority impacts the collectability of the other claims by other private parties and also puts the State in priority of bankruptcy setting over unsecured creditors. Representative Murkowski stated that the lien created would be to a third party and responsible for medical expenses. That would be in the context of a third party recovery in a tort action if medical expenses were to be considered. Co-Chair Torgerson advised that the bill would be held in Committee for further consideration. He recommended that Sections 1 & 2 be reworked. Co-Chair Torgerson questioned Section 5 and asked why it had not been reflected in the fiscal note. Mr. Sherwood explained that provision related to timely filings. In that situation, the statute would limit pay of 50% of the claim, which would allow the entire claim to be paid. He advised that this was an equity issue for timely filing. Mr. Sherwood noted that the fiscal costs were not considered "material". HB 325 was HELD in Committee for further consideration. CS FOR HOUSE BILL NO. 446(FIN) am "An Act establishing and relating to the power cost equalization endowment fund; relating to the power cost equalization and rural electric capitalization fund; relating to the Railbelt energy fund; authorizing and relating to the sale of the four dam pool hydroelectric project; establishing and relating to joint action agencies created to purchase power projects; and providing for an effective date." CS FOR HOUSE BILL NO. 447(FIN) am "An Act making appropriations relating to power cost equalization and the sale of the four dam pool hydroelectric project and to capitalize funds; making appropriations under art. IX, sec. 17©, Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." Keith Lauffer, (Testified via Teleconference), Financial & Legal Affairs Manager, Alaska Industrial Development & Export Authority (AIDEA), Department of Community & Economic Development, provided an overview of the bill. He stated that the bill would do three things: · Authorize the sale of the Four Dam Pool facilities to an entity to be formed by purchasing utilities; · Establish a power cost equalization (PCE) endowment and utilitize the sales proceeds to capitalize the endowment, while allows for other contributions of the endowment from federal funds or other sources; and · Uses the endowment and other funds to provide for a mechanism for the annual financing of the PCE program at a $15.7 million dollar level. Mr. Laufer addressed the perimeters of the sale transaction of the Four Dam Pool. The negotiations for the sale of those facilities has been in the making for about 5 years. The negotiations have been long and difficult and the final agreement was just made. He added that there were three goals in approaching the final negotiations. · The State needed to receive fair value for the project and be relieved of all liability related to the project. · The sale needed to benefit the local communities by providing them with local control of their generation resources and stabilize long-term power rates. · It was important that any sale transaction would help to solve the problem of long term funding for PCE. Mr. Laufer was pleased to report that the bill met all the criteria. He explained the perimeters of the sale. The sale price for the project was $73 million dollars. That price falls within the range of reasonable value that AIDEA determined was a fair value for the projects. The manner in which the internal fair value was determined was to recognize that the projects are only worth what revenues the State could generate over the long term. Recognizing that, a calculation was based on the present value of the State's revenue and those were used as the terms for the power sales agreement. That amount was then reduced by the present value of the State's risk. He reiterated that the sales price was well within the range that AIDEA found reasonable, utilizing the long-term assumptions. Mr. Laufer expounded that there were other elements involved in the sale. The reason that the sale will not be consummated immediately is that there are federal regulatory commission licenses that needs to be transferred and land interests which make it more complex. Mr. Laufer commented that AIDEA believes a reasonable time frame for closing the sale would be December 2001. In the interim, the utilities will be required to continue to make their power sales agreement payments. Under the terms of the Memorandum of Understanding (MOU) with the State and the utilities, the utilities will be responsible for all repairs and the payments will be 100% available for the PCE program. The utilities do have a termination right in the event that significant losses occur in the interim period. Mr. Laufer noted that the next element of the transaction involves the State insurance fund. The State currently holds a $13 million dollar insurance fund for the projects. That fund is used by the State to cover uninsured risks and the deductibles. The State has a $10 million dollar deductible on the insurance procured on these projects. That fund is projected at about $13 million dollars. Those monies would be freed up as of the sale date. Mr. Laufer continued, the next monies involved in the sale are the monies set aside for a 3% low interest loan from the State to the utilities participating in the Southeast intertie. Those funds were appropriated in 1993. The fund consists of $20 million dollars. In the transaction, it was recognized that the $20 million dollars loan funds had a significant subsidy element. The subsidy value of that loan was in excess of $5 to $6 million dollars. In recognition of that, the utilities were provided a $5 million dollar credit as of the close against the purchase price. Mr. Laufer stated that there were two other elements of the sale that should be addressed. He noted that the sale completely relieved the State of all ongoing future liabilities as an owner of the projects. He noted that was a crucial element for AIDEA. The MOU authorized AIDEA to finance the sale but it would be subject to AIDEA's Board approval at an interest rate of 6.5% under commercial terms, and would be available if they were publicly financed. Importantly, the purchasing utilities were required to subordinate all their rights under the power sales agreement. If the loan was to default to the utilities, the State should not be in a position in which it could again receive ownership of the projects, subject to the existing owner's power sales agreement. The utilities will be subordinating their rights and power in the sales agreement to the AIDEA lien. Co-Chair Torgerson asked if that agreement would need to be ratified by the voters. Mr. Laufer understood that the agreement would not have to be ratified by the individual owners. A new entity will be created so that the power sales agreement, other than the subordination agreement would not be altered. No individual utility would be incurring the debt. Mr. Laufer continued, the MOU recognizes that there are a number of conditions, which will need to be satisfied. It will be necessary for the governing body of each utility to approve the transaction as well as the Legislative Body. He added that there are a number of other detailed issues, which will need to be completed before the transfer can be consummated. The second part of the bill addresses the establishment of the PCE endowment. That is where the money goes. The payment made in August 2000 will be deposited into the PCE Rural Capitalization Fund. The other funds identified for payment are for power sales, which would be deposited into the PCE Endowment Fund. The net sale proceeds in the insurance fund would also be deposited into the PCE Endowment Fund. The bill provides for a transfer out of the Constitutional Budget Reserve (CBR) into the PCE Endowment Fund. Mr. Laufer continued, annual PCE funding over the long-term will come from the amounts made available from the endowment. Under the bill, 7% of the average market value of the previous fiscal year would be made available for PCE funding. In the interim, the PCE Endowment Fund will not be full until the sales proceeds come in. The earning for the endowment of approximately $13.6 million dollars would be made available for PCE, then interest on the PCE and the Rural Capitalization Fund would be available and other funds including the AIDEA dividend would be made available. st The bill provides that on July 1, 2004, use of the AIDEA dividend would be deleted. Mr. Laufer mentioned that the appropriation bill stipulates that the $20 million dollars Southeast Intertie loan would lapse back into the Railbelt Energy Fund from whence it came. In addition, amounts made available for the Sutton- Glennallen Intertie would lapse back to the Railbelt Energy Fund. An appropriation will be made for the sales transaction costs. Any remaining costs would lapse through the PCE Endowment Fund. Mr. Lauffer referenced the handouts he distributed. [Copies not on File]. In response to Senator Phillips, Mr. Laufer explained that AIDEA financing would be paid off over 20-25 years at a 6.5% interest. The terms of that financing would be commercial and would require the normal security that AIDEA demands. Senator Phillips thought that there could be a risk to the future. Mr. Laufer advised that was the intent for the subordination of the power sales agreement. Senator Phillips understood that following the sale, the State would then be done with this concern. He questioned the money drawn from the CBR. Mr. Laufer explained that the proceeds and money made available from the sale are not sufficient to cover the $50.7 million dollar annual PCE payment. Under the bill that the House approved, depositing additional funds into the Endowment Fund sufficient to produce revenues that are close to the amount necessary on an annual basis to provide for full funding would fill the gap. Senator Phillips acknowledged that he had a problem with that. Senator P. Kelly asked the amount of the current AIDEA dividend. Mr. Laufer replied that the AIDEA dividend depends on revenues and that it can be anywhere from $18-$20 million dollars annually. In response to Senator P. Kelly, Mr. Laufer stated that under the proposed scenario, it would be approximately $1.4 million dollars annually. Senator P. Kelly asked the amount of the CPR draw. Mr. Laufer advised that the previous amount coming from the CBR was $20 million dollars. The AIDEA dividend draw was between $7-$8 million dollars. Senator P. Kelly inquired the counter offer. Mr. Laufer explained that the current offer has been in negotiation for over a five-year period. The most recent utility offer that was in writing was made in January for the amount of $60 million dollars. Senator Adams acknowledged that the CBR draw eliminated the long-term draw from AIDEA. Senator Leman commented that last year's settlement of $15.7 million dollars was a compromise with the assurance from Senator Adams that there would be money coming from National Petroleum Reserve-Alaska (NPRA). Had that assurance not been there, Senator Leman was confident that the Senate Finance Committee would have pushed for other changes in the PCE, establishing the level at somewhat less. He suggested revisiting some of the previous Committee actions. Senator Leman asked why the sale was not put out to competitive bid and if the State would have done "better" having done that. Senator Adams responded to the first concern voiced by Senator Leman. He pointed out that the $12 million CBR dollars had been included. The impact of the issues returned those funds. Out of the $12 million dollars, $3 million was placed into the Permanent Fund. The balance goes into the School Public Trust. Future NPRA money goes to the impacted communities. Mr. Laufer addressed the other concern voiced by Senator Leman. He agreed that it was not known what the price could have been received with a bid. However, it is clear that only the purchasing utilities have the legal ability to relieve the State of its risks. AIDEA is comfortable that the price committed to is within a reasonable range that the State could get from any third party buyer. Mr. Laufer highlighted the distributed charts. [Not in File]. Co-Chair Torgerson questioned if it could be balanced without an AIDEA dividend. Mr. Laufer advised that it is anticipated that there will be federal funds coming available for the endowment itself, to grow the amount in order to cover the AIDEA dividend. Co-Chair Torgerson inquired what would happen if the fund were to under or over perform. Mr. Laufer suggested that there would be a 7% nominal return long-term basis. Over or under performing funds would remain in the endowment. The provision of the bill provides that 7% of the market value of the endowment is the amount transferred on an annual basis. Over the long- term, the endowment should be able to maintain. Co-Chair Torgerson stated that HB 446 & HB 447 would be HELD in Committee for further consideration. ADJOURNED Senator Torgerson adjourned the meeting at 11:04 A.M.