SB 107 APPROPS:CAPITAL/REAPPROP/FUNDS/OPERATING COCHAIR SHARP announced there was a proposed CS before the committee for consideration. TOM WILLIAMS presented a summary of the changes in the CS. Additional information on various capital projects were provided by ANNALEE MCCONNELL, TOM BRIGHAM, NICO BUS, KEVIN BROOKS, JANET CLARK, DIANE WORLEY, KURT PARKAN and JOHN BITNEY. SENATE BILL NO. 107 "An Act making and amending capital and other appropriations and to capitalize funds; and providing for an effective date." COCHAIR SHARP brought attention to a proposed Finance CS and a side-by-side comparison that had been provided for members. He noted the total submitted by the governor was $184.6 million compared to the CS which contained expenditures totaling $153.1 million, a difference of $41.5 million. He stated that a guiding force in putting this budget together was the long range planning goal. He invited his staff, Tom Williams, to summarize the changes in the draft CS after a brief recess. Recess 1:28 P.M. Reconvene 1:55 P.M. TOM WILLIAMS, Staff to Cochair Sharp, Senate Finance Committee, explained that the first thirty-two sections of the draft CS dealt with reappropriation requests. There was a handout provided to the committee that grouped and summarized them. In response to a question from SENATOR ADAMS, MR. WILLIAMS explained that some items that had been deleted for a variety of reasons. Starting with Section 33, there were a variety of reappropriations requested by the administration that were either in the original bill or subsequent amendments to submitted bills. MR. WILLIAMS noted that Section 35(d) was a duplication of Section 27(a) and needed to be removed. Section 39, the Alaska Clean Water Fund, had a provision in the original bill regarding AIDEA funds that was deleted in the CS. Section 41 had a corresponding appropriation in the back section under DNR that needed to be deleted. Section 42 had to do with Matching Grant programs. Section 43 was language that gave authority for additional expenditure by the Legislative Budget and Audit committee that mirrors language in HB 75. Section 44 was in the original bill. Section 45 was new and dealt with repeal of prior capital appropriations, except fund capitalization. It basically gave a five year roll so that by June 30, 1998, everything that had been appropriated prior to July 1, 1993 that had not been amended would be repealed. It was basically a housekeeping function that would allow departments to come back with ongoing projects to request additional time for completion and thereafter have a continual rollover. It would be a mechanism for determining the status of projects every five years. Sections 46-48 related to lapse provisions, retroactivity and effective dates. Section 49 began the bulk of the capital budget, beginning with the Department of Administration. There were no major structural changes other than funding decisions and a title change relating to the Division of Motor Vehicles to conform with law. Other than items not funded or funding source changes, the Department of Commerce and Economic Development had no significant structural changes. The same held true for the Department of Education. There was a structural change under the Department of Environmental Conservation (DEC) related to Village Safe Water. He referred to the side-by-side comparison and pointed out that none of the projects had been eliminated, with the exception of the operation and maintenance capacity development line for $500 thousand. They changed the general fund to general fund match and spread the federal receipts out to the specific projects to show the one-to-one correlation and to provide a clear idea of the cost of the entire project. The following page numbers refer to the side-by-side comparison previously mentioned, a copy of which is on file. On page 8 and 9 there were funding source changes in the Alaska Drinking Water Loan program. Page 10 and 11, under the Department of Fish and Game, showed funding source changes related to the operating and capital budgets and returned the structure to the way it was in FY97. Two significant items under the Department of Health and Social Services that were not in the governor's request were the Domiciliary Care Facilities renovation and construction in Anchorage and Fairbanks. MR. WILLIAMS pointed out the last three items under the Department of Military and Veterans Affairs (DMVA), those being the operation of the state emergency coordination center and the FEMA grants for FY97 and FY98. They were amendment requests that may relate more to the operating budget in nature and were not included. Under the Department of Natural Resources, there were no structural changes, only funding decisions. He noted that a variety of items went to zero because they were dealt with in the supplemental request. The Exxon Valdez Oil Spill Trustee Council - Overlook Park parcel was included in the front section and should be deleted from the departmental section. The Circumpolar Agriculture Conference was included under DNR. There were no structural changes to the Department of Public Safety. The Department of Revenue contained changes (page 15) under Grants to Named Recipients for appropriation to senior citizen housing development programs. Significant changes appeared under DOTPF on page 16 as a result of discussions with the department. There were a number of areas where the general fund match was zero and the senate column included an amount. The reason was that they endeavored under the Statewide Transportation Improvement Program (STIP) to spread the match to get a better overall correlation. He also noted the remaining match was retitled "State Match for Previously Authorized Federal Aid Highway Projects." There was no structural change to the airport improvement programs, although funding decisions had been made. On page 25 there was an addition under University of Alaska titled Low Rank Coal-Water Fuel/Coal-Water Fuel Fired Diesel Project. It was a project that had been discussed for several years. The Alaska Court System contained funding decisions but no structural changes. The Legislature portion was an added component that was not in the governor's budget. It was the first time in several years that the legislature had requested a capital appropriation. A number of projects were identified on page 25. There was also a request for the Ombudsman. The Municipal Capital Matching Grants reflected some title changes from the original budget, but none had been reduced, although requests continue to be received and adjustments may be made up until the budget is passed. The same applied to the Unincorporated Community Matching Grants. MR. WILLIAMS said the Mental Health Program components appeared in HB 76, so the totals in the comparison did not agree with the actual draft CS. He also pointed out that there had been a reappropriation of $1.5 million of DOTPF match money divided between the transportation and aviation programs which needed to be added back in. It had been left out while a technical question was being resolved as to whether it was an appropriate way to make the reallocation. In conclusion, MR. WILLIAMS noted that there had been a number of projects that had been submitted by the administration under a May 2 memo that had not been included in the draft CS. Copies of the memo were in members' files. SENATOR ADAMS questioned the reason for a $17 million reduction in federal funds, noting totals on page 37. MR. WILLIAMS responded that he believed the federal funds were captured in most instances with the exception of the DOTPF mediation program. COCHAIR SHARP asked to hear from OMB regarding requests in their May 2 memo. He inquired about the first request for DOTPF. ANNALEE MCCONNELL, Director, OMB, addressed the committee. She responded that the memo back-up explained they would be spending the money only if they got the agreement with the union necessary to operate the Malaspina ferry as a day boat. She provided additional information. TOM BRIGHAM, Director, Division of Statewide Planning, DOTPF, in response to a question from COCHAIR SHARP, explained that there was no specific project that would come out of their requests if the Malaspina request went in. COCHAIR PEARCE had concern about the department's priorities and expressed surprise at this particular request. She referred to the Ocean Dock road that had been programmed for design in FY96 and for construction in FY98 but then a right-of-way issue came up and the department chose to push the construction to FY99. She believed if there was room to add something new in FY98, she preferred to move the construction back instead of adding a new project. SENATOR TORGERSON expressed his concern that there had not been a plan from the Marine Highway System as to how they would handle the impacts of the Kennicott Ferry coming on board other than hiring an addition 200 employees. He also mentioned the impact of a new vessel from Craig that would take money from the system. MR. BRIGHAM responded to both concerns. He noted that engineers had indicated the right-of-way and construction could not be completed in one year because of the complexity of the issue. If there were any way to advance that phase, they would, but they did not have a solution as yet. There was additional discussion on this matter as well as the request to maintain the Malaspina ferry as a day boat. End SFC-97 # 137, Side 1, Begin Side 2 COCHAIR PEARCE reiterated her concerns about delays with the Ocean Dock Road construction and the problems it created for the community. MS. MCCONNELL assured her that they were not less supportive of that project and explained that the Malaspina issue was a response to concerns about ferry service in Southeast. After looking at the numbers, it was believed it could operate as a day boat without requiring any general fund subsidy. There was further discussion among members about economic analysis and feasibility of the Malaspina as a day boat, as well as it's net worth after $2.5 million in upgrades. MS. MCCONNELL assured the committee an analysis would be provided when available from the department. COCHAIR SHARP noted the next item was the Soldotna DOTPF Maintenance Station site clean-up and there had been some question about differences in figures between $1.3 million and $250 thousand. SENATOR TORGERSON offered explanation. MS. MCCONNELL added that DOTPF and DEC worked together and agreed that an appropriation of $250 thousand was their best estimate of what would be needed. COCHAIR PEARCE commented that, by request, she was working on an amendment that would use Alyeska and Valdez settlement money for projects in the affected areas, including the Kenai River site and questioned the value of making an appropriation for a project that couldn't begin until the site was cleaned up. MS. MCCONNELL addressed three requests for DMVA in the memo, noting they were grants that just came in and didn't need to be included as capital items. She wanted to assure they were in the budget process, noting the operating budget would be fine. NICO BUS, Chief, Financial Services, Division of Support Services, DNR, added that the grants had been awarded between late March and early April. There was general discussion between members and Ms. McConnell about Capital Matching Grant projects. MS. MCCONNELL noted that OMB continued to receive requests and the memo was up to date based on what had been received. COCHAIR SHARP noted that the next item in the memo, the Mental Health Trust Authority (MHTA) request for a data management system project under the Department of Administration, had been rolled into the bill under Section 30. There was additional general discussion about where some DEC projects appeared in the CS. COCHAIR SHARP brought up a hatchery project under DFG next. KEVIN BROOKS, Director, Division of Administrative Services, DFG, provided information about changing language regarding an appropriation to Beaver Falls Hatchery. The site had not worked out for a number of reasons and the recipient, the Southern Southeast Regional Aquaculture Association, had requested a site change to Burnett Inlet to enable the project to proceed. There was general discussion next about fencing around landfills to keep bears out, after which the discussion turned back to the hatchery project. SENATOR DONLEY requested additional information from the department. MS. MCCONNELL brought up some final projects that were late requests from communities, including the Noorvik Elementary School. COCHAIR SHARP pointed out there had been requests to have representatives from DHSS present and asked SENATOR DONLEY to speak to that. SENATOR DONLEY commented that juvenile detention was a very serious problem and he wanted to give the department an opportunity to elaborate on why something should be done. JANET CLARK, Director, Division of Administrative Services, DHSS, brought attention to information that had been provided by the department regarding the crisis of overcrowding in youth facilities such as Johnson, McLaughlin, Fairbanks and Bethel. (A copy of the information is on file.) She pointed out that over the last ten years, no new youth facility beds had been built and the facilities had been operating over capacity, creating constant tense situations. She referenced a master plan for youth facilities that had recommended two additional facilities that had not yet been built and outlined needs for the next ten years. She expressed concern that they still haven't dealt with the needs of the last ten years. DIANE WORLEY, Director, Division of Family and Youth Services, DHSS, spoke of the latest master plan (copies of which were provided) and described the process of making projections and identifying needs. MS. CLARKE noted there was a comprehensive list in the handout she provided that showed a total of 103 beds were needed at a cost of approximately $35 million. There was also a short list of immediate needs that were required. SENATOR DONLEY added that his impression from police was that it was a most serious situation in that the facilities were not accepting many juveniles that should be institutionalized because of overcrowding. MS. WORLEY confirmed and added that they were trying to find a balance with community based services as well to keep kids in their own communities. MS. CLARKE later added that an additional issue was that kids from Southeast were being placed in Fairbanks, McLaughlin and Bethel, which in turn kept the numbers high for those areas. In response to a question from COCHAIR SHARP, she stated that no infrastructure would be needed for Johnson because they could renovate. End SFC-97 # 137, Side 2 Begin SFC-97 # 138, Side 1 MS. MCCONNELL continued with a discussion of the cost per bed, noting it was not disproportionate for a new unit at either Johnson or McLaughlin. MS. CLARKE added that there were both the detention and support buildings at Johnson. The infrastructure was already there, so it was just a matter of adding a new treatment cottage. There was additional discussion about the per bed and square footage cost and MS. CLARKE indicated she would make additional comparison information available to the committee. COCHAIR PEARCE inquired what addition requirements would be needed along with the treatment beds, such as professional personnel. MS. CLARKE responded that the Johnson Center had a teacher provided by the school district. In addition, there would be a unit leader, twelve youth counselors, a half-time nurse, a half-time maintenance person and some contractual psychiatric and other services as needed. In response to a question from COCHAIR PEARCE, MS. WORLEY elaborated about the differences between a treatment center and detention and additional services that would be provided in the smaller facilities. MS. CLARKE responded to another question about the cost of the Johnson facility by pointing out that it was comparable to the McLaughlin unit built in the early nineties, although providing utilities and site work had driven the cost up some. COCHAIR SHARP asked MR. WILLIAMS back to the table to provide additional information in response to SENATOR ADAMS' earlier question regarding the $17 million reduction in federal funds shown on page 37 of the side-by-side comparison. MR. WILLIAMS pointed out two specific areas that reflected the largest decreases. One was under DOTPF on page 22: Statewide Surface Transportation Preconstruction which showed a $10 million reduction. The reason was that the department indicated there was already about $30 million in FY97 authorization that they hadn't gotten to yet, so they were comfortable in reducing the $20 million by half. There was no loss of federal receipts, only federal excess authority. Another large reduction occurred in the Department of Revenue on page 14: the Oil Overcharge Restitution Building Educational Projects. The governor had proposed to spend $2.5 million of Stripper well funds, basically cleaning out the account. Instead, the Senate proposed to spend $600 thousand of that total for grants to the Alaska Craftsman Home Program and the Energy Rated Homes Program. That also did not reflect a loss of funds, as they remain for future year appropriations. COCHAIR SHARP asked the representative from DOTPF to the table for questions from COCHAIR PEARCE about the International Airport projects. KURT PARKAN, Deputy Commissioner, DOTPF, approached the table and stated his name and position for the record. COCHAIR PEARCE first referred to an April 22 letter to the commissioner which inquired about the impact of the projects on landing fees at the two airports. She had been informed that the total cost increase would be about six cents per thousand pounds, but she wanted clarification about the long term impact over the next twenty years. She had also been told that the department did not prepare spreadsheets. She did not see how they could run the International Airport Revenue Fund without doing spreadsheets nor how airlines would go along with an operating agreement without some feel for what their fees would be in ten to fifteen years. COCHAIR PEARCE also brought up an issue in which for two years the airline carriers disapproved of projects and the department proceeded to include them in their capital budget request. Her final request had to do with a summary of appropriations and expenditures for the last ten years out of the System Development Fund. MR. PARKAN first addressed the airline carriers' veto of two Fairbanks projects. He explained the projects and added that Fairbanks had a harder time getting projects approved because of the disproportionate number of carriers compared to Anchorage. They felt the projects were still important enough to proceed on the runway extension and terminal improvements. COCHAIR PEARCE questioned the reasoning behind the runway extension. There was additional detailed discussion between her and MR. PARKAN on this topic as well as the terminal improvement plans. Regarding landing fees, MR. PARKAN stated that they were based on the activity at the airport and it was a complex formula. It was difficult to anticipate what a project impact would be on the landing fees because of increases and decreases of activity. The fees were based more on activities than projects. MR. PARKAN next addressed projects under the System Development Fund. There was about $3 million in the fund which would generally be used for advanced project design, annual improvements and terminal rehabilitation. The discussion continued at length. MR. PARKAN noted that by having design projects on the books, it allowed for favorable competition with other projects for discretionary FAA funding. COCHAIR SHARP commented on statements made by the technical committee regarding unspent funding available, noting that additional funding was being requested for annual improvements. MR. PARKAN informed the members that the technical committee was a subcommittee of the Airline Affairs Committee. It was designated to look at projects, whereas the Executive Committee made the final project decisions. End SFC-97 # 138, Side 1, Begin Side 2 COCHAIR SHARP pointed out that in some instances the signatory airlines have turned projects down by the two- thirds required vote. He had seen copies of letters sent by the airport manager to some of the users after a project failed, that threatened them to change their mind or they would be sorry. He had also seen letters in response from major airlines that expressed indignation with the tactics used to force a change on a vote. He wanted to clarify that some of the reductions in the capital projects were not random decisions. COCHAIR PEARCE inquired if there was any penalty for airlines that pull out after they took part in approving a project that everyone else had to pay for. MR. PARKAN replied that there was a clause in the operating agreement that holds them to continue payment after they leave. He offered to provide a copy of the agreement. MR. PARKAN next spoke of the terminal rehabilitation project that dealt with life and health code safety issues, followed by a brief discussion of phase two of the wetlands development project, which concluded the projects he was addressing. COCHAIR PEARCE and SENATOR TORGERSON questioned him about requirements and restrictions concerning development of the wetlands and there was continued discussion on this topic. SENATOR ADAMS asked if the department could implement everything as presented under the existing budget structure. MR. BRIGHAM addressed the question as it related to highway projects and the STIP. He explained that the way the program was appropriated and allocated presented a difficulty with respect to a greater administrative burden with decreasing numbers of administrators. They would be fairly hamstrung in their attempts to fund emergency work. He explained that work done within the first 180 days was done at 100 percent federal funding. Beyond that, the regular match would apply, and it was unclear how they would fund emergency work beyond the 180 days. MR. PARKAN added that the matches were based on estimated costs of the projects and would require additional staff to keep track. SENATOR TORGERSON stated for clarification that this budget did not prepare DOTPF to handle emergencies. MR. BRIGHAM responded that the way the match is appropriated by program and allocated by project, left them without a match to deal specifically with emergency projects or repairs. SENATOR TORGERSON brought up the Seward flood, noting the city had to guarantee all the contractors' work on that because the state wouldn't. COCHAIR SHARP noted that with regard to emergencies, the budget had emergency federal projects for $5 million and federal contingency funds for an additional $5 million, and asked if the concern was with the general fund match for the $10 million. MR. BRIGHAM confirmed that was correct. COCHAIR SHARP then pointed out that there was an allocation of previously authorized federal highway projects with a GF match of $7.9 million that wasn't allocated by project and inquired if those funds would be available to match emergencies. MR. BRIGHAM responded that if they worked on the wording in that particular line it could take care of it. SENATOR PHILLIPS asked about relocation of airports in Eek, Marshall and Noorvik for $10.7 million. MR. PARKAN explained that they were situated in areas that couldn't be expanded. There was additional general discussion on this topic. COCHAIR SHARP asked if it was the federal government that dictated the location of the projects. MR. PARKAN explained that planners and designers make the decision based on conditions at the particular airports in addition to federal requirements and specifications. COCHAIR SHARP asked if there was any additional discussion on the draft CS. SENATOR ADAMS inquired about cutbacks in weatherization and supplemental housing. COCHAIR SHARP replied that there would be no loss of federal funds by the reduction. SENATOR ADAMS asked to hear from AHFC representatives. SENATOR PHILLIPS asked a few questions of DOTPF regarding tourist oriented signage at the airports to which MR. BRIGHAM responded. JOHN BITNEY, Legislative Liaison, AHFC, DOR, in response to a question from SENATOR ADAMS, explained that the weatherization project was not a match situation. Regarding supplemental housing, they estimate how much money would be available to match on a five-to-one basis. They learned last week that $40 million was available from HUD, so they would need a minimum of $7.9 million to fully utilize the federal dollars available on a match basis. COCHAIR SHARP inquired if there were any additional questions or comments regarding the draft CS. SENATOR ADAMS inquired about the guidelines for amendments to the capital budget. He indicated programs that he had interest in and elaborated on his concerns. COCHAIR SHARP explained the original guidelines they had and his intention to keep a lid on the budget at $155.5 million, noting the CS was at $153.1. He provided a deadline for submittal of proposed amendments. There was additional general discussion among members about various projects, reappropriations, a spending plan and fiscal notes.