CS FOR SENATE BILL NO. 230(FIN) "An Act making and amending appropriations, including capital appropriations, supplemental appropriations, and other appropriations; making appropriations to capitalize funds; and providing for an effective date." 5:26:12 PM Vice-Chair Thomas MOVED to ADOPT HCSSB 230(FIN) (26- GS2824\M, Kane, 4/17/10) as a working document before the committee. There being no OBJECTION, the committee substitute was ADOPTED. JAMES ARMSTRONG, STAFF, CO-CHAIR BILL STOLTZE, provided a sectional overview of the CS: · Sections 1 through 3: governor's supplemental/capital put into the current version at $122,224,900 · Sections 4 through 6 (page 8 through 16): governor's deferred maintenance at $118,420,000 · Sections 7 through 9 (pages 17 to 60): governor's portion of the regular capital budget totaling $1,685,162,600 · Sections 10 through 12: grants to municipalities and unincorporated communities totaling $466,293,300 · Sections 13 to 15 (pages 114 to 147): grants to the named recipients totaling $138,982,900 · Sections 16 through 18 (pages 148 to 152): cruise ship revenue-funded projects at $49,525,000 · Sections 19 through 21 (HB 424, currently in the Senate): education general obligation bonds appropriations totaling $397,200,000 · Sections 22 through 62 (pages 157 to 175): the language portion of the bill Mr. Armstrong noted that $10,766,400 worth of operating budget items were distributed throughout the bill. Mr. Armstrong listed total spending by category: · General funds: $1,406,939,400 · Other state funds: $554,595,200 · Federal funding: $1,027,040,400 · Total funds: $2,998,575,000 Mr. Armstrong reminded the committee that number changes had been discussed the night before and that there were two additional changes. One was an intent language change by Mr. Carpenter on a project in Sitka, to which the other body agreed. Another $250,000 appropriation for a Kachemak Bay project was grouped with other university projects. 5:31:21 PM Mr. Armstrong detailed changes to the language section in the committee substitute: · Page 159, lines 12-17: Lease sales in the past couple of days generated NPR-A revenues; an amendment adds technically correct language. · Page 161, lines 28-31: As per the Senate and the Department of Revenue (DOR), $4,766,400 was stripped out of HB 424 (Education G.O. Bond Bill); funding related to the bonds was put into the CS. Representative Doogan verified that the item would become a general fund appropriation. Mr. Armstrong responded that he was correct, contingent upon passage in November. Mr. Armstrong continued: · Page 162, lines 2-14: Intent language related to the Department of Transportation and Public Facilities (DOT/PF) ferry purchase. He noted that the Senate had worked with DOT/PF regarding the item; the language is compromise language. Co-Chair Stoltze elaborated that the language was intended to increase the likelihood that the ferry would be constructed in the state of Alaska. 5:34:31 PM Mr. Armstrong continued: · Section 37, lines 24-29 (Page 163): New section dealing with in-state gasline provisions; the inserted language was developed with the Finance Committee's co-chairs and the Speaker's office. Co-Chair Stoltze acknowledged Co-Chair Hawker's work on the item. Representative Gara asked whether the section was for $8.2 million for the in-state gasline project. He referred to other legislation (by Representative Chenault) with a $10 million fiscal note and wondered if that was in addition to the amount in the capital budget. Co-Chair Hawker clarified that the two appropriations (the entire Section 37) on page 174 were contingent on the failure of the legislation. Mr. Armstrong continued with language changes, noting that the next sections were standard district re-appropriations: · Page 173, lines 21 to page 174, through line 19: Re- appropriation of the legislature's lapsing funds. · Lines 21-26, Section 55(a): $2.2 million for various renovations and repairs to legislative buildings and facilities. · Section 55(b): Re-appropriation to the Legislative Council to conduct an independent, third-party, scientific, and multi-disciplinary study of the potential for a large line development in Bristol Bay drainage, not to exceed $750,000. · Section 55(c): Request from the Municipality of Anchorage to the Legislative Budget and Audit Committee for an electrical power procurement practices study and design, not to exceed $800,000. He noted the item was a late request and that the Anchorage Metropolitan Area Transportation Study (AMATS) increment in the numbers section of the capital budget had been reduced by the same amount. · Section 55(d): Puts the remaining balance of whatever is left over in the legislative accounts into the budget reserve fund. · Section 55(e): $750,000 to the Department of Commerce, Community, and Economic Development to deal with Endangered Species Act (ESA) issues. · Page 160, lines 18-30: A general fund appropriation to the bond bank to issue a 1 percent, 15-year note to the City of Galena to help cover financial needs. He noted that Devon Mitchell (Alaska Municipal Bond Bank Authority, DOR) had written a letter of support for the item. 5:39:49 PM Vice-Chair Thomas queried contingency language on line 174. Mr. Armstrong responded that the language applied to various bills in the event that they passed the legislature. For example, contingency language on page 175 related to the bond bank stipulates that the appropriation made in Section 30(a) is contingent upon an agreement being reached between the Alaska Municipal Bond Bank Authority and the City of Galena that the loan is secured by the city and is subject to state aid intercept provisions (AS 44.85.170). Co-Chair Stoltze referred to passenger vessel provisions. Co-Chair Stoltze introduced amendments to the bill. He informed the committee that he would not offer Amendment 1 at that time but still had it ready in the event that there was positive progress on the Alaska Crime Lab legislation. The amendment would provide the appropriate language in the capital budget related to the item. Co-Chair Stoltze noted that he would not offer Amendment 2, but that it would also be held. Co-Chair Stoltze MOVED to ADOPT Amendment 3 (26- LS8005\A.69, Kane, 4/17/10): *Sec. A. FUND TRANSFER. The proceeds from the sale of loans by the Alaska Energy Authority to the Alaska Industrial Development Authority under a memorandum of understanding dated February 17, 2010, estimated to be $20,600,000, are appropriated to the power project fund (AS 42.45.010). *Sec. B. CONTINGENCY. The appropriation made in sec. A of this Act is contingent on passage by the Twenty-Sixth Alaska State Legislature and enactment into law of a version of SB 301. *Sec. C. LAPSE. The appropriation made in sec. A of this Act is for the capitalization of a fund and does not lapse. Co-Chair Hawker OBJECTED for discussion. Mr. Armstrong noted that the amendment represented a late request from the Alaska Industrial Development and Export Authority (AIDEA). A fund transfer appropriation would be needed for SB 301 if it passed. 5:42:59 PM SARA FISHER-GOAD, DEPUTY DIRECTOR, OPERATIONS, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY AND ALASKA ENERGY AUTHORITY (AEA), DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, explained that after SB 301 had passed the House Finance Committee, Legislative Legal Services suggested that an appropriation would be necessary to allow proceeds to be deposited into the Power Project Fund. She informed the committee that an amendment had been offered in the House Rules Committee to clarify the issue. The bill passed and was concurred in the Senate, so the language added by Amendment 3 would be required. Co-Chair Hawker REMOVED his OBJECTION. There being no further objection, Amendment 3 was ADOPTED. Co-Chair Stoltze MOVED to ADOPT Amendment 4: On Page 131 Insert after lines 28-30: It is the intent of the legislature that operational information will be shared with other Railbelt utilities in an effort to better understand the impacts of non-firm, renewable sources of energy on the Railbelt grid. Co-Chair Hawker OBJECTED for discussion. Mr. Armstrong directed attention to page 131, lines 28 through 30 in the numbers section and explained that the amendment would insert intent language to clarify that operational information would be shared with other Railbelt utilities in an effort to better understand the impacts of non-firm, renewable sources of energy on the Railbelt grid. Representative Doogan queried the meaning of "non-firm." Representative Kelly explained that "firm power" was the commitment by the utility to keep the lights on 24 hours per day, seven days per week; the specified location is counted as part of the capacity of the utility. "Non-firm" means the utility would give power when it was able but would not reserve capacity specifically for the specified location. 5:45:55 PM Co-Chair Hawker REMOVED his OBJECTION. There being no further objection, Amendment 4 was ADOPTED. Representative Kelly MOVED to ADOPT Conceptual Amendment 5: Page 166, Line 28 following "project" Insert: "and the Fairbanks North Star Borough Library Fiber Optic project" Co-Chair Stoltze OBJECTED for discussion. Representative Kelly explained that the amendment would allow the expansion of the use of the existing appropriation for the Birch Hill Disaster Communications Project (page 166, line 28) to include the Fairbanks North Star Borough Library Fiber Optic project. He detailed that the library is running out of bandwidth. Co-Chair Stoltze REMOVED his OBJECTION. There being no further objection, Conceptual Amendment 5 was ADOPTED. Representative Kelly moved Amendment 6 (26-GS2824\T.4, Kane, 4/17/10): Page 158, following line 24: Insert a new subsection to read: "(c) The sum of $2,000,000 is appropriated from the general fund to the Department of Commerce, Community, and Economic Development for payment as a grant under AS 37.05.316 to the Alaska Travel Industry Association to finance a national television campaign to promote Alaska and increase the number of visitors to Alaska for the fiscal year ending June 30, 2011." Co-Chair Stoltze OBJECTED for discussion. Representative Kelly explained that the travel industry had made a request to take its funding of nearly $20 million through various mechanisms; changes made in the Senate included about $5 million funds added. The amendment would add another $2 million funds to help the struggling industry. He hoped that a longer-term solution would be found in the coming legislative session. Co-Chair Stoltze noted that the item was a one-time appropriation. 5:49:59 PM Representative Doogan queried the total for appropriations to the travel industry. Representative Kelly replied that the total was currently $9 million through the vehicle rental tax plus another $5 on top; the amendment would bring the total to $16 million. Representative Doogan stated that he did not support the additional increment and would vote against the amendment. He had not heard from the travel industry about the item. He had watched the amount grow from less than $10 million to $16 million without any information about what the money would be used for. Representative Gara spoke against the amendment. He pointed out that the legislature had given the travel industry $9 million the previous year. Before the amendment, the amount was up to $14 million, a 50 percent increase. He believed the $9 million had been up from $5 million a few years ago. He was concerned that state money keeps increasing while contributions from the membership did not. Representative Gara continued that in other states, the industry contributed a state tax and got a tax credit towards contributing to marketing. In Alaska, there is no state tax on most tourism operators, except for the biggest ones. He called the money a "state handout" and questioned the match between industry and the state. 5:53:10 PM Representative Fairclough noted a possible technical problem; the amendment was made from another version of the bill, making the numbering wrong; the amendment should say "page 161, following line 12." Co-Chair Stoltze agreed the technical change should be made. Vice-Chair Thomas expressed mixed feelings about the amendment because of the way the fishing industry had been treated. He maintained that the fishing industry paid $9.5 million self-assessment for marketing and gets $2.5 million from the state. He pointed out that the fishing industry had to fight to get $1 million in additional funds into the budget, and the amount had been cut. He expressed disappointment. He referred to past discussions about taxes. He stated that the fishing industry was self- sustaining, has a fishermen's fund, and assesses 7 percent of its gross for marketing and enhancement. He asserted that the tourism industry should do the same. Vice-Chair Thomas recalled that when the salmon industry was struggling, it created the salmon task force and worked to remedy the situation. The salmon production tax was intended to help the industry work its way to solvency. He commented that the Alaska tourism industry had harmed the fishing industry with a stand on the halibut fishery the previous year; 1,700 Southeastern fishermen went from 100 percent quota to 40 percent, a net loss of over $30 million per year. He requested that when the tourism industry markets itself, it should not harm another Alaskan industry. He argued that the response would have been very strong if they had gone after the oil industry. Vice-Chair Thomas reported that he expected to see an additional $3 million or $4 million contribution back to the state. Representative Kelly commended the Alaska Seafood Marketing Institute (ASMI) but stressed the need for more help for tourism. He believed the state should help. Vice-Chair Thomas spoke further to struggles in the halibut industry, describing his quota and income. He had gone from $105,000 to $35,000. He stressed the enormity of the impact on fishermen. Representative Austerman stated that he would support the increment, even though it went against his inclination. He noted that he had made argument in the past regarding the total the state put into ASMI as compared to how much it put into the tourism industry. He wanted parity. He acknowledged that both industries were important to Alaska's economy. He argued that he had difficulty increasing tourism marketing dollars without increasing seafood marketing dollars. Representative Austerman informed the committee that he had spent four years working for a past governor as a fishery policy advisor. During that time, he was handed $50 million to bring the salmon industry out of the economic slump it was in. As an illustration, the industry was getting $0.05 and $0.06 per pound for pink salmon, compared to $0.35 to $0.40 per pound that it had gotten in the past. He emphasized that the $50 million was federal dollars, and it effectively brought the industry back, largely through marketing. He thought spending the money could get results. However, there would not be the same kind of money available from the federal government to help the tourism industry recover. He had wrestled with the issue, but believed state dollars were necessary. He was still opposed to moving the appropriation to the industry itself. Representative Austerman stated that he wanted a marketing plan for the state that promotes tourism and seafood as well as other homegrown products and markets Alaska as a place to come to and do business. He hoped the Finance Committee would acknowledge the need for a marketing program for all aspects of Alaska. 6:03:37 PM Representative Joule told the committee that he would support the amendment. He had grown up in Kotzebue observing tourism. He had then resided at the University of Alaska and worked as a tour guide to pay his way to college. He reported that his children volunteered for tourism work and got jobs in the industry when they could legally work. However, there are no more tourists in the area. Representative Joule thought the increment would help in places where people are struggling. He pointed out that the industry had been asked to come up with different ways of raising funds, and they had, but the legislature was not ready to go the route proposed. He acknowledged the concerns stated and believed Alaska should be a destination market. Representative Kelly pointed out that there was a match on the increment of $2.7 million. 6:07:09 PM Representative Gara asked whether the match was included in the total. Representative Doogan MAINTAINED his OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Joule, Kelly, Salmon, Thomas, Austerman, Fairclough, Foster, Hawker, Stoltze OPPOSED: Gara, Doogan The MOTION PASSED (9-2). Amendment 6 was ADOPTED. 6:08:27 PM AT EASE 6:35:32 PM RECONVENED Co-Chair Stoltze MOVED to ADOPT Amendment 2a (26- LS8005\A.70, Kane, 4/17/10): *Sec. A. DEPARTMENT OF LAW. (a) The amount necessary for the purpose, not to exceed $12,443,959, is appropriated from the general fund to the Department of Law to pay the principal of the award of damages entered against the state in Donald H. Carlson, et al. v. State, Commercial Fisheries Entry Commission, 3 AN-84-5790 Civil (Anchorage Superior Court). (b) The amount necessary for the purpose, not to exceed $7,029, is appropriated from the general fund to the Department of Law to pay the costs entered against the state in Donald H. Carlson, et al. v. State, Commercial Fisheries Entry Commission, 3 AN-84- 5790 Civil (Anchorage Superior Court). (c) The amount necessary for the purpose, not to exceed $7,482,569.73, is appropriated from the general fund to the Department of Law, to pay the award of attorney fees entered against the state in Donald H. Carlson, et al. v. State, Commercial Fisheries Entry Commission, 3 AN-84-5790 Civil (Anchorage Superior Court). (d) The amount necessary for the purpose, not to exceed $62,356,738, is appropriated from the general fund to the Department of Law, to pay the interest on the principal of the award of damages entered against the state in Donald H. Carlson, et al. v. State, Commercial Fisheries Entry Commission, 3 AN-84-5790 Civil (Anchorage Superior Court). (e) If the amount available for appropriation from the general fund is insufficient to fully fund the appropriations made in (a) - (d) of this section, the amount necessary to fully fund any of the appropriations made in (a) - (d) of this section is appropriated from the budget reserve fund (AS 37.05.540) to the Department of Law for the purpose specified. (f) It is the intent of the legislature that the Department of Law administer the appropriations made in this section in a manner that minimizes their expenditure. *Sec. B. LAPSE. The appropriations made in sec. A of this Act lapse June 30, 2014. *Sec. C. Section A of this Act takes effect immediately under AS 01.10.070(c). Co-Chair Hawker OBJECTED for discussion. Co-Chair Stoltze explained that the amendment was a fairly large appropriation related to the on-going Carlson litigation. CRAIG TILLERY, DEPUTY ATTORNEY GENERAL, CIVIL DIVISON, DEPARTMENT OF LAW, provided a brief overview of the Carlson case. The lawsuit began in 1984 as a challenge to legislation that charged commercial non-resident fisherman three times more than residents for entry permits and crew licenses. The case has been to the state supreme court and is currently there for the fifth time. Four previous decisions have found that some surcharge to non-resident commercial fishermen is permissible, but the surcharges have to be justified by calculating the resident's per- capita contribution to the budget. It was also found that the differential calculation does not have to be exact; a 50 percent margin above the actual differential is allowable on non-resident fees. Class members are entitled to refunds for payments in excess of the allowable differential. Most important for the current discussion, the interest provided under the state revenue code statutes was applied so that on the claims arising from 1984 through 2004, interest accrues at an average of just over 11 percent compounded quarterly. Mr. Tillery informed the committee that on March 22, 2010, Judge Michalski entered a final judgment on the Carlson case in the amount of $82,290,295. The amount is broken down as follows: Principle: $12.44 million Prejudgment interest: $62.35 million Attorney's fees: $7.48 million Costs: $7,000 Mr. Tillery continued that under an administration plan that had been adopted, when the money was appropriated it was to be paid into a refund trust account administered by a private company. The trust account is owned by the class but subject to the continuing jurisdiction of the court. Money under the original plan could not be distributed from the trust account until there was a final judgment and the money had been deposited in the account. The plan originally provided that if the judgment was paid in full in the account by May 14 [2010], interest would be staid as of January 31, 2010. Because interest accrues at a little over $20,000 a day, the incentive was significant. (6:39:35) Mr. Tillery continued that the state had recently appealed the final judgment on two grounds. First, the notion that the interest was correctly calculated at 11 percent compounded quarterly was directly challenged; the state has argued that there should be no interest and that if there is interest it should be at the normal prejudgment rate. Second, the state has challenged the very large attorney's fees award primarily because the award was based on a percentage under Rule 82; the state believes the substantial increase in the fees is not justified. Mr. Tillery stated that as required by AS 09.52.70, the state has submitted an appropriation to the legislature for the full amount of the judgment broken into the individual components. He added that the state had requested that the appeal be expedited. There was some objection; mediation resulted in agreement that the refund administration plan would be modified to provide that the interest would not accrue on the award from January 31, 2010, if the state paid the full amount of the amended final judgment into the trust account by June 30, 2010. Further, the agreement provides that the trust fund will not be distributed until further order of the court, after all appeals have been ended, including those to the U.S. Supreme Court. In addition, the agreement provides that the amount of money no longer required to be paid will be refunded to the state together with interest earned if the judgment is modified in any way as a result of the appeals. Mr. Tillery concluded that an expedited briefing schedule has been established as ordered by the state supreme court. The agreement stops the running of interest at $20,000 per day as of January 31, 2010, eliminates the primary downside appealed (the continual accrual of interest), and provides that if the state wins the appeal, the money plus interest will be returned. Co-Chair Stoltze clarified that the amount was not being given away, but being put into escrow. 6:43:15 PM Vice-Chair Thomas queried the interest rate the state would get. Mr. Tillery responded that the state would get whatever is earned while the money is in the trust account. Co-Chair Hawker WITHDREW his OBJECTION. There being no further objection, Amendment 2a was ADOPTED. Representative Austerman MOVED to ADOPT Conceptual Amendment 7: Page 173, line 31 Delete: "for a" Co-Chair Hawker OBJECTED for discussion. Representative Austerman explained that the amendment would remove two words that had inadvertently been put into the legislation on line 31, 4(a). Representative Doogan clarified that the language would be "the potential large mine developed." Co-Chair Hawker REMOVED his OBJECTION. There being no other objection, Conceptual Amendment 7 was ADOPTED. Vice-Chair Thomas MOVED to report HCS CSSB 230(FIN) out of Committee with individual recommendations. HCS CSSB 230(FIN) was REPORTED out of Committee with a "do pass" recommendation. Co-Chair Hawker MOVED that Legislative Finance Division and Legislative Legal Services be authorized to make any necessary technical and conforming changes to the bill. There being no objection, it was so ordered. Mr. Armstrong acknowledged the work that was done on the legislation. Co-Chair Hawker stated that he was going to recommend "do pass" for the bill but that he had many reservations. 6:47:51 PM AT EASE 6:54:41 PM RECONVENED