SENATE BILL NO. 102 "An Act relating to certain payments made under the Alaska affordable heating program." 8:47:16 AM JAY LIVEY, STAFF, SENATOR LYMAN HOFFMAN, explained that SB 102 amended the Alaska Affordable Heating Assistance Program (AHAP). The changes clarified language that allowed the Department of Health and Social Services (DHSS) to prorate benefits due to a shortage of funds. He summarized that in the prior year two of Alaska's heating programs were combined. The legislature combined the Low Income Heating and Energy Assistance Program (LIHEAP) and Alaska Heating Assistance Program to form the Affordable Heating Assistance Program (AHAP). The legislation [SB 220] that created the new program contained language that authorized DHSS to prorate benefits. The department was concerned that the language did not provide sufficient discretion needed for benefit pro-rationing. He emphasized that SB 102 was not a change in policy but a clarification of the proration language. Mr. Livey elaborated that the Senate Finance Committee had worked with DHSS on the legislation to address the concerns. The legislation contained two provisions to ensure clarification. The first change established that the department could calculate benefits differently from the customary calculations contained in statute if pro rationing was necessary. The second change added the words "on a pro rata basis" to clarify that pro rationing was allowed. Co-Chair Stoltze surmised that the clarification was in anticipation of reduced federal funds. Mr. Livey believed that was a fair assessment. He was aware of federal budget proposals that reduced states shares of federal funds. He discussed that AHAP was comprised of general funds and federal money. In the event of a shortage of federal funds DHSS would prorate the reduction in benefits. Alternatively, the legislature could choose to appropriate additional general funds. Pro rationing would act as a stop gap until the legislature could act. Prorating gave the department flexibility in either scenario. Representative Doogan referred to language on Page 2, line 7, of the bill. His interpretation was that the benefit would increase if there was extra money in the fund. He wondered whether the bill provided for pro rationing paying more in times of plenty. Mr. Livey informed that the bill language covered pro rationing in times of shortfall and when more federal funds were received than expected. The upward proration was necessary so no federal funds were left "on the table." He identified Page 1, lines 11-12, as the department's ultimate concern; the clear authority for downward proration. Representative Doogan asked about the amount that could be paid out on a pro rata basis. He inferred from the bill's language that upward proration was allowed with excess funds from any source. He wondered whether a floor or cap on benefit disbursement was established. Mr. Livey elaborated that the cap was reflected in the amount of federal funds authorized and state general funds appropriated. The previous bill, SB 220 was not written as an entitlement that authorized an absolute disbursement based on eligibility, making downward proration necessary. He elucidated that upward pro rationing authority enabled the state to spend less general fund dollars if additional federal funds became available. 8:55:10 AM Representative Doogan did not see a limitation on federal funds in the bill. Mr. Livey replied that he was probably correct. He discerned that DHSS could continue upward pro rationing provided the federal government increased funding and the legislature authorized the expenditure. Co-Chair Stoltze asked if the scenario was likely. RON KREHER, DIRECTOR, DIVISION OF PUBLIC ASSISTANCE, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, stated the scenario was fairly unlikely. He added that typically the federal government funding was not sufficient to keep pace with the statutorily required payout. He explained that the AHAP mandated benefit payout was based on the prior year's value of a barrel of North Slope crude oil per community heating point. The federal funding did not keep up with that level of payout. Representative Wilson provided an example from personal experience in non-profit work. She remembered an upward proration benefit paid because less people applied for heating assistance than expected. The department aspired to help as many people as possible and held earlier payouts at anticipated levels of need. The pro rationing occurred after the April application deadline. Mr. Kreher concurred with her experience. The department does issue supplemental payments with excess funds at the end of the program year. He explained that occasionally, DHSS did receive excess federal contingency funds and only a fixed percent were allowed to carry forward. Representative Edgmon supported the legislation. He pointed out the program's significant importance for rural communities faced with exorbitant home fuel oil costs. The bulk of last year's AHAP benefits ($29 million) went to Fairbanks, Anchorage, and the Mat-Su area. The program has positive statewide impacts. 8:59:43 AM Mr. Kreher confirmed that 60 percent of the recipients lived in urban areas. He added that the payout per household was higher in rural areas because of the high heating cost. Representative Edgmon revealed that in the Bristol Bay area the program served 440 households in FY 09 and increased to 653 in FY 10. The cost of heating fuel was $6 per gallon in Dillingham. He believed the program was critical. Representative Joule felt that the people who were eligible for the program were appreciative of the help. He received complaints that some recipients attempted to sell their benefits. He asked whether there was a mechanism to determine if a person was bootlegging from the program and if there was a way to deal with the problem. Mr. Kreher recalled that DHSS can prosecute fraud related to misrepresentation of need. He was uncertain if a statute related to the resale of benefited heating oil existed. He felt the problem was difficult to prove. Representative Joule restated that his constituents and other rural citizens voiced concern about the re-sale problem. He noted that most recipients really appreciated the program. The problem was when people misused the benefit. He perceived that two issues needed definition to craft a solution: what constituted a report and violation and assigning consequences. He emphasized the importance of the issue. Mr. Kreher assured that DHSS will draft an appropriate regulation as part of the emergency regulations that were required for the legislation. Representative Joule requested a copy of the drafted language upon completion. Vice-chair Fairclough wondered whether a legislative audit of the program was performed. 9:05:15 AM Mr. Kreher affirmed that an audit was part of the annual review process. Vice-chair Fairclough wondered whether DHSS established annual heating fuel consumption per household data. She thought that the data could alert the department of suspicious use. Mr. Kreher disagreed that suspicious use was easy to detect. He argued that AHAP was designed to meet only a portion of home heating costs. He opined that it would be extremely difficult to accurately monitor and maintain that information. He was uncertain how the department would know that the fuel was being redistributed. Vice-chair Fairclough believed that it was a fairly simple calculation. She thought that the data was collected in the application process. She wondered whether DHSS monitored the average cost of energy per household in different regions of the state. Mr. Kreher answered in the negative. Vice-chair Fairclough explained that a possible benefit ceiling might be established by figuring the average cost of energy and the percentage of household income spent to heat a home. She suggested a benefit approximate to the percentage of income spent to pay for the heating costs. 9:08:53 AM Vice-chair Fairclough asked whether there was a statutory mechanism that automatically re-funded the program each year. Mr. Kreher replied that the statute originally intended that the Department of Revenue (DOR) establish the fund and a mechanism to refill the fund based on the prior year's price per barrel of crude oil. The structure was not established. The program received fixed general fund appropriations in past years. Vice-chair Fairclough wondered whether Power Cost Equalization (PCE) was capitalized. Mr. Kreher responded that PCE was not operated by the department. Mr. Livey interjected that the PCE program was endowed. The proceeds from the endowment contributed some of the annual costs of the program. A general fund appropriation made-up the difference. Vice-chair Fairclough offered that she was attempting to understand the revenue path into the AHAP program. She recapped that the PCE revenue structure had two streams of revenue. Mr. Livey agreed. He elaborated that the AHAP program consisted of two streams of federal funds: funds from LIHEAP and Affordable Heating Assistance Program combined embody the total amount of federal funding. Vice-chair Fairclough wondered whether there was any overlap in who could qualify for each program and if DHSS monitored qualification. Mr. Kreher replied that the federal guidelines served households up to 150 percent of the poverty level and AHAP up to 225 percent. The state funds were used solely for the benefactors above 150 percent of the poverty level. He emphasized there was no overlap. 9:12:54 AM AT EASE 9:13:12 AM RECONVENED Mr. Kreher continued to explain that general funds were used to augment the payment to the federally funded households. He reminded the committee that often the federal funding levels were insufficient to pay the same dollar value that was required under statute. Vice-chair Fairclough explained that she appreciated the program. She was endeavoring to understand how the program operated. Representative Joule spoke to Vice-chair Fairclough's question regarding overlap. He shared that in Kotzebue a consumer would qualify for Power Cost Equalization but because of income not qualify for the heating assistance program. Some people qualify for both. He reminded the committee that PCE only covered up to 500 kilowatts per month. Representative Gara requested a comprehensive answer related to Representative Joule's earlier concern about bootlegging. He offered DHSS existing statutes it could employ as a deterrent effect. He cited the "crime of unsworn falsification." He defined that it was crime to sign for a benefit that was gained from a lie. He was uncertain the statute was applicable. He also suggested that a benefactor could sign a statement declaring the household of use; if the benefit was not used at the specified household that would constitute fraud. He qualified that DHSS should consult with the Department of Law (DOL). Mr. Kreher replied that the prosecution of unsworn falsification was standard in the Division of Public Assistance. Representative Joule was uncertain the problem was rampant. He received complaints and wanted to shed light on the issue. He believed a mechanism was necessary to prevent fraud and abuse. 9:18:49 AM Vice-chair Fairclough added that she was more supportive of the entire program when there was a monitoring process in place to ensure those entitled received the assistance. She appreciated Representative Joule's concern. Representative Neuman asked what type of fuel sources were covered under the program. Mr. Kreher responded that all forms of heating fuels were included under the program. The department focused on the primary heat source and repaid the vendor. Representative Neuman asked if a local firewood provider was considered a vendor. Mr. Kreher responded that the department made a direct payment to the homeowner if firewood was the main heating source. Representative Neuman asked if the department ensured that the payments were spent appropriately. Mr. Kreher restated that the department made payments to the vendor whenever possible. Payments were made to households as a last resort. The Division of Public Assistance maintained lists of vendors. Representative Neuman wanted to ensure that people who switched to alternative heating sources had access to the program. Mr. Kreher assured that was the case. He added that proof of heating costs were compulsory. Representative Edgmon underscored that in the vast majority of cases the program provided money directly to the vendor. Mr. Kreher agreed. He noted the rare exceptions. Homeowner payment occurred typically with wood heat. 9:26:07 AM Representative Doogan clarified that his earlier concerns related to the amount that the legislature wanted to fund the program. He determined that the language in the bill mandated an upward pro rationing of excess funds. He thought that prohibited the legislature from establishing the level of funding. He requested that DHSS provide a history of payouts from the program that included pro rationing. He felt that the law provided the program very broad authority. Vice-chair Fairclough wondered whether supplemental payments were provided to the vendor and if the supplemental benefit were passed on to the participant. Mr. Kreher indicated that supplemental payments were paid to the vendor for the participants account. Vice-chair Fairclough OPENED and CLOSED public testimony. SB 102 was HEARD and HELD in committee for further consideration.