SENATE BILL NO. 88 An Act relating to grants to municipalities, named recipients, and unincorporated communities; establishing capital project matching grant programs for municipalities and unincorporated communities; establishing a local share requirement for capital project grants to municipalities, named recipients, and unincorporated communities; and providing for an effective date. Co-chair Pearce directed that SB 88 be brought on for discussion, noted a prior committee hearing on the legislation, and referenced proposed amendments. SENATOR ROBIN TAYLOR and SHELBY STASTNY, Director, Office of Management and Budget, came before committee. Co-chair Pearce directed attention to an amendment by Senator Taylor and asked that members designate it Amendment No. 2. Senator Taylor explained that instead of merely utilizing the population base and differentiating on a percentile basis what each community should pay toward capital grants, the amendment factors in actual community ability to pay. The Senator explained that it would not be proper for a community such as Wrangell, with a mill levy of $73.0 to $75.0, to be classed with Anchorage, which has a tax base of $10 million, and the North Slope Borough with $12.3 billion. Those with a greater tax base should pay a greater percentage. Senator Taylor next referenced a spread sheet attached to Amendment No. 2, saying it presents figures for additional dollars driven into the formula as a result of the proposed amendment. When queried by Co-chair Pearce for his comments, Mr. Stastny noted that when the capital matching grant program was originally introduced by the administration, two years ago, it included an "ability to pay" concept. That formula was removed from the bill prior to introduction in the current legislature. The administration has no objection to the concept or the amendment. Senator Kerttula MOVED for adoption of Amendment No. 2. No objection having been raised, Amendment No. 2 was ADOPTED. Co-chair Pearce next directed attention to Amendment No. 1. She explained that it results from correspondence from Anchorage Mayor, Tom Fink. That correspondence speaks to opposition to increase of the match ratio from 70/30 to 50/50. Senator Rieger MOVED for adoption of Amendment No. 1. Senator Kelly OBJECTED and inquired concerning percentage changes. Senator Kerttula noted that population is not necessarily a good factor on which to base grants. Ability to pay based on the tax base is a better indicator. He then questioned whether communities aside from those with large tax bases could easily accumulate matching funds, and he voiced support for the amendment. Senator Rieger pointed to need to extend the proposed amendment beyond July 1, 1994, and indicated need for an amendment to Amendment No. 1, deleting most of subsection (1) at page 11, lines 1 and 2. The only language from the subsection to be retained should be "the local share percentage is." Co-chair Pearce concurred. Senator Rieger then MOVED for adoption of the amendment to Amendment No. 1. Senator Kelly again OBJECTED. He suggested that if municipalities are to be weaned from state dollars, the 50/50 match is a better plan for the state general fund. Senator Kelly then REMOVED his OBJECTION. No further objection having been raised, the amendment to Amendment No. 1 was ADOPTED. Co-chair Frank noted that passage of the proposed bill would not prohibit the legislature from making designated grants. (Senator Jacko arrived at the meeting at this time.) Senator Kelly stressed that grant funding would go a lot further if the match is 50/50 rather than 70/30. Senator Rieger concurred in comments by Co-chair Frank that even with the proposed matching grant program, designated grants would continue to be made. He then voiced his belief that the higher the local match requirement, the greater the disparity between municipalities favored by the direct grant approach and those not favored by appropriations flowing through a mechanism similar to the proposed bill. He voiced skepticism as to how the program is likely to work. Some communities will be funded 100%, while others will match 70/30. A 50/50 match would increase that disparity. Co-chair Pearce directed that the roll be called on adoption of Amendment No. 1: YEAS: Kerttula, Rieger, Jacko, Frank, Pearce NAYS: Sharp, Kelly The motion CARRIED on a vote of 5 to 2, and Amendment No. 1 was ADOPTED. Co-chairman Pearce called for additional amendments. None were offered. She then directed that Amendments 1 and 2 be incorporated within a draft CSSB 88 (Finance). The Co-chair next referenced two fiscal notes from the Dept. of Community and Regional Affairs. The first seeks an accounting clerk III and a grant administrator III as well as associated computer equipment. An additional $10.0 is sought, on the second note, for regional offices. A note from the Dept. of Administration requests four additional positions with associated travel, contractual, and equipment. The Co-chair expressed concern regarding the magnitude of the fiscal notes. She then questioned whether the grant process within the proposed bill would be that much more onerous than current capital grants. Shelby Stastny again came before committee accompanied by JACK FARGNOLI, Office of Management and Budget. Mr. Fargnoli explained that meetings with Dept. of Administration staff indicate that past budget reductions have left the department only one person to deal with municipal grants under Title 37. There are no auditors, and accounting clerks serve a number of sections. The proposed bill would impose a new work load on the department. In addition, it calls for extension of matching requirements to existing programs. Individual accounts will have to be set up for all municipalities under the matching grants portion of the bill, and verifications and determinations will be required for match criteria under the existing municipal grant program. That creates need for an auditor. The department does not have one. An accounting clerk would also be needed to split his or her time between the two programs. End, SFC-93, #57, Side 1 Begin, SFC-93, #57, Side 2 Mr. Fargnoli attested to understaffing at both accounting and supervisory levels. Co-chair Pearce questioned need for involvement of both the Dept. of Administration and Dept. of Community and Regional Affairs. Mr. Fargnoli explained that both department are utilized under the present program. Efficiencies are to be gained by having the new capital matching grants program parallel the existing structure. Mr. Stastny commented that one of the programs functions as a matching grants program under municipal assistance while the other issues from revenue sharing. Senator Kerttula suggested that the two could be combined. In response to a question from Co-chair Pearce, Mr. Fargnoli explained that the Dept. of Administration would be administering the new matching grants, created by SB 88, for municipalities as well as extension of matching requirements to the existing municipal grant program. The Dept. of Community and Regional Affairs would provide parallel administration for unincorporated communities. Discussion followed between the Co-chair and Mr. Fargnoli regarding existing staff at both departments. Mr. Fargnoli noted considerable difference between Dept. of Administration dealings with municipalities having institutional governments and interaction of the Dept. of Community and Regional Affairs with unincorporated communities that do not have access to personnel, financial resources for development of grant proposals, financial planning, economic development, etc. Co-chair Pearce suggested that, with that in mind, one would expect the fiscal note from the Dept. of Community and Regional Affairs to be larger than that from the Dept. of Administration. However, the reverse is true. Mr. Fargnoli acknowledged that were the programs starting from scratch, the request from the Dept. of Community and Regional Affairs would be the larger. At the present time, Dept. of Administration staff is maxed out in terms of what it can handle. An integer increase in the number of positions is thus needed. Co-chair Pearce queried members regarding action on the fiscal notes. Senator Kelly questioned need for staff increases at the Dept. of Administration. Co-chair Pearce requested that Senator Jacko and Co-chair Frank, chairmen of the respective budget subcommittees, review the notes and report back to committee at the next meeting. She then directed that the bill be HELD in committee pending that review and preparation of Senate Finance Committee fiscal notes for the departments, if necessary. Discussion followed between Co-chair Frank and Mr. Stastny concerning the flow of funding to nonprofit groups and percentage allowances for administrative costs. Mr. Stastny noted that the 10% administrative allowance was incorporated within the bill by Senator Phillips when the legislation was before Senate Community and Regional Affairs. The intent was to prohibit municipalities from charging more than 10%. Co-chair Frank questioned whether an administrative fee was appropriate in situations where a municipality merely acts as a pass through from the state to a nonprofit or other grantee. SENATOR RANDY PHILLIPS came before committee and cited an example where municipal engineering and administrative costs on a highway project within his district utilized $450.0 of the $1.1 million project. Both Senator Kelly and Co-chair Frank voiced need to establish the 10% administrative fee as the maximum rather than the rule. Further discussion of engineering/architectural and administrative costs followed. Co-chair Frank voiced need to distinguish between pass-through situations and true administrative services. Co-chair Pearce asked that Co- chair Frank and staff work on proposed amendments. Senator Kelly suggested that the committee provide guidelines but leave the ultimate decision to administrators of individual grants. Co-chair Frank concurred in the need to provide more direction. Co-chair Pearce suggested that a letter of intent might be appropriate. Senator Kerttula inquired about savings that might derive from combining the grant program within a single department rather than the present division between two agencies. Mr. Stastny agreed that perhaps some savings could be achieved. He questioned, however, whether the Dept. of Community and Regional Affairs has authority to make grants to municipalities. Co-chair Frank asked how legislative designation portions of the bill would work. Mr. Stastny acknowledged that the provisions represent a change in the current bill over the one introduced in the past legislature. He then explained that communities would be required to submit projects to the Office of Management and Budget for inclusion within the budget. The legislature would either approve and fund or deny approval as it reviews and acts on the capital budget. Senator Kelly asked if the administration would only include 70/30 projects rather than 100% matches in the program. Mr. Stastny said that is how the capital budget had evolved in the past. The legislature then adds direct grants in the process of its budget review. Water and sewer projects within the Dept. of Environmental Conservation and school projects in the Dept. of Education would be requested per the current process. Further discussion followed between Co-chair Frank and Mr. Stastny concerning inclusion of community projects in priority order. Mr. Stastny explained that legal opinion indicates that the legislation cannot direct the Governor to fund projects in priority order. The bill thus states that the Governor should present them by priority or submit information explaining why they are not so listed. The Office of Management and Budget expects that they will be in priority order. Co-chair Pearce noted the newly enacted requirement that legislation impacting municipalities carry a municipal fiscal note. The note from the Dept. of Community and Regional Affairs appears to be a better fit for the appropriation bill rather than SB 88. She then asked that the department provide a municipal fiscal note indicating the percentage impact on each community rather than the specific $65 million dollar amount set forth on the present note. Co-chair Pearce directed that the meeting be briefly recessed prior to proceeding to discussion of SB 128. RECESS - 10:00 A.M. RECONVENE - 10:05 A.M.