SPONSOR SUBSTITUTE FOR SENATE BILL NO. 20 An Act establishing the Alaska municipal basic services program, relating to certain programs of state aid to municipalities and recipients in the unorganized borough; and providing for an effective date. Co-chairman Halford directed that SSSB 20 be brought on for discussion. KEVIN RITCHIE came before committee on behalf of the Alaska Municipal League and the Alaska Conference of Mayors. He voiced support for the bill and described efforts that led to development of the legislation over the past two years. END: SFC-96, #51, Side 2 BEGIN: SFC-96, #52, Side 1 SENATOR TORGERSON, sponsor of the legislation, next came before committee. He explained that the bill renames the "municipal assistance" portion to "revenue sharing for safe communities." Provisions require moneys received from safe communities to be spent on certain public purposes, require municipalities to list notice to taxpayers of the amount of money received from safe communities, and allow the base amount to be prorated. Since establishment in 1978, the base amount was held harmless from cuts. This funding is the former business license tax. The legislation "takes money from all the communities and raises the minimum entitlement to smaller communities to $40.0." Funding required for the transition totals $238.9. That amount is prorated from each community. The bill also changes the date of the payment to coincide with the earlier payment so that both sections are paid on July 31. That results in one payment for both revenue sharing and safe communities. The remainder of the bill involves housekeeping measures. The sponsor further described past efforts to rewrite municipal assistance and revenue sharing programs. He said he had been involved in attempts to change the formula so that "We wouldn't have many winners and losers when we tweak the formula." The approach proposed within CSSSSB 20 (CRA) is overwhelmingly supported by the Conference of Mayors, the Alaska Municipal League, and communities that are not members of either of the foregoing organizations. Senator Torgerson attested to past controversy over the fiscal note. The fiscal note from the Dept. of Revenue derives from moving the $29.4 million payment from February to July 31. Senator Torgerson said he did not agree with the resulting ($874.0) fiscal note. He advised that part of the reason for advancing the payment date is the fact that July is one of the only months in which the state has a surplus. The proposed bill would entail expenditure of part of the surplus and would not involve the constitutional budget reserve. In response to a question from Co-chairman Halford, Senator Torgerson directed attention to a tabulation (copy on file) listing funding to be received under the existing municipal assistance program versus that in the proposed bill. He then spoke to impact on specific communities. Responding to a question from Co-chairman Halford, Senator Torgerson explained that the idea behind the $40.0 minimum entitlement is to transform every community below that level up to that mark. That would take care of this fiscal year. In future years, if there is a reduction in the program, each community will take the same amount of reduction. The $40.0 is not held harmless forever. Co-chairman Halford asked if the one-third, two-third split between safe communities and state revenue sharing, respectively, would remain in place. Senator Torgerson responded affirmatively. He added that state revenue sharing is distributed on a per capita basis while the one-third split is distributed "into the safe communities portion." Co-chairman Halford voiced his understanding that the appropriation goes through that separation and is prorated for each community. He then asked if separation and proration apply to both total and minimum entitlements. Senator Torgerson said that the minimum entitlement is not subject to "the safe communities portion." Minimum entitlement "comes out up front." BILL ROLFZEN, State Revenue Sharing, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs, came before committee. Speaking to the one- third/two-third split, he explained that the intent was to allow the base amount to be subject to cuts in the future. For the FY 96 appropriation to the municipal assistance program, one-third went to the base amount and two-thirds went to the per capita account. If the overall appropriation is reduced, each account would be subject to the same amount of cuts. In response to a question from Co-chairman Halford asking how the minimum entitlement would be impacted, Mr. Rolfzen responded, Okay, we go through the revenue sharing program. We go through the municipal assistance (now called the safe communities formula). If after we go through the entire formula, there are some municipalities that don't have a total of $40.0, going to that municipality, we go to the per capita account under the safe communities fund and grab enough money to bring everybody up to $40.0. Mr. Rolfzen further added, "But, no one gets an absolute $40.0. The intent was that all municipalities share in bringing up the smaller communities to $40.0." If there is a cut, they are also to share in that cut. He then directed attention to the distributed tabulation and noted that for the first year some municipalities at the $40.0 level would actually be receiving $39.9. In response to a question from Co-chairman Halford, Mr. Rolfzen acknowledged that under existing revenue sharing the minimum is $25.0 times the cost-of-living differential. There is no minimum entitlement under municipal assistance. The proposed bill would set a minimum of $40.0 and bring approximately 41 of the "very small communities" up to $40.0. It would cost approximately $238.0 statewide. Smaller communities would also share in bringing communities to the $40.0 threshold. PAT POLAND, Director, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs, next spoke via teleconference from Anchorage. He expressed support for the bill and advised that it contains improvements to municipal assistance and revenue sharing programs. It effects changes in a fair and "generally balanced manner." It is important that the state protect its investment in public infrastructure made through municipal governments. Establishment of a minimum funding level is an important step in that direction. Removal of the holdharmless provision will provide for better program equity. Moving the date for the safe communities payment forward will enable larger municipalities to minimize impacts from cuts. In his concluding remarks, Mr. Poland acknowledged a difference between departments over the fiscal impact of the date change. He then voiced support for a date that "basically gives us the fiscal impact at the lower end of the fiscal note submitted by the Dept. of Revenue." Senator Rieger referenced a proposed amendment and explained that when the legislature passed legislation relating to the ranking of school projects, the listing of a priority list in statutes produced an awkward result in which the first item on the list was required to be exhausted, in its entirety, before proceeding to the next item. That was not the intent. To clarify the situation, the proposed amendment contains the following language: Subsection (c) of this section may not be construed to require a municipality to fund all requests it receives for services in a category with a higher ranking of priority before funding services in a category with a lower ranking of priority. The Senator then MOVED for adoption of the amendment. Senator Torgerson acknowledged that the amendment clears up problems within the bill. No objection having been raised, Senator Rieger's amendment was ADOPTED. To an inquiry from Co-chairman Frank concerning the repeal within Sec. 13, Senator Rieger explained that the clause required a municipality to reduce taxes in response to revenue sharing and municipal assistance increases. Co-chairman Frank asked if the bill deals with both revenue sharing and municipal assistance. Senator Torgerson responded, "basically just municipal assistance." The Co- chairman then voiced his understanding that the primary thrust is to increase the minimum entitlement to $40.0. Senator Torgerson added that it also removes holdharmless provisions. Discussion followed regarding the current workings of holdharmless language. Additional discussion followed regarding minimum entitlements under the proposed bill. Co-chairman Frank asked if the legislation would cover unincorporated areas. Senator Torgerson responded negatively. In response to inquiries from Co-chairman Frank concerning municipal support, Senator Torgerson said that both the mayor of the Fairbanks Borough and the mayor of the City of Fairbanks worked with the mayor of Anchorage in putting the proposed plan together. VERN VOSS, Cash Manager, Treasury Division, Dept. of Revenue, came before committee in response to questions regarding cash flow and the department fiscal note. He explained that if funds are paid to municipalities in February versus July, the state must borrow money from the constitutional budget reserve or another source. In the alternative, if excess funds are available, early payment would effect a reduction in interest income. JOHN STEIN next testified via teleconference from Wasilla. He voiced support for the legislation, saying that the Alaska Municipal League and the legislature have developed "something that sort of makes sense out of municipal funding." He voiced further support for the public relations campaign to explain to voters that "This is really a sloughing . . . a pushing down of costs to the municipal governments." That should be understood. Mr. Stein urged support for the bill and local governments. Co-chairman Frank MOVED for passage of CSSSSB 20 (Fin) with individual recommendations and accompanying fiscal notes. CSSSSB 20 (Fin) was REPORTED OUT of committee with a zero fiscal note from the Dept. of Community and Regional Affairs and a note from the Dept. of Revenue projecting a revenue reductions of $(874.0). Co-chairmen Frank and Halford and Senators Sharp and Zharoff signed the committee report with a "do pass" recommendation. Senators Donley, Phillips, and Rieger signed "no recommendation."