SENATE BILL NO. 32 "An Act making and amending capital appropriations and reappropriations and capitalizing funds; and providing for an effective date." Co-chair Torgerson introduced SB 31 and SB 32 saying these were the capital budget bills, including mental health. He informed the committee that separate subcommittees would be appointed and meetings would be held for individual departments. He then appointed Senator Donley, chair; Senators Wilken, Torgerson and Adams to examine the capital budget and asked their report be completed by 4 April 1999. All Finance committee members and other legislative members were welcome to attend the subcommittee meetings. Senator Adams said the subcommittee would act as a working party and then recommendations would be brought before the full committee. Senator Torgerson concurred. ANNALEE MCCONNELL, Director, Office of Management and Budget was invited to join the committee. She said she looked forward to working with the committee. Ms. McConnell said the general fund portion of the budget had been reduced about $4 million. Several adjustments on projects had been made. Last year there was a $200 million portion of the capital budget funded with bonds. She said the total dollars would be less than last year, but would still cover many essential projects. She referred specifically to Village Safe Water noting there were more funds available. $6.6 million of State funds would be reduced in capturing Federal funds. They were not able to fund projects such as deferred maintenance, school construction and maintenance in the current budget. In referring to the budget that was provided in December it was noted there were reductions in the debt service. She explained there was an excellent cash flow from AHFC that allowed for the reductions. This was due to a change made in their proposal for use of the AIDEA dividend. Monies were also used for other specific projects such as the corps of engineeers and community projects. However, many communities were fearful of capital matching grants in that there would not be enough funding available. In the context of the current fiscal year she felt they were in a position of having stability for next year. She referred to increased funds through the motor fuel tax for road construction. She advised the committee that prisons had not been taken into consideration but hoped this could be focused on shortly. Also school construction and maintenance. Senator Wilken posed a question about AIDEA and the approximate $18 million they were going to make available. Ms. McConnell responded and said the proposals had been made for rural matching grants, transportation and corps of engineer program. (A handout from the Office of Management and Budget was copied and passed out to committee members.) Co-chair Torgerson asked Ms. McConnell for clarification of the Denali Commission. Would this go through the Legislature? Ms. McConnell said she was not up to date on this commission. However, she said the projects would be done directly through the Federal government rather than the State. Senator Torgerson said there should be some coordination in order to prevent double funding. DAN EASTON, Director, Department of Environmental Conservation was invited to join the committee. He explained that monies captured from Federal grants were put back into the Alaska economy. They provide low interest loans to communities and he explained this process for the committee. They do it each year and it is a simple process. Applications are sent to the communities across the State. If there are any problems on behalf of the communities they are happy to help them out. Upon receipt of the applications they are ranked as followed: Will the project fix a public health problem? Has the community secured other funding for the project? Is the community able to operate the system? Senator Donley asked if the criteria were adopted in the regulations and asked a copy be provided the committee. Senator Phillips asked who paid for sewer and water? Mr. Easton responded that it was paid for by the communities. Senator Phillips asked if the communities taxed themselves? Mr. Easton responded yes. Senator Leman asked about roving operators who assisted the communities. Mr. Easton explained how these individuals helped the communities in filling out their applications for grants. Senator Phillips asked about grants and low interest loans. Mr. Easton said last fiscal year the amount in grants was approximately $76.7 million, about $23 million was in loans and the balance was grants. In further response to Senator Phillips, Mr. Easton said he did not have the figures at hand specifically for the grants but would provide the committee with a breakdown including both loans and grants. Senator P. Kelly asked about certain recommendations for water quality and asked if this was checked with the Division of Public Health? Was this treated as a public health issue or environmental issue? Mr. Easton said this was an environmental health issue. He defined environmental health as requested by Senator P. Kelly. Public Health would investigate water quality and sanitary and unsanitary conditions. Senator P. Kelly asked what would happen in case of a dispute between public health and environmental health? Mr. Easton responded. Senator Kelly said this should be investigated as there had been some problems with who was making the health decisions with respect to grants being given to projects. Senator Parnell said the subcommittee could look into this matter and then report back to a full Senate Finance Committee. Co-chair Torgerson asked this fiscal year amount in grants and loans. Mr. Easton referred to the total capital budget summary. Mr. Easton said there were seven appropriations made. They were funded by Federal funds and State matching grants. He said the funding from the US Department of Agriculture goes directly to the communities and is then matched with State funds at the community level. Senator Parnell asked to return to the criteria issues and asked Mr. Easton to explain. Mr. Easton said they had not found a need to regulate these. Senator Parnell asked how general public health was accounted for. Mr. Easton suggested Mr. Capito be called before the committee to answer this specific question. GREG CAPITO, Section Chief, Village Safe Water Program, Division of Facility Construction & Operation, Department of Environmental Conservation was invited to join the committee. He cited an example of a hepatitis outbreak and said they did a study finding a tainted water problem. He explained the school wanted a better and safer water system. After having brought this before the Legislature they now have a safe water system. This was a financially solvent program on line. Senator Parnell said this did not particularly address the criteria issue as requested. Mr. Capito further explained a public health risk. For instance a potential risk for unprotected water. Senator Parnell referred to a greater health risk in a larger community and there should be better criteria to address these situations. Mr. Capito responded. Tape: SFC - 99 #7, switched from Side A to Side B 3:51 PM Mr. Capito continued. There are other factors that emphasis was put on. They have been audited multiple times by LB&A. However they have not received criticism from the communities. Senator Green asked who participated in the programs. Mr. Capito explained that unincorporated areas, second class cities and first class cities all participate in these programs and services. Senator P. Kelly felt there should be some regulation issues. Under the environmental section he asked if the EPA standards would be different from the epidemiologists standards? He suggested perhaps the epidemiologist should make the final call regarding the health issues. Senator Donley asked how a decision would be made between two communities with the same needs one larger than the other? Mr. Easton said it would depend on the magnitude of the disease. Population is not figured on his criteria system handout. Mr. Capito further explained that if two communities had same disease problems and both were documented by epidemiologists that would not be the only deciding factor as to funding the project. There would be other criteria involved. Senator Donley asked for an explanation. Mr. Capito said probably both would be funded. Senator Donley asked if the Department of Law had been asked for an opinion regarding these matters? Mr. Capito said there had been many opinions from the Department of Law and would make them available for the committee. Mr. Easton continued his overview of appropriations. He noted a project for $800,000 last year that was not included this year, therefore there were only 7 projects. He explained the Clean Water Loan Fund and Drinking Water Loan Fund. Approximately $9,649.5 would be available for loans under the Clean Water Loan Fund and approximately $8,956.6 would be available under the Drinking Water Loan Fund. The next appropriation was for Village Safe Water Project administration. Approximately $12 million more federal funds could be still captured. There was an increase in $10 from USDRA. However it did not come through the capital budget for appropriation. Senator Torgerson asked who determined the criteria for disbursement of that money. Mr. Easton said the department did. Senator Leman asked about the change from FY 1999 to FY 2000 in the approximate amount of $600,000 for administration. Mr. Easton said this was to cover additional staff. He said they were under-funded for administrative purposes because they had left over appropriation monies that could still be used. He said the same option was not available to them this year. They need these funds to be able to continue at the same level as last year. He explained the increase in workload was at approximately 36%. A 12% increase in staff was needed to cope with this work load increase. Senator Leman said this should be looked at under the subcommittee level. Senator Wilken referred to US Rural Development and asked this be clarified. Mr. Easton responded. He explained the department spreadsheet. He said there was no total but each project was listed. They discussed the table, pages 2 and 3 under the capital budget hand out. Senator Phillips asked the employee situation at the department be explained. Mr. Easton said the department was fully privatized. The rate of default on loans is zero. Senator P. Kelly asked if they were overmatched on the funds? Mr. Easton said no. Mr. Easton continued explaining the municipal water/sewer match. It would be $2 million less on State matching funds. He identified operating budget items for the committee. (see operating budget items of the handout) He said they lumped their funds into one. Senator Torgerson asked if there was a federal cap on the funds. Mr. Easton said there was a cap on the EPA funds. Their cap was $2 million. There was also a cap on USDRA. However as explained, those funds go directly to the communities. Mr. Easton concluded his overview. He explained that the village safe water and municipal matching grant books were in detail to his presentation. MIKE BURNS, Section Chief, Municipal Grants and Loans, Department of Environmental Conservation was invited to join the committee. He explained what was published in the municipal matching grant book. Figures were received from the communities and the Department of Labor. Senator Donley referred to Kenai Peninsula Fisherman vs. State, 628 P2d 897 (1981) court case. Senator Adams asked that all new CS be submitted to the committee at least 24 hours prior to the meeting so that there is time for review. Senator Torgerson concurred. However, on this specific occasion he felt this CS was self- explanatory. Senator Donley also concurred with Senator Adams. ADJOURNED Senator Torgerson adjourned the meeting at 3:51 PM. SFC-99 (8) 01/26/99