SENATE BILL NO. 98 "An Act making supplemental appropriations, capital appropriations, other appropriations, and reappropriations; amending appropriations; making appropriations to capitalize funds; and providing for an effective date." This was the fourth hearing for this bill in the Senate Finance Committee. Co-Chair Wilken clarified that while department overviews pertaining to the fast track supplemental bill have concluded, several amendments from the Governor Frank Murkowski Administration have been received and would be explained to the Committee. After the bill was heard, the Committee would recess until late afternoon in order to allow Members to further review the legislation. Co-Chair Wilken reviewed the committee substitute work draft Version 24-GS1133\F and its accompanying spreadsheet dated March 1, 2005 [copies on file], and limited his remarks to those requests to which changes had been made. [NOTE: Confusion occurred as to whether the February 7, 2005 spreadsheet [copy on file] or the March 1, 2005 spreadsheet was being referenced. The following Sections are as depicted in the February 7, 2005 spreadsheet.] 9:16:53 AM Department of Commerce, Community and Economic Development Section: 2(a) RDU: Community Advocacy Supplemental Need: Small city energy assistance program $6,450,000 General Funds Co-Chair Wilken stated that a change to this Section would be that the specified $25,000, $50,000, or $75,000 community allocation would be used to pay toward the community's outstanding debt to the State's Bulk Fuel Loan Program. Any balance remaining after that payment could be applied toward the purchase of more fuel, with the condition that the invoice be submitted to the State. This money would lapse on June 30, 2005. Senator Olson understood therefore that a community whose debt exceeded its allocation would not have funds with which to buy more fuel. Co-Chair Wilken replied that that is correct. For example, a community with an allocation of $50,000 and an outstanding debt of $126,000, would have $50,000 paid towards its debt. Senator Olson asked whether any provisions have been included through which a community could acquire more fuel. Co-Chair Wilken responded, no. Department of Corrections Section: 3(a) RDU: Office of the Commissioner Supplemental Need: Support for enhanced correctional officer and probation officer recruiting efforts in urban and rural Alaska. Workplace Alaska alone is not bringing enough applicants. The department will purchase TV and radio spots, and advertisements in smaller publications in locations such as Seward, Bethel, Nome, Kenai, Eagle River and Mat-SU. $50,000 General Funds Co-Chair Wilken explained that the Department of Corrections would address the Section 3(a) funding request via the use of available FY 05 lapsed funds. AT EASE 9:20:17 AM / 9:20:17 AM Department of Corrections Section: 3(b) RDU: Administrative Services Supplemental Need: The department is seeking an e-procurement application to lower purchasing prices and improve efficiencies within the buying process for commodities, equipment, food, and services. $225,000 General Funds Co-Chair Wilken stated that Section 3(b) was zeroed out with the understanding that the e-procurement application system being furthered by the Department of Transportation and Public Facilities would be successfully developed and implemented in other departments. Department of Education and Early Development Section: 4(b) RDU: Mt. Edgecumbe Boarding School Supplemental Need: Residential operating costs related to expanded student population $800,000 General Funds Co-Chair Wilken stated that Section 4(b) has been zeroed out. It was "quite clear" last year when this issue was initially discussed that the Committee did not favor such an appropriation. However, the Administration made the decision to expend the money. Therefore "it is incumbent upon the Administration to find out how to pay for it." The Committee has continued to uphold its previous position. Senator Stedman voiced the expectation that funding for the School would be included in the FY 06 operating budget. Co-Chair Wilken remarked that this discussion pertains to the FY 05 supplemental request for the School. Funding is included in the FY 06 regular budget proposal. Senator Stedman, while recognizing "the merits of the table", voiced support for retaining the funding request. He acknowledged the School's funding inclusion in the FY 06 budget. Department of Environmental Conservation Section: 5(a) RDU: Capital Supplemental Need: Due to safety issues relating to emerging bioterrorism threats and animal diseases, changes in design were necessary to meet original intent and provide a safe and secure laboratory facility. This amendment provides additional funding to cover those design changes and complete construction of the new Environmental Health Laboratory $355,000 General Funds $500,000 Federal Unrestricted Rcpts $855,000 Total Funds Co-Chair Wilken noted that while this request would be fully funded at the $855,000 level, there would be a fund source change in that it would be supported entirely with General Funds. Department of Military and Veterans Affairs Section: 6(b) RDU: Disaster Relief Fund Supplemental Need: Base capitalization of fund $1,000.0; 2004 Bering Strait Sea Storm $4,054.4; Interior Earthquake shortfall $259.3; and Kaktovik Winter Storm $2,363.5 $7,677,200 General Funds Co-Chair Wilken stated that the 2004 Bering Straits storm, the Interior Earthquake shortfall, and the Kaktovik Winter Storm expenses would be provided for; however, the $1,000,000 base capitalization request was denied. Co-Chair Wilken commented that further discussion in this regard would transpire, as the Department has raised concern regarding the absence of the capitalization. [NOTE: Further clarification regarding the spreadsheets occurred. From this point forward, the March 1, 2005 spreadsheet is referenced.] AT EASE 9:24:47 AM / 9:25:44 AM Co-Chair Wilken stated that in order to avoid further confusion, he would reference Section numbers in his remarks. 9:26:24 AM Department of Administration Section: 7(a) RDU: Capital Supplemental Need: AOGCC costs for gas pipeline reservoir studies and depletion plan evaluations. $900,000 General Funds $300,000 Permanent Fund Corporation Receipts Total Funds: $1,200,000 Department of Law Section: 7(b) RDU: Civil Division, Oil, Gas and Mining Supplemental Need: Legal costs for work related to the state gas pipeline and to bringing North Slope natural gas to market, and other oil and gas projects for FY 05 and FY 06. $6,750,000 General Funds $2,250,000 Permanent Fund Corporation Receipts Total Funds: $9,000,000 Department of Natural Resources Section: 7(c)(1) RDU: Capital Supplemental Need: Gas pipeline risk analysis and royalty issues. $1,875,000 General Funds $ 625,000 Permanent Fund Corporation Receipts Total Funds: $2,500,000 Department of Natural Resources Section: 7(c)(2) RDU: Capital Supplemental Need: Gas Pipeline corridor geologic hazards and resource evaluation. $1,500,000 General Funds $ 500,000 Permanent Fund Corporation Receipts Total Funds: $2,000,000 Department of Revenue Section: 7(e) RDU: Capital Supplemental Need: Commissioner's Office - Work related to the state gas pipeline and to bringing North Slope natural gas to market. $3,975,000 General Funds $1,325,000 Permanent Fund Corporation Receipts Department of Revenue Section: 7(f) RDU: Capital Supplemental Need: Alaska Natural Gas Development Authority increased workload for gas pipeline $1,627,500 General Funds $ 542,500 Permanent Fund Corporation Receipts Total Funds: $2,170,000 Co-Chair Wilken stated that while these projects would be fully funded, the recommendation is that the "expenditures be run through" the Legislative Budget & Audit (LB&A) committee. Department of Natural Resources Section 7(d)(1) RDU: Operating Supplemental Need: Gas pipeline Bullen Point Road right-of-way permitting. $2,400,000 General Funds $ 800,000 Permanent Fund Corporation Receipts Total Funds: $3, 200,000 Department of Natural Resources Section 7(d)(2) RDU: Operating Supplemental Need: Division of Oil and Gas increased workload for gas pipeline. $2,025,000 General Funds $ 675,000 Permanent Fund Corporation Receipts Total Funds: $2,700,000 Department of Natural Resources Section: 7(d)(3) RDU: Operating Supplemental Need: Commissioner's Office increased workload for gas pipeline. $150,000 General Funds $ 50,000 Permanent Fund Corporation Receipts Total Funds: $200,000 Co-Chair Wilken stated that Sections 7(d)(1), 7(d)(2), and 7(d)(3) would be funded and would include a provision of an FY 06 lapse date. These requests would not be addressed through LB&A. He recalled that, three years prior, expenditures associated with another resource development project had been addressed through LB&A and, as per Senator Gene Therriault, LB&A chair that "worked out fine." LB&A has assured him that routing the gas pipeline expenditures through LB&A would not slow the State's gas pipeline efforts. Co-Chair Green noted that utilizing Permanent Fund Corporation receipts in this fashion is not a new process and has been utilized many times in the past. Co-Chair Wilken expressed that the use of Permanent Fund Corporation receipts as the designated Other Funds for resource development project such as the gas pipeline is a funding investment that would be reimbursed back into the Permanent Fund were the project successful. The gas pipeline funds would amount to 25-percent, or approximately $7,100,000, of the overall funding request. Therefore, this request has a Fund Source change in that General Funds would be partially replaced with Permanent Fund Corporation receipts. Senator Olson understood that Permanent Fund earnings would be utilized as a funding mechanism for the gas pipeline requests. Co-Chair Wilken affirmed. "We've done that in the past for resource development issues that come back in resource development receipts." Senator Stedman asked for confirmation that this would be the Permanent Fund Earnings Reserve Account. Co-Chair Wilken replied that, "technically, its Corporation receipts," but it is the Earnings Reserve Account. Co-Chair Green noted that this would be "in the same relationship as the deposit would be made from Revenue." Co-Chair Wilken communicated that it would be 25-percent, with the knowledge that the 25 percent would be returned. "That investment will pay itself off in multiples." Office of the Governor Section: 8 RDU: Arctic National Wildlife Refuge Supplemental Need: Funds for support of national efforts to open ANWR for oil and gas exploration and development. $375,000 General Funds $125,000 Permanent Fund Corporation Receipts Total Funds: $500,000 Co-Chair Wilken stated that, similarly to the gas pipeline funding, Permanent Fund Corporation Receipts would be utilized to partially fund efforts to open the Arctic National Wildlife Refuge (ANWR). [NOTE: The following Section is as depicted in the February 7, 2005 spreadsheet.] Department of Health and Social Services Section: 9(c) RDU: Health Care Services: Women's and Adolescents Services Supplemental Need: Feds reduced FFY 05 funding in the Breast and Cervical Cancer screening program. The fund source change will allow services to 1600 enrolled women that otherwise would not be served due to federal funding reductions. Funds will be required by late March or early April to continue the program. $500,000 General Funds ($500,000) Federal Funds Total Funds: 0.0 Co-Chair Wilken stated that Section 9(c) was not funded for the three reasons: in an effort to reduce costs, the Department is being asked "to raise the threshold of acceptance for those women that are at risk" to 40 years of age rather than accepting any female, regardless of age; further clarification as to whether the federal funds being eliminated were specifically directed to breast and cervical cancer support or were a general erosion of federal funds of which the Department chose to remove from this program; and finally, as reflected in the Committee's recent adoption of Amendment #1 for SB 51, the desire is to further clarify that, rather than the expectation being that the State would automatically offset further diminished federal funding of programs with general funds, re-evaluation of such an affected program should occur. [NOTE: The following request is as depicted in the March 1, 2005 spreadsheet.] Department of Military and Veterans Affairs Section: 11 RDU: National Guard Military Headquarters Supplemental Need: National Guard Audit Disallowance - Federal auditors have disallowed state expenditures in FFY 05 for a total of $937,234. This request will cover October 2004 to June 2005. An amendment will be offered in the FY 06 budget to cover these expenditures for the remainder of FFY05 and FFY 06. The department estimates they will run out of general funds by the end of March. $297,300 General Funds Co-Chair Wilken noted that the original $446,000 request has been pared down to $297,300, as it was determined that this level would be sufficient to address FY 05 actual needs. The FY 06 budget would address FY 06 funding requirements. Co-Chair Wilken expressed that this would conclude the changes made to SB 98. The original SB 98 General Fund request amounted to $97,082,200; this amount has been reduced to $87,656,000. Federal funds would amount to $99,380,800 and Other Funds would amount to $24,492,000 for a total amount of $211,529,700. These amounts are depicted on the March 1, 2005 spreadsheet. Co-Chair Wilken requested the Committee to review the Version "F" committee substitute, and submit any proposed amendments by three o'clock. The intent is that the Committee would recess and reconvene later in the day to further address the bill. Co-Chair Wilken ordered the bill HELD in Committee. AT EASE: 9:33:50 AM / 9:33:53 AM SENATE BILL NO. 98 "An Act making supplemental appropriations, capital appropriations, other appropriations, and reappropriations; amending appropriations; making appropriations to capitalize funds; and providing for an effective date." Co-Chair Wilken stated that the bill is again before the Committee in order to hear information regarding the Administration's proposed amendments to SB 98. The amendments are detailed in a handout dated February 28, 2005 from Cheryl Frasca, Director, the Office of Management and Budget addressed to the House and Senate Finance Committee Co-Chairs [copy on file]. Upon the conclusion of the overview, the amendments would be incorporated into a forthcoming committee substitute. CHERYL FRASCA, Director, Office of Management and Budget, Office of the Governor, stated that the proposed amendments would amount to approximately $9.5 million in general funds, five million dollars in Other Funds, and $8.7 million in Federal Funds. She reviewed the requests depicted in the handout as follow. FAST TRACK SUPPLEMENTAL AMENDMENTS Amend. Sec. 1, Department of Administration, by adding new subsections to read: (b) The sum of $5,003,000 is appropriated from the information services fund to the Department of Administration for State of Alaska network security infrastructure upgrades. KEVIN BROOKS, Deputy Commissioner, Department of Administration, reminded the Committee that the State experienced "a cyber attack on its network system in mid-January" 2005. This event has underscored the fact that efforts must be advanced "to solidify" the State's telecommunications and Information Technology infrastructure, and therefore, while $17 million was included in the Department's original FY 06 request to address this and other things, $5 million is being requested via this legislation to immediately address network deficiencies. He noted that federal agencies are involved in the investigation regarding the January attack. Co-Chair Wilken asked how the inclusion of this request in SB 98 would affect the Department's FY 06 network security budget request. Mr. Brooks stated that were this request included in the supplemental bill, a $12 million request rather than a $17 million request would be included in the FY 06 Capital budget. (c) The sum of $6,175,000 is appropriated from the general fund to the Department of Administration for Alaska land mobile radio (ALMR) infrastructure upgrades. 9:38:36 AM Mr. Brooks explained that this new $6.1 million general fund request would provide infrastructure upgrades to the Alaska Land Mobile Radio project (ALMR), which is a joint project being conducted with the federal Department of Defense (DOD). There are approximately 87 radio sites located between Kodiak and Fairbanks, which provide communications for voice data video. The request would provide enhanced service to the Department of Public Safety, the Department of Military and Veterans Affairs, and the Department of Administration to fulfill the State's obligation regarding its agreement with DOD "to shore up this network." Mr. Brooks stated that this money would allow the State to meet some May 2005 contractual deadlines. A similar amount of money would be requested in the FY 06 budget to continue these upgrades. The federal government has provided approximately $43 million to purchase equipment for these sites, and in addition, has pledged an additional $100 million investment in this regard. Senator Dyson asked how this request would impact the FY 06 budget. Mr. Brooks stated that the total ALMR funding would amount to approximately $12,400,000. Were this request granted, the $6,400,000 balance would be included in the FY 06 capital budget. Senator Dyson surmised therefore that this six million dollar increment would be in addition to the Department of Military and Veterans Affairs' proposed FY 06 budget. Mr. Brooks clarified that this request would be included in the Department of Administration's FY 06 capital budget. Ms. Frasca noted that a budget amendment to this effect was recently submitted. Mr. Brooks expressed that while work on the ALMR project has been conducted for several months, the request was not been submitted earlier as details were too vague. Senator Olson asked what benefits would be provided by the upgrades. Mr. Brooks explained that each of the sites, ranging from road to mountaintop sites, has a communications tower and an approximate ten by twenty foot housing structure for the radio equipment, generators, and batteries. The current equipment is old and must be updated for compatibility and security reasons. An upcoming military exercise would require communication component enhancements that would be supplied by the military. Senator Olson asked the reason State funding is being requested if the federal government is supplying the equipment. Mr. Brooks expressed that the military would be supplying equipment specific to their needs. The State funds being requested would provide for the upgrades for the multitude of State agencies that utilize the network. This would include first responders, the Department of Transportation and Public Facilities, the Department of Health and Social Services, and the Alaska Railroad. Once the upgrades were in place, DOD would further commit to paying for on- going operating and maintenance expenses associated with these sites. Co-Chair Wilken understood that the reason this amendment is being proposed "is because the federal government did something to jumpstart us." Mr. Brooks replied "not exactly". The agreement between the State and DOD has existed for several years. The driving force behind this amendment is to coordinate the needs of the various State departments and DOD and to upgrade "42 of the most critical sites" in order to have them tested and functioning before the beginning of the August 2005 military exercise. The request was delayed in order to provide updated and accurate information. Co-Chair Wilken stated that, considering the amount of money involved, an ALMR briefing would be appreciated. Mr. Brooks stated that a briefing could be conducted. Amend sec. 6, Fund Transfers, by amending subsection (a) and adding a new subsection to read: (a) The sum of $10,004,200 [$6,813,300] is appropriated from the general fund to the Alaska marine highway system fund (AS 19.65.060(a)). Ms. Frasca stated that this amendment would increase the general fund appropriation to the Alaska Marine Highway System Fund to provide for the monetary terms of the Inlandboatmen's Union of the Pacific contract, which is further specified in Amendment sec. 13 on page two of the handout. Approximately $3.2 million would be required to address the costs of the FY 05 contract. Two sections in the Administration's amendments pertain to this contract. Co-Chair Wilken noted that the packet contains a January 26, 2005 memorandum [copy on file] from Ray Matiashowski, Commissioner of the Department of Administration to Senate President Senator Ben Stevens regarding the specifics of the contract. (c) The sum of $5,003,500 is appropriated from proceeds of the State of Alaska master lease line of credit program to the information services fund (AS 44.21.045(a)) for purposed of financing the following Department of Administration fiscal year 2005 capital project request: PROJECT AMOUNT State of Alaska Infrastructure $5,003,500 Network Security Upgrades Ms. Frasca stated that Sec. 6, subsection (c) relates to the financing mechanism being proposed to pay for the five million dollars of network security infrastructure upgrades previously discussed in Amend. Sec. 1, subsection (b). This line of credit, which had been included in the FY 06 budget, would be moved forward to fund FY 05 network expenses with the intent to bill agencies through the "EPR rate" in order to access both "State and non-State fund sources to repay this line of credit over time." Co-Chair Wilken understood that this money was part of the original $17 million request. Ms. Frasca affirmed. Amend sec. 8, Office of the Governor, by adding a new subsection to read: (b) The sum of $160,000 is appropriated from the general fund to the Office of the Governor, division of elections, for increased costs for the fiscal year ending June 30, 2005. Ms. Frasca stated that this amendment would provide funds to the Division of Elections to address increased costs associated with such things as the AccuVote voting machines maintenance and lease cost increases in FY 05. Postage and shipping costs, unassociated with separate Division of Election legislation that had previously reported from Committee, would also be provided for. Amend sec. 13, Salary and Benefit Adjustments, by adding new subsections to read: (d) The sum of $3,190,000 is appropriated from the Alaska marine highway system fund (AS 19.65.060(a)) to the Department of Transportation and Public Facilities, marine vessel operations, in order to implement the monetary terms of the collective bargaining agreement for the Inlandboatmen's Union of the Pacific, representing the unlicensed marine unit, for the fiscal year ending June 30, 2005. (e) If the appropriation made by (d) of this section takes effect, it takes effect on the date the collective bargaining agreement listed in (d) of this section is ratified by the membership of the respective collective bargaining unit. Ms. Frasca stated that this request would address FY 05 expenses associated with the collective bargaining agreement for the Inlandboatmen's Union of the Pacific, which was previously discussed. "This is the actual appropriation from the Marine Highway System Fund to make those payments." Amend sec. 15(a), Department of Transportation and Public Facilities Federal Projects, to read: Sec. 15. DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES FEDERAL PROJECTS. (a) The appropriation to the Department of Transportation and Public Facilities for the Airport Improvement Program made by sec. 1, ch. 159, SLA 2004, page 35, line 22, is increased by appropriating from federal receipts an additional $14,285,000[$5,850,000], to be allocated as follows: (1) Kotzebue: Obstruction Removal and Safety Area (HD 40) $5,300,000 (2) Tenakee Springs: Seaplane Float Rehabilitation (AD 5) 550,000 (3) Cold Bay: Airport Terminal Master Plan (HD 37) 200,000 (4) Deadhorse: Airport Runway Safety Area Expansion (HD 40) 8,000,000 (5) Unalaska: Airport Terminal Master Plan and Improvements (HD 37) 500,000 Ms. Frasca stated that this is the Administration's final amendment to the Fast Track Supplemental bill. These three capital projects being added could get underway in March or April 2005, provided the authorization is given to spend the federal funds early. Co-Chair Wilken calculated that the State would be realizing an additional nine million dollars in federal funding. Ms. Frasca deferred to the Department of Transportation and Public Facilities in order to ascertain whether this would be additional funding. Co-Chair Wilken asked whether funding for this request would replace other projects. NANCY SLAGLE, Director, Division of Administrative Services, Department of Transportation and Public Facilities, stated that this amendment regards federal airport improvement funding. Some of the funding is discretionary in that it is additional funding that was made available to the State from the Federal Aviation Administration (FAA). Approval of this amendment would not result in replacing any other funds that the Department would receive in its regular entitlement program. Co-Chair Wilken asked regarding the reference to HD 40 and HD 5. Ms. Frasca clarified that "HD" is a reference to House District. Amend sec. 17(a), Lapse of Appropriation, to read: (a) The appropriations made by secs. 1(b), 1(c), 7(a), 7(c), 7(d), and 7(e) of this Act are for capital projects and lapse under AS 37.25.020. Ms. Frasca expressed that this technical amendment would specify that the funds being requested in Section 1(b) and 1(c) for the ALMR and network security upgrade requests would not lapse. Ms. Frasca stated that this concludes the Administration's amendments to the Fast Track Supplemental bill. Co-Chair Wilken ordered the bill HELD in Committee.