CS FOR SENATE BILL NO. 291(CRA) "An Act relating to the municipal harbor facility grant program; and providing for an effective date." 9:18:56 AM This was the first hearing for this bill in the Senate Finance Committee. SENATOR BERT STEDMAN, the bill's sponsor, provided background information pertinent to the bill. Approximately 30 years ago, most municipal harbors were constructed with State funds. Agreements were set forth which, in essence, made the State responsible for major harbor maintenance projects and the municipalities responsible for harbor operations. However, over time, the arrangement did not "work very well", and user fees were insufficient to fund aging harbors' major maintenance and replacement needs. Eventually the State issued a bond obligation and used the proceeds to pay municipalities to assume responsibility for their harbors. Senator Stedman reported that the transfer program initiated a "heated debate" between the State and the municipalities in regard "to what they were getting and the condition of the asset". Many communities accepted their harbors, but felt they were receiving 30 to 50 cents on the dollar and being "stuck with huge maintenance" and replacement expenses. In order to address those looming expenses, many communities adopted plans to increase such things as harbor rental fees. Senator Stedman declared this bill would address the continuing debate between communities and the State. It would implement a program to provide a 50 percent capital matching grant to coastal communities that desire to upgrade, expand, or construct new harbors. In contrast to the original agreement in which the State funded such projects "with no strings attached", this program would implement "stringent requirements" in order for a community to receive the 50 percent match. The requirements would include the development of fee structures that would allow the community to provide for maintenance and operational expenses and replacement reserves. The program would be limited to no more than one grant per community per year and total State match funds of five million dollars per harbor. Thus a ten million dollar harbor project could be funded with five million dollars of community funds and five million dollars of State funds. This would be sufficient to fund a large harbor project, as attested to by the completion of a recent large harbor project in Juneau that cost approximately $6,500,000. Senator Stedman pointed out that as specified in Section 1, page 1, line 8, the proposal would include "permissive language" in that the Legislature "may appropriate" up to ten million dollars annually for approximately ten years. This money would be comprised of up to five million dollars from both the marine fisheries business tax and the marine fuel tax. The money would be distributed first to communities that received harbors via the transfer, and then to other communities on a list ranked by the Department of Transportation and Public Facilities (DOT), which would administer the program. Senator Stedman disclosed that a tremendous amount of dialogue and compromise between DOT, the Alaska Association of Harbormasters, communities, and Legislators "who have been active in this area" contributed to the development of this program. It is an attempt to settle the on-going State/local harbor dispute and an effort to ensure that harbor infrastructures would be maintained. Individual communities would establish harbor rates at a level sufficient to provide maintenance and replacement funds. A community could also choose to support its harbor infrastructure through general fund subsidies or other mechanisms. In any case, the program's requirements must be met in order to qualify for the match program. He understood that all harbors either have or would be increasing harbor user rates. While "harbor users are squealing" about the higher rates, the increases are necessary. 9:25:02 AM Senator Bunde asked how the revenues generated from the marine fisheries business tax and the marine fuel tax are currently utilized. Senator Stedman stated these tax revenues are deposited into the State's general fund. Currently, fifty percent of the fisheries business tax, also referred to as the "raw fish tax", is distributed to affected communities via the legislative process. The Legislature also allocates revenues from the marine fuel tax to those communities' general funds. The bill's permissive language would allow the Legislature to utilize proceeds from these taxes for this program. Nonetheless, since the revenue generated from these taxes is currently deposited in the State's general fund, they are considered "general fund assets". Thus the program would be funded by a general fund allocation. 9:26:03 AM Senator Bunde concluded therefore, that the funding mechanism supporting this program would be the general fund. 9:26:13 AM Senator Stedman reiterated that the raw fish tax is currently split between communities and State's general fund. The effort would include allowing harbor users to support harbor needs, as "when people have an equity position in something, or are paying for something, they are more inclined to take care of it". Senator Stedman stressed that no new community harbors should be constructed without a maintenance plan in place. Efforts must be made to break the long-term cycle in which the State constructs infrastructure, and then, due to a lack of maintenance, must spend more money to fix it. 9:27:17 AM Co-Chair Green understood therefore that, under the current scenario, a community could argue that the harbor transferred to them from the State had not been in the proper condition, and, therefore the State should pay for the required upgrades. "The beauty of this is that once" a community receives harbor improvement funding through this program, they would be ineligible to receive more. Senator Stedman also clarified that other forms of State funds provided to the community could not be utilized as the local match. The local match must consist of municipal equity generated by such things as local revenue bonds, general funds, or harbor enterprise funds. 9:28:59 AM Senator Hoffman asked how the award process specified in Section 1 Sec. 29.60.820(c) page 3 line 13 would be implemented; specifically whether DOT would develop regulations in regards to how the five priority criteria would be weighted. 9:29:54 AM Senator Stedman stated DOT would implement a ranking process procedure through which the funds would be dispensed. In order to not advantage one community over another, no community could receive more than five million in one year. 9:30:36 AM KIM CARNOT, Staff to Senator Stedman, stated that the five criteria specified in subsection (c) were developed with the assistance of DOT and the Alaska Association of Harbormasters. "DOT would adopt their own regulations." 9:31:16 AM Senator Dyson voiced appreciation for the efforts exerted to address harbor needs. As a result of environmental exposure, "harbors deteriorate faster, when neglected, than any other public infrastructure". He cited examples of harbor deterioration he had witnessed. Water transport infrastructure is important to residents and commercial enterprises in this State. 9:32:25 AM Senator Olson asked whether large and small communities in the State would equally benefit from the program. 9:32:44 AM Ms. Carnot responded, "any community is essentially eligible for this program". Communities receiving harbor transfers from the State would have first priority for major maintenance needs. New construction projects would have lower priority. The goal of the program would be to utilize revenues generated by the coastal communities from such things as the raw fish tax to benefit those communities. The five million dollar limitation was specified in order to avoid having a larger community "absorb all" the available funding to the detriment of a small community. 9:33:40 AM Senator Olson asked whether the program would be available to harbors outside of Southeast Alaska. Ms. Carnot remarked that any community with a harbor or that intended to build a harbor would be eligible. Senator Hoffman asked whether a community having solely a dock and no harbor would be eligible. Senator Stedman stated that such things as breakwaters, dikes, dredging operations, and jetties were intentionally omitted from the bill. Large commercial docks or wharfs would also be disqualified. The reason for these exemptions is "the sheer cost of them" as well as the anticipation that such projects might qualify for federal funding. This program would be specific to communities' float systems and associated things such as electric, water, and parking lots. Senator Hoffman asked whether "quasi-government" entities such as the Community Development Plan (CDQ) groups in Western Alaska, would be eligible for the program. CDQ communities are Bering Sea coastal communities to whom the State awarded a share of the offshore groundfish harvest. Senator Stedman affirmed CDQ communities would qualify for the 50 percent capital match program. Transferred dock projects would receive first priority, and any remaining funds could be allocated to support new harbors or expansions. 9:36:55 AM Co-Chair Green was impressed by the grant application language, specified in Section 1 Sec. 29.60.810(1) through (4) page 2 lines 7 through 29 that would require an eligible municipality to insure its harbor facility, implement a preventive maintenance plan, and provide a fifty percent match of the harbor project cost. These requirements would be "a major step forward". 9:37:55 AM JOHN STONE, President, Alaska Association of Harbormasters and Port Administrators, and Harbormaster, City and Borough of Juneau spoke in support of the bill. The Association participated in the development of the bill and is therefore familiar with its provisions. "It is a good resolution to the dilemma that we face and we believe that it will, in the long term", allow community harbors to become self-supporting in regards to harbor operations and capital replacement needs. The 27 municipal harbor systems represented by the Association have operated harbors for numerous years and have established fee programs, such as enterprise funds allowable under municipality law, to support their operations. Mr. Stone shared that, since the harbor facilities and infrastructures were initially owned by the State, none of the communities had established replacement funds to meet infrastructure needs. The level of money accompanying the harbor transfer was insufficient to address the majority of harbor replacement needs as most of the facilities were "at the end of their useful life, beyond economic repair". Thus, communities were forced to increase local harbor service fees. For instance, existing fees in Juneau have doubled or tripled and new fees were added. Juneau would also be issuing a revenue bond through the Alaska Bond Bank to further assist the community in addressing replacement expenses. Even these efforts would not entirely address the infrastructure needs, and therefore, absent additional funding assistance, some facilities would "disappear over time". 9:41:04 AM Mr. Stone communicated that the majority of community harbors are facing similar situations and most have implemented "drastic rate increases". He warned however, that increasing fees too much would drive harbor users away. While funds for a large capital project could be raised over an extended period of time, having to address such projects in a short time period would be challenging. Unfortunately, most of the transferred harbor facilities would require replacement needs within a few years. Mr. Stone stated that a tour of the harbor facilities would be enlightening to Committee members. Infrastructure needs would include electrical system upgrades, addressing "serious safety hazards", and float system replacement. "The 50 percent matching requirement is a good approach." He reiterated Co-Chair Green 's observation that once a harbor is funded through this program, it is removed from the list. Thus, over time, the State would be weaned from supporting community harbors. That is the goal of this program. 9:42:31 AM Senator Dyson reaffirmed his earlier comments about the importance of harbors to both recreational and commercial users. 9:43:24 AM Mr. Stone declared "harbor systems are probably the best business creator in the State". The system supports recreational activities such as sailing and subsistence and sport fishing. Commercial endeavors include commercial fishing fleets, fishing and sightseeing charters, and freight operators. "A tremendous amount of economic activity is generated through the harbors." Studies conducted by the Association conclude that harbors in most communities "are a substantial portion of the gross economic product of those communities". 9:44:34 AM Senator Olson asked for examples of the harbor fees being charged. Mr. Stone responded, "each harbor system has its own fee structure". Juneau, for instance, "has 142 different types of fees …. Basically anybody that uses one of our harbor assets" must pay a user fee. The harbor fee structure could be likened to that of a utility company in that costs "are allocated" and "apportioned to the user". A public harbor system fee structure typically is more complicated than a private facilities' due to its need "to strive for equity among the users". Senator Olson asked whether a person in a rowboat would be required to pay a fee. Mr. Stone replied that moorage fees would be assessed were the boat tied to the dock more than four hours. 9:46:04 AM Senator Olson asked whether the program would be available to private harbors. Ms. Carnot replied no; this grant program would be limited to municipalities with public harbors. 9:46:26 AM KATHIE WASSERMAN, Deputy Director, Alaska Municipal League, and former Mayor of Pelican, spoke to Senator Dyson's remarks. In many small communities, such as Pelican, the harbor is the only way to access the town. In those cases, it is imperative that the harbor facility be maintained. She was mayor of Pelican when the State transferred that harbor to the community, and she could attest to the deteriorated condition of the facility. The money each community received in the harbor transfer program "was based on the value of the harbor". Thus the money provided to Pelican was a meager amount, as the harbor was not worth much. "It was sinking in most places." While the community was able to fix a portion of the harbor, "three or four major fingers" could not be addressed. "The 50/50 match program is a very good way to go", as communities would have ownership of the project. Even though most communities would prefer to be self reliant rather than being supported by the State, assistance would be appreciated. In response to a remark from Senator Bunde, Ms. Wasserman reiterated that communities such as Pelican never desired to be solely reliant on State funding. Nonetheless State assistance through this program would be appreciated. 9:48:26 AM Co-Chair Green shared having received numerous harbor project requests for the FY 2007 capital budget bill. The majority of those requests sought 100 percent State funding support. Continuing, she noted that the permissive language of the bill would not obligate the Legislature to fund the program. Senator Bunde spoke against the bill. In essence this program would provide three-quarters of the revenues collected by the raw fish tax to communities that already receive raw fish tax proceeds. Enactment of this program would "create another entitlement". Contrary to Ms. Wasserman's position, he believed communities would "like to be 100 percent State supported". Senator Bunde determined the fiscal note to be incomplete, as it does not include grant projections. The State providing harbors to communities has been a long-term frustration to him, as many communities acted irresponsibility and allowed their harbors to deteriorate, and then asked the State for more money to repair them. He suspected that communities receiving five million dollars through this program, would, in the future, request further assistance. If a harbor was "essential to a community, they must live up to the obligation". The State and other entities are forced to rely on user fees to support activities. 9:50:38 AM Senator Hoffman begged to differ; improved harbor facilities could generate more money to the State. The watercraft fuel tax and the fisheries business tax are "directly related to the activities" and are "an indirect user fee". Good dock facilities would attract fishing fleets, which would support the two taxes that would fund this program. Thus, the State would receive additional money by improving harbor facilities. It would be appropriate for the tax revenues deposited into the general fund to assist this program. 9:51:46 AM Senator Olson also spoke in support of the bill. Harbors provide safe havens to boaters, freighters, and fishing fleets. This program is necessary. Co-Chair Wilken moved to report the bill from Committee with individual recommendations and accompanying fiscal notes. Senator Bunde objected. Senator Bunde suggested that, rather than enacting another entitlement program, each harbor should implement its own fish tax to support its harbor system. This bill furthers his frustration with what he has termed "the Great Alaska Disconnect. There's always too much State funding unless it's in someone's special interest … The State should provide endless funds" without implementing any taxes or use of the earnings of the Permanent Fund. Curtailing State support of things would assist in making people "become more realistic". A roll call was taken on the motion. IN FAVOR: Senator Dyson, Senator Hoffman, Senator Olson, Co- Chair Wilken, and Co-Chair Green OPPOSED: Senator Bunde ABSENT: Senator Stedman The motion PASSED (5-1-1) CS SB 291(CRA) was REPORTED from Committee with previous zero fiscal note #1 dated March 2, 2006 from the Department of Transportation and Public Facilities. AT EASE 9:54:40 AM / 9:54:51 AM