SENATOR LEMAN introduced SB 56 (ADMINISTRATION OF BUDGET RESERVE FUND) and invited Senator Phillips and Representative Brown to join the committee at the table. SENATOR PHILLIPS testified that the legislation clarifies "administrative proceedings" and puts the money into the Constitutional Budget Reserve Fund. SENATOR MILLER moved to adopt the work draft dated 2/2/93 to SB 56. There were no objections and it was so ordered. REPRESENTATIVE BROWN said she participated in the development of the bill as she is a member of the Legislative Budget and Audit Committee. She explained that the CS has two changes on page 1, section 1, which is the section that reflects the interest as well as penalties on past due taxes. Secondly, on page 2, line 2, the words "been requested" was substituted for the word "begun" which she said also refers to past due taxes. She said the substantial lag time between the request and the time the hearing actually began needed to be addressed. Number 065 REPRESENTATIVE BROWN explained the issues are what money should go into the Constitutional Budget Reserve and what is meant by the term "administrative proceeding." DARREL REXWINKEL, Commissioner, Department of Revenue testified in favor of the amendments adopted in CSSB 56 (STA). He said in 1990, the voters adopted legislation regarding the Constitutional Budget Reserve Fund which has language about the settlement of taxes which would go into it. COMMISSIONER REXWINKEL said an Attorney General's opinion explain what really constitutes an "administrative proceeding." During the audit process, the taxpayers file voluntary tax returns which the Department of Revenue can audit. Because of the large amounts of money involved, all of the major oil producers are audited. As a result of that audit process, an assessment notice is issued. The taxpayer then has sixty days to pay the tax, request an informal conference, or request a formal hearing. He noted it has to go through a formal hearing process before it can go to litigation. COMMISSIONER REXWINKEL said he supports the Attorney General's opinion. Number 120 He also said there was some question about the amount of money involved. Last year there was $16 million in the Constitutional Budget Reserve Fund. Once the Attorney General's opinion had been released, they started to look at the settlement receipts and noticed that some were improperly classified as general fund money. The Department then started auditing general fund receipts as far back as July 1, 1990 to see if it had any funds that belonged in the Constitutional Budget Reserve Fund. The Department now believes the amount that goes into the Administrative Settlement account is probably a little over $200 million. Number 175 SENATOR TAYLOR said he disagreed strongly with the Attorney General's opinion and is not yet convinced that there is a real reason to modify what he considers to be very clear language. Number 200 COMMISSIONER REXWINKEL testified that the informal hearing process is like an extension of the audit. The auditors issue assessment notices, sometimes, based on very incomplete information. Through the hearing process, auditors stick by their assessment notice or issue a revised notice of assessment. Then there is either a settlement or a hearing. JAMES BALDWIN, Assistant Attorney General, testified that the Department of Law was not concerned with where the dollars would wind up, they were concerned with establishing a good definition of "administrative proceedings" aside from the audit process. Number 225 REPRESENTATIVE BROWN asked about the recalculation of the Administrative Settlement Account and the source of the $200 million. COMMISSIONER REXWINKEL answered that was yet to be fully determined. A majority of the funds came from the litigation on the royalty cases, so it is clearly Constitutional Budget Reserve Fund money. Number 250 SENATOR LEMAN commented that he was concerned about the retroactive application of the audits. REPRESENTATIVE BROWN explained the bill would become effective 90 days after enactment if it did not have an effective date. As it is drafted presently, the issue is what to do with the Administrative Settlement Account that was mixed with the general fund. Presumably, she said, you could make this bill retroactive and try to sweep money back into the Constitutional Budget Reserve Fund. Assistant Attorney General Baldwin suggested the six months that now appears in this bill. REPRESENTATIVE BROWN agreed with Senator Taylor that the language in the constitution is clear and that we are attempting to capture all monies including windfalls and back taxes. For the Attorney General to ignore the issue of where the money ended up, she thought, was a misreading of the history. She did believe that it is necessary to pass some bill that addresses this issue. Number 300 SENATOR LEMAN said he would like to know why the bill needed an effective date sooner than ninety days to deal with the retroactive issues? Number 325 REPRESENTATIVE BROWN said the last section of the bill makes it easier to access the fund by defining what is available for appropriations. That is a provision the administration does support. It specifies that we could not be counting the earnings reserve of the permanent fund before the legislature could access this fund or other designated funds. Number 350 SENATOR DUNCAN said the Committee should have a clearer understanding from the administration what the real impact is on revenues available for fiscal year 94. COMMISSIONER REXWINKEL said he would have the information in a week. REPRESENTATIVE BROWN said she had requested an accounting on October 5, 1992. She received a brief reply in December saying there was $103 million in the fund and she was still trying to get a straight answer on what settlements have come in and what the disposition of them has been. Number 375 COMMISSIONER REXWINKEL apologized to Representative Brown and to the State Affairs Committee members, but the audit was not done, yet. SENATOR TAYLOR wanted to determine the definition of "administration hearing" and "receive." He was also concerned about the ability of the Governor and the Attorney General to settle litigation like the $16 million with Tyson Seafoods. Apparently, the Attorney General has been negotiating with Tyson to build the State a couple of boats for The Department of Fish and Game. While the need is there and Tyson can build them at a low price, he didn't think it was the Attorney General's job to decide how the settlement should be spent. He thought it was the legislature's job to appropriate those funds. The legislature let it happen once with the Exxon-Valdez settlement, but he would not support further activities of that nature. Number 400 SENATOR LEMAN said the committee would hold SB 56 in committee and appointed a subcommittee consisting of Senators Duncan, Taylor and Leman.