JOINT COMMITTEE ON LEGISLATIVE BUDGET AND AUDIT February 12, 1999 12:02 p.m. MEMBERS PRESENT Representative Gail Phillips, Chair Representative Con Bunde Representative Eric Croft Representative Gary Davis Representative Gene Therriault Representative Eldon Mulder (Alternate) Senator Randy Phillips, Vice Chair Senator Al Adams Senator Gary Wilken MEMBERS ABSENT Senator Rick Halford Senator Sean Parnell Senator Drue Pearce (Alternate) COMMITTEE CALENDAR INTRODUCTION OF COMMITTEE STAFF EXECUTIVE SESSION FORMALIZATION OF SPECIAL AUDIT REQUEST POLICY CONSIDERATION OF PRELIMINARY AUDITS AND SPECIAL AUDIT REQUESTS REVISED PROGRAMS - LEGISLATIVE (RPLs) OTHER BUSINESS WITNESS REGISTER DAVID TEAL, Director Division of Legislative Finance State Office Building, Sixth Floor Telephone: (907) 465-3795 POSITION STATEMENT: Explained RPLs. PAT DAVIDSON, Legislative Auditor Division of Legislative Audit State Office Building, Sixth Floor Telephone: (907) 465-3830 POSITION STATEMENT: Presented Legislative Budget and Audit Committee Handbook. LAURA GOULD, Director of Business Operations Aerospace Development Corporation 4300 B Street, Suite 101 Anchorage, AK 99503 Telephone: (907) 561-3338 POSITION STATEMENT: Supported the RPL on the Kodiak Launch Complex. ACTION NARRATIVE TAPE 99-1, SIDE A Number 0001 CHAIR GAIL PHILLIPS called the Joint Committee on Legislative Budget and Audit meeting to order at 12:02 p.m. Members present at the call to order were Representatives Phillips, Bunde, Croft, Davis, Therriault and Mulder, and Senators Phillips, Adams and Wilken. [roll call was not taped due to mechanical difficulties] INTRODUCTION OF COMMITTEE STAFF Number 0100 CHAIR PHILLIPS called David Teal forward to make a statement about what the Legislative Budget and Audit Committee's staff and policy people do, as well as, introduce his key staff. Number 0106 DAVID TEAL, Director, Legislative Finance Division, explained that the main interaction with the Legislative Budget and Audit Committee consists of preparing Revised Programs - Legislative (RPLs)requests that the Office of Management and Budget (OMB) pass onto them seeking approval. The Legislative Finance Division not only passes the RPLs onto the Legislative Budget and Audit Committee, but they also do their own analysis of them. There are two RPLs for this meeting. He asked the following staff to introduce themselves: Jim Hauck, Department of Natural Resources, Environmental Conservation and Community and Regional Affairs; Phil Okeson, Department of Law, Department of Administration and Department of Corrections; Tammy Stromberg, Education, University and Salary and Benefits; Ginger Blaisdell, Health and Social Services, Department of Revenue and Operating Budget Coordinator; Brent Doutt, Department of Community and Economic Development, Public Safety, Military and Veterans Affairs and Fish and Game. He stated that Fred Fisher has submitted his resignation, but he is responsible for Department of Labor, Department of Transportation and the Capital Budget. CHAIR PHILLIPS called Pat Davidson forward to discuss legislative audits. Number 0274 PAT DAVIDSON, Legislative Auditor, Legislative Audit Division, introduced three members of her team; Merle Jenson, Deputy Legislative Auditor, Jim Griffin, Audit Manager and Bob Bilden. She went on to say that she felt the responsibilities of the Legislative Audit Division and the Legislative Budget and Audit Committee with regard to the audit are unique. She referred to the Legislative Budget and Audit Committee Handbook and said, "According to statute, audit reports are confidential unless the report has been approved for release by the committee." When the audits are sent from the Legislative Audit Division to the Legislative Budget and Audit Committee they will come in two forms. One form is termed the "preliminary report" or "red-cover report" and that is handed out at the meeting. The other form will come as a packet two days before a Legislative Budget and Audit Committee meeting; it will contain the reports that were presented last time as "preliminary" and are now presented as a final report. They are still termed confidential because they have not been released by the committee. She referred to a memorandum prepared by her, which covers how to request an audit, what the Legislative Audit Division is allowed to audit and alternatives to audits. Number 0502 SENATOR PHILLIPS made a motion to adopt the Legislative Budget and Audit Committee Handbook as presented by Pat Davidson. There being no objection, the handbook, as presented, was adopted. CHAIR PHILLIPS asked Pat Davidson if she would offer and explain the amendment. FORMALIZATION OF SPECIAL AUDIT REQUEST POLICY Number 0531 MS. DAVIDSON discussed the voting requirements, referring to page 29 of the Legislative Budget and Audit Committee Handbook under item number eight, which identifies the minimum number of votes of the committee for approval of RPLs and release of audits being six. If the Legislative Budget and Audit Committee Handbook includes audit requests it will mirror the existing statute. The former chairman, Senator Phillips, made a ruling that six votes was required, but it was off the record. Tamara Cook of Legislative Legal and Research Services recommended that the committee actually adopt the policy. SENATOR PHILLIPS referred to a memo he received on November 25, 1998. MS. DAVIDSON explained that the memo has been revised, but the draft change to policy and procedure is the same. Number 0656 SENATOR PHILLIPS made a motion to adopt the amendment. CHAIR PHILLIPS clarified the motion to amend the policy, which involves putting into question the votes required that being six and at least one from each body. SENATOR WILKEN asked, if they approve the motion, whether or not item eight on page 29 of the Legislative Budget and Audit Committee Handbook will remain. MS. DAVIDSON answered, "Yes." REPRESENTATIVE CROFT wondered if the one from each body was in the category of six votes and where that was stated in the handbook. SENATOR PHILLIPS stated that it is listed in the "other rules." CHAIR PHILLIPS said that she believes it is stated in the statute. MS. DAVIDSON said that she also believes it to be stated in the statute, but that she could confirm that. REPRESENTATIVE CROFT clarified that under item eight it only states that six votes are required, but somewhere else it states that there needs to be one from each body. Number 0739 CHAIR PHILLIPS asked if there was any objection to the amendment. There being none, the amendment was adopted and the policy revised. SENATOR PHILLIPS asked Pat Davidson to state the number of people she has in her office here in Juneau compared to the number in Anchorage. MS. DAVIDSON replied that two-thirds of the staff are in Juneau and one-third are in Anchorage. EXECUTIVE SESSION Number 0820 SENATOR PHILLIPS made a motion to move to executive session to discuss the audit. There being no objection, the committee went into executive session at 12:20 p.m. CHAIR PHILLIPS asked David Teal, Pat Davidson, and Tom Maher (Legislative Budget and Audit Committee aide) to attend the executive session. CHAIR PHILLIPS made a motion to resume open session. There being no objection, the committee resumed open session at 12:55 p.m. CONSIDERATION OF PRELIMINARY AUDITS AND SPECIAL AUDIT REQUESTS Number 0890 MS. DAVIDSON stated that the committee might want to make a motion to release the preliminary audits, as presented, to the agencies for response. SENATOR PHILLIPS made a motion to release the audits. There being no objection, the audits were released to the agencies for response. Number 0928 MS. DAVIDSON stated that there are two special audit requests; one being presented by Representative Phillips looking at prevailing wages for school district construction projects and the other being presented by Representative Croft looking at the effectiveness of the male awareness programs. Number 0960 SENATOR PHILLIPS made a motion for the approval of both special audit requests. There being no objection, both audits went forward. Number 0993 MS. DAVIDSON discussed the termination of an audit request. The Department of Administration moved to close the Central Duplicating Section about a year ago. Senator Duncan asked the Legislative Audit Division to do a review, which they did; it was not sufficient so he came to the committee and asked for an audit. There was a union grievance filed at the time the Central Duplicating Section was closed and an arbitrator agreed with the union that the state had made errors. Given that it has been almost a year, she believes that an audit would be of limited value and that the Legislative Audit Division could spend their time on more current issues. She asked the committee to consider the termination of the audit request. REPRESENTATIVE CROFT wondered if Senator Elton had been notified since he occupies the same seat as Senator Duncan had previously and may have the same interest. MS. DAVIDSON stated that she had not notified Senator Elton, but that she did speak with Roxanne, who works for Senator Duncan, yet had not heard back from her. REPRESENTATIVE MULDER wondered what the arbitrator had determined. MS. DAVIDSON said that she believes the key issue had to do with privatizing issues, but that she wasn't really up to date on it. Number 1150 REPRESENTATIVE MULDER said that he thought the legislature should look at whether they need to tailor the statutes so that they make the government look more effective. If this government has to go into arbitration to close a small operation and pay the people who are so called wrong, than something is not right. It needs to be looked at and the statutes may need to be refined. He said that he knew they would be looking in finance at the bill to pay these people. Number 1176 SENATOR PHILLIPS made a motion to terminate the audit request. There being no objection, the audit was terminated. REVISED PROGRAMS - LEGISLATIVE (RPLs) Number 1226 MR. TEAL discussed two RPLs that were submitted by OMB to be reviewed by the committee; the first is a seven-million dollar capital request to complete the construction of the Kodiak launch complex, the second is a five-thousand dollar capital request that has not been approved yet and is still being negotiated with the National Guard. The seven-million dollars is split into two pieces; two-million is interest, which was okayed by the federal government and five-million has not been confirmed yet by the National Guard and is still being negotiated. Many of the RPLs contain requests to keep money that has not been confirmed, and the reason for that is timing, so that they can move quickly if and when the funding is approved. For example, Aerospace's argument is that if they don't have the money when construction begins it may increase their construction costs, because they will have to pay a contractor for the first portion and then re-bid for the other portion of the project. It might involve a delay and the impact of a delay is up to the committee to decide. He added that they only looked at the seven-million dollar construction project, which does not include a review of operations or profitability. He went on to say that there is a twelve-million dollar capital request submitted in the 2000 budget. If this seven-million dollar RPL goes through than it would reduce the twelve-million dollar capital request by seven-million dollars, lowering the 2000 budget request to five-million dollars. That five-million dollar request is something they are negotiating with the Alaska Science and Technology Foundation. Number 1371 LAURA GOULD, Director of Business Operations, Aerospace Development Corporation, commented by saying that David Teal outlined well the funding and potential impacts of the project if the RPL was not approved today. She said that she was open for questions regarding funding or schedules. Number 1390 REPRESENTATIVE THERRIAULT stated that the reason there were not enough votes from the previous committee to accept this RPL was that they were unsure about the interest earnings on the two-million dollars, which has now been clarified. Even though there is still negotiations on the five-million dollars the federal appropriation was made and now the negotiations are primarily on the routing of the money. He followed up by saying that he thought aerospace has had a good track record because Senator Stevens has made sure that the money coming from the federal government does not make too many stops, therefore federal agencies can't skim off any of the money en route. A small percentage of the five-million dollars could be taken by a federal agency involved in the transfer. CHAIR PHILLIPS called an at-ease at 1:08 p.m. and called the meeting back to order at 1:20 p.m. Number 1473 REPRESENTATIVE MULDER made a motion to adopt the RPL for construction of the Kodiak launch complex. SENATOR PHILLIPS objected to the motion to adopt the RPL. CHAIR PHILLIPS asked that a roll call vote be taken. Representative Croft, Davis, Mulder, Therriault, Phillips and Senator Wilken voted in favor of the motion to adopt the RPL. Senator Phillips voted against it. Therefore, the RPL was adopted by a vote of 6-1. [machine malfunction caused this portion of the tape to be erased] Number 1590 MR. TEAL explained that the second RPL is a five-thousand dollar request; the funding comes from the National Institute of Corrections. The money will be used to fund a private attorney for part-time work for the Criminal Justice Assessment Commission, which is part of the Alaska Judicial Council. The money came available as of 1/15/99. There are no positions affected. The additional fifteen-thousand dollars provided by the National Institute of Corrections will be made available in next years budget. CHAIR PHILLIPS asked if there was anyone from the Alaska Judicial Council that wanted to come forward and make a statement. Bill Cotton, Executive Director of the Alaska Judicial Council, came forward to answer any questions, but did not have a statement. Number 1605 REPRESENTATIVE CROFT made a motion to adopt the RPL for the Criminal Justice Assessment Commission staffing. There being no objection, the RPL was adopted. OTHER BUSINESS Number 1641 CHAIR PHILLIPS stated that a request to draft legislation has been presented to the Legislative Budget and Audit Committee by the Alaska Permanent Fund Corporation, making a number of technical and other changes to improve and modernize the operation [under AS 37.13.120, the "legal list" of the permissible investments of the fund]. She went on to say that the language on their request has been sent to the committee's legal services and it is being drafted; the draft will be available before the next Legislative Budget and Audit Committee meeting. She said that it is her intention to discuss it at the next meeting, which will be held Friday, March 12. ADJOURNMENT Number 1681 CHAIR PHILLIPS adjourned the Legislative Budget and Audit Committee meeting at 1:25 p.m.