JOINT COMMITTEE ON LEGISLATIVE BUDGET AND AUDIT June 14, 1999 1:10 P.M. MEMBERS PRESENT Representative Gail Phillips, Chair Representative Con Bunde Representative Eric Croft Representative Gary Davis Representative Gene Therriault Senator Randy Phillips, Vice Chair Senator Al Adams Senator Rick Halford Senator Sean Parnell, (teleconference) Senator Gary Wilken, (teleconference) MEMBERS ABSENT Representative Eldon Mulder (alternate) Senator Drue Pearce (alternate) COMMITTEE CALENDAR APPROVAL OF PREVIOUS MINUTES March 19, 1999 March 26, 1999 REVISED PROGRAMS (RPL'S) EXECUTIVE SESSION Preliminary Audit Reports Final Audit Reports AUDIT REPORTS Release of Final Audits Consideration of Audit Requests OTHER COMMITTEE BUSINESS WITNESS REGISTER TOM MAHER, Legislative Assistant to Representative Gail Phillips Alaska State Legislature Capitol Building, Room 411 Juneau, Alaska 99801 Telephone: (907) 465-6873 POSITION STATEMENT: Audit Reports DAVID TEAL, Legislative Fiscal Analyst Division of Legislative Finance Division State Office Building, Sixth Floor Juneau, Alaska 99811 Telephone: (907) 465-3795 POSITION STATEMENT: Introduced RPL's NICO BUS, Administrative Services Manager (Testified Via Teleconference) Department of Natural Resources Division of Support Services 400 Willoughby Ave - 5th Floor Juneau, Alaska 99801 Telephone: (907) 465-2406 POSITION STATEMENT: Spoke in favor of the RPL's PAT DAVIDSON, Legislative Auditor Division of Legislative Audit State Office Building, Sixth Floor Juneau, Alaska 99801 Telephone: (907) 465-3830 POSITION STATEMENT: Introduced audit reports. DEAN BROWN, Deputy Director Department of Natural Resources Division of Forestry-Central Office 3601 C Street, #1034 Anchorage, Alaska 99503 Telephone: (907) 269-8476 POSITION STATEMENT: Spoke in support of the RPL's Provided briefing on the State's fire status. MERLE JENSON, Deputy Legislative Auditor Division of Legislative Audit State Office Building, Sixth Floor Juneau, Alaska 99801 Telephone: (907) 465-3830 POSITION STATEMENT: Audit Reports DOUGLAS BAILY, Attorney Legal Counsel to the Legislative Audit Division PMB 1444 3705 Arctic Boulevard Anchorage, Alaska 99502 Telephone: (907) 274-2484 POSITION STATEMENT: Executive Session ACTION NARRATIVE TAPE 99-4, SIDE A COMMITTEE CHAIR REPRESENTATIVE GAIL PHILLIPS called the Joint Committee on Legislative Budget and Audit meeting to order at 1:10 P.M. on June 14, 1999. Members present at the call to order were Representatives Phillips, Bunde, Croft, Gary Davis, Therriault and Senators Randy Phillips, Halford and Parnell. Chair Phillips noted that staff from Representative Mulder's office was also present. CHAIR PHILLIPS stated that the Legislative Budget and Audit (LBA) Committee would not receive the Alaska Railroad Corporation report at this meeting. There was a request from Senator Pearce to delay that action until the next meeting of the Committee in order that she could be present for the discussion. APPROVAL OF MINUTES CHAIR PHILLIPS announced that the first order of business would be the approval of minutes from the March 19th and March 26th Legislative Budget and Audit Committee meetings. SENATOR PHILLIPS made a motion for approval of the minutes and asked for unanimous consent. There being NO OBJECTION, the minutes were approved and adopted. REVISED PROGRAMS (RPL's) DAVID TEAL explained that there were two RPL's before the Committee for action. RPL Number: 10-9-4043 Department of Natural Resources Resource Development BRU Emergency Firefighters Non-Emergency Projects Component $200,000 SDPR - Capital Appropriation Authority: Chapter 4, SLA 94, pg. 10, In 23 Statutory Authority: AS 41.15.030 DAVID TEAL noted that Nico Bus from the Department of Natural Resources was available by teleconference to answer questions from the Committee. The purpose of the revised program would provide a cooperative agreement with the Municipality of Anchorage for services received from the Hotshot firefighting crew. Additionally, the program would reduce the fire hazard on the Anchorage Hillside by removing dead spruce trees/hazard trees from select areas, constructing or improving fuel- breaks and other related activities. The intent would be to break up the continuous fuel complex that can cause wildland fires to become uncontrollable. DAVID TEAL explained that the RPL would amend an existing federally funded capital appropriation for Multi-Mission Village Work Crews appropriated for the purpose of allowing emergency fire-fighters to do non-emergency hazard mitigation and prescribed burn work. The situation is confusing and the RPL would provide funding to that area for fire prevention activity. At this time, there is approximately $40 thousand dollars in statutory designated program receipts available in the operating budget and that money can be used to pay for activity this fiscal year. The RPL would provide the required financing to continue these activities after July 1st. SENATOR PHILLIPS asked if funding would be used only for the Anchorage Hillside area. DEAN BROWN replied that the intent of the agreement with the Municipality of Anchorage would include Eagle River. There is a plan to create firebreaks and defensible breaks throughout the Anchorage Hillside and Eagle River areas. The Municipality had undertaken a process to determine which areas would be most effective to implement the plan. After July 1st, the crews will be working in Eagle River. CHAIR PHILLIPS commented that there are concerns regarding this circumstance without the approval of the Legislative Budget and Audit Committee. She reiterated that work on this project was being addressed without approval of the Committee. She understood that there was $40 thousand dollars found in the Department's budget for the project. As a result, Chair Phillips suggested that the RPL be for $160 thousand dollars rather than the requested $200 thousand dollars. She questioned how such action could be prevented from happening again. NICO BUS explained that initially, the Department planned to use the $40 thousand dollars for the FY99 portion. When it was clear that the entire project was going to be $200 thousand dollars, the Department realized that money was not in the FY00 budget. A request was then submitted to LBA for the entire $200 thousand dollars. NICO BUS added that the $40 thousand dollars resulted from a "fall-back" position. That money was not intended for suppression use. It was money in the budget which allows for special large mining projects. In a fire season arrangement, the Department does not know when they can request personnel to do the work. NICO BUS explained given the contract was for $200 thousand dollars, it was presented in that manner. To avoid the situation from occurring in the future, the Department did submit a capital project labeled "Multi-mission Village Crew", work that was intended specifically for these purposes. At that time, it was understood that funding would come mostly from the federal government, however, the funds came through Federal Emergency Management Agency (FEMA) for a special purpose municipal grant. That eliminated use of the federal authority in the capital projects. The Department's solution for the future is to request legislative authority to use federal receipts and statutory designated program receipts with the municipalities. CHAIR PHILLIPS acknowledged the arrival of SENATOR ADAMS. DEAN BROWN added to the comments of Mr. Bus. She explained the situation involving the Municipality of Anchorage and the availability of FEMA money. The Municipality and the Division of Forestry were concerned with the current fire situation in that area. Early in the spring, the Mat-Su area alone had 55 fires with a total of 649 acres burned. The advantage of the agreement with the federal government and the City of Anchorage provided a type-one crew, the most elite fire fighting crew available. The practical aspects of the agreement were evident. Problems arose with the timing of putting that crew on without the approval of the LBA Committee. REPRESENTATIVE BUNDE understood the concern, however, pointed out that the crew was not working on private property but instead on public lands. REPRESENTATIVE G. DAVIS asked how the crew was paid and if they received wages only when serving on a fire crew. DEAN BROWN replied that this is a type-one crew and that they are the only ones in the State that are not on the federal payroll. In order to maintain national standards, they are required to work together 40 hours a week. This team has created a national reputation and that they are well sought after. REPRESENTATIVE G. DAVIS noticed that Department of Natural Resources has stated that dead spruce beetle bark trees are more of a fire threat than the live trees. He asked if that was policy. DEAN BROWN replied that was not a policy. It would depend on the fuel type which would include early spring grass which can act as a serious flash fuel. Early spring problems result from grass fires. Additional concerns are the time of year and whether the live trees are more flammable than the dead ones. There is no strict policy, but rather, ideas studied in "Fire Science" have indicated the type of fuels which ignite more quickly and are more dangerous. REPRESENTATIVE BUNDE pointed out that some local community councils have recommended citizens remove dead trees from their property because they encourage fires to move more rapidly. REPRESENTATIVE G. DAVIS inquired about the responsibilities of the Tazlina Hotshots. DEAN BROWN commented that the company is responsible for paying their crewmembers during the summer. Even during times of no employment, they still have to make payroll. REPRESENTATIVE G. DAVIS asked about the statutory designated program receipts and where the $200 thousand dollars would come from. He understood that it would be federal money. DEAN BROWN explained that initially, FEMA money had been administered to the Municipality for a grant. Since the Department has a limitation on receiving federal receipts, in the future, there will be a need to include designated receipts. The money referred to by Mr. Bus as "designated receipts" was authority made available through the operating budget for $40 thousand dollars. NICO BUS responded to concerns expressed by Representative G. Davis. Designated program receipts come from the Municipality. The Municipality of Anchorage is paying the Department of Natural Resources to fund the project. The federal government pays the Municipality. CHAIR PHILLIPS clarified the intent of the request. The Department has expended the $40 thousand dollars and intents to spend the remaining $160 thousand dollars in the next two-year period. The LBA Committee must determine if that money should be authorized. DAVID TEAL commented that the $40 thousand dollars was considered operative authority for only FY99. The Department could spend $30 thousand dollars by the end of June, 1999. If the request was lowered, funds could be left on the "table". He recommended that the amount not be dropped to $160 thousand dollars. Such a move could create a "short end" situation for the next fiscal year. NICO BUS discussed the $200 thousand dollar agreement with the Municipality of Anchorage. He requested that the RPL be approved for that amount. The Department's plan is to come to the full Legislature to update the project to include statutory dedicated program receipts for future years. REPRESENTATIVE THERRIAULT asked if the $40 thousand dollars had been general funds or FEMA funds. NICO BUS stated that the Department has a component in it for statutory designated program receipts that is labeled "Special and Development Projects", which became the source of the $40 thousand dollars. The source of the funding would be the agreements such as the one made with the Municipality or with a private company. REPRESENTATIVE THERRIAULT asked why the $40 thousand dollars was not anticipated funds. DEAN BROWN replied that there had been discussions regarding that matter, however, there had been no contract development with the Municipality of Anchorage to go forward with the project. The request came up very suddenly at the end of the year. REPRESENTATIVE THERRIAULT commented on an article he had read that eliminating fire fuels was not necessarily the best way to address or save building structures. DEAN BROWN advised that she had not seen that article, however, she was aware of various view points regarding that concern. The advantage that the fuel breaks make is that it allows a defensible line to trough before fires get down to the structures allowing rapid entry before other trees are dropped. The topography of the Anchorage Hillside and the Eagle River area has been studied to provide extensive fuel modeling to determine fire felocity and where a firebreak could be effective. CHAIR PHILLIPS spoke to the potential fire disaster that had just occurred in the Homer area. She asked if the Department anticipated additional federal dollars to any other locations for this type contract. DEAN BROWN replied not at this time. SENATOR ADAMS asked if the Department was aware of the amount of money being spent on fire suppression and if a supplemental would be needed this year. NICO BUS responded to how the Department is addressing FY99 needs for additional general fund monies and other fires. At the end of May, the Department wrote a letter to the Office of the Governor declaring that the Fire Suppression Emergency (FSE) was based on unavailability of funding. FSE allows the Department to go into a financing agreement based on statute which indicates that there can be money made available until such time that the Legislature reconvenes for supplemental funding. He noted that in SB 101, fire suppression had been explicitly excluded. REPRESENTATIVE BUNDE MOVED to adopt the amount at $200 thousand dollars based on testimony received by Mr. Teal. SENATOR WILKEN joined the Committee by Teleconference. There being NO OBJECTION, RPL #10-9-4043 was approved. RPL Number: 10-0-4001 Department of Natural Resources Forest Management & Development BRU Forest Management & Development Component $20,000 SDPR - Operating Appropriation Authority: HB50, SLA 99, pg. 39, In 30 Statutory Authority: AS 41.17.055 DAVID TEAL explained that the proposed request would provide Geographic Information Systems (GIS) support for Tanana Chiefs Conference, Inc. (TCC). The project would identify hazardous waste sites, and military bombing target sites on Native Corporation lands and native allotments. The bombing target sites could contain unexploded munitions. Under the agreement, the identified sites would be put into GIS coverage, and could be avoided by wild land fire fighters during fire operations. He commented that this was a one- time only request and that information had been received too late to be considered during the past legislative session. Federal funds are available as of July 1, 1999. REPRESENTATIVE THERRIAULT pointed out that the funding would be made available on July 1, 1999. He questioned why this concern had not been introduced in the FY00 budget. DEAN BROWN replied that TCC had approached the Department after the Legislative session ended. There was no agreement at that point and the Department needed to access their GIS workload. There have been several fires and this is believed to be a high priority. REPRESENTATIVE THERRIAULT questioned the agreement with the federal government regarding the areas in the State which will not receive suppression. DEAN BROWN acknowledged that was a timely question. Since the Delta fires in the last four years, the Department has dealt directly with the Alaska fire service (BLM) to address the Department of Defense Military areas. The State has had to pull people off those sites, stating that designated ranges used for bombings are areas in which the State will not fight fires on. Transition zones are the problem areas. The State is working with the feds on an agreement for those expenditures. SENATOR WILKEN inquired the amount which the TCC had received for work started. DEAN BROWN replied that she did not know if there had been an additional amount to the $20 thousand dollars. SENATOR WILKEN questioned the role that Alaska plays in the project. DEAN BROWN explained that the State has the capability for the GIS system in Fairbanks. The Department has done a considerable amount of work identifying lands for fire fighting and forestry resource purposes. The State has the capability to put this on the GIS system, which is an advantage that the feds and TCC does not have. REPRESENTATIVE THERRIAULT questioned the outcome if the funding was not made available. DEAN BROWN explained that the Department had checked the priorities for the GIS position for the timber sales, fuel areas and GIS mapping. That area extends into the Northern Region. Work has been reprioritized and a seasonal position has been hired. (TAPE CHANGE, LBA 99-4, SIDE B).  SENATOR ADAMS MOVED to adopt RPL #10-0-4001. There being NO OBJECTION, it was approved. DEAN BROWN provided the Committee with updated information regarding the current fire status in the State. As of June 13th, the State has experienced 27 new fires. Alaska is in extreme fire danger all the way from the borders through the Interior with the current eighty-degree temperatures. At this time, there are two large fires near Minto of two hundred acres; one of those fires has been essentially lost. DEAN BROWN continued, "lightning busting" through with dry lightning is basically starting the fires. It is anticipated that soon there should be some wet thunderstorms moving through these regions. She spoke to the fire at Donley Flats which has consumed six thousand acres and is still increasing. There are fifteen crews on that fire at this time. There are three Type I crews which is equivalent to the Tazlina Hotshot crew. Additionally, the State has called out task forces from Anchorage, Mat Su and Kenai, who approach the fires with three to four engines each. There has been extensive "house to house" fire fighting on the facilities that remains in that region. The residents from Ft. Greeley have been evacuated to Fairbanks with no causalities. Retardant is being dropped on the fire at this time. She emphasized that the fire is big and is growing. CHAIR PHILLIPS asked if any buildings had been lost in the Fort Greeley fire to date. DEAN BROWN understood that two buildings had burned. She pointed out that the report did not indicate location information. CHAIR PHILLIPS inquired if either of those buildings were the ones anticipated to be used for the prison. DEAN BROWN thought they were not. The buildings to be used for the prison are close to the airport, which has much more defensible space surrounding it. Military bases usually have a lot of green lawn which works well to keep the fire on the ground and out of the trees. DEAN BROWN listed smaller fires around the State. * Mat Su; * Televana fire - seven acres; * Cod Lake - In which Fort Wainwright has responded; * Burnwash Landing, Canada - A big fire which may need the help of Alaskan firefighters. DEAN BROWN addressed crew size. She explained that the Type 1 crew consists of 20 persons, requiring training regarding fuel types and a high level of qualification. The only Alaskan crew which has reached that level of expertise is the Tazlina Hotshot crew. The Alaska Fire Service has federal crews which are paid for working 40 hours a week even without fires. Last year, a second crew was formed called the Denali crew. Those fire fighters had little experience. There are 73, Type 2 crews consisting of 16 persons each. The State relies on those fire fighters, who do basic "on the ground" fire fighting. The Type 2 crews are sometimes requested by other states during bad fires. Additionally, there are overhead teams who are the management of key command and control positions. The Type 2 overhead teams handle the majority of fires unless there is a complex incident. There are two of these teams in Alaska. In conclusion, she noted that legislators are most often alerted with fire updates. EXECUTIVE SESSION SENATOR RANDY PHILLIPS MOVED that the LBA Committee go into Executive Session in order to address the confidential Preliminary Audit and Final Audit Reports. There being NO OBJECTION, it was so ordered and the Committee moved into Executive Session. AUDIT REPORTS SENATOR PHILLIPS MOVED that the LBA Committee come back into regular session. There being NO OBJECTION, it was so ordered. SENATOR PHILLIPS MOVED that the following new audits be released to the public: * Department of Revenue/for the fiscal year ended June 30, 1998; * Department of Community and Regional Affairs/for the fiscal year ended June 30, 1998; * Department of Community and Regional Affairs/Pedro Bay Electrification Project; * Department of Education/Lower Yukon School District; * Department of Commerce and Economic Development/BSC Alaska Native Corporations; and * Department of Law/Department of Commerce and Economic Development/BSC/World Plus, Inc. There being NO OBJECTION, the audits will be released to the public. SENATOR PHILLIPS MOVED the four special preliminary audits: * Department of Community and Regional Affairs/teller bulk fuel facility upgrade; * Office of the Governor/Select public relations; * Department of Transportation and Public Facilities/Anchorage International Airport; and * Department of Natural Resources/State Recorder's Office. There being NO OBJECTION, they were adopted. CHAIR PHILLIPS noted that the next item on the agenda was the Special Audit requests. PAT DAVIDSON spoke to the first special audit request presented by Senators Pearce, Parnell and Torgerson, which would provide for an analysis of available funds from Alaska Housing Finance Corporation (AHFC). PAT DAVIDSON noted that the second request had been prepared by Senator Donley, also addressing AHFC, focusing on the bidding process used by that agency for demolition projects associated with the Spruce Park project in Fairbanks, Bethel Heights project in Bethel and the Bering View project in Nome. SENATOR PHILLIPS inquired why a requested copy had been sent to Hugh Ashlock. PAT DAVIDSON replied that in the Fairbanks Spruce Park project, the contract was to demolish the building. The contractor, rather than demolishing those buildings, sold them to Mr. Ashlock. Now there is pending litigation in which Mr. Ashlock wants to keep that property, however, AHFC is asking that sale be deleted. PAT DAVIDSON addressed the third special audit request by Senator Wilken and Representative G. Davis addressing the Department of Administration analyzing various chargeback methodologies used to fund a variety of centralized services provided to other state agencies. PAT DAVIDSON added in addition to those requests, Senator Taylor has requested to withdraw a previously approved audit request to the Ketchikan Special Education department. SENATOR PHILLIPS inquired the number of audits outside of the ones presented which still need attention. PAT DAVIDSON replied that five audits remain. The average audit takes two to three months for the Division of Legislative Audit to prepare for and then an additional one to three months to be released. SENATOR HALFORD recommended adding to the first audit, an analysis of available funds from AHFC, and a value determination of the unrestricted net worth. CHAIR PHILLIPS noted that it had been discussed that issue would be addressed during the interim. TOM MAHER explained that it was the intent for Pat Davidson to continue to provide the financial audit and to guarantee all the questions raised during the last legislative session be answered. Those questions relate to many aspects for AHFC: (1) Public role (2) Return received by the State (3) Should AHFC be dismantled TOM MAHER agreed that information should be incorporated. The LBA Committee will be working with Legislative Finance Division, AHFC and the Governor's Office on that project. Hopefully, some of the concerns will be addressed by next session. SENATOR HALFORD commented that AHFC tends to be under the "vigorous rule" which states that you can not make more than 1% on what you own. That rule substantially limits their ability to support ventures of the State. He recommended that the rule be clarified in order that more money could be contributed to the State coffers. TOM MAHER replied that it intended that such information be accumulated and then presented to the Committee in order to be made available next session to the full Legislative Body. SENATOR HALFORD reiterated that he would like to know the "real" value of AHFC in a "reasonable liquidation period" of perhaps one or two years. He stated that some of the property is worth more than face value, given the current yield, and some less. He believed that total value of AHFC rested somewhere in the neighborhood of $2 billion dollars. TOM MAHER noted that the State does see $130 million dollars per year. He agreed that the State does not know the size of the internal assets which have been built up. The Committee's question is: "What percentage of return is that to the asset base?". MERLE JENSON advised that in order to best answer the concerns of Senator Halford, the East and West Coast Investment Bankers would need to be consulted. CHAIR PHILLIPS advised that there has been discussion regarding the size and scope of such an investigation during the interim. SENATOR PHILLIPS MOVED the following audits as requested by members of the Legislature. * Two audits addressing the Alaska Housing Finance Corporation; * The Department of Administration analysis; and * The Ketchikan Special Ed audit cancellation. There being NO OBJECTION, they were so ordered. OTHER COMMITTEE BUSINESS PAT DAVIDSON spoke to the previous LBA Committee meeting in which there had been a comment made regarding disclosure of confidential information to Committee members. She explained that her understanding came from discussions with Tamara Cook, Director of Legislative Legal and Research Services. She noted that she had followed up on that conversation with Ms. Cook to determine if a change to committee policy or statute would be required to allow disclosure of confidential information. In summary, Ms. Cook found that in current statute, Legislative Ethics Act, disclosure of confidential information is a bridge of the Ethics Act. It would be up to Committee members whether or not they want to hear confidential information in the LBA setting. Therefore, Ms. Cook has recommended that a statutory change be made to authorize the Legislative Auditor to make confidential information available to the Committee. [Copy on File of the letter from Ms. Cook]. CHAIR PHILLIPS advised that this item would be a discussion point on the agenda for the next scheduled LBA Committee meeting which will allow time for Committee members to consider the comments and recommendations of Ms. Cook and then decide if action should be taken. SENATOR PHILLIPS recommended that a motion should be made regarding the position location of the Legislative Auditor. CHAIR PHILLIPS noted that she had sent a letter to all Committee members about keeping the Legislative Auditor in Juneau. [Copy on File]. Money for any change to that position has not been approved. The Auditor has more staff in Juneau than in Anchorage. She recommended that position stay in Juneau and proposed that a vote be taken on that issue at the next meeting. ADJOURNMENT CHAIR PHILLIPS adjourned the Joint Committee on Legislative Budget and Audit at 3:45 P.M.