HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE April 22, 1999 8:15 a.m. MEMBERS PRESENT Representative Andrew Halcro, Co-Chairman Representative John Harris, Co-Chairman Representative Carl Morgan Representative Lisa Murkowski Representative Fred Dyson Representative Reggie Joule Representative Albert Kookesh MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 200 "An Act relating to exemptions for municipal property taxes for certain primary residences; relating to property tax equivalency payments for certain residents; and providing for an effective date." - MOVED CSHB 200(CRA) OUT OF COMMITTEE HOUSE CONCURRENT RESOLUTION NO. 6 Establishing the Task Force on the Impacts of Transfers of Governmental Functions to Local Governments. - MOVED CSHCR 6(CRA) OUT OF COMMITTEE *HOUSE BILL NO. 193 "An Act related to grants to nonprofit regional corporations for village public safety officers." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 200 SHORT TITLE: MUNICIPAL PROPERTY TAX EXEMPTIONS SPONSOR(S): FINANCE Jrn-Date Jrn-Page Action 4/15/99 824 (H) READ THE FIRST TIME - REFERRAL(S) 4/15/99 824 (H) CRA,FIN 4/20/99 (H) CRA AT 8:00 AM CAPITOL 124 4/20/99 (H) HEARD AND HELD 4/22/99 (H) CRA AT 8:00 AM CAPITOL 124 BILL: HCR 6 SHORT TITLE: TASK FORCE:TRANSFER STATE FUNCTIONS SPONSOR(S): REPRESENTATIVES(S) BERKOWITZ, Halcro Jrn-Date Jrn-Page Action 4/12/99 730 (H) READ THE FIRST TIME - REFERRAL(S) 4/12/99 730 (H) CRA, FIN 4/20/99 (H) CRA AT 8:00 AM CAPITOL 124 4/20/99 (H) HEARD AND HELD 4/22/99 (H) CRA AT 8:00 AM CAPITOL 124 BILL: HB 193 SHORT TITLE: ADMINISTRATION COSTS VILLAGE PUB SAFETY OFFICERS SPONSOR(S): FINANCE Jrn-Date Jrn-Page Action 4/13/99 795 (H) READ THE FIRST TIME - REFERRAL(S) 4/13/99 795 (H) CRA, FIN 4/22/99 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER TOM WRIGHT, Legislative Assistant for Representative Porter Alaska State Legislature Capitol Building, Room 208 Juneau, Alaska 99801 Telephone: (907) 465-4930 POSITION STATEMENT: Testified on behalf of House Finance Committee. STEVE VAN SANT, State Assessor Department of Community & Regional Affairs 333 West 4th, Suite 220 Anchorage, Alaska 99501 Telephone: (907) 269-4605 POSITION STATEMENT: Testified on HB 200. KEVIN RITCHIE Alaska Municipal League 217 Second Street Juneau, Alaska Telephone: (907) 586-1325 POSITION STATEMENT: Testified on HB 200. PATRICK FLYNN, Legislative Assistant for Representative Berkowitz Alaska State Legislature Capitol Building, Room 404 Juneau, Alaska 99801 Telephone: (907) 465-4919 POSITION STATEMENT: Presented the proposed CS for HCR 6. MATT GILL, Legislative Administrative Assistant for Representative Mulder Alaska State Legislature Capitol Building, Room 507 Juneau, Alaska 99801 Telephone: (907) 465-2647 POSITION STATEMENT: Presented the proposed CS for HB 193. KEN BISCHOFF, Director Division of Administrative Services Department of Public Safety PO Box 111200 Juneau, Alaska 99811-1200 Telephone: (907) 465-4336 POSITION STATEMENT: Provided information on the proposed CS for HB 193 as well as the VPSO program in general. JOSIE STILES, Director VPSO Program KAWERAK PO Box 948 Nome, Alaska 99762 Telephone: (907) 443-9010 POSITION STATEMENT: Opposed HB 193. LORETTA BULLARD, President KAWERAK PO Box 948 Nome, Alaska 99762 Telephone: (907) 443-5231 POSITION STATEMENT: Provided information on indirect costs. STEVE GOMEZ, Director VPSO Program MANIILAQ Man Power PO Box 725 Kotzebue, Alaska 99752 Telephone: (907) 442-3860 POSITION STATEMENT: Opposed HB 193. FRANK PETERSON, VPSO Coordinator Kodiak Area Native Association 3449 East Rezanor Kodiak, Alaska 99615 Telephone: (907) 486-9815 POSITION STATEMENT: Opposed HB 193. JIM KNOPKE, VPSO Coordinator Tanana Chiefs Council, Incorporated 122 First Avenue Fairbanks, Alaska 99701 Telephone: (907) 452-8251 POSITION STATEMENT: Discussed HB 193 and VPSO program. TERRY HOEFFERLE Bristol Bay Native Association PO Box 310 Dillingham, Alaska 99576 Telephone: (907) 842-5257 POSITION STATEMENT: Discussed on HB 193 and the VPSO program. BRAD ANGASAN, Program Manager VPSO Program Bristol Bay Native Association PO Box 310 Dillingham, Alaska 99576 Telephone: (907) 842-5257 POSITION STATEMENT: Discussed the possible transfer of the VPSO program to the state. ROBIN LOWN, Program Manager VPSO Program Tlingit and Haida Central Council Chairman, Coordinators Committee 320 West Willoughby Juneau, Alack 99801 Telephone: (907) 463-7188 POSITION STATEMENT: Discussed HB 193 and possible ramifications. RICHARD KRAUSE, VPSO Coordinator Aleutian Pribilof Island Association 401 East Fireweed Anchorage, Alaska 99502 Telephone: (907) 276-2700 POSITION STATEMENT: Opposed HB 193. ACTION NARRATIVE TAPE 99-27, SIDE A Number 0001 CO-CHAIRMAN HARRIS called the House Community and Regional Affairs Standing Committee meeting to order at 8:15 a.m. Members present at the call to order were Representatives Halcro, Harris, Morgan, Murkowski, Dyson, Joule and Kookesh. HB 200 - MUNICIPAL PROPERTY TAX EXEMPTIONS CO-CHAIRMAN HARRIS announced that the first order of business before the committee would be HOUSE BILL NO. 200, "An Act relating to exemptions for municipal property taxes for certain primary residences; relating to property tax equivalency payments for certain residents; and providing for an effective date." TOM WRIGHT, Legislative Assistant for Representative Porter, Alaska State Legislature, noted that he was presenting HB 200 on behalf of the House Finance Committee. He informed the committee that a proposed committee substitute (CS) has been drafted and distributed. Number 0156 REPRESENTATIVE MURKOWSKI moved to adopt the proposed CS, Version LS0807\G, Cook, 4/20/99, as the working document before the committee. There being no objection, it was so ordered. MR. WRIGHT explained that the substantial change in the proposed CS occurs on page 2, line 28 which states, "An ordinance adopted under this subsection may limit the exemption to only those individuals with financial need as defined in the ordinance." The new language is in response to discussion at the last hearing regarding the option of a needs based provision for the municipalities. Mr. Wright emphasized that this is an optional program for the municipalities. He informed the committee that the Kenai Peninsula Borough has an unlimited property tax exemption which means that property of seniors and disabled veterans is not taxed. The Kenai Assembly meet a few years ago to reduce the exemption to $150,000 which they could not accomplish. This is a very difficult decision for the local governments. CO-CHAIRMAN HALCRO asked if currently, any property owned by a senior or disabled veteran that is under $150,000 would be exempt. MR. WRIGHT said that was correct. In further response to Co-Chairman Halcro, Mr. Wright stated that the $150,000 limit is a statewide limit. CO-CHAIRMAN HALCRO expressed concern with the possible abuse of this exemption by those under the exemption buying a house for others who would not fall under the exemption. Co-Chairman Halcro noted that there have been recommendations to require Alaska residency for a specified time. Currently, the Municipality of Anchorage has a little over $13 million which is granted to property tax exemptions to seniors of which approximately 10 percent is obtained through fraud. MR. WRIGHT indicated that a municipality could address that through ordinance. REPRESENTATIVE MURKOWSKI asked if the new language "to only those individuals with financial need" is appropriate. MR. WRIGHT understood that this language merely provides the municipality another option for offering the exemption. He pointed out that the word "may" makes it optional. STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, testified via teleconference from Anchorage. He informed the committee that he had received a call from the Department of Education regarding the exemption from the full value determination for purposes of school funding on local contributions. There was concern regarding the over $150,000 limit which is currently included in the valuation. Mr. Van Sant informed the committee that the following municipalities utilize over the $150,000 limit: Haines Borough, the Kenai Peninsula Borough, the City Craig, and the City of Valdez. Those four municipalities total $11.3 million which is a 4 mill equivalency that equates to $45,000 in school funding which could cost the state extra if each municipality maintained the same exemption. Number 0866 KEVIN RITCHIE, Alaska Municipal League (AML), noted that the AML does not know of any municipality that is interested in eliminating the exemption. Mr. Ritchie informed the committee that the exemption has increased by 400 percent in the last nine years and is increasing at about $2-3 million per year. There are various proposals that have been discussed by municipalities over the years. One of the proposals is to reduce the maximum. Currently, the average senior exemption is a little over $100,000 according to the 1998 Alaska Taxable. Therefore, the growth of the exemption could be reduced by lowering the cap. Lowering the cap to $100,000 would not effect the average person receiving the exemption, but the growth would be slowed. Another proposal is the needs based option which would mean that a senior receiving an annual income over a specified amount would have the exemption reduced or eliminated. There is also a proposal for a tax deferral system in which a senior's tax would be deferred for the life of the senior. When the property transfers, the tax would essentially be a lien on the property. MR. RITCHIE pointed out, "...all the things that we feel that are plausible to happen to this, don't save money, but generally slow the growth of the exemption which is growing at a very fast rate." REPRESENTATIVE MURKOWSKI inquired as to whether any municipality with AML has expressed concern with administering the exemption based on need. MR. RITCHIE said that the AML does not have any information on that option. He noted that there would obviously be costs associated with the needs based option. Furthermore, this is an area to which many seniors have been resistant. In response to Representative Murkowski, Mr. Ritchie said that the local government should have any option available to determine what is best for each community. He commented that this topic will not be taken lightly by anyone, therefore any change will only occur after much study. The language needs to be broad enough to allow a community a full range of options. Number 1234 CO-CHAIRMAN HALCRO moved that the committee report CSHB 200 out of committee with individual recommendations and the attached zero fiscal note. There being no objection, it was so ordered. The committee stood at-ease from 8:34 a.m. to 8:35 a.m. HCR 6 - TASK FORCE: TRANSFER STATE FUNCTIONS CO-CHAIRMAN HARRIS announced that the next order of business before the committee would be HOUSE CONCURRENT RESOLUTION NO. 6, Establishing the Task Force on the Impacts of Transfers of Governmental Functions to Local Governments. PATRICK FLYNN, Legislative Assistant for Representative Berkowitz, Alaska State Legislature, informed the committee that it should have a draft committee substitute (CS) based on the recommendations from Tuesday's hearing. Number 1340 REPRESENTATIVE MURKOWSKI moved that the committee adopt the proposed CSHCR 6, Version LS0803\G, Cramer, 4/20/99, as the working document before the committee. There being no objection, it was so ordered. MR. FLYNN explained the changes in the proposed CS. On page 1, line 5 language referring to the decline in daily production in oil was inserted. The Whereas clause on page 1, lines 11-12 was inserted. The role of the federal government was included in the task force on page 2, lines 1-3. Page 2, lines 6-13 reduces the number of appointees by the Senate President and the House Speaker by one each and replaces them with two appointees appointed by the AML and one appointee appointed by the Alaska Federation of Natives (AFN) to represent the unincorporated borough. CO-CHAIRMAN HALCRO referred to page 2, lines 1-3 and asked if the language provided the flexibility to address the tribal government. MR. FLYNN believed the language does allow that flexibility, but he was open to making the language more explicit. REPRESENTATIVE MURKOWSKI referred to page 2, lines 14-15 which states that members are not entitled to travel or per diem payments. She assumed that the members appointed by the AML and AFN are those that are not entitled. MR. FLYNN clarified that the members appointed by the AML and the AFN are not entitled to travel or per diem payments. The legislature cannot give those members a per diem because that would be an appropriation which must be done through natural bills. Number 1559 CO-CHAIRMAN HALCRO proposed an amendment on page 2, line 1, after "state," insert "tribal". CO-CHAIRMAN HARRIS asked if there were any objections. REPRESENTATIVE KOOKESH believed that the amendment made sense. However, he indicated that perhaps the language "nonprofit" would work better than "tribal". Sometimes legislation has failed due to the language "tribal". REPRESENTATIVE DYSON appreciated both concerns. However, Representative Dyson felt that Representative Kookesh was probably being more wary than necessary. There has been an interest to ensure that the legislature does not do anything to substantiate any portions of Alaska falling into the "Indian Country" category. Representative Dyson believed that "tribal" would work and be understood here. Utilizing that language would work towards building bridges between rural and urban Alaska. REPRESENTATIVE KOOKESH commented that in reality, the tribes do provide service to rural Alaska. He said that he wanted to make sure that the language did not hinder the bill's passage. REPRESENTATIVE BERKOWITZ stated that the language would strengthen the legislation. He noted that he would like for the legislation to be as inclusive as possible. Representative Berkowitz suggested, "Just so the record is clear, I would include under that 'tribal', just for the intent in my mind, that it would include nonprofits." CO-CHAIRMAN HALCRO appreciated the intent that this is to be all inclusive. CO-CHAIRMAN HARRIS noted that the resolution has a House Finance Committee referral. Co-Chairman Harris asked if there were any objections to the amendment. There being no objections, the amendment was adopted. Number 1827 CO-CHAIRMAN HALCRO moved to report CSHCR 6, Version LS0803\G, Cramer, 4/20/99, as amended out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, it was so ordered. The committee stood at-ease from 8:44 a.m. to 8:47 a.m. HB 193 - ADMINISTRATION COSTS VILLAGE PUB SAFETY OFFICERS CO-CHAIRMAN HARRIS announced that the final order of business before the committee would be HOUSE BILL NO. 193, "An Act related to grants to nonprofit regional corporations for village public safety officers." MATT GILL, Legislative Administrative Assistant for Representative Mulder, Alaska State Legislature, noted that the committee should have a proposed committee substitute (CS). Number 1878 CO-CHAIRMAN HALCRO moved to adopt the proposed CSHB 193, Version LS0841\G, Luckhaupt, 4/16/99, as the working document before the committee. There being no objection, it was so ordered. MR. GILL explained that the intent of the proposed CS is to further the discussion of an appropriate level of costs associated with the administration of the Village Public Safety Officer Program (VPSO). Village Public Safety Officers provide law enforcement, search and rescue, emergency medical services and other duties as needed in the villages. The VPSO program began in 1979 as a federal demonstration grant. Since 1981, the program has been funded entirely with state general funds which pass through the Department of Public Safety to nonprofit regional corporations. Those nonprofit corporations recruit and hire VPSOs. Last year's budget funded 84 VPSOs in 82 villages. MR. GILL stated that the proposed CS would place an 18 percent cap on overhead costs which would result in quite a bit of savings. The major impetus behind this legislation is to make the VPSO program more efficient. There has been concern regarding the high overhead rates. REPRESENTATIVE DYSON inquired as to what the proposed CS would do to the overhead rate. MR. GILL explained that HB 193 caps the overhead rate at 18 percent. On page 1, lines 7-13, the proposed CS includes the following language changes: "The indirect costs of a nonprofit regional corporation to administer a grant received under this subsection may not exceed 18 percent of the total amount of the grant. Indirect costs include all costs other than (1) the salary, benefits, overtime, and travel of a village public safety officer or a coordinator of the grant or program; (2) professional liability insurance; and (3) equipment." Number 2010 REPRESENTATIVE DYSON inquired as to whether someone would be presenting information as to how reasonable that is and how that would compare to administrative costs in other nonprofits or government agencies. MR. GILL stated that there should be others via teleconference who would be able to address that question. REPRESENTATIVE KOOKESH noted that the Department of Public Safety receives the funding through the legislature which is then passed on to the VPSO through the nonprofits. He asked if the Department of Public Safety takes any administrative overhead costs. MR. GILL replied yes. REPRESENTATIVE KOOKESH inquired as to how much of the Department of Public Safety's overhead administrative costs would be capped. MR. GILL stated that HB 193 does not address the department. REPRESENTATIVE KOOKESH requested that the Department of Public Safety information be provided to the committee before the bill moves. Representative Kookesh understood from testimony received last year, that the Department of Public Safety takes 25 percent. If that is the case, he wondered why the sponsor would not also cap the department's administrative overhead costs at 18 percent. REPRESENTATIVE DYSON recommended that the committee attempt to obtain that information while this hearing is in progress. REPRESENTATIVE JOULE asked if there was a reason why only one component was reviewed versus a broader view. MR. GILL said he was not sure. REPRESENTATIVE DYSON stated that he vaguely remembered from last year, that there were a couple of local nonprofits with administrative overhead rates that looked outrageous. Representative Dyson commented that, at first blush, the rates seemed to indicate that some organizations utilized overhead as a way to subsidize the local organization at the expense of the VPSO program. REPRESENTATIVE JOULE said that he was unsure as to how the indirect process works and requested someone walk the committee through the process. Number 2250 KEN BISCHOFF, Director, Division of Administrative Services, Department of Public Safety, informed the committee that this legislation originated in the Senate through Senator Donley who was concerned with these rates. Senator Donley requested the Division of Legislative Finance to do a statewide study in order to compare these indirect rates. Legislative Finance found that the rates tended to range between 18 to 22 percent. The proposed CS before the committee contains a much improved rate, considering the Senate Community & Regional Affairs (CRA) Committee had a bill that proposed a 15 percent cap. Mr. Bischoff noted that he had seen a proposed CS, which has not yet been adopted, from the Senate CRA committee which would mirror the rate in this proposed CS. MR. BISCHOFF stated that the VPSO program is not handling their indirect costs any different than other programs. He informed the committee that city governments and other nonprofit organizations have indirect cost recovery rates which fall in the ranges determined by the Division of Legislative Finance. The reason for that is as follows: there are direct program costs which are intended to place VPSOs in the field; there are direct administrative costs to hire, pay, and maintain accounting records of staff; and there are indirect cost rates, including building, space, and utilities, which are typically developed as a federal formula. Mr. Bischoff explained that the VPSO program simply accepted the federally approved rate rather than the state establishing its own audit function and regulations regarding indirect cost rates. The federally approved rate is audited and approved by the federal agency every year. The auditors of the nonprofits review those schedules and any questioned costs are reported to the department and those are settled out. With regard to the concern about accepting the federally approved formula, Mr. Bischoff asked how much oversight and extra cost is desired from the department in terms of administration of the program. REPRESENTATIVE JOULE pointed out that in addition to the indirect cost rate, the state troopers take a piece of the VPSO program. Representative Joule believed that at least one trooper's salary, administrative costs, and in some cases, the cost of an aircraft is paid from the VPSO program. Therefore, he wondered if the state troopers have some association with the program's indirect cost. Is there an indirect rate that is applied to the state troopers? Number 2495 MR. BISCHOFF informed the committee that the Department of Public Safety, the Alaska State Troopers, does not have a federally approved indirect cost recovery rate. The VPSO program appropriation includes three components, one of which is the contract component which would be impacted by this legislation. Another component is the support component which provides some of the oversight trooper funding, aircraft funding, and VPSO training. The third component is administration which is the VPSO-Trooper coordinator and clerical support which is treated as a direct cost. No direct cost rate is applied because those are specifically budgeted in the state's budget. Therefore, the department does not apply an additional indirect rate to the administrative component. REPRESENTATIVE JOULE pointed out that although there may not be an indirect cost applied, the money specified for the VPSO program has money taken from it for the trooper oversight. "Is that correct?" MR. BISCHOFF clarified that money is not taken from the contract component. The legislature approves a separate administrative allocation within the appropriation. Contract funding is not used for any administrative or overhead cost. REPRESENTATIVE KOOKESH inquired as to where the savings under the 18 percent cap would go. MR. GILL stated that the House Finance Committee's intent is that the savings would go to the VPSO. Number 2592 REPRESENTATIVE KOOKESH noted that nonprofit organizations are not required to participate in this program. Would the Department of Public Safety be forced to manage the VPSO program, if the nonprofit organization declines? He indicated that in discussions with nonprofits, the nonprofits have indicated they would decline to participate. Representative Kookesh suggested that it may not be a bad move for the state to take over the VPSO program because then the VPSOs would be allowed to participate in PERS. Has that been considered as a consequence of this legislation? MR. GILL said that had been considered. The goal of the legislation is not to take the program from the corporations. Mr. Gill noted that he has had problems determining the breakdown on the numbers which makes it difficult to determine how the legislation will actually effect the program. REPRESENTATIVE KOOKESH indicated that he could support this legislation, but he was concerned with only addressing the VPSOs. He preferred a bill that refers to all state agencies and state administrative contracts. "Why target VPSOs which only are in rural Alaska?" REPRESENTATIVE DYSON asked what the overhead rates are for other institutions around the state. MR. BISCHOFF stated that he could only speak to the Legislative Finance study done last year which reported that the overhead rates fall between 18 and 22 percent. Mr. Bischoff informed the committee that he worked for Legislative Budget and Audit for eight years. REPRESENTATIVE DYSON asked if there is a scale that would work against and drive up the overhead costs of some of the small nonprofit organizations. MR. BISCHOFF acknowledged that there are some economies of scale. REPRESENTATIVE DYSON asked if that should be taken into account. MR. BISCHOFF offered to review that. REPRESENTATIVE DYSON commented that in his experience with nonprofits at the local government, every standard that was established was reflected in the books without much real change. He asked if the 18 percent overhead rate was unreasonable. MR. BISCHOFF said that the question was probably not appropriate for him to answer. However, there should be fairness and equity in the handling of the program. Furthermore, expanding the cap statewide would create general fund implications. Number 2883 REPRESENTATIVE MURKOWSKI asked if Legislative Audit has conducted an audit to determine the indirect costs and where the problem lies specifically. MR. BISCHOFF stated that he was not aware that Legislative Audit has reviewed this statewide. REPRESENTATIVE MURKOWSKI indicated that could provide some answers. CO-CHAIRMAN HALCRO asked if Mr. Bischoff knew what is included in the indirect costs. MR. BISCHOFF said that there are village contributions which are not part of the state funding. TAPE 99-27, SIDE B REPRESENTATIVE KOOKESH commented that if this legislation passes, the money is returned to the VPSO program which does not save the state any money. MR. GILL indicated that the legislation is more of an attempt to get "more bang for your buck" with state dollars. REPRESENTATIVE KOOKESH reiterated the need then to determine the Department of Public Safety's administrative overhead costs Number 2870 MR. BISCHOFF informed the committee that the FY99 budget for the contract component is $5,523,500. There are two other components. The support component which includes the training funds, the aircraft and some funding for oversight troopers. An important aspect of the VPSO program is the daily communication with the state troopers. Mr. Bischoff stated, "Based on the last decade of how the budget has gone, that's overlapping clear into the trooper detachment. And we have as many as 30 or 40 troopers from time to time responding to VPSO support type issues." The support component in FY99 is $1.7 million, in terms of administrative costs, these are not indirect costs and no indirect rate is charged. With regards to having a commander and clerical support for the program to negotiate the contracts, to develop the budget and keep the files, there is a FY99 budget of $271,200,000. REPRESENTATIVE DYSON clarified that Representative Joule was asking what percentage the Department of Public Safety takes from the VPSO budget. MR. BISCHOFF explained that he would add the contract budget, $5,523,500, the support component, $1,702,700, and the administration component, $271,200, which results in a total of $7,497,400. As a percentage of the total, the administrative component, $271,200, would be divided by the total of all the components, $7,497,400, which would result in 3.6 percent. CO-CHAIRMAN HALCRO referred to the VPSO Program Contracts Comparison, FY99 spreadsheet. The new indirect cost would be the 18 percent cap if it were in effect. MR. GILL agreed. CO-CHAIRMAN HALCRO surmised then that with the 18 percent cap, $69,120 would be saved which would place an estimated $820 into the wallets of the VPSO. MR. GILL said that was correct. He noted that there may be portions of the administrative direct costs and the recovered indirect costs that could be pulled out as direct costs such as equipment. A break down on those numbers could result in more accurate figures. REPRESENTATIVE KOOKESH interjected that the number would change if the nonprofit declined to participate and the Department of Public Safety had to take over the VPSO program. MR. GILL agreed. Number 2600 MR. BISCHOFF explained that originally, the VPSO program was established through a federal grant pilot in order to get local law enforcement in the Bush. If the state was required to manage the VPSO program, the program would be subject to state personnel rules and hiring practices. REPRESENTATIVE KOOKESH said that was exactly his point. If the nonprofits decline to participate, the burden to the state would be more than everyone realizes. REPRESENTATIVE JOULE referred to the Northwest Arctic Borough which has a total grant of $484,773 with an indirect cost recovery of $91,871. He believed that trooper support includes the cost of a trooper, aircraft, and administrative assistant which totals about $128,000. That total is not three percent of that program. MR. BISCHOFF stated that he was not sure of the comparison. He pointed out that the trooper commander and the clerical support comprise the $271,000 and all other costs are direct. He believed that the nonprofit coordinators would support the notion that trooper oversight should be provided in order not to leave the VPSO in the field alone. The department views those as direct program costs some of which are paid for from the VPSO support component while many of them come indirectly from the state trooper budget directly. Number 2427 JOSIE STILES, Director, VPSO Program, KAWERAK, testified via teleconference from Nome. Ms. Stiles opposed HB 193. She emphasized the need to seek alternatives and consider adequate funding levels within the VPSO program. Although each nonprofit has different rates, the rates are the same in the sense that the program is not being administered to make money. Whether it is a for profit or a nonprofit, either must be able to pay the administrative costs or it will not survive. Ms. Stiles stated that HB 193 would limit the ability of a nonprofit organization to recover its actual cost of doing business. MS. STILES informed the committee that nonprofit indirect rates are based on the actual cost of operating programs in a specific locality. She pointed out that KAWERAK does not operate for profit enterprises. KAWERAK provides services solely through federal and state contracts and grants. Ms. Stiles said that the choice is to either subsidize the VPSO program from other government programs or to not operate the VPSO program at all. MS. STILES said the primary concern is for the VPSOs who place their lives on the line while their wages are 24 percent lower than the average law enforcement officer in Alaska. Furthermore, the state is mandated by PL280 to provide public safety services to rural Alaska which consists of 220 villages. Only 81 villages have VPSOs. She also pointed out that PL280 limits nonprofits from federal funding, therefore nonprofits are forced to depend on the state to provide this basic and critical service. Ms. Stiles noted that in addition to state funding, nonprofits can seek other funding sources. KAWERAK has been successfully operating the VPSO program since 1979. She felt that Alaska has received quality public safety services at the most cost effective rate. Ms. Stiles requested that the indirect funding level be maintained. CO-CHAIRMAN HALCRO asked Ms. Stiles for some examples of administrative direct costs. MS. STILES identified her salary, benefits, travel and per diem, and office support as examples of administrative direct costs. She noted that last year all those were included with the indirect rates which created a hardship. This year she has not had any travel money, office support, or telephone money. Furthermore, Ms. Stiles informed the committee that she would have to take four weeks leave without pay. Ms. Stiles said that she was happy to see that the administrative direct costs were separated from the indirect costs. CO-CHAIRMAN HALCRO inquired as to examples of indirect costs. LORETTA BULLARD, President, KAWERAK, testified via teleconference from Nome. Ms. Bullard informed the committee that indirect costs include the following: administrative salaries, audits, rent, utilities, insurance, copying, postage, board expenses, training, et cetera. Indirect costs are the general cost pool for all costs which cannot be attributed by contract or grant to a particular project or program. Number 2118 STEVE GOMEZ, Director, VPSO Program, MANIILAQ Man Power (MANIILAQ MP), testified via teleconference from Kotzebue. Mr. Gomez opposed HB 193. He reiterated the state's responsibility to provide public safety to all residents. The VPSO program has proven to be very cost effective. The VPSOs provide many services besides law enforcement to Alaska's rural communities. Mr. Gomez believed that the VPSOs provide this service for about one-third of the cost of what the state troopers could offer. With the elimination of municipal assistance and revenue sharing, the VPSO program will become more important. If HB 193 passes, the indirect rate a nonprofit could charge the state would be limited which would be disastrous to the program. The indirect rate the nonprofits charge is established by the federal government. Currently, MANIILAQ MP has a 24 percent indirect rate and if forced to utilize an 18 percent indirect rate, MANIILAQ MP would probably be forced to drop the VPSO program. Mr. Gomez indicated that would probably be the case for many of the nonprofits. MR. GOMEZ commented that the state troopers do have the administrative and the support end which is taken from the VPSO Budget Request Unit (BRU). Mr. Gomez determined that the troopers' charges for support and administration equals about 26.3 percent of the total. In response to Co-Chairman Halcro, Mr. Gomez informed the committee that he has 10 authorized VPSO positions of which seven are funded. In further response to Co-Chairman Halcro, he identified the following as his indirect costs: a portion of the executive director and staff salaries and benefits; accounting, auditing, and legal services; utilities; equipment rental and maintenance; occupancy costs; administrative staff and board travel; and telephone costs. Mr. Gomez identified the administrative direct costs as his salary, travel, per diem, and benefits. REPRESENTATIVE JOULE asked if the indirect costs are audited and if so, what are the results of the audit. Have there been any discrepancies found? MR. GOMEZ stated that the indirect costs are audited and the auditors have never found any problems with the indirect costs. Number 1748 REPRESENTATIVE KOOKESH asked Mr. Gomez to explain the 26.3 percent to which he attributed to the troopers portion. MR. GOMEZ explained that adding the contract component, $5,523,500, the trooper support, $1,721,000, and the administration costs, $253,500, would total $7,498,000. Therefore, taking the trooper support and the administration costs and dividing that into the total would result in the 26.3 percent which is the total that the troopers keep. With regards to the comment that the troopers use the $1.7 million to respond to the VPSOs, the troopers have to respond regardless. CO-CHAIRMAN HALCRO asked if Mr. Gomez was correct that the Department of Public Safety uses $1.7 million to oversee the VPSO program. MR. GILL replied yes. He clarified that the figures come from the contract line for the VPSO. CO-CHAIRMAN HALCRO believed this is where the concern lies. Co-Chairman Halcro determined that it takes the troopers $20,238 per VPSO to administer the program. In Mr. Gomez's area, the troopers cost almost $22,000. All of that money is not getting into the wallets of the individuals doing the work. REPRESENTATIVE KOOKESH reiterated that if this is going to be taken from the nonprofit then it should be taken from the troopers as well. MR. BISCHOFF stated that the money could be placed wherever. However, the VPSOs receive about seven weeks of academy training. The question is where that cost should be placed, in the contract or the support component. Placing the cost in the contract component, would not place more VPSOs on the street, if the same level of training is maintained. With regard to oversight, Mr. Bischoff asked if the desire is to have an aircraft for support or not. Mr. Bischoff said, "Those are the trade-offs. And if you choose to call those administrative, the troopers are skimming that off the top; how are we supposed to respond? How are the troopers supposed to respond to the field? ... Do we dig deeper into the trooper's budget? You know, it's a legislative policy decision." CO-CHAIRMAN HALCRO asked if the VPSO training occurs every year. MR. BISCHOFF stressed that the VPSO program has tremendous turnover. With the help of the legislature last year, VPSOs received a 12 percent pay increase. He believed that the Administration supports a 30 percent pay increase over time. Although pay increases may not place another VPSO on the street, the increase may retain a VPSO and reduce the turnover. Additionally, turnover can be reduced through training and the ability to receive support from the troopers. In further response to Co-Chairman Halcro, Mr. Bischoff explained that the VPSO training is provided by the academy and tailored to the VPSO program. The VPSOs are not run through the trooper training. With regards as to why the VPSOs do not receive trooper training, Mr. Bischoff pointed out that VPSOs are unarmed and are not certified police officers. Number 1279 FRANK PETERSON, VPSO Coordinator, Kodiak Area Native Association, testified via teleconference from Kodiak. Not including Kodiak, there are six communities across Kodiak Island. Five of those communities have funding for VPSOs. Mr. Peterson opposed HB 193. Mr. Peterson inquired as to how many people were funded by the Department of Public Safety's $271,200. MR. BISCHOFF identified the following three positions in the administrative component: a commissioned officer in charge of the VPSO program, an accounting tech position, and a clerk. MR. PETERSON asked then if the $271,200 pays for three positions. CO-CHAIRMAN HARRIS said that was correct. MR. PETERSON informed the committee that the Kodiak Area Native Association indirect rate for the VPSO program is 26.7 percent. He did not know what the 18 percent cap would mean in the Kodiak VPSO program. Number 1108 JIM KNOPKE, VPSO Coordinator, Tanana Chiefs Council, Incorporated (TCC), testified via teleconference from Fairbanks. Mr. Knopke favored giving the VPSOs more money, however HB 193 is not the vehicle to achieve that. Mr. Knopke said that he would also like to see more VPSOs in the field. He informed the committee that the TCC includes 43 villages of which there are currently 10 funded VPSO positions. Mr. Knopke receives calls daily from the other villages that would like to participate in the VPSO program. He noted that his indirect costs are derived from the cost of communication, rent, and utilities. The administrative direct costs are Mr. Knopke's salary, benefits, and travel. There is no clerical support for the VPSO program. Mr. Knopke stated that the TCC's indirect rate is reflective of its ability to manage all of its programs efficiently. Mr. Knopke did not see how the savings in HB 193 would be placed into the wallet of the VPSOs; how would that be achieved? CO-CHAIRMAN HALCRO explained that the intent would be that spending less money on administrative overhead would result in more money for those actually doing the work. Co-Chairman Halcro expressed concern with the high overhead in relation to the salary of the VPSO. He suggested that one way in which to stem the turnover would be to ensure more money goes to the VPSO. REPRESENTATIVE KOOKESH pointed out that the three positions funded by the $271,000 results in $91,000 per position. CO-CHAIRMAN HALCRO agreed. Number 0670 TERRY HOEFFERLE, Bristol Bay Native Association (BBNA), testified via teleconference from Dillingham. Mr. Hoefferle informed the committee that the sponsor of HB 193 has told the BBNA that its administrative costs are too high. Mr. Hoefferle asked, "Compared to what?" He did not believe there is a solid answer. He compared the BBNA VPSO program with the Dillingham Police Department. The BBNA VPSO program has a budget of about $730,000 which employs 11 officers and one program manager spread over an area of 40,000 square miles. The City of Dillingham employs 5 officers and 1 police chief which costs $930,000 which does not include any of the jail costs. MR. HOEFFERLE informed the committee that by his calculations the Department of Public Safety has a 39.478 percent overhead rate. Mr. Hoefferle stated, "We have been arm wrestling with the State of Alaska, the Department of Public Safety, for the last 15 years trying to increase the wages that are paid to these VPSO officers and I would like to welcome the support of our urban legislators in helping us do this." Mr. Hoefferle did not believe that HB 193 was directed at increasing the VPSO's wage. MR. HOEFFERLE informed the committee that the BBNA has not had a single questioned cost by the auditors in the last 10 years. The BBNA's indirect cost is approved by the U.S. Department of Labor and covers the actual costs. If the state does not pay its portion of the BBNA's approved indirect cost rate, then the actual costs of the program are being subsidized by other programs which are paid for by other government agencies. At the proposed 18 percent rate, Mr. Hoefferle indicated that it would problematic for the BBNA to operate the VPSO program next year. Mr. Hoefferle stated that ultimately the best thing for the VPSOs may be for the state to take over this program. If the state takes over the VPSO program, the VPSOs will have to be paid more than $12.50 per hour. He believed that the minimum pay received by any officer in the Department of Public Safety is about $17.00 per hour. The state taking over the VPSO program could help address the high turn over rate which Mr. Hoefferle believed to be the single greatest factor contributing to the high administrative cost for the VPSO program. Mr. Hoefferle urged the committee to review the program overall. BRAD ANGASAN, Program Manager, VPSO Program, Bristol Bay Native Association, testified via teleconference from Dillingham. He reiterated Mr. Hoefferle's comments regarding the fact that if the state has to take over the VPSO program, the state would have to provide a comparable wage, differentials, and inclusion in the PERS. Number 0051 ROBIN LOWN, Program Manager, VPSO Program, Tlingit and Haida Central Council, testified via teleconference from Anchorage. He informed the committee that he is also the Chairman of the Coordinators Committee which consists of all of the nonprofit VPSO coordinators. TAPE 99-28, SIDE A MR. LOWN echoed previous testimony that some of the nonprofits would probably drop the VPSO program if HB 193 does become law. With regard to the comments about VPSOs becoming state employees, Mr. Lown highlighted how expensive that would be and the higher administrative costs that would result from the state administrative procedures. Furthermore, the state would have to deal with 80 separate communities. Mr. Lown also mentioned the notion of putting the VPSO program out to competitive bid. Currently, the VPSO is required to go through nonprofit regional corporations per statute. Also the employees of security companies, which Mr. Lown assumed would be those targeted for competitive bid, are not peace officers under the law. Mr. Lown noted that he had sent a letter discussing this matter. MR. LOWN addressed the concern that nonprofits are making excessive funds from indirect cost recovery. Nonprofits recover expenses equally on all programs administered by the nonprofit. Mr. Lown pointed out that the nonprofit recovery is similar to that received by the University of Alaska which has a cost recovery ranging from 21.3 to 51.3 percent depending upon which facility is reviewed. He reiterated that it is unknown what will happen with the VPSO program if HB 193 is passed. Serious consideration should be given to what HB 193 would do. Number 0330 RICHARD KRAUSE, VPSO Coordinator, Aleutian Pribilof Island Association, testified via teleconference from Anchorage. Mr. Krause opposed HB 193. He suggested that the committee review the overall program. He offered to discuss this with any member interested. Mr. Krause noted that he had faxed each committee member a letter. He reiterated Mr. Lown's comments regarding the University of Alaska. MR. KRAUSE pointed out that five of the nonprofits with VPSO programs do not pay those VPSOs any overtime. Mr. Krause informed the committee that he does not pay his VPSOs overtime because he does have enough funding. MR. GILL commented that information would continue to be gathered on HB 193 in order to determine the exact direct and indirect costs. CO-CHAIRMAN HALCRO requested that Mr. Gill provide the committee with a breakdown of the $1.7 million spent by the troopers. CO-CHAIRMAN HARRIS announced that HB 193 would be held. ADJOURNMENT There being no further business before the committee, the House Community & Regional Affairs Standing Committee meeting was adjourned at 10:04 a.m.