HOUSE FINANCE COMMITTEE February 17, 1993 1:30 P.M. TAPE HFC 93 - 24, Side 2, #000 - end. TAPE HFC 93 - 25, Side 1, #000 - end. TAPE HFC 93 - 25, Side 2, #000 - end. CALL TO ORDER Co-Chair Ron Larson called the meeting of the House Finance Committee to order at 1:30 P.M. PRESENT Co-Chair Larson Representative Brown Co-Chair MacLean Representative Foster Vice-Chair Hanley Representative Grussendorf Representative Hoffman Representative Martin Representative Parnell Representative Therriault Representative Navarre was not present for the meeting. ALSO PRESENT Edgar Blatchford, Commissioner, Department of Community and Regional Affairs; John Walsh, Deputy Director/Juneau, Rural Development Division, Department of Community and Regional Affairs; Paul Fuhs, Commissioner, Department of Commerce and Economic Development; Guy Bell, Director, Division of Administrative Services, Department of Commerce and Economic Development; Ron Garzini, Executive Director, Alaska Energy Authority, Department of Commerce and Economic Development; David Denig-Chakroff, Director, Rural Programs, Alaska Energy Authority, Department of Commerce and Economic Development; John Jemewduk, Norton Sound Economic Development Corporation (NSEDC), Elim, Alaska; Norman Anderson, Bristol Bay Economic Development Corporation (BBEDC), Naknek, Alaska; Robin Samuelsen, Bristol Bay Economic Development Corporation, Alaska; Mark Snigaroff, APICDA, Alaska; Fred Phillip, CVFC, Kwigillingok, Alaska; Mark Springer, Yukon Delta Fisheries Development Association (YDFDA), Hooper Bay, Alaska; Perfenia Pletnikoff, Central Bering Sea Fishermen's Association (CBSFA), St. Paul, Alaska; Laurentia Mike, Yukon Delta Fishermen Development Association, Kotlich, Alaska. SUMMARY INFORMATION OVERVIEW ON COMMUNITY DEVELOPMENT QUOTAS (CDQ) 1 HB 60 An Act making appropriations for capital projects; and providing for an effective date. OVERVIEW: Commerce and Economic Development HB 60 was held in Committee for further discussion. HB 45 An Act making appropriations to the Department of Education for support of kindergarten, primary, and secondary education and community schools programs and for school construction debt retirement; and providing for an effective date. CS HB 45 (FIN) was reported out of Committee with a "do pass" recommendation. HOUSE BILL 45 "An Act making appropriations to the Department of Education for support of kindergarten, primary, and secondary education and community schools programs and for school construction debt retirement; and providing for an effective date." Co-Chair MacLean MOVED to report CS HB 45 (FIN) out of Committee with individual recommendations. There being NO OBJECTION, it was so ordered. CS HB 45 (FIN) was reported out of Committee with a "do pass" recommendation. OVERVIEW ON COMMUNITY DEVELOPMENT QUOTAS (CDS) EDGAR BLATCHFORD, COMMISSIONER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, explained that the CDQ program was initiated by the Governor to assist communities in Southwest Alaska to achieve an economic stability and to provide a stronger social and economic base. The program concept was initiated many years ago. Last year, the North Fisheries Management Council (NFMC) allocated 7.5% of the pollock catch to the fifty-five communities in Southwestern Alaska. Various commissioners made recommendations on how to divide the allocation so that the more economically depressed areas were given a proportionate share. The long range goal would be to provide jobs for local residents. The communities divided themselves into six applicant groups. 2 Commissioner Blatchford said the State of Alaska invested $300 thousand dollars into the CDQ effort, which resulted in a return the six applicant groups of $20 million dollars in free enterprise money. Each group created a development and financing plan. JOHN WALSH, DEPUTY DIRECTOR/JUNEAU, RURAL DEVELOPMENT DIVISION, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, introduced members of each of the six applicant groups. He expressed appreciation for Legislative support of the program adding that the CDQ program is a tremendous resource for the State of Alaska. Representative Grussendorf asked if the IFQ's would be taken from smaller communities in Southeast Alaska. Commissioner Blatchford replied, a burden was created when only six applicant groups were accepted. Those groups must succeed. If they are not successful, there is a strong possibility that the opportunities for access to the Bering Sea fishery will be closed. DCRA efforts have been concentrated on the Bering Sea. He added, that there has been discussion of expanding the program although the impact to Southeastern communities is uncertain. Mr. Walsh commented that the IFQ program is tied to an individual's fishing history. The quota would go to that individual and they would then be eligible to sell as private property their interest in the quota. Regulations for the IFQ program are available for comment at this time. The final rule has not been settled. There is no restriction of a transfer for an IFQ permit. Mr. Walsh stated that each applicant group had to address various aspects of the CDQ plan. The Department provided a chart for the Committee members to view. The chart listed vessels allowed to fish, quota amounts, the length of time the quota was received, employment goals, infrastructure development and the revenue capital received. ROBIN SAMUELSEN, PRESIDENT, BRISTOL BAY ECONOMIC DEVELOPMENT CORPORATION (BBEDC), DILLINGHAM, ALASKA, expressed his appreciation of funding for the CDQ program. He provided a brief history of the CDQ program in the Bristol Bay area and buy-pass issues affecting those fishermen. The plan of that region is to train and employ the younger generation. BBEDC hopes to employee one hundred twenty people this year. Representative Hoffman asked how the State could help to insure the success of the CDQ program. Mr. Samuelsen stated that it is important that the NFMC 3 votes reflect Alaskan interests. He felt if the vote switched to Seattle, Alaska would lose the resource. Representative Hoffman requested the Legislature be kept informed as to the progress of the program. NORMAN ANDERSON, BRISTOL BAY ECONOMIC DEVELOPMENT CORPORATION (BBEDC), DILLINGHAM, ALASKA, reiterated his appreciation for funding received for the CDQ program. MARK SNIGAROFF, ALEUTIAN PRIBILOF ISLAND ECONOMIC DEVELOPMENT ASSOCIATION (APIEDA), ST. GEORGE, ALASKA, noted his appreciation for the speed in which the State of Alaska opened the 1992 CDQ fisheries. This enabled communities and regions in Southwest Alaska to generate income. He stated APIEDA has created an education endowment and a training program. Funds currently generated will go into the infrastructure on-shore to those communities which the APIEDA serves. He asked for further assistance in developing the St. George Harbor, and noted that APIEDA has funds set aside to match State funds. Co-Chair Larson inquired about the dock facilities at Pribilof. Mr. Snigaroff stated that the harbor at St. George was not completed. It needs to be dredged which will cost $4 million dollars. FRED PHILLIP, COSTAL VILLAGE FISHING CORPORATION (CVFC), KWIGILLLINGOK, ALASKA, stated that CVFC is creating a training facility in Bethel and an employment center for the local residents. He asked that the Legislature support funding of this facility. PERFENIA PLETNIKOFF, CENTRAL BERING SEA FISHERMEN'S ASSOCIATION (CBSFA), ST. PAUL, ALASKA, stated that the partner of CBSFA is American Seafood and added that the operation in December was successful. He added that further assistance is needed in order to complete the dredge and back up work in the Pribilof harbors. St. Paul has been declared an unsafe harbor. LAURENTIA MIKE, YUKON DELTA FISHERIES DEVELOPMENT ASSOCIATION (YKFDA), KOTLIK, ALASKA, noted her appreciation for the CDQ program in the Yukon Delta region. MARK SPRINGER, YUKON DELTA FISHERIES DEVELOPMENT ASSOCIATION (YDFDA), HOOPER BAY, ALASKA, explained that the idea of the CDQ program originated from Western Alaska fishermen and felt that this is a credit to those local fishermen. The YDFDA program is unique with such a small quota. The funds are being used for a wide variety of purposes such as a project construction allocation of $600 thousand dollars for an on-ground processing plant. 4 Mr. Springer pointed out that the Department of Community and Regional Affairs (DCRA) is requesting an additional $150 thousand dollars in order to staff a full time employee for the CDQ program in order to enforce these regulations. He added that all the associations involved with the CDQ program support filling that position. (Change Tape, HFC 93-25, Side 1). JOHN LEMEWKUK, NORTON SOUND ECONOMIC DEVELOPMENT CORPORATION, ELIM, ALASKA, provided the Committee with Attachment #1. Norton Sound Economic Development Corporation (NSEDC) is a regional economic development nonprofit corporation made up of fifteen villages in the Bering Strait region of Northwestern Alaska. NSEDC was originally incorporated in 1989 with the general purpose of promoting economic development opportunities primarily for Norton Sound. In June 1992, the organization was restructured to expand membership within the region, to focus its activities on fisheries related activities and to qualify as a Community Development Quota (CDQ) applicant and managing organization. HOUSE BILL 60 "An Act making appropriations for capital projects; and providing for an effective date." OVERVIEW - DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT PAUL FUHS, COMMISSIONER, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (DCED), provided the Committee with a synopsis of the DECD Capital Improvement Project (CIP) requests. [Attachment #2 & #3]. * Data Processing System Enhancement request for $750 million dollars. Wang Laboratories has filed for bankruptcy in August 1992. DCED data bases are used extensively for occupational, business and insurance licensing, for corporate filings and for servicing $230 million in outstanding loans, along with several smaller systems. All data bases currently use proprietary Wang equipment and software. Requested money will be used to acquire the equipment and software necessary for DECD to make a 3-5 year transition from proprietary Wang systems products in line with industry trends and 5 standards. * Economic Development Matching Grants request for FY 93 Appropriation for $700 million dollars and FY 94 Request for $750 million dollars. Provides matching funds to communities and nonprofits for economic development projects. This program has been in place for the past 12 years. Leverages between $2.5 and $3.5 million in federal and other funds each year. * Small Business Assistance and Development - FY 94 Request for $550.0 Primarily matches federal funds for: Small Business Development Centers $263. Procurement Technical Assistance 150. University Center for Economic Devl. 37. Buy Alaska 50. Small Business Forum 50. * Alaska-Japan Fisheries Cooperation FY 94 Request: $45.0 Based on 1985 Memorandum of Agreement between the State of Alaska and the Japan Overseas Fisheries Cooperation Committee. Funding used for meetings and exchanges for the mutual benefit of Alaska and Japan fisheries, particularly in the interest of new product development. Past successes include roe on kelp and surimi. * Gold Rush Centennial Celebrations FY 94 Request: $100. First year of a five year program to organize celebrations of the Gold Rush Centennial in the Klondike, Nome, Fairbanks, and interior Alaska. Money to be used for planning activities and grants to local communities for events development and promotion. * Coal Initiatives FY 94 Request: $290.0 Money to be used for test shipments of Alaska coal -- to confirm the suitability of the coal in a number of combustion systems -- and for efforts at opening new markets. The coal market is growing at up to 80 million tons annually. Major 6 prospects include Japan, Korea, Taiwain, the Philippines, Mexico and Hawaii. Representative Martin asked the criteria used to determine the small business loans. Commissioner Fuhs stated that all applicants are screened. The Economic Development Matching Grants Program is not required to be paid back and applicants can only receive this grant one time. None of the programs listed are loan programs. He noted that there are problems in the Business & Industry Development Corporation (BIDCO) program. Representative Martin disagreed with the University applying for small business assistance and development grants. Commissioner Fuhs stated that DCED's work is to promote the private sector business in Alaska. DCED is trying to make businesses self sufficient. He added that the University's budget has shown double funding and this was incorrect accounting. Currently, those funds have been separated and will be shown only in the DCED budget request for the University Center. Representative Martin questioned the value of the coal initiative. Commissioner Fuhs stated that for a few years, Alaska has been shipping eight hundred thousand tons of coal to Korea. He expressed his enthusiasm with the current efforts to create a fuel mixture which is not toxic and is environmentally safe for shipping. Representative Brown referenced Attachment #3, the small business development request for $550 million dollars and asked for further discussion on the budget interfacing. Commissioner Fuhs replied the only area of duplication was a Development Specialist position. GUY BELL, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, stated in the past there has been duplication with two separate business center development programs operating. One operates through the University system, and is funded through the Small Business Assistance Development Program. There are two other business assistance programs which are operated through private nonprofit organizations, one in Anchorage and one in Fairbanks. Two years ago, the funding for those organizations was deleted from the operating budget. Representative Brown asked how many new employees would be added with the proposed budget. Mr. Bell said none. All additions are grants. Commissioner Fuhs added that the grants are matched by equal amounts of federal money. Mr. Bell reiterated that no staff is paid for out of the capital request. He offered to provide the Committee a response in writing in order to avoid confusion. 7 Commissioner Fuhs interjected that Alaskan producers must be certified in order to qualify for the product preference program. The program has been very effective. Representative Brown questioned the establishment of the Economic Center at the University of Alaska. Commissioner Fuhs commented that the center is in Anchorage and resulted from a federal grant to help provide assistance to nonprofit corporations. He admitted that he too had questioned the component. Representative Parnell inquired if full funding for the data processing component was expected this year. Mr. Bell responded that a new system was necessary by next year, although the anticipated conversion time is three to five years. The pace software is a difficult system to change. Representative Parnell asked if the entire component was being requested this year. Mr. Bell stated it was. ALASKA ENERGY AUTHORITY RON GARZINI, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, provided the Committee with Attachment #4 and #5 which summarizes the CIP requests for the Alaska Energy Authority (AEA). DAVID DENIG-CHAKROFF, DIRECTOR, RURAL PROGRAMS, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, explained the Operation, Technical and Emergency Assistance component, CIP request of $1.3 million dollars. This request addresses continuation of specific programs designed to provide a wide range of energy systems operations, technical and emergency assistance to rural communities and utilities in evaluating deficiencies and needs with respect to the collective energy systems and facilities within a community. This may be accomplished by conducting surveys and evaluating electrical generation, distribution systems and waste heat systems serving the community. Additionally, as assessments of the demand-side alternatives such as insulation, heating and lighting retrofits of local public buildings, energy control systems and rate design could be made. Mr. Denig-Chakroff continued with the second component: Rural Utility Regionalization, Consolidation and Business Management Training, CIP request for $270 million dollars. The goal of the program is to create self-supporting utilities in rural Alaska that can protect the State's capital investments in power systems by continuously operating and maintaining those systems in a safe, efficient manner and providing reliable, affordable power to their 8 customers without continual assistance from the State. This will be done by developing the corporate strength of those utilities. (Tape Change, HFC 93-25, Side 2). The Statewide Electric and Power Project Development program CIP request for $1,000 million dollars would provide funding for the engineering, environmental, and economic and financial analysis of power projects throughout the State. The objective is to respond in a timely manner to requests from legislators, utilities and communities on power project proposals and to develop a multi-year plan for implementation through the issuance of revenue bonds and minimal State contributions. If possible, the costs of feasibility studies and financial packages would be recouped from bond receipts. Mr. Garzini noted the component - Energy Conservation and Management Program for State-Funded Facilities - Phase One CIP request for $550 million dollars. The State now owns and operates more than 11.5 million square feet of buildings. Additionally, the State pays for a portion of the operating expense for square footage of school district and municipally-owned facilities as well as space that is leased from private owners. Responsible management of these facilities requires that end-use energy consumption for each facility be accurately estimated, so that energy costs may be analyzed and minimized. The program is designed to determine energy end-use in facilities for which the State bears the operation costs, and to implement management changes or capital projects designed to reduce energy costs borne by the State general fund. The next component is the Sutton-Glenallen Intertie Feasibility Study CIP request for $500 million dollars. Copper Valley Electric Association (CVEA) has proposed construction of one hundred and twenty-seven miles of transmission line between Sutton and Glennallen linking CVEA to the Railbelt system. The second item of the component is a CIP request for $500 million dollars for the Southeast Intertie Feasibility. This project would fund the feasibility level evaluation of a Tyee-Snettisham link of a Southeast Intertie transmission system and bring it up to the same level in the project approval process as the Tyee-Swan segment of a Southeast Intertie. The project is justified to determine if the transfer of surplus Tyee energy and possibly energy from other potential hydroelectric projects along an interconnected system. This is an acceptable alternative 9 for meeting growing energy demands in Juneau. Mr. Denig-Chakroff addressed the CIP request for $2.750 million dollars for the Rural Power Systems Upgrades. The program would provide funding to continue Energy Authority achievement of a variety of rural power systems upgraded that have been identified through the Rural Technical Assistance and Circuit Rider Maintenance programs or which have been pointed out by community officials and legislators. Projects realized under this program will provide for more efficient operation of rural power systems. The next CIP request is for $1 million dollars for the Emergency Bulk Fuel Repairs/Spill Prevention. This project would provide funding to make emergency repairs to bulk fuel storage and handling systems in rural Alaska. Priority for these funds would be communities whose systems are in such poor repair that fuel vendors have threatened to refuse to deliver fuel and/or where there is an imminent threat to life, health, safety or the environment. Mr. Garzini itemized the next CIP request of $5 million dollars for the Component Renewal and Replacement - Alaska Energy Authority - Owned Facilities. He pointed out that this is not a request for State funding. It is a request to receive monies from wholesale purchasers of power generated by or wheeled over electrical systems owned by the Alaska Energy Authority and to expend those monies for the renewal and replacement of aging components of those facilities. AEA has invested in those facilities a combined amount of $1 billion dollars. Mr. Denig-Chakroff addressed Electrical System Life, Health and Safety Improvements CIP request for $750 million dollars. The program would provide follow-up funding of the agency's program to correct problems in rural electric systems that are or could become a threat to life, health and safety in rural communities. Wherever possible, funds will be used to leverage local matching funds. The Bulk Fuel System Upgrades CIP request for $4.5 million dollars would fund the design and upgrade of bulk fuel storage and handling facilities in rural Alaskan communities which are dependent upon seasonal fuel delivery and long- term storage. Upgrades are critically needed in order to resolve significant hazards to life and safety as well as code violations and to ensure continued delivery of vital petroleum products. The work will be accomplished through grants and contracts with administrative and project management oversight by the AEA. 10 The Alternative & Applied Energy Technology Development CIP request is for $700 million dollars. This program would fund the development, design, construction, demonstration and/or operational testing of technological enhancements to energy systems including generation, storage, transmissions heating and chilling and end-use efficiency and load management. The program will be used to coordinate efforts with energy research groups. Mr. Garzini commented on the Reimbursable Authority CIP for $5,000.0 thousand dollars. The authority to receive and expend funds provided by others allows the Energy Authority to enter into agreements with non-state entities and private parties to either incorporate change orders into State contracts or have the Energy Authority perform tasks which the other party cannot itself accomplish. Mr. Denig-Chakroff introduced CIP request for $5,000.0 thousand dollars for Electrical Service Extension Grant Program which would be a matching grant program that provides up to 60% of the cost of eligible projects proposed by utilities for extending electrical service to private residences and small businesses not currently served by an electrical utility and, as a second priority, for making improvements to existing utilities. The King Cove Hydroelectric Project Construction CIP request for $500 million dollars for the proposed King Cove hydro project is located on Delta Creek, about five miles north of the community of King Cove. A recent update of the project analysis concluded that the proposal is technically and economically feasible. With back-up diesel generation to cover demand peaks and low water flow intervals, the hydro project would supply most of the City's existing annual demand and supply most of the anticipated growth requirements over the next twenty years. Mr. Garzini introduced the CIP request for $50 million dollars for the Snettisham Acquisition which would provide support for Energy Authority FY 93 costs of personnel, travel, communications, and legal and consulting fees related to the possible sale of the Snettisham Hydroelectric Project to the State. The sale is part of the legislative proposal authorizing the sale of the two federal hydroelectric projects in Alaska and subsequent close out of the Alaska Power Administration. Co-Chair MacLean questioned the Governor's $250 million dollar cut to the King Cove Hydroelectric Construction. She asked if the cut would allow them to qualify for Electrical Service Extension Funds. Mr. Garzini replied that the rule for that fund is a 60\40 grant program for line extensions. 11 King Cove could qualify if they were providing a line extension. Representative Brown inquired if a processing plant currently existed in King Cove. Mr. Denig-Chakroff stated it did and added that King Cove has one thousand residents. Representative Brown discussed disapproval of the project and stated it was not an economically feasible plan for that size community. Mr. Garzini pointed out that the community will assist in financing the balance. Co-Chair MacLean asked for further detail on the Alternative & Applied Energy Technology Development component. She asked why funds were not available from the Science and Technology Fund for that component. Mr. Denig-Chakroff replied when a specific small technical problem is identified, AEA does ask the Science and Technology Fund's support. Co-Chair MacLean requested more information on the Bulk Fuel System upgrades. Mr. Denig-Chakroff offered to provide that information. Co-Chair MacLean asked how the Sutton- Glenallen feasibility study would impact the legislation introduced by Representative Navarre. Mr. Garzini replied, when the legislation was heard in the House Labor & Commerce Committee, it was suggested that Representative Navarre include the Sutton to Glenallen Intertie in that package. Mr. Garzini noted that the project is not currently ready to build because a feasibility report has not been completed. Representative Brown asked if the Southeast Feasibility Study would continue to need funding with the closure of Greens Creek. Mr. Garzini replied that the forecasted energy demands in Juneau still far exceed the capacity of energy generated in that area. ADJOURNMENT The meeting adjourned at 3:40 P.M. 12