HOUSE FINANCE COMMITTEE April 8, 1994 8:38 a.m. TAPE HFC 94-113, Side 1, #000 - end. TAPE HFC 94-113, Side 2, #000 - end. CALL TO ORDER Co-Chair Larson called the House Finance Committee to order at 8:38 a.m. PRESENT Co-Chair Larson Representative Hoffman Co-Chair MacLean Representative Martin Vice-Chair Hanley Representative Brown Representative Parnell Representative Foster Representative Therriault Representative Grussendorf ALSO PRESENT Representative Cliff Davidson; Dave Kamrath, Staff, House Community and Regional Affairs Committee; Diane, Barrans, Postsecondary Education; Eric Forrer, Council on Postsecondary Education; Nancy Bear-Usera, Commissioner, Department of Administration; SUMMARY INFORMATION HB 301 "An Act prohibiting the sale of certain studded tires or the sale of certain studs to be installed in tires; and providing for an effective date." CSSSHB 301 (L&C) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Transportation and Public Facilities. HB 427 "An Act relating to compensation for members of the Local Boundary Commission." HB 427 was HELD in Committee for further discussion. HB 506 "An Act relating to student loans; to sanctions for defaulting on a student loan, including denial of a state occupational license or disbursement of state money; and providing for an effective date." HB 506 was HELD in Committee for further 1 discussion. HB 301 "An Act prohibiting the sale of certain studded tires or the sale of certain studs to be installed in tires; and providing for an effective date." Co-Chair Larson noted his intention to waive HB 406, HB 525, HB 527 and HJR 47 from Committee. Representative Brown asserted that the zero fiscal note accompanying HB 527 is inaccurate. She expressed support for HB 527, but estimated that there would be some fiscal impact as a result of the legislation. HOUSE BILL NO. 301 "An Act prohibiting the sale of certain studded tires or the sale of certain studs to be installed in tires; and providing for an effective date." Representative Hanley observed that studies have demonstrated that studded tires have significant wear on roads. He estimated that reducing the weight of studs in studded tires will reduce road wear by 50 percent. He maintained that lighter weight studs perform equal to standard studs. Lighter studs are available for purchase. Lighter studs cost between $1 to $2 dollars, per tire, more than standard studs. He noted that HB 301 prohibits sale of the standard stud after FY 97. In response to a question by Representative Hoffman, Representative Hanley reiterated that lighter studs function equal to standard heavier studs. In response to a question by Representative Brown, Representative Hanley clarified that use of standard tires will not be prohibited. Owners will be able to use their old tires until they wear out. Representative Brown observed that the fiscal note by the Department of Transportation and Public Facilities reflects an immediate savings. She pointed out that the law will not go into effect until 1997. Co-Chair Larson agreed that the fiscal note should be revised. Representative Hanley noted that the Department of Transportation and Public Facilities would like to see studs that are of lighter steel weight than the aggregate in roads. He concluded that lighter studs are unavailable and would wear out too quickly. Representative Therriault noted that only a few countries 2 manufacture studs. He estimated that as the demand for lighter studs grow, they may be cheaper than standard studs. Representative Hanley observed that factories in Germany seem to be switching to the lighter weight studs. Representative Grussendorf MOVED to report CSSSHB 301 (L&C) out of Committee with individual recommendations and with a revised fiscal note by the Department of Transportation and Public Facilities. CSSSHB 301 (L&C) was reported out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Transportation and Public Facilities. HOUSE BILL NO. 427 "An Act relating to compensation for members of the Local Boundary Commission." DAVE KAMRATH, STAFF, HOUSE COMMUNITY AND REGIONAL AFFAIRS COMMITTEE testified in support of HB 427. He reviewed the Commission's responsibilities. He observed that the Commission is one of five boards and commissions with origins in the Alaska Constitution. He discussed the makeup of the Commission. He noted that the legislation would provide compensation to Local Boundary Commissioner members at a rate of $100 dollars for each day or portion of the day that a member of the commission is engaged in official business or travel. It allows the Commission to adopt regulations to provide for compensation of partial days in which a member is engaged in travel. He discussed the accompanying fiscal note. He stressed that the board meets 18 times each year. Half of the meetings are teleconferenced. Co-Chair Larson spoke in support of funding for Local Boundary Commission members. Representative Foster noted that the commission member from Nome has resigned because he could not afford to remain on the Commission. Representative Hanley asserted that all boards and commissions should be revised to assure that they are compensated equitably. Representative Brown asked the rate of compensation for other boards. Representative Therriault pointed out that the Reapportionment Board receives $150 dollars a day compensation. She emphasized that membership on the Board could become a full-time job. She recommended that the Committee review compensation of other boards. 3 HB 427 was HELD in Committee for further discussion. HOUSE BILL NO. 506 "An Act relating to student loans; to sanctions for defaulting on a student loan, including denial of a state occupational license or disbursement of state money; and providing for an effective date." REPRESENTATIVE CON BUNDE spoke in support of HB 506. He emphasized that the legislation will make the student loan program more viable from a business stand point. He observe that professional and occupational licenses would not be renewed for people that are in default on their student loans. The interest rate would be variable. If an individual's loan has been written off due to medical or other reasons, they would be ineligible for a period of five years. He maintained that Family education loans would be more readily available. He observed that the legislation contains a provision to hold state warrants to individuals in default of their student loan and doing business with the state, until their loan is resolved. Representative Bunde provided members with a proposed committee substitute, work draft 8-LS1752\D, dated 3/25/94 (copy on file). He explained that the proposed committee substitute addresses the WAMI program medical school arrangement with the state of Washington. He observed that the proposed committee substitute would change the program from a direct grant to a loan with a forgiveness of one fifth of the loan for each year the individual practices medicine in the state of Alaska. DIANE BARRANS, DIRECTOR, STUDENT FINANCIAL AID PROGRAM, DEPARTMENT OF EDUCATION stressed that the legislation will send a message to borrowers and bondholders that the Commission considers the student loan debt to be a serious obligation. She asserted that the Alaska Student Loan Program should be made as consumer friendly as possible. Ms. Barrans did not think the Commission would oppose the proposed committee substitute. ERIC FORRER, MEMBER, POSTSECONDARY EDUCATION COMMISSION spoke in support of the legislation. He noted that the state of Alaska has invested approximately $500.0 million dollars in the Student Loan Program. He asserted that the Program must be self perpetuating. He spoke in support of rigorous management. Representative Grussendorf discussed loan repayment. Mr. 4 Forrer observed that repayments go into the General Fund. The Commission needs legislative authority to spend receipts. Representative Martin expressed concern that individuals would be deprived of the ability to repay their loan if their license renewal is denied. Mr. Forrer noted that individuals in default can negotiate with the Commission to be in good standing. The loan does not have to be repaid in it's entirety for the individual to be in good standing. He reiterated that the fund must be managed rigorously to ensure that it continues. Representative Parnell expressed concern with language specifying default. He asked how the Commission would administer defaults. Representative Brown asked the long term fiscal soundness of the Fund. She noted that in FY 93, $7.6 million dollars were forgiven and $8.4 million dollars were lost through written off loans. She asked if loan repayments are returning to the program. Ms. Barrans noted that repayments are returned to the Revolving Loan Fund. Legislative authority is needed for expenditure of operational costs. New loans are made from repayments and sales of bond. Representative Brown expressed concern with section 2 which changes the way interest is calculated. (Tape Change, HFC 94-113, Side 2) In response to a questions by Representative Brown, Ms. Barrans stressed that oversight will come from the Board and the Commission and the Legislative Budget and Audit Committee to assure that the administrative cost is efficient. The amount forgiven each year is the amount of statutory obligation on loans made prior to 1987. Write offs are the sum total of death and disability, bankruptcy and major medical. She observed that loan forgiveness has peaked. Write offs will remain constant. She explained that a 1 percent guarantee fee will be added to students' loans to cover write off costs. The fee is a one time fee, added at the time of origination. Representative Therriault noted that response time from the Commission to student's inquires can be lengthy. A student may be in default before they can resolve disputes with the Commission in regards to payments or other matters. 5 Co-Chair MacLean asked if section 10 which allows the state to withhold payments on warrants would withstand litigation. NANCY BEAR-USERA, COMMISSIONER, DEPARTMENT OF ADMINISTRATION spoke in support of aggressive management. She noted that repayments on the loan go to pay off the bonds issued for new loans. She expressed concern with the relative autonomy of the Commission and Corporation Board. Commissioner Usera noted that the Department is concerned with the provision to withhold payments on warrants. She suggested it would be difficult to administer. She anticipated that the state would be assessed penalties on payments withheld. She noted that the authority to attach payments already exists. She observed that the cost of one lawsuit regarding withheld vender payments could cancel out receipts from collected payments. Representative Brown questioned if the Department of Administration would be authorized under federal law to use social security numbers in order to track licensees in default. In response to a question by Representative Martin, Ms. Barrans stated that the Commission will give borrowers plenty of warning that the provisions to deny renewals may affect them. In response to a question by Representative Parnell, Ms. Barrans explained that the individual's history with the loan program would determine when their license renewal would be approved. In response to a question by Representative Martin, Ms. Barrans noted that $8.0 million dollars were garnished through permanent fund dividend checks. She stressed that there is a approximately $500.0 million dollars in student debt owed the state of Alaska. She emphasized that the portion written off is a small portion of the debt. Commissioner Usera noted that the Department of Administration's fiscal note for $57.0 thousand dollars would be zero if sections requiring the holding of vender warrants are removed. Ms. Barrans discussed the revised fiscal note. Representative Bunde requested that the proposed committee substitute be held. He explained that he would like to have the WAMI program addressed in separate legislation. 6 Representative Brown provided members with AMENDMENT 1 (copy on file). She explained that the amendment would delete the floating interest rate. She suggested that the provision would allow an open ended charging of administrative expenses of the Commission. Representative Hanley echoed Representative Brown's concern. He suggested that a percentage of administrative costs be included to equal the amount paid on bonds issued plus a maximum of 2 percent. Commissioner Usera noted that financial institutions commonly charge a 2 percent spread on the cost of money versus the return on money to pay for administrative overhead. Amendment 1 was held for revision to include suggestions that administrative costs be tied to a percentage of the amount paid on bonds. Representative Brown provided members with AMENDMENT 2 (copy on file). She explained that the amendment would require that the borrower receive adequate notice that the Commission is proceeding to notify the Department of Commerce and Economic Development that the loan is in default. The borrower would have 60 days to take action to bring the loan current or make other arrangements. Representative Parnell noted that another term is being added to the contract between the Postsecondary Education Commission and the student. Ms. Barrans stated that the Commission could comply with Amendment 2 through an attachment to the 120 day letter. She stressed that the Commission intends to notify the borrower of the statute changes in multiple ways. Representative Brown MOVED to ADOPT AMENDMENT 2. There being NO OBJECTION, it was so ordered. Representative Brown provided members with AMENDMENT 3 (copy on file). She noted that the amendment would add to page 2, line 17, "if the borrower has an occupational license issued under AS 08. the license may not be renewed under AS 08.02.025." Representative Brown MOVED to ADOPT AMENDMENT 3. There being NO OBJECTION, it was so ordered. Representative Brown provided members with AMENDMENT 4 (copy on file). She explained that Amendment 4 would delete sections requiring the Department of Administration to withhold vender payments (sections 3 (c) and 9 and 10). Representative Brown MOVED to ADOPT AMENDMENT 4. There 7 being NO OBJECTION, it was so ordered. Representative Martin MOVED to delete section 1. He asserted that the provision to deny renewal of licensing discriminates against individuals with state licenses. He pointed out that other individuals could continue to be employed even if they are in default of their student loans. Representative Hanley emphasized that the Department of Commerce and Economic Development will give individuals in default a grace period to bring their loan into good faith. A roll call vote was taken on the motion to delete section 1. IN FAVOR: Martin, Foster OPPOSED: Brown, Grussendorf, Hoffman, Parnell, Therriault, Larson, MacLean Representative Navarre was not present for the vote. The MOTION FAILED (2-8). Representative Davidson referred to the Family Education Loan Program. He questioned if borrowers, who are residents of the state, should be able to apply for students, who are not residents of the state. Ms. Barrans noted that the resident borrower would be allowed to apply for their children residing outside of the state. Representative Davidson clarified his intention as the sponsor of the Family Education Loan Program. He stated that his intention was that a family would co-sign a loan. Co-Chair MacLean noted that "Alaskan resident" could be added to "family member" on line 30, page 5. Co-Chair Larson spoke against the change. He stressed that the resident is obtaining benefits from the loan. HB 506 was HELD in Committee for further discussion. ADJOURNMENT The meeting adjourned at 10:10 a.m. 8