HOUSE FINANCE COMMITTEE February 20, 1995 1:30 P.M. TAPE HFC 95-23, Side 2, #000 - end. TAPE HFC 95-24, Side 1, #000 - end. TAPE HFC 95-24, Side 2, #000 - 481. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 1:34 p.m. PRESENT Co-Chair Hanley Representative Kohring Representative Brown Representative Navarre Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representative Martin Representative Mulder Co-Chair Foster was absent from the meeting. ALSO PRESENT Rod Mourant, Staff, Representative Kott; Mike McGee, Director, Permanent Fund Dividend Division, Department of Revenue; Mike Greany, Director, Legislative Finance Division; Randy Welker, Legislative Auditor, Legislative Audit Division. SUMMARY HB 4 An Act relating to absences from the state for purposes of determining residency under the permanent fund dividend program; and providing for an effective date. CSHB 4 (STA) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Revenue, dated HB 183 An Act extending the requirements of preliminary evaluation, notice, and prior legislative approval of certain lease-purchase agreements to include proposed improvements to real property; and providing for an effective date. HB 183 was HELD in Committee for further 1 discussion. HJR 5 Proposing amendments to the Constitution of the State of Alaska relating to terms of legislators. HJR 5 was HELD in Committee for further discussion. HOUSE BILL NO. 183 "An Act extending the requirements of preliminary evaluation, notice, and prior legislative approval of certain lease-purchase agreements to include proposed improvements to real property; and providing for an effective date." Co-Chair Hanley, sponsor of HB 183, gave a brief overview of the legislation. He referred to problems past legislatures have experienced with certificates of participation. He emphasized that past legislatures have enacted laws to restrict financing and require legislative approval for acquisition by issuance of certificates of participation. Co-Chair Hanley noted plans by the Alaska Psychiatric Institute (API) to use certificates of participation to finance a $63.0 million dollar facility. The Legislature approved funding for the constriction of a $28.0 million dollar facility in the FY 95 operating budget. He observed that current statutes address "acquisition" of facilities not "building" of facilities. The legal argument is that certificates of participation do not represent general obligation debt to the State. Debt on certificates of participation is secured by the asset. He noted that if a new API building is expanded, beyond the $28.0 million dollars authorized by the legislature, an asset could be claimed in which the State has invested. He emphasized that there is no limit on spending if certificate of participation financing is used. Co-Chair Hanley explained that the legislation will address the problem by adding "or improvement" to the property to prevent improvement through lease-purchase of real property. Representative Brown queried if the addition of "improvement" would address the intent to prevent construction of new facilities without legislative authorization. Representative Parnell agreed that the addition of "construct" would further modify the legislation and alleviate confusion. He concluded that the legislation as written would address the problem. He explained that the 2 underlying land is real property. The legislation requires legislative authorization for improvement of real property. Any building on real property would constitute improvement of the property. Representative Martin provided members with Amendment 1 (Attachment 1). The amendment would limit the authority of the Alaska Housing Finance Corporation (AHFC) to use money or another asset of the corporation to acquire, construct, improve, or repair a building for the corporation's use and occupancy. Representative Martin observed that AHFC approached the Legislative Budget and Audit Committee with the concept of constructing a new building. He observed that the Legislative Budget and Audit Committee does not have the authority to approve total appropriations for long range contracts. He pointed out that a majority of the Legislature does not currently approve of this budget item. He observed that AHFC has contracted out for an architecture design of a new building. Land has not yet been purchased. Representative Martin accentuated that all Requests For Proposal's for lease or purchase of office space are subject to annual appropriation by the legislature. He emphasized that the amendment would close another loop hole and send a message to AHFC. Representative Brown agreed with Representative Martin's concerns, but pointed out the broad nature of the amendment. She questioned if AHFC's ability to repair existing facilities should be restricted. She asked if an appropriation through the budget process would be an authorization. Representative Martin argued in favor of retaining "repair". He noted that a repair could be a major face lift. Representative Therriault asked for further clarification of the last sentence on line 11 of the amendment: "For purposes of this subsection, an appropriation for the proposed acquisition, construction, improvement, or repair does not constitute approval of the project." RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT DIVISION explained that the language was drafted by the Division of Legal Services. He noted that the amendment was drafted with the intention of implementing the strictest standard requiring legislative approval. He observed that in the leasing section of the procurement code, for the purpose of a lease, an appropriation does constitute approval. In the lease financing section of existing statute an appropriation does not constitute approval. Separate legislative approval 3 is required by law. MIKE GREANY, DIRECTOR, LEGISLATIVE FINANCE DIVISION pointed out that language contained in the front section of the operating budget provides that all funding received by AHFC is appropriated to AHFC for whatever purpose their statutes allow. Mr. Greany clarified that any project exceeding $25.0 thousand dollars which continues beyond a year is considered a capital project. Mr. Welker noted that the amendment is very restrictive. The Alaska Housing Finance Corporation's ability to make repairs on their existing facility would be limited. He observed that elimination of "repair" would allow an appropriation to constitute approval for a repair. Representative Navarre spoke in support of allowing repairs without legislative approval. He acknowledged that AHFC should be required to obtain legislative approval for new construction. Representative Therriault questioned if two pieces of legislation would be needed to allow new construction by AHFC if HB 183 is enacted. Mr. Welker stated that appropriation legislation would not be enough. Authorizing legislation would be needed. Representative Therriault queried if authorizing legislation would suffice without a separate appropriation. Representative Brown did not think that appropriation legislation would be needed separate from authorizing legislation. She pointed out that the legislation will not be adopted in time to prevent construction of the project currently being proposed by AHFC. Representative Martin asserted that two bills would be necessary. Co-Chair Hanley pointed out that lease-purchases are handled differently than actual construction. New building construction does not require authorization other than in an appropriation bill. Representative Navarre agreed that absent specific statutory prohibition against construction an appropriation is sufficient. Co-Chair Hanley asked if an appropriation from the legislature is necessary for any of the AHFC's functions. He concluded that if statutes require an appropriation from the legislature for any of AHFC's functions then an authorization law and appropriation would be required. 4 Mr. Welker pointed out that AHFC can use its general bonding authority to generate bond proceeds which are not subject to an appropriation in order to raise capital. The amendment clarifies that AHFC cannot use their general bonding authority to acquire facilities. Representative Navarre observed that another housing market down-turn could result in AHFC's control of houses needing repair before resale. Representative Martin referred to the purchase of the Department of Environmental Conservation building. Co-Chair Hanley reiterated the need to close loop holes in the statutes. Representative Therriault concluded that AHFC would not need a separate line item appropriation in addition to authorizing legislation. Co-Chair Hanley agreed with his conclusion. Representative Parnell pointed out that an improvement to property is a repair. He asked if there are other public agencies or quasi public corporations like AHFC that have similar bonding authority which should be addressed. Mr. Welker noted that the legal definition of "improve" includes "to increase the value or good qualities of, mend, repair". Representative Brown suggested that the Alaska Industrial Development and Export Authority (AIDEA) and the Alaska Railroad Corporation may be in similar situations. Mr. Welker added that certain aspects of the University of Alaska's operations are not subject to the Executive Budget Act. Representative Brown observed AHFC's duties and powers are the subject of HB 189: "An Act requiring that, in addition to its operating budget, all activities of the Alaska Housing Finance Corporation are subject to the Executive Budget Act." She suggested that the amendment be addressed in HB 189. Representative Martin acknowledged that HB 189 is more inclusive and resolves the long range problem. He noted that if AHFC pursues the construction project an increase in the FY 96 or FY 97 AHFC budget will be needed. Representative Brown observed that the amendment is not retroactive. Representative Martin emphasized that the amendment would send a message to AHFC. Co-Chair Hanley suggested that the Legislative Budget and Audit Committee made the Legislature's position clear. 5 Representative Kohring pointed out that AHFC has received the message that there is concern about proceeding with the construction. He assured members that AHFC will look hard at putting the breaks on the project if the Legislature disapproves. He noted that AHFC is currently determining the ramifications of cancelling the contracts. Representative Martin asserted that AHFC did not provide the legislature with all the available facts. He reiterated the need to close a loop hole regarding lease-purchases. Representative Kohring asked for a list of other state agencies which are not subject to the Executive Budget Act in regards to bonding authority. (Tape Change, HFC 95-24, Side 1) Representative Kohring stressed that AHFC felt that they could save the State money. He emphasized that AHFC's intent was good. Representative Navarre referred to the 5 percent housing loan program initiated by AHFC. Amendment 1 was held. HB 183 was HELD in Committee for further discussion. HOUSE JOINT RESOLUTION NO. 5 Proposing amendments to the Constitution of the State of Alaska relating to terms of legislators. Representative Therriault, sponsor of HJR 5, gave a brief overview of the legislation. He noted that the resolution is designed to bring term limits to the State of Alaska Legislature. He observed that the legislation treats the House and Senate the same. Members of each body would be limited to twelve regular sessions of continuous service before being required to depart for two regular sessions. He noted that discussions had suggested that term limits from 8 to 16 years be adopted. He observed that "regular sessions" served will be used to calculate "sessions" served. A person could not serve more than 12 consecutive regular legislative sessions. They could not hold office again until two regular legislative sessions have elapsed. Representative Therriault observed that section 2 clarifies that special sessions do not count toward the 12 regular sessions. He added that the House Judiciary Committee amended the legislation to allow a Senate term to be 6 completed if the 12 years fell in the middle of a term. Representative Therriault noted that a member could be appointed to serve before, during or after they run for elective office. The legislation states that an appointment to fill a vacancy shall not be considered when tabulating tenure, unless it is the result of resignation from one House to fill the appointment in the other House. Representative Navarre expressed support for HJR 5. He preferred an immediate effective date. He suggested that House terms be staggered terms of four years. He emphasized the high expense and time required to ensure a successful election. In response to a question by Representative Mulder, Representative Therriault clarified that any combination of House and Senate service that equals 12 consecutive years would trigger the cut off, unless the individual is half way through a Senate term, in which case they would finish the term. Representative Therriault stressed problems associated with an immediate effective date. He noted that the resolution would not be voted on untill the next election. He emphasized that members could be immediately cut off if they have served 12 years, even if they were just elected. Representative Kelly questioned if a series of plans could be put on the ballot. Representative Therriault stated that a resolution could not list different options. He did not feel that a member's effectiveness would be limited by the knowledge that they would not be allowed to run during the next election. He stressed that they could run after the two year waiting period. He emphasized that the intent is to try and reduce the incumbent's advantage. Representative Brown suggested that the resolution be effective two years after being adopted during a general election. She questioned the necessity of creating an exception for members being appointed to another House. She asked how appointments would be counted. Representative Therriault clarified that appointments would not be count toward the 12 years. He clarified that the intent in providing an exception for members who resign from one House to fill the appointment in the other House, is to prevent the appointment from being interpreted as a break in service that would invalidate the prior time served. Representative Navarre noted the high percentage of turnover among House members. 7 Representative Martin emphasized that the resolution will result in public debate. He emphasized that the constitutional amendment needs to be clearly stated. He observed that the National State Legislative Conference recommends term limits of 12 years. Representative Therriault agreed that the Alaska State Legislature has a healthy turnover. He emphasized that the legislation is designed for the exception. He argued that a member can effectively serve their district in 12 years. He reiterated that a member can run again after the two year break. In response to a question by Representative Parnell, Representative Therriault observed that the United States Supreme Court has agreed to take under consideration the State of Arkansa's Supreme Court ruling that the State could not restrict eligibility of federal candidates. Representative Kelly stated his preference for the addition of "in one body" after "consecutively" on page 1, line 9; and the change from "12" to "8". The amendment would allow a person to serve 8 years in the House and then 8 years in the Senate without a break. Co-Chair Hanley clarified that a person would have to sit out two years before serving again in the same body. Representative Brown asked if subsection (c) on page 2 would be affected. Co-Chair Hanley pointed out that the amendment as suggested would allow a member to return to the House after serving 8 years in the Senate and 8 years in the House. A member could continue to serve if they switched bodies every 8 years. Representative Kelly clarified his intent that a member be allowed to serve eight years in the House then 8 years in the Senate, and then be required to sit out two years before returning to service. Co-Chair Hanley suggested that the amendment would need further drafting. Representative Martin reiterated that constitutional amendments should be short and clear. Representative Therriault pointed out that members that did not move to the Senate would be limited to eight years in the House. He argued in favor of the original bill. Co- Chair Hanley expressed support for Representative Therriault's original version. Representative Kelly argued that the right of the people to elect the representative of choice should be protected. He asserted that the needs of the district must be considered. 8 Representative Therriault noted that 22 states have passed initiatives to limit the terms of their congressional members. Of those 22 all but 2 (Alaska and North Dakota) have also enacted term limits for their state representatives. HJR 5 was HELD in Committee for further discussion. (Tape Change, HFC 95-24, Side 2) HOUSE BILL NO. 4 "An Act relating to absences from the state for purposes of determining residency under the permanent fund dividend program; and providing for an effective date." ROD MOURANT, STAFF, REPRESENTATIVE KOTT maintained that HB 4 will remedy a problem caused in a recent court ruling. The ruling disallowed Permanent Fund Dividend (PFD) payments to spouses of PFD recipients while accompanying an eligible spouse out of state on an allowable absence. The legislation would allow individuals who accompany an eligible spouse out of state on an allowable absence to retain their eligibility for a PFD if that was the only reason that the spouse was disallowed. He explained that the legislation applies retroactively to January 1, 1994. This was the first time the Permanent Fund Dividend Division disallowed dividends for that reason. He cited two cases involving local residents. He noted that there is a $600.0 hundred dollar current year fiscal note accompanying the legislation. The fiscal note will fund costs associated with contacting individuals that have not repealed their denial. Representative Brown noted that the legislation contains language similar to HB 392, which was introduced during the Eighteenth Legislative Session. She noted that some provisions of HB 392 were enacted as regulations. MIKE MCGEE, CHIEF OF PFD OPERATIONS, PERMANENT FUND DIVIDEND DIVISION, DEPARTMENT OF REVENUE explained that the court ruled that the regulation was in conflict with existing statute. The law stated that the Division could not use the residency of a spouse as the primary source of an individual's eligibility. The intent is to separate absences from residency. Representative Mulder asked for further clarification of the insertion of "maintains and demonstrates at all times an intent" and deletion of "intends" on line 27 and 18 on page 2. Mr. McGee explained that the change was made to be 9 consistent with the definition of "residency" in existing statute. Representative Brown noted that HB 392 proposed sixteen allowable absences. She observed that HB 4 contains eight allowable absences. Mr. Mourant explained that only the existing allowable absences were included due to the complexity of the issue. Co-Chair Hanley noted that the legislation does not specify that absences for educational purposes must be due to full- time participation. Mr. McGee stated that regulations specify full-time status of good standing must be maintained. Representative Martin noted that PFD checks were denied to many students in the previous year. Mr. McGee discussed reasons students were denied their dividends. Representative Navarre noted that many students were enrolled to vote on their campuses during the last presidential election. Out-of-state voter registration challenges their intent to return to Alaska. In response to a question by Representative Navarre, Mr. McGee noted that dividends will be paid from the subsequent year's permanent fund dividend. Payments made as a result of the legislation would be identified with the dividend payment. Representative Brown observed that HB 392 would have allowed absences while "attending a special education program to assist in the treatment of learning or physical disabilities or treatment of mental disorders if attendance is recommended by a licensed physician, psychologist, physical therapist, or the commissioner of eduction; attending full- time technical training as part of a career education program recognized by the Alaska commission on Postsecondary Education; and attending full-time an academic institution, seminar, or other program for continuing professional educational development, including a sabbatical, legal, or accounting program, recognized by the Alaska Commission on Postsecondary Education." She noted that the Department of Revenue requested the changes contained in HB 392. Mr. Mourant observed that the legislation was drafted independent of the Department of Revenue. He noted that item eight is the only item not contained in existing statute, AS 43.23.095 (8). Mr. McGee noted that the absences quoted by Representative Brown are included in regulation. Mr. McGee provided members with a copy of the regulations, 15 AAC 23.163 10 (Attachment 2). Representative Kohring spoke in support of HB 4. In response to a question by Representative Kohring, Mr. McGee reiterated that funding will be paid out of the over estimation of this year's dividend or off the top of next year's dividend payment. He added that individuals whose 1992 and 1993 PFD's were denied for other reasons and their denial overturned by appeal would also be paid. Representative Mulder MOVED to report CSHB 4 (STA) out of Committee with individual recommendations and with the accompanying fiscal note. CSHB 4 (STA) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Revenue, dated 2/1/95. ADJOURNMENT The meeting adjourned at 3:40 p.m. 11