HOUSE FINANCE COMMITTEE April 27, 1995 8:30 A.M. TAPE HFC 95-101, Side 2, #000 - end. TAPE HFC 95-102, Side 1, #000 - end. TAPE HFC 95-103, Side 1, #000 - 135. CALL TO ORDER Co-Chair Mark Hanley called the House Finance Committee meeting to order at 8:35 a.m. PRESENT Co-Chair Hanley Representative Martin Co-Chair Foster Representative Mulder Representative Brown Representative Navarre Representative Grussendorf Representative Parnell Representative Kelly Representative Therriault Representative Kohring ALSO PRESENT Marilyn May, Assistant Attorney General, Department of Law; David Skidmore, Senator Frank; Tom Williams, Senator Frank; John Shively, Commissioner, Department of Natural Resources; Natural Resources; Loren Jones, Director, Division of Alcoholism and Drug Abuse, Department of Health and Social Services; Arthur H. Snowden, II, Administrative Director, Alaska Court System; Deborah Vogt, Deputy Commissioner, Department of Revenue; Bernie Smith, Tesoro, Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; John Tillinghouse, Counsel, Tesoro. SUMMARY HB 320 An Act approving the sale of Prudhoe Bay Unit royalty oil by the State of Alaska to Tesoro Alaska Petroleum Company; and providing for an effective date. HB 320 was reported out of Committee with a "do pass" recommendation and with two zero fiscal notes; one by the Department of Revenue, dated 4/22/95; and one by the Department of Natural Resources, dated 4/22/95. SB 135 am An Act relating to permanent fund dividend program 1 notice requirements, to the ineligibility for dividends of individuals convicted of felonies or incarcerated for misdemeanors, and to the determination of the number and identity of certain ineligible individuals; and providing for an effective date. HCS CSSB 135 (FIN) was reported out of Committee with "no recommendation" and with three fiscal impact notes; one by the Department of Revenue, dated 3/30/95; one by the Department of Public Safety, dated 3/30/95; and one by the Department of Education, dated 4/11/95; and with two zero fiscal notes; one by the Department of Corrections, dated 3/30/95; and one by the Department of Law, dated 4/11/95. HB 191 An Act relating to the management and disposal of state land and resources; relating to certain remote parcel and homestead entry land purchase contracts and patents; and providing for an effective date. HB 191 was held until the 1:30 p.m. meeting on 4/27/95. HB 130 An Act relating to agency review of public comment on the adoption, amendment, and repeal of regulations; relating to the examination of proposed regulations, amendments of regulations, and orders repealing regulations by the Administrative Regulation Review Committee and the Department of Law; relating to the submission to, and acceptance by, the lieutenant governor of proposed regulations, amendments of regulations, and orders repealing regulations; and requiring agencies to make certain determinations before adopting regulations, amendments of regulations, or orders repealing regulations. HB 130 was held until the 1:30 p.m. meeting on 4/27/95. HB 57 An Act relating to driver's licensing; and providing for an effective date. HB was held until the 1:30 p.m. meeting on 4/27/95. HOUSE BILL NO. 320 An Act approving the sale of Prudhoe Bay Unit royalty 2 oil by the State of Alaska to Tesoro Alaska Petroleum Company; and providing for an effective date. JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES testified in support of HB 320. He gave a brief overview of the legislation. He observed that HB 320 approves the sale of Prudhoe Bay Unit royalty oil by the state of Alaska to the Tesoro Alaska Petroleum Company. He noted that the Alaska Royalty Oil and Gas Development Advisory Board reviewed the contract with unanimous support. The contract allows: * Tesoro to buy 40,000 thousand barrels a day or 30 percent of the Prudhoe Bay Unit royalty oil; * The State to retain 108 thousand barrels of Prudhoe Bay Unit royalty oil; and * Grants Tesoro a three year contract based on the west coast value paid to Exxon. Commissioner Shively maintained that the contract provides the State with a premium. He noted that the Commissioner of the Department of Natural Resources is required by law to obtain the minimum price that would result from the sale of the oil by the British Petroleum Company (BP). He noted that Tesoro has provided the State with a letter of credit. Commissioner Shively emphasized that Tesoro provides local employment. He stressed that in-state processing has reduced the price of petroleum products in the state. In response to a question by Representative Mulder, Commissioner Shively reiterated that the contract runs for three years. He clarified that the contract would be renegotiated at the end of three years. BERNIE SMITH, TESORO ALASKA PETROLEUM COMPANY spoke in support of HB 320. He emphasized that Tesoro's current contract will end December 30, 1995. He noted that 80 percent of Tesoro's crude oil comes from the state of Alaska. He referred to statements made in "An Analysis of the Department of Natural Resources Three-Year Contract for the Sale of Prudhoe Bay Royalty Oil to Tesoro Alaska Petroleum Company" dated March 29, 1995 (copy on file). He observed that the contract would require that at least 80 percent of the oil purchased be processed at Tesoro's Nikiski refinery. He emphasized that there are no other stable long term sources of crude oil for the Nikiski refinery. He stressed that if the contract is not ratified before the legislature adjourns that Tesoro would lose 80 percent of its crude oil and its refinery would be jeopardized. Mr. Smith asserted that Tesoro is paying a premium for the 3 contract. He emphasized that Tesoro can live with the negotiated price. Mr. Smith noted that the contract states that if the North Slope Export Ban is lifted the price will be renegotiated. Representative Therriault summarized that 100 percent of the royalty constitutes 80 percent of Tesoro's crude oil at the Nikiski refinery. He asked why the contract allows Tesoro to use only 80 percent. Mr. Smith explained that the provision allows Tesoro to adjust refinery rates to meet demand. JOHN TILLINGHOUSE, COUNSEL, TESORO ALASKA PETROLEUM COMPANY explained the in value price. He referred to page 15 of Tesoro's analysis. He explained that the Exxon price has been $.19 cents a barrel higher than the in-value price. In response to a question by Representative Grussendorf, Mr. Commissioner Shively stated that any disadvantage in the contract effects Tesoro. He stressed that there is no risk to the State. He added that if the State audits and finds that Exxon has under reported, Tesoro could be required to pay additional money. Tesoro could also be disadvantaged by the reopening of the Export Ban. Representative Brown asked how the current in-value price compares to the settlement price in the Amerada Hess case. Mr. Tillinghouse stated that all the prices used by Tesoro's analysis flow from the Amerada Hess settlement. Commissioner Shively emphasized that the BP price was not used because the transportation cost was not included. He explained that the State has 6 years to audit the Exxon price. He added that the State's price is higher and the letter of credit submitted by Tesoro is longer. Mr. Smith noted that Tesoro's letter of credit has previously been for 60 days. The State requested a 90 day letter of credit. The contract represents a compromise of 75 days. Tesoro remains in negotiation with their charter shipper to reduce the letter of credit to 60 days. He acknowledged that the State needs assurance that if Tesoro defaults there is a ship to carry the oil. In response to a question by Representative Navarre, Mr. Smith noted that Tesoro would be required to pay within a three working days after billing. He emphasized that Tesoro has never failed to make a payment to the State. Representative Navarre maintained that the lengthening of the letter of credit puts Tesoro at risk by reducing their capital availability. 4 Mr. Tillinghouse noted that Mapco receives state royalty oil without posting a letter of credit. He emphasized that the additional banking costs will be $156.0 thousand dollars a year and will tie up $8 to $9 million dollars. Representative Navarre stressed that the State is well protected by the contract. Representative Brown asked if Tesoro has ever failed to take delivery of the oil. Mr. Smith could not recall any time Tesoro failed to take delivery. Mr. Tillinghouse pointed out that Tesoro is obligated for the oil regardless of their ability to take delivery. Tesoro would have to give the State six months notice to not take delivery. Mr. Smith anticipated that Tesoro will be able to use all the crude available. Mr. Tillinghouse added that if Tesoro gives six months notice on their inability to take delivery they would be assessed a penalty. Mr. Smith expressed confidence that Tesoro can maintain the terms of the contract. In response to a question by Representative Brown, Commissioner Shively stated that a competitive bid was not considered. He noted that the State is considering a competitive sale in the future. He emphasized that Tesoro provides the State with economic benefits as an in state producer. Mr. Bernie clarified that Tesoro is seeking a long term contract. Representative Navarre commended Tesoro in their success in Alaska. He MOVED to report HB 320 out of Committee with individual recommendations and with the accompanying fiscal notes. HCS CSSB 135 (FIN) was reported out of Committee with "no recommendation" and with three fiscal impact notes; one by the Department of Revenue, dated 3/30/95; one by the Department of Public Safety, dated 3/30/95; and one by the Department of Education, dated 4/11/95; and with two zero fiscal notes; one by the Department of Corrections, dated 3/30/95; and one by the Department of Law, dated 4/11/95. SENATE BILL 135 am An Act relating to permanent fund dividend program notice requirements, to the ineligibility for dividends of individuals convicted of felonies or incarcerated for misdemeanors, and to the determination of the number and identity of certain ineligible individuals; and providing for an effective date. 5 DAVID SKIDMORE, STAFF, SENATOR FRANK testified in support of SB 135. He noted that similar legislation was passed by the Senate unanimously in the previous session, but died in the House. He explained that SB 135 amends the Permanent Fund forfeiture statutes in four ways. It expands the pool of criminals who are ineligible for permanent fund dividends to include persons who are convicted but not incarcerated of a felony and persons incarcerated for their third or subsequent misdemeanor conviction. It also amends the process by which the forfeited dividends are available for appropriation to selected state agencies. There would no longer be a one year lag in the appropriation to agencies. This would allow a second appropriation from the dividend to be available in FY 96. He noted that the Senate's FY 96 Department of Corrections' operating budget is predicated on the availability of these one-time funds. The bill also creates a new notice requirement that would show the amount that would otherwise have been paid to ineligible criminals; the grounds for the ineligibility; the legislative purpose in making criminals ineligible; and the amount appropriated to each of the agencies. The bill would also add the Department of Law, the Department of Public Safety and the Department of Revenue to the list of government entities that are eligible to receive appropriations from the forfeited dividends. He observed that the Committee has been provided with an amendment which would remove the Department of Revenue, Child Support Enforcement Division (CSED) from the list. He explained that the Department of Revenue was originally added in response to concerns that child support cases would be unduly affected. He stressed that analysis shows that the actual impact to child support cases would be minimal. He expressed concern that the inclusion of the Department of Revenue could invalidate the amendments in SB 135 since there is not a clear linkage between child support payments of criminals and the criminal justice system. Representative Brown asked for clarification of the priority of call on the permanent fund dividends. TOM WILLIAMS, STAFF, SENATOR FRANK stated that AS 43.23.065 (b) lists priorities. He reviewed priorities as listed in AS 43.23.065 (b). He stated that the legislation would not change the order of draw. He explained that the dividends would not be available for attachment since they would be forfeited. (Tape Change, HFC 95-102, Side 1) Mr. Skidmore explained that dividends would be appropriated to reimburse costs imposed on the criminal justice system. Approximately 2,000 felons would become ineligible. 6 Representative Brown suggested that the amount of dividends that would be available for attachment for child support would be reduced. Mr. Skidmore provided members with a summary of the estimated number of newly-ineligible criminals whose child support obligations would be affected by SB 135 (Attachment 1). He stated that out of 2,000 criminals approximately 20 percent would have active Child Support Enforcement Division cases. He stated that 47 percent of these cases would be on AFDC. He summarized that only 46 cases would be CSED cases involving PFD garnishment. Mr. Skidmore observed that the criminals in question would have less than a one year sentence. He explained that AFDC cases were exempted since all but $50.0 dollars of their PFD's are already forfeited to the state. Mr. Williams added that some persons collecting child support will be affected by the denial of dividends. He stressed that the number will be relatively small. He emphasized that $2.7 million dollars would be available for state operations in FY 96. MARILYN MAY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW testified via the teleconference network. She agreed that all but $50.0 dollars of AFDC obliges' PFD's would go to the State. She stated that the impact on AFDC custodial parents would be minimal. She acknowledged that the money would be transferred from one pocket to another. Representative Brown summarized that funding for Aid to Families with Dependent Children (AFDC) operation costs would not be available under the provisions of SB 135. Ms. May stated that previous constitutional concerns regarding equal protection and ex-facto have been addressed by SB 135. LOREN JONES, DIRECTOR, DIVISION OF ALCOHOL AND DRUG ABUSE expressed concern that most third time misdemeanor offenders covered under SB 135 would be part of the Division's treatment system. He observed that these PFD's are currently used by treatment agencies to compute income from fees owed. He stressed that the use of these fees by the Division of Alcohol and Drug Abuse is not recognized by SB 135. He added that HB 159 would add a new group of felons that would loose their PFD's as the result of a third time misdemeanor. He noted that these treatment programs cannot attach dividends in a subsequent year. 7 DEBRA VOGT, DEPUTY DIRECTOR, DEPARTMENT OF REVENUE stated that the legislation enlarges the class of offenders that would not be eligible for PFDs. She referred to the timing mechanisms that permit a one time only appropriation of $2.7 million dollars out of the Permanent Fund Dividend Distribution Fund in FY 96. She provided members with charts demonstrating the appropriation path (Attachment 2A and 2B). She stated that the Governor has concerns that dividends in question are already being used by other agencies for other programs. Ms. Vogt reviewed attachment 2A. She demonstrated that dividends paid for the January 1 - March 30, 1995 period would normally be available in 1996. She showed that these dividends would be appropriated in 1995 under the provisions of SB 135. She added that dividends withheld from criminals in the prior year are also paid in 1995. She summarized that by moving up the notification by a year both dividends will be appropriated in FY 96. She stated that the result of two appropriations from the Permanent Fund Dividend will be that an additional $5.0 dollars would be taken from each individual's dividend. Ms. Vogt stated that the drafting language of section 7 would prevent the disclosure of the additional cost of the provisions of SB 135. Representative Therriault MOVED to adopt Amendment 1 (Attachment 3). Amendment 1 would remove Department of Revenue for child support from the list of departments that can receive funds from the denied criminals. Ms. Vogt argued that dividends garnished by the Child Support Enforcement Division go to children. She stressed that the amendment and an increase of the class of offenders denied are separate issues from the Administration's opposition to the bill. Co-Chair Hanley summarized that the Administration is opposed to the policy call of having two appropriations in one fiscal period. Ms. Vogt stated that the Administration is neutral on amendment 1. There being NO OBJECTION, Amendment 1 was adopted. Ms. Vogt demonstrated how the change in the appropriation of forfeited dividends will result in a reduction of the amount available for dividends appropriated in 1995. She reiterated that 1995 dividends will be reduced by $5.0 dollars each. She explained that dividends appropriated to agencies from forfeits by felons in FY 95 are from felons incarcerated in FY 94. She reiterated that two years worth of non-payments to felons are being taken out of one year's 8 budget. Representative Navarre argued that the first payment for 1994 should have been shown in FY 95. Ms. Vogt stressed that the reason for the gap is that the amount of the dividend is unknown during the appropriation process. She observed that those that are not going to get dividends do not have an incentive to apply. The Department of Corrections provides the Department of Revenue with a tape of incarcerated offenders that would have been eligible. Representative Brown recalled that the reason the Legislature did not require disclosure of the amount taken from felons' dividends is that other dividends would not be affected. She questioned the effect of a 90 day effective date. Ms. Vogt did not think there would be a large impact. ANNALEE MCCONNELL DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR testified that the Governor does not support the concept of SB 135 as a method to solve the FY 96 budget problem. She stressed that the State has on going budget problems that must be addressed. She emphasized that SB 135 will not result in a long term solution. She added that other entities dependent on PFD's receipts would be put in jeopardy. (Tape Change, HFC 95-103, Side 1) Representative Martin spoke in support of program fees. Ms. McConnell stated that the Governor supports program fees, but emphasized that they have concern about combining two year's fees into one. ARTHUR H. SNOWDEN, II, ADMINISTRATIVE DIRECTOR, ALASKA COURT SYSTEM pointed out that the PFD's of indigent offenders are already being assigned to the State for the cost of their defense. Ms. May added that the collection for DWI offenders pay for their incarceration. Representative Brown asked if the amount of court ordered restitutions were known. Mr. Snowden stated that the amount was not known. Representative Martin MOVED to report SB 135 am out of Committee with individual recommendations and with the accompanying fiscal notes. Representative Brown OBJECTED. She emphasized the impact on those that are currently receiving the PFD's such as the Child Support Enforcement Division, parents, victims and Aid to Families with Dependent Children. She observed that individual PFD's would be further reduced by $5.0 dollars. She stressed that much of the money is already going to the criminal justice 9 system. Representative Grussendorf spoke against short term solutions to a long term budget problem. A roll call vote was taken on the MOTION to move SB 135 am from Committee. IN FAVOR: Kelly, Kohring, Martin, Mulder, Therriault, Foster, Hanley OPPOSED: Brown, Grussendorf Representatives Parnell and Navarre were absent from the meeting. The MOTION PASSED (7-2). HCS CSSB 135 (FIN) was reported out of Committee with "no recommendation" and with three fiscal impact notes; one by the Department of Revenue, dated 3/30/95; one by the Department of Public Safety, dated 3/30/95; and one by the Department of Education, dated 4/11/95; and with two zero fiscal notes; one by the Department of Corrections, dated 3/30/95; and one by the Department of Law, dated 4/11/95. ADJOURNMENT The meeting adjourned at 10:20 a.m. 10