HOUSE FINANCE COMMITTEE April 11, 1997 1:47 P.M. TAPE HFC 97-93, Side 1, #000 - end. TAPE HFC 97-93, Side 2, #000 - end. CALL TO ORDER Co-Chair Hanley called the House Finance Committee meeting to order at 1:47 P.M. PRESENT Co-Chair Hanley Representative Kelly Representative Foster Representative Martin Representative Grussendorf Representative Mulder Co-Chair Therriault and Representatives Davis, Davies, Kohring and Moses were absent from the meeting. ALSO PRESENT Annalee McConnell, Director, Office of Management and Budget, Office of the Governor: Keith Kelton, Director, Division of Facility Construction and Operation, Department of Environmental Conservation; Thomas Brigham, Director, Division of State Planning, Department of Transportation and Public Facilities. SUMMARY HB 165 "An Act making and amending capital and other appropriations and to capitalize funds; and providing for an effective date." HB 165 was HELD in Committee for further consideration. HOUSE BILL NO. 165 "An Act making and amending capital and other appropriations and to capitalize funds; and providing for an effective date." Co-Chair Hanley provided members with spreadsheets by the Legislative Finance Division showing project funding and statewide agency totals and a letter from the Office of Management and Budget, dated 4/4/97, (copy on file). ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR stated that the Administration focused on state appropriations that would leverage federal or other dollars. She noted that the general fund match appears to be $28.9 million dollars. She explained that $4.5 million dollars from Alaska Industrial Development and Export Authority (AIDEA) dividends were also applied to the federal airport match. In addition, a $1.5 million dollar reappropriation will be used to match federal dollars. She concluded that $35 million dollars of the capital project proposal will leverage federal funds. The state will receive an additional federal match for water and sewer projects. She stressed that half of the CIP proposal will be matched by federal funds. Ms. McConnell observed that Alaska Housing Finance Corporation (AHFC) receipts were used in FY 97 for water and sewer projects that principally affect residential areas. The FY 98 request also includes funding from AHFC corporate receipts. She noted that one time federal funding is available in FY 98 for drinking water. This funding will be used for grants to medium and larger communities and to expand grants in small communities. Ms. McConnell discussed the $16 million dollar AHFC dividend. She observed that the Administration used the dividend dollars for economic development projects in order to reinvestment the state's original investment. She noted that the Majority has proposed to deposit the dividend into the General Fund. She acknowledged that the Administration also considered depositing the dividend into the General Fund. The Administration concluded that, without AIDEA funding, economic develop projects would be below the level the Administration thought was needed. She stressed that life and safety issues receive priority. She maintained that economic development projects would come to a "screeching halt" without the AHFC dividend. Ms. McConnell stated that the loss of $16 million AHFC dividend dollars, to the General Fund, would be offset by an increase in oil revenues and a $28 million dollar savings from refinancing the State Mortgage Insurance Fund. The Administration's plan uses $5 million dollars from the State Mortgage Insurance Fund to match federal drinking water money. The remainder could go into the General Fund. Ms. McConnell provided members with a list of projects that were proposed but not included in the supplemental budget (copy on file). She maintained that these projects should be contained in the capital budget. She identified appropriations for additional items that were not included. An appropriation to pay Cleary fines was not included in HB 113 or SB 83. She observed that funding for the Fairbanks Youth Center's security improvements was not included in SB 83. Funding for emergency communications equipment was not included. An appropriation for the Old Eagle school site building removal was included in HB 113 but not in SB 113. Funding for the Sitka Training Academy was not included in either bill. Ms. McConnell referred to the capital matching grant program. She provided the Committee with a memorandum, dated 4/4/97 amending the program (copy on file). Ms. McConnell noted that after three years of relatively small capital budgets the pressure on available funding is pretty intense. She maintained that the Administration's proposal only accommodates basic needs. In response to a question by Representative Foster, Ms. McConnell explained that the priority system used in evaluating school projects has been reviewed. Modifications and clarifications on the point system were made. She emphasized that the number of appeals to the priority list have been reduced. Co-Chair Hanley asked for a copy of the priority list. Ms. McConnell clarified that the only adjustment to the priority list was a bulk fuel system upgrade on the North Slope. The full state amount would be $6 million dollars. This amount was reduced to $500 thousand dollars. This is a reimbursement for payments that have been and are entitled to reimbursement under state law. Representative Martin referred to requests by the Exxon Valdez Trust Council that have come before the Legislative Budget and Audit Committee. He emphasized that the total legislative body should consider these requests. Ms. McConnell responded that the process works throughout the year. These projects have been added to the back section. She stressed that there needs to be some flexibility. Co-Chair Hanley summarized that projects should be included, when they can, in the full operating budget. Ms. McConnell noted that the municipal matching grant program is funded at the same level as FY 97, $15 million dollars. The bulk of the funding goes to incorporated communities. All projects that have the appropriate backup are included. She noted that there are some changes as requested by communities. She stressed that legislators receive copies of requests in their districts. Requests are not edited by the Office of Management and Budget. Funds can be retained in a community's account until a specific project request is developed. Co-Chair Hanley summarized that communities decide how to spend the funding, providing the requirements have been met. THOMAS BRIGHAM, DIRECTOR, DIVISION OF STATE PLANNING, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES noted that Senator Stevens spoke in regards to the reauthorization of the Intermodal Surface Transportation Act (ISTEA). Senator Stevens stated that an expansion of ISTEA from $20 to $26 billion dollars a year is not sufficient. Mr. Brigham noted that the state could receive an additional $60 million federal dollars for surface transportation projects. Ms. McConnell noted that the Administration estimated the general fund match for the federal highway program at $25.5 million dollars. She noted that $25.5 million dollars would not be sufficient to cover the required match if additional federal funding is acquired. She suggested intent language be included to clarify that a supplemental request will be submitted if additional federal funding is available. Co-Chair Hanley asked if $25.5 million dollars covers the over- authorization. He questioned how much of this amount would fund non-conforming items, that the federal government will not fund. In response to a question by Representative Martin, Mr. Brigham explained that there are no dollars associated with over- authorization. He noted that more than $200 million dollars in old authorization has been taken off the books. Mr. Brigham provided members with a flow chart of the Statewide Transportation Improvement Program (STIP) process (copy on file). He reviewed the flow chart. He observed that the statewide plan is required by federal law. The program is broken into three parts, the National Highway System (NHS), the Community Transportation Program (CTP), and Trails and Recreational Access (TRAAK). He noted that NHS projects deal with major roadways. Roads are evaluated and prioritized based on grade, alignment, capacity and constraints. The program was developed to upgrade all routes within two federal transportation cycles (12 years). Mr. Brigham noted that CTP and TRAAK requests are nominated by local governments, agencies and other groups. The are collected and scored. Scores are published in the STIP. These projects are not edited. The list is subject to public review. He observed that in Anchorage, AMATS has a parallel process that is folding into the STIP. The STIP is compared to the existing legislative authority. Co-Chair Hanley referred to page 19, line 26. Ms. McConnell clarified that this item appropriates $2.5 million dollars in AIDEA corporate receipts to the Corps of Engineers Program. Co-Chair Hanley noted that the appropriation may be allocated among the projects listed in the bill. Legislative intent states that the Department of Transportation and Public Facilities may request a fiscal year 1998 supplemental if the amount of funds secured in the federal budget require state matching funds in excess of this appropriation. Ms. McConnell explained that the list includes projects that are currently in the President's budget or are likely to be funded if there is federal funding available. She stressed that the federal process is early and it is unknown which projects will be funded. She observed that communities are encouraged to provide a local match. She stated that a more accurate estimate may be available before the legislation is enacted. Co-Chair Hanley observed that the projects require a $6.7 million dollar state match. He expressed concern that the list creates a huge expectation on the part of communities. Ms. McConnell stressed that communities are aware that the match is not sufficient to cover all the listed projects. She stressed that this is a message to communities that they have to help as much as they can. She maintained that communities know that the supplemental budget is extremely tight. She noted that projects that are not going to make it through the federal process will be dropped off. She asserted that some communities are researching ways to increase their share. Co-Chair Hanley expressed concern with the process. He was not sure that he was willing to commit to approving a supplemental if additional federal funding is available. Ms. McConnell clarified that if communities supply the match the state does not have to do anything. She noted that the Administration has talked to communities about establishing a process that would require a local match. She emphasized the need to develop criteria for local contribution. She observed that federal dollars go straight to the communities. Representative Martin referred to the Ocean Dock Road in Anchorage. Mr. Brigham noted that the Ocean Dock Road project is currently in design. Funding for the project will begin in the next fiscal year. Co-Chair Hanley asked for an estimation of federal funds that were not received in FY 97. Mr. Brigham clarified that the shortfall in federal funding for FY 97 was considered in the FY 98 request. The authorization requested is $151 million dollars. The state anticipates receiving $179 million dollars. There was a $28 million dollar shortfall in FY 97. The authority still exists for the amount under-funded in FY 97. Mr. Brigham noted that the Department was under-funded in FY 97. NANCY SLAGLE, DIRECTOR, ADMINISTRATIVE SERVICES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES explained that the match requirement varies for projects listed in the Corps of Engineer program. She noted that all of the projects are based on a local match equal to the state match. Co-Chair Hanley requested more information regarding local and state match requirements. He expressed concern that projects may need to be prioritized for funding. Mr. Brigham noted that projects are scored within the Department of Transportation and Public Facilities. Ms. McConnell explained that only projects that have a good chance of funding are listed. The projects are not prioritized. Mr. Brigham clarified that the Department scores projects and the Corps of Engineers picks specific projects to fund. KEITH KELTON, DIRECTOR, DIVISION OF FACILITY CONSTRUCTION AND OPERATION, DEPARTMENT OF ENVIRONMENTAL CONSERVATION discussed the funding relationships between state and federal dollars in the Municipal Matching Grant Program and the Village Safe Water Program. He provided members with a project summary (copy on file). He explained that Congress re-authorized the Federal Safe Drinking Water Act in August 1996. He noted that Alaska's federal allocation for FY 96 was $27 million dollars. Alaska has to provided a 20 percent state match. The state match for FY 97 is $5,364,000 million dollars. The state can use 30 percent of their federal safe drinking water loan for direct grants to disadvantaged communities. The definition of "disadvantaged" was not determined. The state's definition of "disadvantage" covers any community with a population under 10,000. He noted that the project summary lists projects that were scored and ranked before the Federal Safe Drinking Water Act renewed funding for the state through the Environmental Protection Agency (EPA). He observed that projects were organized to maximize federal funding. Mr. Kelton stated that $7,821,000 million dollars has been earmarked for 10 drinking water grants to disadvantaged communities. An additional $24,363 million dollars is available for loans and set-asides. He emphasized that this is a one time opportunity. He maintained that the grant level will optimize funding and reduce the loan to a manageable size. In response to a question by Representative Kelly, Mr. Kelton observed that all municipalities are eligible for the loan program. Anchorage receives 30 to 40 percent of the state's Waste Water Program. In response to a question by Co-Chair Hanley, Mr. Kelton clarified that 30 percent of the funding can be used for grants under the federal program. Mr. Kelton discussed the criteria for project scoring. He noted that public health, environmental concerns, readiness to proceed, operation and maintenance, and other federal funds are considered. Communities are given application packets around the end of October. He noted that the Clean Drinking Water Act authorizes several set-asides. There is a 4 percent administrative set-aside. No money has been used from this set-aside due to the state match requirement. He anticipated that some general fund dollars will be replaced in the next year. Representative Mulder referred to the Tentative Use Plan. Mr. Kelton discussed the Village Safe Water Program. He referred to the project summary (copy on file). He observed that the Rural Development Administration (RDA) has $7,505 million dollars available for state projects. The money is not received or expended by the state. The money is only available if the state provides a match. The money goes directly to the communities. Water, waste water and solid waste projects can be funded. They are limited to communities with an average family income of $42 thousand dollars. Mr. Kelton observed that the Legislature challenged Senator Stevens and the federal government to come up with matching dollars for rural sanitation. Senator Stevens located $15 million federal dollars for rural sanitation, which will be appropriated through EPA. The projects are matched by $8 million general fund dollars and $14.6 million dollars in AHFC dividends. The total state/federal funding for Village Safe Water projects is $43 million dollars. All but one project is totally matched by federal dollars. The Denali Borough's request cannot be funded through EPA because the EPA cannot fund solid waste projects. The Denali Borough's average family income is too high to qualify for RDA funding. In response to a question by Representative Martin, Mr. Kelton explained that general funds in AHFC receipts can be used as the state match. Ms. McConnell clarified that projects were listed according to their score. She added that the Administration considered other uses of AHFC funds when deciding how much to put into the Village Safe Water program. Funding was based on the ability to maximize leverage of federal dollars. She noted that either general fund or AHFC dollars could be used. She emphasized that AHFC dividend dollars were used for projects that have a relationship to housing. Representative Martin expressed concern with the appropriation of AHFC dividend dollars. Ms. McConnell maintained that it is better to address the highest priority projects. She asserted that the Administration's plan has kept with the overall mission of AHFC, while considering where dollars are most needed regardless of the funding source. Mr. Kelton clarified that projects are listed according to score and ranking. Feasibility studies and engineering analyses are not scored. These are funded to generate a more specific project scope and cost summary for future work. These appropriations are small. He explained that the Department solicits projects from non- profits, communities, IRA councils, service districts and others. Projects are ranked new annually. He observed that there is no federal match requirement. He stressed that this is the first time that almost all the projects have had a federal match. In response to a question by Co-Chair Hanley, Mr. Kelton explained that EPA has made available funding for a demonstration project administered by the Alaska Native Health Board. The project evaluates alternative methods of improving the capacity of small communities to provide operation and maintenance. This is the third year that this funding has been available. The past two years no state match was required. This year a $500 thousand dollar state match is required. This is the last year for the project. Ms. McConnell pointed out that there has been concern with the ability of small communities to maintain investments of state and federal dollars. She reiterated that operation and maintenance is a factor in the ranking process. She clarified that the Alaska Native Health Board is a private non-profit. Co-Chair Hanley asked for more information regarding this appropriation. In response to a question by Representative Mulder, Mr. Kelton clarified that this is the second year that funding has come from AHFC dividends. General funds were used in prior years. The total state participation has remained steady for the past 6 years. Representative Mulder expressed concern that the use of AHFC dividends is in conflict with the Majority's spending plan. Ms. McConnell reiterated the importance of funding the highest priority projects. She maintained that it is healthy to look at all funding sources in order to decide the best mix and to maximize federal funding. HB 165 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:15 p.m. **FIN104PM