HOUSE FINANCE COMMITTEE February 11, 1998 1:45 P.M. TAPE HFC 98 - 27, Side 1. TAPE HFC 98 - 27, Side 2. TAPE HFC 98 - 28, Side 1. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:45 P.M. PRESENT Co-Chair Hanley Representative Kelly Co-Chair Therriault Representative Kohring Representative J. Davies Representative Martin Representative G. Davis Representative Moses Representative Grussendorf Representatives Foster and Mulder were not present for the meeting. ALSO PRESENT Senator Drue Pearce; Representative Jeannette James; Ernie Hall, Chairman of the Board, Anchorage Economic Development Corporation (AEDC), Anchorage; Donna Tollman, (Testified via Teleconference), Glennallen; Keith Laufer, (Testified via Teleconference), Alaska Industrial Development Export Authority (AIDEA), Anchorage; Patricia Marko, President, Anchorage Economic Development Corporation (AEDC), Anchorage; Deborah Behr, Assistant Attorney General, Department of Law; Douglas Mertz, Attorney Representing Prince William Sound Regional Citizen's Advisory Council (RCAC), Juneau. SUMMARY HB 264 An Act providing for a negotiated regulation making process; and providing for an effective date. HB 264 was HELD in Committee for further discussion and placed into Subcommittee with Representative Kelly as Chair and Representative J. Davies and Representative Martin. SB 159 An Act relating to the new business incentive program. HCS CS SB 159 (FIN) was reported out of Committee with a "do pass" recommendation and with two zero fiscal notes by the Department of Commerce and Economic Development dated 1/23/98. SENATE BILL NO. 159 "An Act relating to the new business incentive program." SENATOR DRUE PEARCE spoke to the point that SB 159 would create a new business incentive and economic development program targeted at companies locating or expanding into manufacturing businesses in Alaska. The program is designed to attract substantial business with high value and year round jobs. The grant program would be limited to reimbursement of defined portions of relocation costs, site development costs, special employee training not covered by other programs, and special analysis of sites in Alaska. The program is limited to $3 million dollars annually and all unallocated funds would be returned to the General Fund. Allocations would be made each year to fund the program and would be administered by the Department of Commerce and Economic Development (DCED). Senator Pearce continued, the New Business Incentive Program will target three essential functions: 1. A need to generate cargo and freight exports from Alaska. 2. A need for more diversity in the corporate tax base. 3. High value jobs for Alaskans. Senator Pearce noted that the proposal had been initially presented by the Anchorage Economic Development Corporation (AEDC) and has been embraced by the other Alaska Regional Development Corporation (ARDOR) in the State. She interjected that it is not unusual for any state to provide this type of incentive program. Co-Chair Therriault referenced the business feasibility and analysis study, pointing out that a business would not be reimbursed for costs unless they actually went forward in manufacturing. He inquired that if the business went bankrupt, would the State continue to be secure. Senator Pearce was not clear on how the Department of Commerce and Economic Development would create the security aspect. She advised that at least 75% of the United States currently, use such incentive programs. Representative J. Davies referenced Page 1, Line 14, and Page 3, Line 1, language that indicates that the business requires continued operation to receive funding. Senator Pearce agreed that the costs would be reimbursable only after the business was in operation. She stated that she would not oppose some sort of alternative clarification to Page 1, Line 14, as long as the new language could guarantee to assure the grant work. Representative Grussendorf inquired if new business established in the proposed legislation would compete with already existing State business. Senator Pearce replied that the program targets mainly manufacturing done in the State for export. At present time, there is very little manufacturing occurring in Alaska. The program will act as an enticement for manufacturing and fabricating plants. She stressed the amount of interest and support for the bill. Representative G. Davis asked when the "five years of operation" specification would begin - at the time of the contract or at the time of production. Senator Pearce acknowledged the concern. She suggested that issue could lend itself to a House Finance Committee Letter of Intent directing the Department of Commerce and Economic Development (DECD) when writing the regulations to specify that production would have had to occur. ERNIE HALL, CHAIRMAN OF THE BOARD, ANCHORAGE ECONOMIC DEVELOPMENT CORPORATION (AEDC), ANCHORAGE, noted that he was the owner of a small furniture manufacturing company in Anchorage. AEDC has the responsibility for growing an economic base in the State. Alaska generates about $140 million dollars a year in corporate taxes. Of that, eleven corporations, pay $110 million dollars, six of which are oil corporations. He stressed the need to broaden the economy base in the State given the declining oil revenues. The State must diversify. The question that any manufacturing corporation will ask is what are the incentives Alaska has to offer. He stressed that passage of the proposed legislation would be an asset to the entire State. DONNA TOLLMAN, (TESTIFIED VIA TELECONFERENCE), GLENNALLEN, spoke in support of passage of SB 159. She suggested that it would be instrumental in providing a "level playing field" for Alaska when competing with other states inticing new manufactures. KEITH LAUFER, (TESTIFIED VIA TELECONFERENCE), ALASKA INDUSTRIAL DEVELOPMENT EXPORT AUTHORITY (AIDEA), ANCHORAGE, expressed AIDEA's support for SB 159. AIDEA believes that the legislation could be an important tool for attracting new business to Alaska. The bill provides a role for AIDEA to review applications on the objective standards. Representative J. Davies asked if the Committee would be writing a Letter of Intent. Co-Chair Therriault suggested that the "grant provisions" could be clarified by changing language on Page 3, Line 1, inserting after "must" the language "be operating and". Senator Pearce supported the addition of that language. Co-Chair Therriault MOVED that conceptual language as Amendment #1. There being NO OBJECTION, it was adopted. Representative J. Davies asked why the bill required that a business be engaged in exporting outside the State rather than just "manufacturing". Senator Pearce replied that language would alleviate the concern that business' would not compete with small business' already established. She added, the intent of the legislation is to create a business in Alaska of materials that are for export, providing for greater cargo and freight needs. Anchorage is an economic crossroad and the International Airport is a primary economic driver. Cargo and freight seriously impact that consideration and the original intent is to help build on that aspect. Co-Chair Therriault pointed out that there has been concern expressed that Alaska ships out a lot of our raw and organic resources to be processed outside of the State to supply the rest of the world with product. He suggested that business in Alaska should be encouraged to process the natural resources. Representative J. Davies concurred, questioning why the legislation does not encourage creation of new business engaged in manufacturing inside the State. Senator Pearce explained that her intent was to limit the amount of dollars spent on the program. As the focus is expanded, so is the cost. She felt that SB 159 would not be the proper vehicle to provide that incentive. Representative J. Davies stated that he was not speaking about services, but instead about manufacturing. There have been a number of businesses' which have proposed to open up small scale manufacturing forest products. He pointed out that those businesses would not be eligible for funding from the proposed program. PATTY DEMARCO, PRESIDENT, ANCHORAGE ECONOMIC DEVLEOPMENT CORPORATION (AEDC), ANCHORAGE, acknowledged Representative Davies concern, although pointed out that the focus of the proposed legislation is to find ways to bring revenue into the State through manufacturing. AEDC is looking for ways to incentify small companies to expand their operation for exporting. She felt that the program has provoked people to consider how value could be added so that Alaska can reach a world market. The market would create higher value jobs and production with a broad base of primary functions in the State. Representative J. Davies reiterated why eliminate the privilege of manufacturing with the intent to keep it in the Alaska market. Representative Moses pointed out that the State has a great need for value added processing. He urged consideration of that concern. Senator Pearce pointed out that the bill would allow for incentives for business' doing that in Alaska and then expanding into the export market. The intent of the program is not to start new businesses in Alaska just for Alaskans. The point is to bring in more revenues by bringing in business from outside and providing export privileges. Co-Chair Therriault noted that the legislation was permissive. It would allow money to be set aside into a fund. The appropriation would have to be a yearly appropriation and the unexpended funds would lapse at the end of each fiscal year. The proposed fiscal note is zero; a specific appropriation would be requested yearly. Co- Chair Hanley commented that the way the appropriation had been established would limit the way the program was set up. Senator Pearce replied that there are many senators sensitive about adding fiscal notes to legislation, consequently, SB 159 has been submitted with zero fiscal notes. She anticipated that the Legislature could appropriate required funding and provide for carry forward. Representative Kohring asked why the bill provided grant funding rather than low interest rate money. Senator Pearce explained that it is essential that Alaska be competitive with other States. Elsewhere, states and local governments are making huge tax concessions and they are willing to build the infrastructure to bring high value jobs to their communities. It is important that Alaska is involved with a similar effort. Co-Chair Hanley MOVED to report HCS CS SB 159 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 159 (FIN) was reported out of Committee with a "do pass" recommendation and with two zero fiscal notes by the Department of Commerce and Economic Development dated 1/23/98. (Tape Change HFC 98-27, Side 2). HOUSE BILL NO. 264 "An Act providing for a negotiated regulation making process; and providing for an effective date." REPRESENTATIVE JEANNETTE JAMES stated that HB 264 would enable and encourage negotiated regulation (neg/reg) rule making. Currently, neg/reg is in use by the Federal government, Montana and Nebraska. She believed that the citizens of Alaska are clamoring for the Legislature to do something about the regulation process. The proposed negotiated regulation would address the issue. She continued, neg/reg is a voluntary process for drafting regulations that would bring together those parties significantly impacted by a regulation including the government, and would be expected to reach consensus before the rule is formally published as a proposal. An impartial mediator is used to facilitate intensive discussions among the participants who operate as a committee and would be open to the public. Representative James commented that regulations drafted using this process tend to be more technically accurate, clear, specific and less likely to be challenged in litigation than rules drafted by the agency alone. She pointed out that the neg/reg process would cost more money at the front end than a traditional approach. However, Representative James thought that the advantages would outweigh the consideration. Because representation from all interested parties draft the regulations, the formal process of public notice and comment becomes smooth with few comments raised. Lengthy regulation litigation is generally eliminated and compliance tends to be higher. Agency costs for litigation of the rules and enforcing of the standards are reduced. DEBORAH BEHR, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, commented that she had been assisting with work on the proposed legislation since last year. She believed that the legislation could be workable and less costly in creating the neg/reg process. She pointed out that the process would be volunteer, although, there will be costs associated with the program. Participants will decide if they want to use it or not. Ms. Behr explained in detail the process used in negotiation and supporting the Open Meetings Act. The commissioner will have the authority to add members at any time. The Administration will have one person on the board. The legislation requires that a commissioner not establish a board, unless, from the beginning, there is good faith to use the results of the regulation process. Ms. Behr added, in regard to the administrative procedure process, nothing would be changed. It would allow anyone from the public to testify during the public comment period. The commissioner remains the confirmed cabinet officer who makes the final decision on regulations. The goal is to encourage people to talk up-front to create a practical reality and exchange valuable information for the regulations. The current Administrative Procedure Act does not preclude this. The legislation would establish a framework. She predicted that if the rules were followed, there would not be a follow-up court case. Ms. Behr acknowledged that this is a newly proposed process with a new view. A check and balance would be with the Administrative Procedure Act providing essential public participation. The bill before the Committee contains all the requested changes of the Administration. She summarized, the fiscal note would be indeterminate as all costs are voluntary and some departments will not use it. The legislation is a way to encourage more up-front public involvement. Co-Chair Therriault questioned how utilizing the proposed process could prevent a court test. The legislation would not take the place of the regulatory process, but instead would shift the contention to the beginning. He anticipated that it would build a framework to invite more Court challenges. Ms. Behr acknowledged that any regulation passed would be subject to Court challenge. Although, the proposed bill would bring everyone to the table so that concerns could be addressed in advance. Co-Chair Therriault pointed out that currently, the departments do take the time to gather information. He recommended the balance be shifted through the legislation. Ms. Behr responded that she could not guarantee that there would not be a court case, although, only one case has resulted on negotiated rule making statutes throughout the United States. That case did not defeat the rule. She proposed the key is that the notice is printed on the regulation; anyone can come to testify, after which time, the Commissioner would make the decision. Representative J. Davies referenced Page 1, Line 12. He asked if that point would modify the possibility of lawsuits. Ms. Behr noted that there is a provision in the bill addressing the judicial review, Page 5, Line 30 - 31, Page 6, Lines 1 - 5. That language stipulates how the commissioner sets up the committee. The committee would not be subject to judicial review, although, the regulation itself is given no higher difference. Representative J. Davies questioned whether the rule could be properly balanced at the out-set. Ms. Behr stressed that any regulation released is subject to judicial review. The process is totally open. The regulation review committee could hold meetings on it. Any regulation released under HB 130 is subject to the Lt. Governor's regulation review. The commissioner's budgets are very tight and they would not want to implement a process that would cause more work in the long run. The regulation is subject to court test and scrutiny. She added, the bill has a five-year sunset provision; if concerns happen, they will be addressed. There is no statute requiring negotiated rule making. To date, none of the committees have been stacked, because checks and balance exist. Representative Grussendorf inquired why Representative Berkowitz, as a sponsor of the bill, voted to amend in the previous committee of referral. Ms. Behr advised that Representative Berkowitz had trouble with language used on Page 7, Lines 17 - 18 and had requested to amend the board immunity provision. Most model acts do not have immunity. Representative James pointed out that concern had been addressed. She added, an additional concern, which was not amended, was that more public notice be posted in the beginning of the process. Co-Chair Hanley referenced Page 2, Line 8. He asked if a written finding would be required. Ms, Behr reiterated that the process would be totally voluntary. All the model acts generally lay it out, which the commissioner would use when deciding whether or not to use negotiated rule making. Co-Chair Hanley reiterated to insert "shall" on Page 2, Line 8. Ms. Behr noted that she would be more comfortable using "may", as it is a totally voluntary process. Co-Chair Therriault asked if the determination would be an appeal vote. Ms. Behr reiterated that the commissioner would make that decision. In order to establish an appeal, the act must contain those procedures. DOUGLAS MERTZ, ATTORNEY REPRESENTING PRINCE WILLIAM SOUND REGIONAL CITIZENS' ADVISORY COUNCIL (RCAC), JUNEAU, noted that RCAC is an independent non-profit corporation whose mission it is to promote environmentally safe operations of the Valdez Marine Terminal and associated tankers. Membership is compromised of organizations within the communities and regions affected by the 1989 Exxon Valdez oil spill, as well as commercial fishing, aquaculture, native recreation, tourism and environmental groups. Mr. Mertz continued, while RCAC favors the early involvement of stakeholders in any rule-making process, they believe that HB 264 contains serious flaws that could permit an administrative agency to abuse the authority granted under the bill by biasing the process in favor of selected special interests. The problems could be remedied by a few simple changes without alternating the intent of the bill. The bill provides for notice of committee meetings but does not provide notice that a committee is being formed. An interested party could find that a committee was formed without knowledge of the process. He suggested that there should be a notice provision added to the bill in order that interested parties could request to be a part of the committee. Mr. Mertz added, nothing in the bill requires that a committee's makeup be fair and representative of the broad spectrum of interests. The choice of members could be totally arbitrary and biased. RCAC recommends a simple requirement in that the committee makeup is fair and representative of all interested viewpoints. Nothing in the bill gives members of the public any right to participate in meetings or to make their views known. The bill makes a committee meeting subject to the Open Meetings Act, but it does not create a right to participate. The bill should guarantee that non-members might speak at and participate in any meetings and submit materials to the committee. Mr. Mertz pointed out that the bill states that committee members serve at the pleasure of the agency. That means any committee members who voice opposition to the viewpoint of the agency may be booted off the committee, with no reason given. RCAC recommends limiting the causes for terminating a member to non-attendance. Mr. Mertz noted that there is a technical question whether the provision at Sec. 44.62.750(f), making the Open Meetings Act applicable to the committee, is effective, since the terms of the Open Meetings Act do not apply to committee meetings of a non-decisional body within an agency. (Tape Change HFC 98- 28, Side 1). Co-Chair Therriault echoed concern that there is material in the proposed legislation which could be challenged and open to court review. Mr. Mertz agreed. He pointed out another concern of immunity from judicial review, an issue that should be addressed when applying a standard at the front-end. The proposed bill has no standards. Co-Chair Hanley interjected that if there were a biased commissioner, the same result would occur using the current system or the proposed legislation. He voiced concern that the legislation could create an additional process, which could then bog down the system even more. Representative J. Davies commented that in the proposed legislation, the process could not be reviewed. Co-Chair Therriault understood that the current process litgitimized the stakeholders process. Representative J. Davies asked if adding language to balance would help in a judicial review. Mr. Mertz replied that would provide one more moral constraint on the commissioner. Representative J. Davies voiced concern with the members paying their own expenses, Page 5, Line 10. He pointed out that often times, people representing citizen's viewpoints have limited means; the people who represent the corporate viewpoint have the corporation paying their expenses. To ask a person to certify that they do not have the means is not appropriate or to require the person to participate by telephone would put them at a disadvantage. He believed that in a negotiated process, some of the meetings need to have all members present. Representative James explained the intent of the language was that people pay their own way if they could. She anticipated that there would be people from the rural areas who would not be able to participate without financial support. A decision would be made in determining whether or not the person would be able to participate and pay for their way. The purpose is to provide legislation without a fiscal note associated. Agencies will need to redirect funds or reevaluate the department's financial position in order to make the program work. Co-Chair Therriault commented on how the State would budget for the payment process. Co-Chair Hanley asked in a normal regulatory process, would a department cover any expense of a person wanting to testify. Ms. Behr replied that when the Department of Environmental Conservation (DEC) establishes a negotiation in a rural committee, they specify up front and in advance that the Department is not budgeted to provide funds for any representatives to the meeting. The current process does not provide funding. There is concern that people of little means will have a difficult time participating in the regulation decisions. The goal is to help those that truly can not pay. Co-Chair Hanley voiced concern in establishing a public process and then determining a public need that the State pays the participant's portion. He concluded that gifts and grants create complications. Co-Chair Therriault placed HB 264 in Subcomittee with Representative Kelly as Chair and with members Representative J. Davies and Representative Martin. HB 264 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 3:30 P.M. H.F.C. 12 2/11/98