HOUSE FINANCE COMMITTEE March 18, 1998 1:45 P.M. TAPE HFC 98 - 67, Side 1 TAPE HFC 98 - 67, Side 2 CALL TO ORDER Co-Chair Gene 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 Davies Representative Martin Representative Davis Representative Moses Representative Foster Representative Mulder Representative Grussendorf was absent from the meeting. ALSO PRESENT Representative Alan Austerman; Cliff Stone, Staff, Representative Austerman; Representative Fred Dyson; Lisa Torkelson, Staff, Representative Dyson; Jim Hornaday, Staff, Representative Kott; Mary Gore, Staff, Senator Miller; Pam Varni, Executive Director, Legislative Affairs Agency; Keith Laufer, Alaska Industrial Development and Export Authority, Department of Commerce and Economic Development; Guy Bell, Director, Division of Retirement and Benefits, Department of Administration. SUMMARY HB 367 "An Act relating to part-time public school students; and providing for an effective date." HB 367 was REPORTED out of Committee with a "do pass" recommendation and with and a fiscal impact note by the Department of Education, dated 3/11/98. HB 411 "An Act relating to issuance of a winery license in a local option area." HB 411 was HELD in Committee for further consideration. HB 467 "An Act relating to employees of the legislature who are employed under a personal services contract." HB 467 was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Legislative Affairs Agency and a zero fiscal note by the Department of Administration. SB 261 "An Act relating to the Special Olympics World Winter Games to be held in Anchorage in the year 2001; establishing a reserve fund for the games; providing certain duties and authority for the Alaska Industrial Development and Export Authority regarding financing for those games; and providing for an effective date." SB 261 was HELD in Committee for further consideration. HOUSE BILL NO. 411 "An Act relating to issuance of a winery license in a local option area." Representative Alan Austerman noted that a constituent in Point Lyons on Kodiak Island requested the legislation. The constituent wants to start a winery using natural berries. Winery licenses are not contained in the local option section of the statutes. The legislation would add a winery license in statute. He noted that the Alcohol Beverage Control Board has the ability to restrict the retail sale of wine by the winery. The activity would be strictly wholesale. Co-Chair Therriault clarified that the wine cannot be produced in Point Lyons without the statute change. Representative Austerman noted that the Alcohol Beverage Control Board (ABC) supports the legislation. The Board indicated, to Representative Austerman, that the omission of winery licenses was an oversight. He stated the Point Lyons winery would only be approved for wholesale operations. Retail sales of alcohol are not allowed in Port Lyons. Wineries are not currently covered under state statutes. Co-Chair Therriault clarified that if the legislation is enacted that Port Lyons would have to have another election to allow the winery operation. In response to a question by Representative Foster, Representative Austerman explained that a winery could produce wine a dry village without being allowed to sell the wine retail. Co-Chair Hanley questioned if beer making was covered in current statutes. Representative Davies observed that the legislation does not distinguish between wholesale and retail. There is no option for strictly wholesale operation. CLIFF STONE, STAFF, REPRESENTATIVE AUSTERMAN recalled that conversations with the ABC Board and the Department of Revenue indicated that the ABC Board would prohibit retail sales in dry or wet areas. He acknowledged that the legislation does not specify that retail sales would be limited. Representative Davies observed that the village would have to trust that retail sales would not occur. Representative Moses did not think the legislation would open up consumption in a dry community. He thought that a retail license would be needed. Representative Davies maintained that the vote would not prohibit someone from seeking a retail license. Representative Austerman thought that a retail license would be needed. Co-Chair Therriault observed that "wholesale" could be added. Representative Austerman clarified that the intent is to only allow wholesale operation. Co-Chair Hanley recommended that the intent be clarified in the legislation. Representative Austerman suggested that "wholesale" be added before "winery". Co-Chair Therriault questioned if there would be a special license for a wholesale winery versus a retail winery or would it be a licensed winery that is producing for wholesale only. Representative Moses did not think that anything would change except that the community would allow the production of wine. He reiterated his belief that a retail license would be needed. Co-Chair Therriault observed that the legislation would leave the interpretation up to the ABC Board. Representative Austerman did not think that wine could be dispensed in the village without a retail license. He thought that a retail license would have to be approved by a vote of the residents. Co-Chair Hanley referred to the definition of "winery" under AS 04.11.140. The license authorizes the holder to sell wine in quantities of less then five gallons to individuals on the licensed premise. He summarized that the winery license would allow retail sells on the premise. Co-Chair Therriault noted that the Committee agrees with the intent of the legislation. He concluded that the winery should be allowed to produce for wholesale purposes in a dry area, but not engage in retail sales. Representative Davies observed that both operations could be available in the legislation. An additional subsection could be added for wholesale only operations. HB 411 was HELD in Committee for further consideration. HOUSE BILL NO. 367 "An Act relating to part-time public school students; and providing for an effective date." FRED DYSON, SPONSOR testified in support of HB 367. He observed that HB 158 was passed during the 1997 legislative session. House Bill 158 provided that school districts could not discriminate against part-time students. He observed that the Anchorage School District has not complied with the intent of the legislation. The Anchorage School District has used a regulation stating that requests by part-time students would be filled after requests by full- time students have been satisfied. He maintained that HB 158 and the Alaska State Constitution provide that part-time students be treated equally. He clarified that preferences could be given to students who needed a class to graduate, but that both part-time and full-time students must be treated the same. He observed that the State Board of Education would meet during the next week. He expressed the hope that the Board would modify 4AAC 45.035(b) to bring the regulations into compliance with HB 158. Representative Dyson referred to a letter by Patrick Hickey, Assistant Superintendent, Kenai Peninsula Borough School District, dated 2/6/98. He noted that Mr. Hickey inferred that part-time students should be treated in the same manner as tourist or out-of-state hunters that have to pay an extra fee. He pointed out that the parents of part-time students pay taxes. Representative Dyson observed that the Department of Education's fiscal note is indeterminate. He acknowledged that it would be impossible to determine how many students would take advantage of the legislation, but did not thin that the number would be great. He observed that 96 of the 42,000 students in Anchorage attend part-time. Co-Chair Therriault disagreed with Mr. Hickey's assessment that the legislation would create a preference for part-time students. He observed that a policy allowing graduating seniors preference would be within the scope of the legislation, as long as part-time and full-time students were treated equally. Representative Dyson acknowledged concerns that part-time students not be enrolled in multiple districts. Representative Davies observed that students can attend any school in a district. If the school is outside of their attendance area then they are admitted on a first come basis. He maintained that part-time students should not have priority over full-time students. He observed that the Valdez superintendent did not anticipate a large impact as a result of the legislation. The Valdez superintendent observed that 10 percent of the full-time students dropped classes to become part-time students as a result of HB 158. Representative Davies expressed concern with this unintended affect. Representative Dyson stated that part-time students should be treated the same as full-time students in regards to attendance in schools outside of their attendance areas. He observed that some part-time students are taking college classes or working while they finish their high school requirements. Representative Davies asked if the legislation would apply to elementary students. He observed that it could be disruptive to elementary classes to have children come and go through the day. Representative Dyson noted that special needs children have benefited by a gradual exposure to the public school environmental. LISA TORKELSON, STAFF, REPRESENTATIVE DYSON recounted a case where a child was having difficulty reading. The child benefited from a combination of home schooling and public school attendance. She observed that the number of elementary students attending on a part-time basis is minimal. Representative Foster MOVED to report HB 367 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 367 was REPORTED out of Committee with a "do pass" recommendation and with and a fiscal impact note by the Department of Education, dated 3/11/98. HOUSE BILL NO. 467 "An Act relating to employees of the legislature who are employed under a personal services contract." Jim Hornaday, Staff, Representative Kott spoke in support of the legislation. He observed that the purpose of the bill is to add the option of hiring legislative employees using a personal services contract and eliminate the Public Employees Retirement System (PERS) membership requirement for the employment under the contract. Mr. Hornaday explained that most State agencies have the ability to hire temporary or nonpermanent employees who do not receive retirement benefit credit while they are employed. Temporary or nonpermanent employees are short term, often paid on an hourly basis, and may not receive other benefits such as medical insurance, or leave benefits. However, because of language in the PERS statute (AS 39.35) the Legislature does not have the same ability as other State of Alaska Agencies to hire temporary employees during a legislative session unless the employee participates in the retirement system. Mr. Hornaday noted that for short-term temporary employment this requirement results in a needless cost to the Legislature and a tax disadvantage to the employee. For example, the summer tour guides in the Capitol, most of who are students earning money for school must be placed in the retirement system. Money is deducted from their paychecks for retirement which they may withdraw after leaving employment, but because it was tax deferred, they must not only pay the tax, but they also must pay a penalty for early withdrawal. This is a waste of time and money. This same situation applies to the laborers who work to load and unload the moving vans, and these people generally only work a few days at a time. Mr. Hornaday pointed out that the same retirement issue caused an even more significant problem when the Legislative Affairs Agency needed to fill the Chief of Security position for the 1998 session. In this case, the stringent qualifications for the position almost dictate that the only qualified applicants be former Alaska law enforcement officers who are retired under PERS. Individuals who are retired under PERS cannot accept a position covered by the retirement system without terminating their retirement. Because of the short-term nature of the position, terminating retirement is generally an unacceptable option. Mr. Hornaday observed that in the past "professional services" contracts have been utilized to hire individuals for certain jobs to avoid the retirement problem. However, this solution has become less and less of an option because of IRS rules on contractor versus employee relationships. Under the IRS guidelines the duties and responsibilities of the Chief of Security, as well as the tour guides and laborers, make them clearly an employee. Using a "personal services" contract clearly classifies the individuals as an employee in order to satisfy IRS requirements and this bill eliminates the conflict with PERS requirements. Mr. Hornaday observed that the bill does not adversely affect any current employees. The current PERS law protects the rights of legislative staff and employees by recognizing that they work in a different environment than most state employees. This bill will not change that language. House Bill 467 only adds an additional option in those cases when participation in the retirement plan is too restrictive or not appropriate. It gives the Legislature the same flexibility afforded to other State Agencies. PAM VARNI, EXECUTIVE DIRECTOR, LEGISLATIVE AFFAIRS AGENCY spoke in support of HB 467. She observed that the legislation would provide the Agency flexibility to hire temporary or non-permanent employees. She explained that the problem dates to the 1970's when the Legislature had daily paid employees. At that time, the Legislature began to provide retirement and health benefits. There were inequities between daily paid and monthly paid employees. Retirement legislation was passed to end these inequities. The way the legislation was written removed the flexibility to hire temporary employees. She observed that professional contracts have been used, but have created problems regarding worker's compensation and the employee/employer relationship. She pointed out that the legislation would save money. No current legislative employees would be affected. GUY BELL, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION spoke in support of the legislation. He stated that there would be no impact to the Public Employees Retirement System. Representative Foster MOVED to report HB 467 out of Committee with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HB 467 was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Legislative Affairs Agency and a zero fiscal note by the Department of Administration. SENATE BILL NO. 261 "An Act relating to the Special Olympics World Winter Games to be held in Anchorage in the year 2001; establishing a reserve fund for the games; providing certain duties and authority for the Alaska Industrial Development and Export Authority regarding financing for those games; and providing for an effective date." MARY GORE, STAFF, SENATOR MILLER observed that she is also the Area Director, for the Special Olympics, Juneau. Ms. Gore noted that the Legislation is a result of hard work by a variety of people to guarantee that Anchorage would be awarded the Special Olympics World Winter Games in 2001. Ms. Gore observed that, several years ago, Jim Belamaci, Executive Director of Special Olympics Alaska, decided it would be a great thing to bring the World Winter Games to Anchorage. He enlisted the help of Senator Ted Stevens. An organizing committee was formed. Last summer the Anchorage organizing committee was told by the Special Olympics International (SOI) that in order to be awarded the bid, the state would need to be the financial guarantor. The Special Olympics International would not go in the hole as a result of any location being awarded the bid. She observed that the money does not need to be appropriated prior to the bid being awarded but state support must be demonstrated. Ms. Gore stressed that the State must be on the record as the obligor if the money is not raised by private sources. This legislation "morally obligates" the state to make up the difference, up to $4 million dollars if the organizing committee does not raise the funds. She maintained that the risk to the State is minimal. The total budget for the games is $8 million dollars, with $4 million dollars in cash and $4 million dollars in kind contributions. Thus far about $1 million dollars in cash has been raised. The organizing Committee has 3 years to raise the remainder. The legislation has a set of checks and balances. The Alaska Industrial Development and Export Authority will oversee fundraising and report to the legislature on January 2 of each year as to the status of their efforts. She maintained that in the event that the Committee falls behind, a gentle push from the legislature could put them back on track. Ms. Gore concluded that the legislation only "morally obligates" future legislatures. In the year 2001, the legislature would need to appropriate the funding and authorize expenditures for use if it were needed. Co-Chair Therriault expressed concern that the state of Alaska not be responsible for more than the initial $4 million dollars. Ms. Gore assured him that the state of Alaska's liability would not exceed that amount. Representative Martin questioned Ms. Gore in regards to housing. Ms. Gore clarified that the intention is to use housing available at Anchorage military bases. Athletes would be housed at Fort Richardson and the Elmendorf Air Force Base. She noted that Camp Carroll had been used in the past for Alaskan Special Olympic activities, but that the military bases were preferable. Athletes could be housed in a semblance of an Olympic village. Athletes want to be able to stay together. (Tape Change, HFC 98 -67, Side 2) Co-Chair Hanley observed that the Committee could raise more than $4 million dollars, and still spend more than they raised. He concluded that the state of Alaska could be liable for the amount that was spent beyond what was raised, even though the initial $4 million dollars was met. Ms. Gore emphasized that it is not the intent that the state of Alaska be responsible for more than the initial $4 million dollars. She observed that the budget was developed based on previous games. Co-Chair Hanley reiterated concerns that the State not be responsible for amounts over budget. He stressed that the legislation must clarify that the state of Alaska is not responsible for expenditures, if the Committee does not stick within their budget. KEITH LAUFER, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (AIDEA) testified in support of SB 261. He emphasized that the moral obligation guarantee makes sense. He observed that AIDEA would provide a finding of reasonable due diligence and work on a financial plan. The Alaska Industrial Development and Export Authority has had experience reviewing financial plans. He stressed that AIDEA will watch to make sure that the budget stays within the financial plan. Representative Martin clarified that an AIDEA representative would be at the financial meetings. In response to a question by Representative Martin, Ms. Gore stated that they did not know how many athletes would be competing. She estimated that there would be 6,000 to 7,000 thousand people participating. This includes athletes, trainers, coaches, families and press. Eight hundred to a thousand athletes are expected to participate. Representative Davies observed that the Legislature would be morally obligated to a cumulative total of $4 million dollars if there is insufficient money from the other sources to satisfy the finance plan. He pointed out that the finance plan is not limited to $4 million dollars in cash. Mr. Laufer observed that the International Special Olympics Committee sought a straight $4 million dollar guarantee by the state of Alaska. A $4 million dollar moral obligation was offered in place of a straight guarantee. Co-Chair Therriault questioned if the guarantee would be on the first $4 million dollars or on subsequent money. Mr. Laufer clarified that the guarantee would be on the last $4 million dollars needed for the game. He pointed out that the legislation requires the financial plan to minimize the cost to the State. The cost to the State would be after all other sources are insufficient. Ms. Gore stressed that if additional cash is raised that the intent is that they be able to spend the money. Co-Chair Therriault questioned if the state of Alaska would be responsible for money expenditures beyond $4 million dollars. Ms. Gore stated that the intent of the legislation is to exempt the state from obligation once the $4 million dollars is spent. Mr. Laufer referred to section 4(d). He noted that AIDEA has to find after reasonable due diligence that the plan minimizes the cost to the state of Alaska. The budget would only be increased after a finding that the burden of the state has been minimized to zero. Co-Chair Hanley suggested that the state of Alaska's guarantee should be up to the first $4 million dollars in cash. Representative Martin asked if transportation costs are paid for the athletes. Ms. Gore noted that athletes pay for their own transportation. Food is the major cost. Some venues will be free or at a reduced cost. She clarified that food, transportation and housing would be purchased at a reduced cost from the military. Co-Chair Therriault noted his intent to draft a committee substitute to clarify that the state of Alaska's would only guarantee the first $4 million dollars in cash. SB 261 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 2:50 p.m. House Finance Committee 10 3/18/98