HOUSE FINANCE COMMITTEE February 8, 1999 1:37 P.M. TAPE HFC 99 - 18, Side 1. TAPE HFC 99 - 18, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:37 P.M. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Vice-Chair Bunde Representative Kohring Representative Austerman Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Dave Pree, Staff, Co-Chair Mulder; Diane Barrans, Executive Director, Postsecondary Education Commission, Department of Education; Robert Poe, Commissioner, Department of Administration; Nancy Slagle, Director, Division of Administrative Services, Department of Transportation; Mary Lou Burton, Director, Budget Development, University of Alaska. SUMMARY HB 27 "An Act relating to graduate student loans; and providing for an effective date." CSHB 27 (HES) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Education, dated 2/8/99. HB 64 "An Act making appropriations for year 2000 assessment, compliance, and remediation projects; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska; and providing for an effective date." CSHB 64 (FIN) was REPORTED out of Committee with a "do pass" recommendation. HOUSE BILL NO. 27 "An Act relating to graduate student loans; and providing for an effective date." Co-Chair Mulder, Sponsor explained that he introduced HB 27 as a response to comments by his constituents. In the past, the state of Alaska secured positions in the Western Interstate Commission on Higher Education (WICHE) program as a direct grant program. In 1997, the state of Alaska decided that it could no longer afford the grant process. Under the WICHE program students are allowed to pursue degrees in selected programs in other state institutions. Student fees are at a reduced rate. Rates are either at the in-state rate or at a reduced out-of-state rate. The program helps reduce costs and secure positions at other WICHE schools. Students are allowed opportunities to get degrees at a greatly reduced rate. Co-Chair Mulder explained that the original legislation was amended in the House Health, Education and Social Services Committee. He observed that repayment of the loan portion was in AS 14.44.040. Legislative Legal Division drafters felt that the program should be placed in AS 14.44.030. The committee substitute incorporates this technical change. Representative Bunde expressed support for the legislation. He observed concerns by students regarding opportunities to enter into programs at WICHE institutions. He maintained that students are willing to repay the state of Alaska for the cost of their education if they have the opportunity for a seat in the program. In response to a question by Representative Bunde, Co-Chair Mulder explained that the department would set appropriate fees under section 3 on page 3. He did not know the interest rate. In response to a question by Co-Chair Therriault, Co-Chair Mulder reviewed the changes made by HB 27. Sections 1 and 2 relocate the program to AS 14.44.030. The changes proposed by Co-Chair Mulder are incorporated in sections 3, 4, and 5. Section 6 is the effective date. Co-Chair Therriault observed that the state used to negotiate with Washington, Alaska, Montana, Idaho Medical Education Program (WAMI) schools for the number of spots that would be reserved for Alaskan students. DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION COMMISSION, DEPARTMENT OF EDUCATION provided information on HB 27. She noted that the Commission did not have a position because it had not yet reviewed the legislation. She pointed out that the Commission is supportive of an effort to increase access. She observed that the legislation would increase access. The mechanism will remain the same. The WICHE administrative office would continue to manage the program. Students would apply with the Commission for certification in the Professional Student Exchange Program. The Commission acts as a conduit for Alaskan residents to get their name into the WICHE pool for the schools that participate. The WICHE administrative staff would negotiate what the support fee would be in each field. Students would have to sign a contract agreeing to pay the support fee plus interest. The Commission sets the fee and the students sign a promissory note. There would be a direct transmittal through the WICHE administrative offices to the institution. The range of fees would be between $7,000 per year for a three-year program, or $15,000 for a four-year program. The fifteen fields available are divided into two categories; those that need WICHE support to get the WICHE slot and those fields of study that do not require WICHE support for entry. Support would be focused on fields that require WICHE support. This is the area of greatest need. In response to a question by Representative J. Davies, Ms. Barrans explained that there may be as many as 7 schools participating in the physical therapy program. If a student were admitted to the Professional Student Exchange Program, in the North Dakota or California programs they would pay that state's resident rate plus the support fee. The support fee would be constant. The WICHE staff, based on a range of differentials, negotiates the support fee. For some schools it is in excess of the non-resident rate. The benefit for the student would vary depending on which program they attend. Ms. Barrans explained that students would not be considered for admission to some programs, except as a certified WICHE student. The surcharge that the student pays in some schools provides them consideration and admission into the program. In response to a question by Representative J. Davies, Ms. Barrans explained that students must be a one-year resident of the state of Alaska in order to apply for certification in the program. Representative Bunde noted that Alaska has maintained its membership in the program even though the program was not funded. Ms. Barrans confirmed that the state of Alaska maintained its membership fees. She observed that Alaskan students have continued to participate in the Western Regional Graduate and Undergraduate exchange. She observed that 800-900 Alaskans participate annually. These benefits are available as a member state. Representative Bunde questioned if the reluctance to embrace loans has been addressed. Ms. Barrans noted that the WICHE Commission has not been notified of Alaska's return to the program. If HB 27 is adopted the program would operate under new terms. She anticipated that the Commission would restate concerns that students are incurring debts without the opportunity for a service obligation that would allow them to retire the debt through service in the state. She observed that the Commission recognizes that, due to Alaska's economic condition, the program can only operate under these terms. In response to a question by Representative Bunde, Ms. Barrans explained that each institution retains its ability to decide admissions. Representative Bunde observed that there is a zero fiscal note attached to the legislation. Ms. Barrans explained that there is no forgiveness attached to the legislation. Co-Chair Mulder acknowledged that it is the desire of the WICHE Council to have a forgiveness clause. He pointed out that the state forgiveness would be $500 to $750 thousand dollars a year, if half of the participating students returned to the state to reduce their obligation. He pointed out that there are fiscal restraints. Representative Mulder MOVED to report CSHB 27 (HES) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 27 (HES) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Education, dated 2/8/99. HOUSE BILL NO. 64 "An Act making appropriations for year 2000 assessment, compliance, and remediation projects; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska; and providing for an effective date." Co-Chair Mulder provided members with a proposed committee substitute, 1-GH1052\D, Cramer 2/8/99; and a spreadsheet detailing appropriations authorized by the proposed committee substitute (copies on file). Co-Chair Therriault MOVED to ADOPT the proposed committee substitute 1-GH1052\D, Cramer 2/8/99. There being NO OBJECTION, it was so ordered. DENNY DEWITT, STAFF, CO-CHAIR MULDER observed that the legislation designates federal funds to various departments for various purposes associated with the Y2K issue. The bill allocates the federal funds to the departments that have federal contracts for Y2K uses. There are areas that have split appropriations. Mr. Dewitt reviewed the spreadsheet. He discussed the Y2K request for the Department of Administration. Funding for the retirement system, BENECALC would be split between the Teachers' Retirement System and the Public Employees Retirement System funds. The split would be relative to the ratio of use. The mainframe test environment appropriation remains a general fund obligation. The Department of Administration will be able to secure program receipts to fund the Public Guardian appropriation. The Y2K Project Administration cost was reduced from $868 thousand dollars to $711 thousand dollars. Mr. Dewitt discussed the Y2K request for the Department of Commerce and Economic Development. He noted that the Alaska Public Utilities Commission (APUC) would use APUC receipts to fund its Y2K appropriation of $75 thousand dollars. Mr. Dewitt discussed the Y2K request for the Department of Corrections. Constitutional Budget receipts would be used for correctional facilities embedded systems, the Cook Inlet pre-trail central control system and to replace data processing hardware. He observed that no other fund source was identified and that the items are reasonable. The $574 thousand dollar appropriation for modification of the OBSCIS and HOFA systems would be paid for through an appropriation from the Federal Bureau of Justice. This expands a FY99 capital appropriation. Mr. Dewitt discussed the Y2K request for the Department of Environmental Conservation. He observed that $75 thousand dollars from the Drinking Water Fund and $75 thousand dollars from Oil/Hazardous Prevention and Response Fund would be used to help with the department's Y2K expenditures. Mr. Dewitt observed that the community waste water systems Y2K study was estimated to cost $28 thousand dollars. The project was completed for $8.5 thousand dollars. This would be paid for through the Constitutional Budget Reserve. Mr. Dewitt discussed the Y2K appropriation for the Department of Health and Social Services. He noted that $4 thousand dollars would be used to replace an imbedded code chip. There is a $53 thousand dollar project for the telephone system at the McLaughlin Youth Center. The legislation contains $30 thousand dollars in Constitutional Budget Reserve funds for this project. The $10 thousand dollars needed for the Public Health Lab would come from program receipts. He noted that the Division of Occupational Licensing concluded that it would not be effective to use their system to tie into the Emergency Medical Service (EMS) system. He noted that the Mental Health Trust Fund might be a funding source for the $100 thousand dollars needed at the Alaska Psychiatric Institute. The Medicaid management information system would be paid for in part with federal funds. They have an ongoing ability to update their management system at a 75/25 percent share. The state of Alaska's 25 percent share would be $600 thousand dollars. Mr. Dewitt he observed that the $225 thousand dollar request in the Recorders Office, Department of Natural Resources was not funded because it is not needed for Y2K compliance. Mr. Dewitt discussed the Y2K appropriation for the Department of Transportation and Public Facilities. The $4 million dollar federal appropriation for statewide public facilities will be sufficient to cover the department's Y2K needs. He noted that the Highway Working Capital Fund would be used for the nonfederal share needed for state equipment fleet emissions test equipment replacement. He maintained that the funding source is appropriate since federal funding pays for the maintenance of this equipment. He observed that Amendment 1 would add marine "vessel assessment" to the appropriation for Alaska Marine Highway System remediation (copy on file, see below). The actual cost for Y2K upgrades of the Kennicott would be $26 thousand dollars. Other ships would cost $50 thousand dollars each. A total of $476 thousand dollars would be needed to cover all vessels. Federal funds and Alaska Marine Highway System funds would be used. He observed that the Kennicott is not funded separately in the proposal. It is included in the total amount. Mr. Dewitt discussed the Y2K appropriation for the University of Alaska. He observed that the University of Alaska received a $63 million dollar capital appropriation for maintenance in FY99. He noted that $354.1 thousand dollars of this was used for facility items. There are $4,659,800 million dollars remaining for Y2K upgrades. Mr. Dewitt discussed the Y2K appropriation for the Alaska Court System. He explained that there are no alternative funding sources for the Y2K telephones and security upgrades. These upgrades will cost $182,500 thousand dollars. Co-Chair Mulder explained that he felt that it was important to fund adequate Y2K protections due to the statewide importance. He stressed that they looked to alternative sources for funding. He acknowledged that the legislation was not reduced as much as some would have liked. He pointed out that the Governor has made attempts to reduce FY99 funding. The Governor is also working on a net zero supplemental. He observed that it would be difficult to ask the departments to absorb all of their Y2K expenses. Mr. Dewitt commended the Administration for its willingness to look for other options. Co-Chair Therriault referred to the $75 thousand dollar appropriation from the Oil and Hazardous Prevention Response Fund. Mr. Dewitt explained that the appropriation would be used to replace equipment in systems that involved in lab testing. He stressed that expenditures would be focused on items that would be appropriate to the funding source. ROBERT POE, COMMISSIONER, DEPARTMENT OF ADMINISTRATION explained that the money would be spent for laboratory testing equipment that is related to oil spills and fingerprinting oil. Maintenance of this system currently comes from the same funding source. The funding would be spent for laboratory equipment used in testing samples for regulated chemical concentration, to fingerprint oil collection for spills and to monitor and verify water body conditions for areas such as the Cook Inlet. In response to a question by Representative Bunde, Commissioner Poe explained that upgrades of equipment for fleet emissions testing would only be for those areas that require emissions testing, Anchorage and Fairbanks. Representative Williams noted that the Governor requested $600 thousand dollars for the Alaska Marine Highway System. The legislation only authorizes $476 thousand dollars. NANCY SLAGLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF TRANSPORTATION explained that the bill inadvertently identified the Kennicott as a separate item from the amount requested for vessel upgrades. The Kennicott request was also included in the Governor's request for $600 thousand dollars. She observed that there is a federal amendment to the Statewide Transportation Improvement Program (STIP) for $600 thousand dollars to bring all vessels into Y2K compliance. She explained that the department still needs $600 thousand dollars. She explained that $476 thousand dollars are needed for remediation. The additional amount is needed for the assessment portion. She clarified that $600 thousand dollars is needed to take care assessment and remediation of the entire fleet. Some work on the Kennicott is being dealt with under warranty, but there is still a lot to do. She explained that 90 percent of the funding would be through federal dollars. Co-Chair Mulder observed that if the federal line were amended to approximately $540 thousand dollars and the other funds line to approximately $60 thousand dollars the total appropriation would be at the Governor's request of $600 thousand dollars. Ms. Slagle clarified that there would be $545,800 thousand dollars in federal funds and $54,200 thousand dollars from the Alaska Marine Highway System Fund in other funds. She noted that the Alaska Marine Highway System Fund is composed of general fund dollars that are set aside for the operation of the Marine Highway System. Representative J. Davies asked why there are Y2K problems with the Kennicott, which was just commissioned. Ms. Slagle explained that the Kennicott project began several years ago. At that time, Y2K problems were not dealt with in the design. The vessel has a complicated computer system. (Tape Change, HFC 98 - 18, Side 2) Representative J. Davies asked why the request for the Recorder's Office was not authorized for appropriation. Commissioner Poe explained that the equipment did not need to be replaced due to Y2K issues. The equipment needs to be replaced for other reasons. He explained that they only included systems that were required for Y2K reasons. Co-Chair Therriault questioned what would be required in regards to reporting to the Legislature. Commissioner Poe observed that he would continue to report monthly and that he would include a summary on the expenditures. In response to a question by Co-Chair Therriault, Co-Chair Mulder explained that the legislation was originally setup as a capital grant, which would allow the life of the expenditure to be five years. Under the current version, the appropriation would be made as an operating expenditure and the lapse date would be March 31, 2000. MARY LOU BURTON, DIRECTOR, BUDGET DEVELOPMENT, UNIVERSITY OF ALASKA noted that the University of Alaska has looked at the possibility of using their deferred maintenance appropriation for Y2K upgrades. She anticipated that this could be done in most cases. She stated that the University of Alaska could live with what they have. Co-Chair Mulder explained that $340 thousand dollars of systems upgrade would be billed to the deferred maintenance appropriation in the University of Alaska in order to reduce the draw on the Constitutional Budget Reserve. Representative J. Davies clarified that the University of Alaska's total Y2K cost would be $5,013,900 million dollars. Only $4,659,800 million dollars would come from the Constitutional Budget Reserve. Co-Chair Mulder stated that he was confident that the University of Alaska could use an existing funding source to make up any shortfalls. Co-Chair Mulder provided members with Amendment 1 (copy on file). He explained that the Office of Public Advocacy could support $104,000 thousand dollars from program receipts. He concluded that the Constitutional Budget Reserve draw should be reduced and general fund program receipts increased. He added that the Department of Transportation and Public Facilities wants to assure the Legislature that the funds requested are for vessels. The amendment changes the funding source for the Office of Public Advocacy and clarifies that the Department of Transportation and Public Facilities' appropriation is for vessel assessment and remediation. Amendment 1: On page 4 line 28: Delete: $14,554,553 Insert: $14,450,553 On page 4 line 7 after "system" Insert: "vessel assessment and" On page 4 line 20 after "system" Insert: "vessel assessment and" Co-Chair Mulder Moved Amendment 1. There being no objection it was adopted. Co-Chair Therriault observed that the problem has to be identified before it can be fixed. The amendment would clarify that funding could be used to identify the problems. There being NO OBJECTION, Amendment 1 was adopted. Representative Williams MOVED to ADOPT conceptual Amendment 2, to add $600 thousand dollars to the Alaska Marine Highway System. The breakdown would be $545.8 thousand dollars in federal funds and $54.2 thousand dollars in other funds. The other funds would be from the Alaska Marine Highway System Fund. In response to a question by Co-Chair Therriault, Ms. Slagle explained that the amendment would fit into the increased amount of federal funding that would be received for the state's STIP entitlement money. It is a direct result of the gas tax that goes to the federal government and is appropriated back to the states. She emphasized that the funding would assure passenger safety and allow vessels to remain on schedule. Co-Chair Mulder clarified that assessment and remediation were incorrectly lumped together. He noted that the only other source of funding is the general fund. There being no objection Amendment 2 was adopted. Co-Chair Therriault MOVED to report CSHB 64 (FIN) out of Committee with individual recommendations. Representative Kohring OBJECTED for the purpose of discussion. He expressed concern that some of the funding may be going to things that are not directly connected to Y2K upgrades. Representative Austerman expressed concern that the problem was created by the computer industry. Co-Chair Therriault emphasized that the appropriation is time sensitive. He observed that the funding amount could be adjusted in the other body or in conference committee. Representative G. Davis observed that the state has known about the Y2K problem. Representative J. Davies agreed with comments by Representative G. Davis. He emphasized that $20 million dollars is a relatively small amount to resolve the problem. He stressed that a lot of work has already been done by the administration. He pointed out that people did not anticipate that chips would be used for a 20-year period. Co-Chair Mulder pointed out that the House passed Y2K funding in the FY99 budget, but it was not approved in the Senate. He agreed that it is difficult to approve the funding, but stressed that it is important to assure residents that they do not have to worry about problems. He noted that Y2K problems could effect a variety of essential services such as stoplights, jail lockups and delivery of longevity bonus checks. He directed subcommittee chairmen to continue to monitor the issue. He emphasized that the question needs to be asked: "is this something that is wanted, but (or) something that is needed." Representative Kohring Withdrew his objection. He stressed that his concerns remain. There being no objection CSHB 64 (FIN) was moved from Committee. CSHB 64 (FIN) was REPORTED out of Committee with a "do pass" recommendation. ADJOURNMENT The meeting adjourned at 2:50 p.m. HFC 11 2/08/99