HOUSE FINANCE COMMITTEE April 12, 1999 1:50 P.M. TAPE HFC 99 - 76, Side 1. TAPE HFC 99 - 76, Side 2. TAPE HFC 99 - 77, Side 1. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 1:50 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 Representative Norman Rokeberg; Patti Swenson, Staff, Representative Bunde. TESTIFIED VIA TELECONFERENCE Chris Birch, Anchorage; Brooks Chandler, Girdwood; Jim Norcross, Mat-Su; Hank Hove, Mayor, Fairbanks. SUMMARY HB 96 An Act relating to deposits to the Alaska permanent fund. HB 96 was HELD in Committee for further consideration. HB 133 An Act relating to municipal service areas and providing for voter approval of the formation, alteration, or abolishment of certain service areas; and providing for an effective date. CS HB 133 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Community and Regional Affairs dated 3/31/99. HB 161 An Act relating to reduction in payments to individuals under certain benefit programs; and providing for an effective date. CS HB 161 (FIN) was reported out of Committee with "no recommendation" and with a zero fiscal note by the Office of the Governor. HOUSE BILL NO. 96 "An Act relating to deposits to the Alaska permanent fund." REPRESENTATIVE NORMAN ROKEBERG testified that HB 96 would return the percentage of all-mineral lease royalties and bonuses deposited into the Permanent Fund to the constitutionally mandated 25 percent. He continued, the legislation would propose changes to a statute, not the Alaska Constitution. The Constitution states that "at least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund". In 1980, the Legislature realized excess revenues existed and wisely decided to raise the amount of royalties and bonuses deposited into the Permanent Fund to 50 percent. Representative Rokeberg stated that it is time for the State of Alaska to redirect those deposits to the general fund. He believed that passage of the proposed legislation would generate an extra $9.5 million dollars in FY00. He urged passage of the legislation. Representative Rokeberg referenced the printed handout provided by the Department of Revenue, Deborah Vogt, dated 3/26/99. [Copy on File]. The memo was drafted in response to the request for information on the royalties and other mineral payments that would be affected by the proposed legislation. The memo indicates that the bill would reduce to 25% the contribution to the Permanent Fund of those mineral payments that are currently being made at a 50% rate. Additionally, Representative Rokeberg referenced the memorandum from the Alaska Permanent Fund Corporation (APFC), Jim Kelly, Director of Communications. [Copy on File]. The intent of the memo was to make a distinction between the impact of the bill on per capita dividends over the next five years, both compared to the status quo and assuming passage of a one-time $4 billion dollar transfer from the Fund's earning reserve account to the Capital Budget Reserve Fund (CBRF) per the Governor's proposal. Based on a financial analysis, the impact would be less than a $10 difference over five years. Representative Rokeberg pointed out that the funds would not include any mineral resources or bonus money. Last year, $53 million dollars in bonus bids was received, which added up to an additional $12.5 million dollars for the FY2000 budget and does not include federal receipts. Representative Grussendorf clarified that the legislation would increase the revenue stream from oil to the general fund and would reduce it by $12.5 million dollars. He noted that the original 50% legislation was passed so that amount would be placed into the corpus for investment purposes. He reminded Committee members that any long-range fiscal plan will need to take the Earnings Reserve Account into consideration. He recommended that it remain consolidated for investments within the corpus. Co-Chair Therriault pointed out that the Alaska State Constitution indicates that 25% should be placed into that account and that with passage of the legislation that would continue to occur. Representative Grussendorf understood that the legislation would repeal the statutory 25% recommendation. Representative Rokeberg stated that the State Constitution clearly illustrates that the earnings of the corpus can be spent by the general fund. Representative Grussendorf emphasized that a long-range fiscal plan should be based on the Earnings Reserve Account, not an additional stream into the general fund. Representative Rokeberg commented that it is appropriate for the Legislature to appropriate money for the budget. He interjected that it is now time to redirect the 50% statutory language so it can be used as needed. The bill does not speak to what should be done with that money. Representative Bunde spoke in support of the proposed legislation. He suggested that the public has dictated how they would like the Legislature to spend money by who they have elected to office. Representative J. Davies argued that point. He added that it is important to look at a long-range fiscal plan for the State. He voiced his preference to continue depositing money into the corpus of the fund. At this time, the fund is not large enough to "spin off" enough money to address the State's financial condition. Co-Chair Therriault asked how the State should manage the $1.2 billion dollar deficit which it is facing. Representative J. Davies stated that the State could "absolutely" manage that deficit. He pointed out that Alaska has $2.4 billion dollars in the Earnings Reserve Account, and that the State expects a similar amount to be deposited into that account over the next fiscal year. Representative Grussendorf recommended that the needed funds could always be taken from the Earning Reserve Account or from the general fund. If those funds are not desperately required, the money should stay in the corpus generating an annual income. He recommended that the present statute stay in tact until a long-term plan had been devised. Representative Grussendorf concluded that the $12 million dollars is a small amount and that the structure should not be changed in order to access it. Representative Rokeberg pointed out that any money taken from this fund would create a situation which would cause no further public tax implementation. He proposed that a prior legislature's law is now binding the current legislature as to how additional deposits should be made to the corpus. He urged passage of the bill. Representative Williams asked how the legislation would affect the State's ability to generate more earnings. Co- Chair Mulder explained that if the State can utilize this money now, it could delay a statewide tax for a period of time. He added, the financial management of that account would drive the overall health of the Permanent Fund. The future of the Permanent Fund will be dependent upon a structure being established to retain the financial health of that fund. He believed that the revenues lost from passage of the bill would be inconsequential to the relative current health of the general fund. Co-Chair Therriault noted that the Legislature has many opportunities to make contributions to the Permanent Fund. Representative Grussendorf referenced the original premise of the Permanent Fund in which the Constitution is explicate that the interest earned off of it should be used as designated by statute. Over $3 million general fund dollars has been placed into the corpus of that fund. Outside of that concern, Representative Grussendorf emphasized that the title of the proposed legislation was too broad and that in the future, the earnings reserve could possibly be attached into the corpus. Co-Chair Therriault acknowledged that the title would need to be tightened. In response to Representative Austerman, Co-Chair Therriault explained that 25% was deposited and did not come through the general fund. The additional 25% was a yearly appropriation of general fund dollars into the corpus. Representative J. Davies pointed out that this money would be a statutory dedication. The money funds need to technically be placed into the general fund and then deposited. Any legislature has the authority to pass a bill as the one proposed. He clarified that there has been no binding of one legislature by another. He remarked that a small stream of money continues to build the fund. Co-Chair Therriault asked if Representative J. Davies' comfort level was higher because a small amount of money was requested. Representative J. Davies commented on current funds versus state taxes. He recommended that the State would be better off if State taxes were paid "sooner" rather than "later". He recommended the reinstitution of an appropriate income tax. Co-Chair Therriault suggested that the title should be changed in order to tighten it up and then the legislation could be brought before the Committee for final consideration. HB 96 was HELD in Committee for further discussion. (Tape Change HFC 99 - 76, Side 2). HOUSE BILL NO. 133 "An Act relating to municipal service areas and providing for voter approval of the formation, alteration, or abolishment of certain service areas; and providing for an effective date." VICE CHAIR CON BUNDE explained that HB 133 would amend AS 29.35.450 to support local control by clearly identifying who should vote on the abolishment and alternation of a service area under three scenarios: * Abolishment of a service area. Subject to approval by the majority of the voters residing in that service area. * Abolishment and replacement of a service area. Must be approved separately by a majority of voters inside an existing service area and by a majority of voters residing in the proposed service area but outside the existing service area. * Alteration of a service area or combining it with another service area. Must be approved, separately by a majority of voters who vote on the question and who reside in each of the service areas or in a proposed service area affected by the proposal. Representative Bunde concluded that the legislation would settle a long time debate about who is entitled to vote during the creation, alteration or abolishment of a service area. He urged the Committee's favorable support. Representative Grussendorf asked, if there was an area where people did not want the service to be provided, would the State then be placed in an "obligated" situation. Co- Chair Therriault noted that in Fairbanks, a school bus will not travel on a road which is not being maintained. Representative Bunde added, subdivision roads are not thoroughfares and there would be no obligation for the State to maintain these services. Representative J. Davies recalled that there is a provision in the Alaska State Constitution, Title 29 which addresses the formation of service areas. He recommended that the Committee revisit the logic of that constitutional provision. He questioned if the proposed legislation would be inconsistent with that provision because it provides for people living in an existing service area to prohibit the annexation of another area by voting "no". In the past, the State has allowed city assemblies to decide if and when annexation should go forward. Co-Chair Mulder read to the Committee, Article 10, Section 5 of the Alaska State Constitution: "A new service area shall not be established if consistent with the purposes of this article, the new service area could be provided by an existing service area by incorporation as a city or annexation of a city". PATTI SWENSON, STAFF, REPRESENTATIVE CON BUNDE, emphasized that the bill is about "abolishment and alteration" and not new services. She added that there are over 200 service areas in Alaska and that 120 of them are in the Fairbanks area. The legislation would allow people to vote to abolish, replace or alter a service area, giving themselves differential tax rates. Representative J. Davies agreed that the issue of differential maintenance has been a problem, however, the language of the bill would allow the formation of new service areas. Currently, the assemblies do have the power to make that decision and the people do have the ability to comment on it through their assembly members. CHRIS BIRCH, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE, spoke in support of HB 133. He noted that service areas involve a lot of time and energy but they are government working at a "grass roots" level. He urged support of the bill. BROOKS CHANDLER, (TESTIFIED VIA TELECONFERENCE), GIRDWOOD, testified in support of the legislation. He noted that his service area encompassed road, parks, recreation and fire protection areas. He viewed the proposed legislation as implementing an unenforceable compact made at the time of unification to provide a level of service and control from property tax dollars. Mr. Chandler commented that Girdwood would appreciate the bill be adopted in order to provide for the protection of services. JIM NORCROSS, (TESTIFIED VIA TELECONFERENCE), MAT-SU, voiced his support of the legislation. He commented that the individual road service area residents are better capable to determine what is needed to maintain their roads. He feared that if a local borough decided that there was an emergency, they could spend road service funds without approval. Mr. Norcross urged the Committee's support of the legislation. In response to Representative Austerman's query, Representative Bunde replied that in previous committee hearings, only one person had testified against the proposed legislation. HANK HOVE, (TESTIFIED VIA TELECONFERENCE), MAYOR, FAIRBANKS, testified in support of the legislation. He stated that if passed, the bill would allow the City of Fairbanks to consolidate some of their road service areas. It has become inefficient and difficult to manage road service areas and costs are higher than they might be under the service proposed in the legislation. He pointed out that the legislation would offer an opportunity to consolidate service areas, which has not occurred in the past because the conditions of roads in the various service areas were not comparable. Mayor Hove noted that under the terms of the proposed legislation, a taxation scheme would be established for the purpose of supporting roads. He agreed that the bill was sufficient, as it is at this time, however, legal counsel has advised that an additional change to AS 29.60.080 would be advantageous adding "or a service area". He urged passage of the bill. Representative J. Davies agreed with the inclusion of Section 4, although, asked if the addition of Section 3 would impede consolidation if a service area voted no approval. Mayor Hove replied that the "hope" was that language could create a circumstance in which approval would be more readily granted. Representative J. Davies acknowledged the "hope", but argued if that could act as a possible impediment. Mayor Hove agreed that was a possibility. Representative J. Davies questioned if adopting Section 4 and excluding Section 3 would accomplish the concerns. Mayor Hove commented that Section 3 was part of the original SB 208 presented last session. Representative J. Davies MOVED to AMEND the bill conceptually by removing Section 3. Representative Bunde OBJECTED. Representative J. Davies asserted that most concerns were addressed in Section 4 of the bill. Section 3 speaks to a situation that has only occurred a couple of times in the State. Representative J. Davies additionally suggested that Section 3 was unconstitutional within the existing statute. Representative Bunde understood why Representative J. Davies would want to retain the section which addresses the needs in Fairbanks, however, Representative Bunde believed that would be inconsistent with passage of the bill. He noted that it would be "good government" to not allow a larger area to dominate a smaller area. A roll call vote was taken on the motion to amend. IN FAVOR: Grussendorf, J. Davies, Mulder OPPOSED: G. Davis, Foster, Kohring, Williams, Austerman, Bunde, Therriault Representative Moses was not present for the vote. The MOTION FAILED (3-7). Representative Foster MOVED to report CS HB 133 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CS HB 133 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Community and Regional Affairs dated 3/31/99. HOUSE BILL NO. 161 "An Act relating to reduction in payments to individuals under certain benefit programs; and providing for an effective date." Co-Chair Therriault restated that HB 161 would allow program administrators to reduce payments in benefit programs to match the appropriate level of funding. It would allow the Legislature and Administration to deal with reductions in revenue and increases to recipients in a simple and practical manner. He explained that current circumstances require that payments be made at a prescribed level without reference to appropriation. If the enrollment exceeds affordable levels, managers would be allowed to manage within the appropriated resources. Currently, the only option is to request a supplemental appropriation or shut a program down in the later months of the fiscal year. HB 161 would provide a reasonable budgetary tool to the Administration and Legislature. Co-Chair Therriault believed that the legislation would help deal with the State's fiscal realities. (Tape Change HFC 99 - 77, Side 1). Representative Grussendorf pointed out that in some programs, the departments must make a projection. He asked how supplemental requests would be addressed in these situations. Co-Chair Therriault replied those determinations would be made individually in each following year by the full Legislature. Representative Grussendorf questioned how Power Cost Equalization (PCE) would be affected by the bill. Co-Chair Therriault replied that because it currently has statutory pro rata language, this bill would not impact it. Co-Chair Mulder reiterated that the decision to seek a supplemental was driven by the adoption terms of each department's budget. He stated for the record that it was not the Committee's intention to short-fund budgets for the coming year. Representative Grussendorf voiced concern for those departments that have to make cost projections. Co- Chair Therriault agreed that in many programs, that would be a guess. He pointed out that in the Department of Health and Social Services budget, he would follow it throughout the year making sure when federal help is available, they apply. He emphasized that dialogue should be continued with the departments throughout the interim. Representative J. Davies inquired which programs would be scrutinized with passage of the legislation. Co-Chair Therriault explained that the legislation would be used as a "tool" for the current fiscal year. He acknowledged the he personally did not intent for it to apply to any specific program. Representative Foster MOVED to report CS HB 161 (FIN) out of Committee with individual recommendations and the accompanying fiscal note. Representative J. Davies OBJECTED. Representative J. Davies commented that in most of the cases where these issues exist, they are addressed on an on-going basis. He foresaw possible "mis-use" with the legislation. Representative J. Davies noted that if it was the Committee's intent to "under-fund" a department, that should be indicated in the appropriation, rather than leaving out a fiscal note and expect that department to "get" the message. He reiterated that underfunding should be done up front so that it is fair. He reiterated that the bill's language provides for misunderstanding and punishment. Co-Chair Mulder disagreed, suggesting that if this tool is utilized, information would be stipulated up front. Whereas, the only alternative now with these programs is to cut off assistance. He suggested that the bill would allow short funding evenly throughout the calendar year. The departments will need to receive clear guidance regarding the intent. Representative J. Davies requested that a conceptual amendment be submitted which would address that concern. The language could state that the Legislature, in cases where there is intent to reduce an appropriation on a pro rata basis, it should be submitted in writing. Co-Chair Therriault pointed out that there was a MOTION before the Committee to move the bill. Representative J. Davies stated that his MOTION would AMEND that MOTION. Representative Foster WITHDREW the MOTION to MOVE the bill. Representative J. Davies MOVED that a conceptual amendment be written which would provide for the Legislature to clearly indicate intent to reduce the appropriation on a pro rata basis. Co-Chair Therriault OBJECTED to the amendment at this time, remarking that he might be persuaded differently once the language of the amendment was drafted. Representative J. Davies WITHDREW his MOTION to adopt the conceptual amendment. Representative Foster MOVED to report CS HB 161 (FIN) out of Committee with individual recommendations and the accompanying fiscal note. There being NO further OBJECTION, it was so ordered. CS HB 161 (FIN) was reported out of Committee with "no recommendation" and with a zero fiscal note by the Office of the Governor. ADJOURNMENT The meeting adjourned at 3:55 P.M. H.F.C. 11 4/12/99