HOUSE FINANCE COMMITTEE May 12, 1999 6:15 P.M. TAPE HFC 99 - 131, Side 1 (Tape lost) TAPE HFC 99 - 131, Side 2 TAPE HFC 99 - 132, Side 1 TAPE HFC 99 - 132, Side 2 TAPE HFC 99 - 133, Side 1 CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 6:15 p.m. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Representative Austerman Representative Kohring Representative Bunde Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Representative Sharon Cissna; Representative Ethan Berkowitz; Scott Goldsmith, Institute for Social and Economic Research; Mike Navarre, President, Alaska Conference of Mayors; Ms. Cheryl Frasca, Fiscal Policy Council; Ken Freeman, Executive Director, Resource Development Council; April Jensen, President, Anchorage Chamber of Commerce; Carl Rose, Executive Director, Alaska School Board Association, Juneau; John Cyr, President, NEA- Alaska, Juneau; Pam LaBolle, President, Alaska State Chamber of Commerce, Juneau; Pat Carter, Staff, Senator Pearce; Mark Chryson, Chairman, Alaska Independence Party, Matsu; David McGraw, Alaska Libertian Party, Matsu; Mike Milligan, Kodiak; Mike Tibbles, Staff, Representative Therriault. TESTIFIED VIA TELECONFERENCE SUMMARY HB 231 "An Act relating to income of the Alaska permanent fund, to the Alaska Income Account, and to permanent fund dividends; and providing for an effective date." HB 231 was HELD in Committee for further consideration. HB 232 "An Act making a special appropriation from the budget reserve fund under art. IX, sec. 17(c), Constitution of the State of Alaska, to the Alaska Income Account; and providing for an effective date." HB 232 was HELD in Committee for further consideration. CSSB 133(RLS) am "An Act creating and relating to the Regulatory Commission of Alaska and transferring to it certain powers and duties of the Alaska Public Utilities Commission; repealing the Alaska Public Utilities Commission; relating to the powers of the chair of the Regulatory Commission of Alaska; relating to regulatory cost charges for public utilities and pipelines; relating to the appellate procedures of the Regulatory Commission of Alaska; relating to the Alaska Oil and Gas Conservation Commission; and providing for an effective date." CSSB 133(RLS) am was REPORTED out of Committee with a "do pass" recommendation and with two new fiscal impact notes, one by the Department of Commerce and one by the Economic Development and Department of Administration. CSSB 134(RLS) "An Act authorizing the Alaska Oil and Gas Conservation Commission to determine the amount of and to collect a charge for operating wells subject to the commission's jurisdiction, and to allocate expenses of investigation and hearing; authorizing the commission to employ additional professional staff; repealing the oil and gas conservation tax; and providing for an effective date." CSSB 134(RLS) was REPORTED out of Committee with "no recommendation" and one new fiscal impact note by the Department of Administration, and one fiscal impact note by the Department of Revenue, published dated 4/23/99. HOUSE BILL NO. 231 "An Act relating to income of the Alaska permanent fund, to the Alaska Income Account, and to permanent fund dividends; and providing for an effective date." HOUSE BILL NO. 232 "An Act making a special appropriation from the budget reserve fund under art. IX, sec. 17(c), Constitution of the State of Alaska, to the Alaska Income Account; and providing for an effective date." SCOTT GOLDSMITH, INSTITUTE FOR SOCIAL AND ECONOMIC RESEARCH stressed that the Healthy Alaska Plan is not a raid on the permanent fund. He maintained that the poor would not suffer under the plan. Mr. Goldsmith acknowledged that no one will agree with all the assumptions and elements of the Healthy Alaska Plan, but emphasized that support should be given to those elements in the plan that make sense. Constructive criticism should be given in areas that need improvement. Mr. Goldsmith discussed four criticisms of the Health Alaska Plan: 1. It is a raid on the Permanent Fund. The corpus of the fund is protected by the constitution and cannot be spent. The value of the fund would continue to be protected by automatic inflation proofing. 2. This plan endows a growing state government. Revenues to pay for government will fall short by over $1 billion in FY 99. The gap will widen as oil revenues continue to fall. Some permanent mechanism is needed to help fill it. Unfortunately the earnings will not be large enough to do the job in the out years which is why this plan projects a continued decline in real state spending in spite of population growth. The crafters of this plan want continued budget cuts to be part of the solution. 3. The burden falls on those with the least ability to pay. It is true that the immediate impact of rolling back the dividend from the extraordinarily high levels of the last 3 years hits lower income households the hardest. But if implementing a plan maintains important public services like quality schools, lower income household's benefit. And if a rollback in the dividend reduces the inflow of new residents, who collect a dividend and use public services without contributing in taxes, lower income household's benefit. Most importantly the reality is that the fiscal gap is big enough that all Alaskans will get to share in the burden of filling it, if not now under this plan, Then in the new future. This plan is a step toward full sharing of the burden just as was the soon to be finished decade of budget cutting. 4. Non-residents should be the first to pay. Aside from the curious notion that when people merely visit Alaska they should pay for the privilege, but when they settle here they should be exempt, the reality is that we would be able to collect a trivial amount from non- residents relative to the size of our gap. Of course it is a good idea to keep an eye on the profits from oil production to make sure we get our fair share. I think it is extremely difficult to expect legislators to craft and. bureaucrats to implement a tax and royalty structure that manages to skim off every dollar of profit without also taking that extra dollar that convinces the industry to look elsewhere. Is it not better to err on the side of caution? Let the industry walk away with a modest profit rather than go elsewhere with all the profit and all the jobs? Mr. Goldsmith maintained that the Health Alaska Plan is absolutely critical to any strategy for addressing our fiscal problems. He noted that the Health Alaska Plan does the following: 1. It sustains the real value of our financial assets. Financial earnings will generate twice the revenue from oil this year and their dominance will continue to grow. Since there is no replacement revenue source on the horizon we would be dead in the water if we let our financial assets waste away. (It doer, this by inflation proofing the entire portfolio.) 2. It provides a basis for getting the maximum return on our financial earnings. The portfolio can be managed for maximum long run real return consistent with a predetermined level of risk without the need to assure a constant annual flow of income. 3. It provides a stable, predictable, and growing revenue source from our financial assets. This frees the state for the first time since big oil from the annual uncertainty about how much money will be available to pay for government. 4. It uses a portion of that revenue stream to pay for government. As anticipated when the permanent fund was established, falling oil and other revenues are no longer large enough to pay for government. We have relied on reserves and budget cuts to reduce the size of the gap. Taxes and economic development will also be necessary. It is time also use a portion of Permanent Fund earnings, 5. It breaks the cycle of unbounded permanent fund dividend growth. The longer the dividend is allowed to grow above the level that is sustainable, the more difficult it becomes to get our fiscal affairs in order. Re-establishing realistic expectations about the dividend size Alaska can afford to distribute is critical to any fiscal plan. 6. It recognizes that taxes will be necessary as part of a solution. 7. It puts in place flexible fiscal structures that can be adjusted as changing conditions warrant. Mr. Goldsmith gave the following suggestions: 1. Give careful consideration to the mechanism for determining and protecting the annual withdrawal rate from financial assets, It would be the first line of defense against eating into assets and Pressure to spend more would concentrate there. 2. Offset declining oil revenues with continued additions to financial assets. Sustaining the value of total state assets, not just our financial assets, requires "depletion proofing' them. 3. Retain a reduced Constitutional Budget Reserve to perform its mandated function of acting as a shock absorber against fluctuating oil prices and to provide a safety valve against pressure to increase the financial asset draw. 4. Periodically sweeps inflation proofing into the permanent fund corpus from the Alaska Income Account. The constitutional shelter of the Permanent Fund provides further protection of financial assets. 5. Do not earmark the earnings flow. Let each legislature determine the highest and beat current use of available revenues. 6. Explicitly recognize that taxes are a necessary part of the solution since inflation and population growth will defeat the budget cutting strategy. Re-establishing the link between economic development and revenues (overcoming the "Alaska disconnect) argues for a personal income tax. 7. Tell your story to the public honestly. Credibility is essential to acceptance. Mr. Goldsmith reviewed information he felt was key to present to the public: 1. We have cut the budget - the general funds are $1 billion below what it would be today if it had grown with inflation and population. Nominal growth that does not keep pace with inflation is a real cut. 2. All must share in the burden of closing the gap. 3. This plan is a critical stop toward closing the gap, but it is not the entire solution. We will need to continue to work to achieve a Healthy Alaska. Mr. Goldsmith compared the Healthy Alaska plan to the Knowles plan. He stated that the main difference is that the Knowles plan maintains a higher dividend through the personal income tax, Important similarities are the notion of using fund earnings to pay for government and the goal of using the real value of financial assets. He noted technical differences; the Knowles plan is not an endowment, does not inflation proof all financial assets, and maintains the Constitutional Budget Reserve with dual functions. It does result in more sharing of the burden through an income tax and it does not earmark financial earnings for either the dividend or general funds spending. Mr. Goldsmith addressed arguments that non-residents should pay. He pointed out that the amount that would be collected from non-residents would be minor. Mr. Goldsmith noted that the general fund is about $1 billion dollars less than real inflation. He stressed that not funding inflation means real cuts. The current level of the dividend is not sustainable. It is critical that we make the break from large dividends sooner than later. The plan is flexible, in that it can be adjusted later on. He maintained that it is critical to give consideration to the draw rate of 5.35 percent. He noted that there would be continuous pressure to adjust this amount upwards. He cautioned not to earmark the earnings flow. In response to a question by Co-Chair Mulder, Mr. Goldsmith noted that the savings accumulated and translated to several billion dollars. Representative G. Davis asked why the dividend should be halted. Mr. Goldsmith explained that the problem is that if the dividend continues at an increasing rate other government functions would suffer. He pointed out that it is the only source of revenue the state has to fund public programs. As the dividend becomes larger it will attract people to the state. Representative Grussendorf questioned where the Constitutional Budget Reserve funds should be placed. He pointed out that inflation proofing is the state's buffer. Mr. Goldsmith acknowledged the need for a buffer. He stated that a large buffer is needed against oil price fluctuations Representative Austerman observed that it is difficult to explain that the permanent fund dividend will not continue forever. Mr. Goldsmith stressed that the public can be educated. He noted that the level of skepticism seems to be related to the length of residency in the state. MS. CHERYL FRASCA, FISCAL POLICY COUNCIL, ANCHORAGE added that the survey asked person's if they agreed with the statement that the original purpose of the permanent fund was to save money for a decrease in oil revenues. Only 49 percent agreed with the statement. Of these two-thirds approved of the use of the fund to support government services. Co-Chair Mulder provided members with a report by Callan Associates, Inc (copy on file). The report concluded that there is a 25 percent chance that the permanent fund dividend would be zero with the Governor's approach. The report also concluded that there is not enough money to pay inflation proofing in the future. MIKE NAVARRE, PRESIDENT, ALASKA CONFERENCE OF MAYORS provided members with a resolution from the Alaska Conference of Mayors, Resolution 99-03 (copy on file). He pointed out that it would be necessary to use earnings of the permanent fund to support state government. It will also be necessary to implement a broad-based tax. He observed that the Healthy Alaska Plan recognizes that inflation is real. The Alaska Municipal League and Alaska Conference of Mayors do not support the inclusion of further reductions. He pointed out that reductions have occurred in the form inflation. He stressed that other plans should be deliberated. He asked the economic impact of the permanent fund dividend. He noted there are increased retail sales at the time the state faces a deficit. He questioned which mix has the least onerous impact on Alaskan residents. He noted that there is a reduction of oil and gas related jobs. He expressed concern with the accumulative impacts of the plan. He observed that there have been public hearings to discuss the need for a budget plan. Representative Austerman noted that there are concerns regarding the affect of taxes. In response to a question by Representative Austerman, Mayor Navarre pointed out that a state income tax would be credited against federal taxes. He reiterated that all aspects need to be weighed. He maintained that another look needs to be taken on taxes. Representative Williams asked how Mayor Navarre would fill the gap if there were no more reductions. Mayor Navarre noted that there has been a tremendous impact from not funding inflation. He stressed that additional hearings are needed. He noted that a lot of money has been spent out of reserves. He stressed that the public wants to have a say. He noted that the criticism and analysis is just starting to percolate. He reiterated that there should be discussions in member's communities before the discussion is finalized in a special session. He emphasized that this is one of the most important decisions of the decade. (Tape Change, HFC 99 - 131, Side 2) KEN FREEMAN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL (RDC) testified via teleconference in support of the Healthy Alaska Plan. He observed that the original intent of the permanent fund was to pay for some state government services. He maintained that now is the time to begin using the earnings in order to bring stability to the budget process. He stressed that the Health Alaska Plan is well balanced because it recognizes the role the dividend pays in a local and state economy, while using the earnings to maintain the essential services and government infrastructure. He felt that the state could generate new revenues through the promotion of programs to encourage the development of Alaska's economy. He stated that RDC would support, as a last resort, the use of a broad-based tax to close the fiscal gap. He pointed out that new or increased taxes on industry is not the answer. He maintained that increased taxes on industry could shake the confidence of investments. Representative Foster observed that the RDC does not support taxes on industry. Mr. Freeman pointed out that industry is already taxed. He stated that tax would be a last resort. APRIL JENSEN, PRESIDENT, ANCHORAGE CHAMBER OF COMMERCE testified via teleconference in support of a long-term fiscal plan. She reiterated that they would like to see the problem handled this session. Representative Foster questioned Ms. Jensen's position on a broad-based tax. Ms. Jensen stated that they would support a broad-based tax if all other avenues were addressed. CARL ROSE, EXECUTIVE DIRECTOR, ALASKA SCHOOL BOARD ASSOCIATION, JUNEAU testified in support of further discussions on a long-term fiscal plan. He noted that members are concerned about the long-term economy of the state of Alaska. He observed that the long-term viability of Alaska would depend on a lot of things. He stressed vision should drive the plan not politics. He noted that there is a sense of urgency and importance. He encouraged the use of a special session to allow the population time to digest the plan. He noted that there are some difference of opinion among the leadership and administration. He maintained that the public understands the problem and is willing to pay taxes. He stressed that attention should be focused on what the plan should look like. Representative Foster observed that school districts have not come forth with a solution to the problem. Mr. Rose reiterated that the issues need to be framed to enhance discussions in the communities. Representative G. Davis echoed the importance of a long- range vision. JOHN CYR, PRESIDENT, NEA-ALASKA, JUNEAU testified in support of a long-term fiscal plan. He emphasized that the plan needs to consider educational needs. He maintained that the state needs a curriculum that does more than meet the basics. He pointed out that there has been an increasing burden placed on public schools. He maintained that in order to achieve the mission placed on them by the legislature, they must be protected from student and economic inflation. He stressed that the real issue is how quality schools can be judged. He stated that if education is not funded with goals in mind that students would be shortchanged. He emphasized that class size, teacher expertise, salary levels, professional preparation and opportunities for direct teacher/student interaction are the key resources for student learning. The quality and quantify of student interactions is influenced by these factors. He recommended that schools be protected against student and economic inflation, education mandates be fully fund, class size reductions and curriculum testing be put into place, and attention placed on student technology and strategies to make schools safe. He maintained that the public supports use of the earnings reserve for education. He spoke in support of a broad-based tax. He expressed concern with the affect of the plan on local government. He spoke in support of removing the cap for local education contribution. Representative Foster asked if Mr. Cyr would support the plan without the inclusion of taxes. Mr. Cyr responded that he could not state that NEA-Alaska is in 100 percent of the Healthy Alaska Plan. He stated that some kind of broad-based tax should be built into the plan. Representative Grussendorf summarized that NEA-Alaska wants 100 percent funding. He emphasized that NEA-Alaska's help will be needed to education the public and promote the plan. Mr. Cyr committed to assisting a plan that supports education and solves the long-range economic problems. (Tape ended) Mr. Cyr stressed that the plan needs to be supported by the entire legislature. Vice-Chair Bunde noted that the public does not support the income tax and pointed out that the body reflects the public. Representative J. Davies disagreed that the public would not approve an income tax. He stressed that the answer should not be prejudged without asking the question. Representative Foster stressed that this is the most important issue that he has seen the legislature address in his six terms. Mr. Cyr pointed out that he did not object to the use of the earnings reserve. He emphasized that the state cannot go forward with a billion-dollar deficit. He stressed that "we need to do what we can". Representative Austerman maintained that the endowment is the crucial aspect of the plan. Vice-Chair Bunde agreed that doing nothing is not an option. PAM LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE, JUNEAU testified in support of a long-term fiscal plan. Criteria for a long-range fiscal plan have been the top priority for the State Chamber. To do nothing is not an option. The chamber also wants to see further reductions in the size of Alaska's government. She observed that residents are unwilling to give up dividends or pay taxes to maintain the status quo. She suggested the use of investment earnings. The current plan does meet the criteria of the Chamber. Ms. LaBolle stated that the plan could address Alaska's future. The Chamber believes that the Legislature should make the decision. It is important that the information is put out to inform the membership of the final outcome. Ms. LaBolle noted that according to an analysis by the State Chamber of Commerce that the overall spending has increased in the last 20 years. Co-Chair Mulder asked if the analysis incorporated all spending. Ms. LaBolle stated that it did include all spending and 3.2% for inflation cost. (TAPE CHANGE, HFC 99-132, Side 1) Co-Chair Mulder thought that it is misleading to say that overall spending has increased. It has increased because the population has increased. Ms. LaBolle stated that the dividend was not included in the analysis. When the analysis was done, it was done in a logic manner and included the inflation factors and did recognize that there are things that are not obvious to the general public. It was a simple approach. Representative J. Davies maintained that with adjustments for population and inflation that the per capita spending is less now than in years passed. The amount of government that we have now is favorably equivalent. The size of the economy has increased dramatically in the past 20 years. The rate of expansion in the economy has increased more rapidly than the population. He emphasized that government has been cut. He countered the idea of cutting expenditures. He concluded that "we have come to the bottom of the barrel." There are no big-ticket items that can be reduced and keep doing the adequate work of the State. He maintained that consideration must be given to a broad-based tax or the use of the earning revenues. He supported a combination of a broad-based tax or the use of the earning revenues. Ms. LaBolle observed that government is not a profit organization. Vice-Chair Bunde observed that federal funds have increased in the state of Alaska. Ms. LaBolle suggested that there are items that can no longer be afforded. Vice-Chair Bunde countered that the "wants" and "needs" have become confused. The quality of life is better now than it was 30 years ago. Representative Grussendorf asked what areas the State Chamber would fund. Ms. LaBolle expressed support for education, transportation, and public safety. She observed that these are constitutionally mandated items. Representative Grussendorf pointed out that transportation is important and expensive. Ms. LaBolle spoke in support of the Task Force on Privatization. Representative Moses asked if the average income of the State Chamber membership. He suggested that middle to high- income households would rather give up their dividend check than pay an income tax. Ms. LaBolle responded that the dividend created a "monster." People think of the dividend as entitlement. State services need to be supported. Representative G. Davis spoke to the petition circulating Kenai Peninsula (against any reduction to the permanent fund dividend). He acknowledged that a reduction in permanent fund dividends would adversely affect businesses. He voiced concern in how to educate business about the affect of not acting. Ms. LaBolle was surprised that there are so many people in the state that don't recognize the seriousness of the problem. The biggest battle is to get beyond the media. the public must be educated regarding the state's dilemma. Vice-Chair Bunde suggested that there is no difference between taking $500 hundred dollars out of the economy through a reduction in dividends or through paying taxes. Representative Kohring expressed concern with the Healthy Alaska Plan. He expressed fear that it would reduce the incentive for further reductions to government spending. He spoke in support of an advisory vote on the issue of spending permanent fund dollars to support government. He expressed concern with the transfer of dollars from the private to the public sector. MARK CHRYSON, CHAIRMAN, ALASKA INDEPENDANCE PARTY, MATSU testified via teleconference against use of the permanent fund without a vote of the people. He spoke in support of public contact. He spoke in support of moving public land into the private sector as a manner to increase municipal income. He observed that rural areas would be negatively impacted by the reduction of permanent fund dividends. Representative Kohring stressed that it takes courage to place a plan on the table. Representative Austerman questioned how giving a million acres away would help the state. Mr. Chryson responded that the plan should not be on the table without a vote of the people. He pointed out that Alaskans are not allowed to own their resources. He maintained that the permanent fund dividend is a payoff for not owning the resource. He stressed that public land is like a bank and should be disposed before new taxes or a reduction of permanent fund dividends. He maintained that there should be more land in private ownership. Representative Austerman emphasized that the legislative process is necessary to place something on the table. Mr. Chryson suggested that land could be exchanged for an agreement not to collect their permanent fund dividend check for 10 years. Vice-Chair Bunde pointed out that most of the desirable land in the Matsu belongs to the borough. He disagreed that land should be given away. He observed that the addition of small residences would create more demand on state services. Co-Chair Mulder concluded that there has been an attempt to integrate ideas. He stressed that the future of the dividend is at risk if nothing is done. He emphasized the need to take preventative action in order to protect the long-term value and substance of the dividend overtime. Representative J. Davies observed that the Division of Lands in the Department of Natural Resources has been reduced. Mr. Chryson noted that there is only one person in the Division of Land to dispose land. DAVID MCGRAW, ALASKA LIBERTIAN PARTY, MATSU testified via teleconference against reductions to the permanent fund dividend without an equal reduction to government. Representative Austerman asked if Mr. McGraw recognized the $200 million dollar reductions the legislature has made to government or the reduction for inflation. Mr. McGraw did not equate the curtail in the growth of government as a cut. Vice-Chair Bunde pointed out that residents of the Matsu Valley felt that they did not get sufficient funding in SB 36. He concluded that some people in the Matsu Valley would feel that government has been cut. (Tape Change, HFC 99 - 132, Side 2) MIKE MILLIGAN, KODIAK testified via teleconference. He expressed concern with the Healthy Alaska Plan. He maintained that everything should be on the table. He noted that Fairbanks had a sales tax when he moved to the state. He maintained that the purpose of the permanent fund dividend was to keep the money out of the hands of government. He spoke in support of diversification of the tax base. He pointed out that tourists, out-of-state workers, and retired residents living out-of-state do not contribute through taxes. He asserted that the use of the permanent fund punishes the residents of Alaska. He concluded that there should be a greater variety of taxes. He stressed that an income tax or sales tax would lessen the affect on the permanent fund. Co-Chair Mulder noted that there have been discussions regarding the creation of the permanent fund. He read the ballot question from the 1976 election pamphlet: "Now is the time to ask ourselves the question, when the oil and gas is depleted, where will the funds to feed government come from, the answer the permanent fund." Representative J. Davies added that the dividend program was not part of the original plan to create a permanent fund. Mr. Chryson stressed that government provides services. He maintained that most of the money goes to government workers. He observed that the important issue for non- government workers is health care. Representative Austerman stressed that it takes something on the table to begin the discussions. Co-Chair Mulder pointed out the Healthy Alaska Plan is a starting point. It does not preclude the discussion of taxes. Taxes can be used to offset a higher dividend or more services. Representative Foster observed that demands are made on daily bases for cuts to government, but added that no one wants the cuts to come from them. HB 231 and HB 232 were held in Committee. CS FOR SENATE BILL NO. 133(RLS) am "An Act creating and relating to the Regulatory Commission of Alaska and transferring to it certain powers and duties of the Alaska Public Utilities Commission; repealing the Alaska Public Utilities Commission; relating to the powers of the chair of the Regulatory Commission of Alaska; relating to regulatory cost charges for public utilities and pipelines; relating to the appellate procedures of the Regulatory Commission of Alaska; relating to the Alaska Oil and Gas Conservation Commission; and providing for an effective date." Co-Chair Therriault MOVED to ADOPT Amendment 2 (copy on file). Representative Grussendorf OBJECTED. PAT CARTER, STAFF, SENATOR PEARCE explained Amendment 2. He observed that the amendment removes section 28, which authorizes the new Regulatory Commission of Alaska to employ one additional hearing office. He noted that this position is in the operating budget as passed by both bodies. The language is redundant. There being NO OBJECTION, Amendment 2 was adopted. Amendment 3 was WITHDRAWN. Representative J. Davies MOVED to ADOPT Amendment 4 (copy on file). The amendment would add the following language in section 7: "A party may file a petition for reconsideration of, or an administrative appeal of, a decision by a hearing officer, an arbitrator, or an administrative law judge that has been approved by the commission, or a decision of a hearing panel. The full commission shall act on the petition for reconsideration or the appeal." There being NO OBJECTION, Amendment 4 was adopted. Co-Chair Therriault MOVED to ADOPT Amendment 5 (copy on file). Amendment 5 would change the sunset date from the year 2004 to 2002. It was the intent of Co-Chair Therriault that the legislature review the transition of APUC. There being NO OBJECTION, it was so ordered. Co-Chair Therriault MOVED to ADOPT the following House Finance Committee Letter of Intent: SB 133 repeals the Alaska Public Utilities Commission and creates the Regulatory Commission of Alaska. In making this change to public utility regulation, it is the intent of the Legislature to respond to recommendations in legislative audits conducted in 1979, 1985 and 1989, and an audit performed by the National Regulatory Research Institute (NRRI) in 1998. The task of regulating public utilities has changed dramatically as the utility industry has moved from total regulation to regulated competition. The 21st Alaska Legislature is creating the Regulatory Commission of Alaska to address these changes in the utility industry on behalf of the people of the state of Alaska. The Regulatory Commission of Alaska is better equipped than the APUC to respond to industry proposals for changes in utility services, and to protect the interests of ratepayers in the wake of these changes. SB 133 gives the chair authority over administrative matters, leaving the other commissioners free to resolve substantive issues. To address the problem of the APUC's case backlog and time-consuming decision-making process, SB 133 allows panels of three commissioners, hearing officers or arbitrators to resolve cases where appropriate. It also requires the RCA to adopt regulations setting procedural timelines. To address the problems created by changing APUC staff's role between advocate and advisor, it establishes a separate public advocacy section within the RCA. SB 133 will improve this agency's accountability to the public. The RCA is required to establish a Management Information System, similar to the Legislature's BASIS system so that the public and industry can be better informed about the RCA's proceedings. It requires the RCA to implement a time management system to record the amount of time spent on filings from different industries, so that the Regulatory Cost Charge can be more fairly assessed. This year is an opportune time to make these changes. The Alaska Public Utilities Commission would begin winding down on June 30, 1999 under the sunset law. SB 133 requires the governor to appoint, and the Legislature to confirm, five commissioners who will represent the interests of the public. SB 133 provides for a study of the possibility of combining the functions of the Regulatory Commission of Alaska and the Alaska Oil and Gas Conservation Commission. The results of a study by the Legislative Budget and Audit Committee will be presented to the next session of this Legislature. If the Legislature decides to combine the two agencies' functions, the challenge of making that transition will be significantly eased by the creation and operating experience of the RCA under SB 133. Mr. Carter observed that the letter of intent sets into the record all the reasons for establishing a new commission and the structure changes. There being NO OBJECTION, the letter of intent was adopted. Mr. Carter noted that Alaska Regulatory Commission should be the Regulatory Commission of Alaska. Representative Foster expressed concern with the performance of the past executive director of the APUC. Mr. Carter reiterated that the intent is to clarify that staff takes direction from the chairman of the commission. MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT reviewed the fiscal note for the Alaska Oil and Gas Conservation Commission (AOGCC) fiscal note. There is a $147 thousand dollar general fund request in the contractual line for lease costs. There is a $321.9 thousand dollar capital request for moving costs. Co-Chair Therriault explained that the SB 133 fiscal note would be zeroed out in the conference committee if SB 134 and SB 133 pass. Representative J. Davies observed that the intent is to fund the request. Mr. Carter explained that the fiscal note reflects the changes to the legislation. Representative J. Davies MOVED to ADOPT Amendment 6 (copy on file). Co-Chair Therriault OBJECTED. Representative J. Davies explained that the amendment would add a person to represent the interest of the public. Co-Chair Therriault spoke against the amendment. He emphasized that all of the members are present to represent the consumer. There is also a separate public advocacy section. Mr. Carter added that every audit reaffirms that APUC was created to protect the interests of the public. Co- Chair Therriault noted that the current language is acceptable to the Administration. Representatives Grussendorf and J. Davies argued in support of the amendment. Vice-Chair Bunde spoke against the amendment. A roll call vote was taken on the motion. IN FAVOR: Davies, Grussendorf OPPOSED: Bunde, Davis, Foster, Kohring, Austerman, Therriault, Mulder Representatives Williams and Moses were absent from the vote. The MOTION FAILED (2-7). Representative Foster MOVED to report HCS CSSB 133 (FIN) out of Committee with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSSB 133(RLS) am was REPORTED out of Committee with a "do pass" recommendation and with two new fiscal impact notes, one by the Department of Commerce and one by the Economic Development and Department of Administration. CS FOR SENATE BILL NO. 134(RLS) "An Act authorizing the Alaska Oil and Gas Conservation Commission to determine the amount of and to collect a charge for operating wells subject to the commission's jurisdiction, and to allocate expenses of investigation and hearing; authorizing the commission to employ additional professional staff; repealing the oil and gas conservation tax; and providing for an effective date." Mr. Tibbles discussed a proposed fiscal note for SB 134 by the Department of Administration (copy on file). The fiscal note includes $147 thousand dollars for lease costs and $321.9 thousand capital dollars for moving costs. Mr. Carter explained that the money is needed for additional staff. (Tape Change, HFC 99 - 133, Side 1) Mr. Carter explained that there are no positions directly tied to the oil and gas conservation tax. Representative Foster MOVED to report HCS CSSB 133 (FIN) out of Committee with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSSB 134(RLS) was REPORTED out of Committee with "no recommendation" and one new fiscal impact note by the Department of Administration, and one fiscal impact note by the Department of Revenue, published dated 4/23/99. ADJOURNMENT The meeting adjourned at 9:20 p.m. House Finance Committee 18