GENERAL SUBJECT(S): Review of Departments Accomplishments Department of Natural Resources Department of Transportation and Public Facilities Alaska Housing Finance Corporation (AHFC) The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 21st Legislative Session, contact 465-2156. After the 21st Legislative Session they will be available through the Legislative Library at 465- 3808. Time Meeting Convened: 1:40 p.m. Tape(s): HFC 00 - 14, Side 1 HFC 00 - 14, Side 2 HFC 00 - 15, Side 1 PRESENT: X Representative G. Davis Absent Co-Chair Therriault X Representative Foster X Co-Chair Mulder Absent Representative Grussendorf X Vice Chair Bunde X Representative Moses X Representative Austerman X Representative Phillips Absent Representative J. Davies Absent Representative Williams ALSO PRESENT: John T. Shively, Commissioner, Department of Natural Resources; Dan Fauske, Executive Director, Alaska Housing Finance Corporation, Department of Revenue; Joseph Perkins, Commissioner, Department of Transportation and Public Facilities; Nico Bus, Administrative Services Manager, Division of Support Services, Department of Natural Resources; LOG SPEAKER DISCUSSION TAPE HFC 00 - 14 SIDE 1 000 Co-Chair Mulder Convened the House Finance Committee meeting at 1:40 p.m. 21 DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE Noted that the Alaska Housing Finance Corporation's (AHFC) mission is to provide Alaskans access to safe, quality, and affordable housing. 38 Mr. Fauske Noted that AHFC's goals and strategies are to provide programs and services that are responsive to the diverse housing needs statewide, increase home ownership, increase special needs housing, expand partnerships to strengthen program and service delivery, strengthen commitments to AHFC housing programs, functions and benefits, promote operational excellence and manage assets to generate sufficient profit to meet AHFC's financial commitments. 69 Mr. Fauske Core business activity is to earn profits through the purchase of mortgage loans. Observed that senior housing remains a large concern to the corporation as that population continues to grow. 86 Mr. Fauske Discussed the prior year's accomplishments. Pointed out that AHFC received a perfect score of 100 percent from HUD's 1999 Public Housing Management Assessment Program. 107 Mr. Fauske Observed that AHFC received an annual award for Significant Achievement from the National Council of State Housing Agencies. 139 Mr. Fauske Noted that AHRC received a design award from the Pacific Northwest Regional Council and an Award of Merit from the National Association of Housing & Redevelopment Officials for work on Etolin Heights in Wrangell. 159 Mr. Fauske They also received a National Recognition Award for outstanding contributions to the Weatherization Assistance Program. 183 Mr. Fauske Observed that AHFC's web site received the highest possible rating. 202 Mr. Fauske Noted that AHFC reduced requirements for documentation required and streamlined procedures for loan commitments and purchases. They are also working to implement electronic submission of loan files. 231 Mr. Fauske The Corporation provided workshops for 4,583 individuals. 238 Mr. Fauske The Corporation purchased 1,228 streamlined refinancing loans. 261 Mr. Fauske Noted that AHFC provided $612 million dollars for 5,120 Alaskans to purchase homes, which is an increase of 18 percent. 283 Mr. Fauske Observed that AHFC contributed more than $8.7 million dollars in servicing fees to Alaskan lenders. 301 Mr. Fauske The Corporation also maintained a delinquency rate of less than 4 percent. 346 Mr. Fauske Noted that AHFC purchased 2,181 new loans and increased mortgage loan activity by 31 percent in the urban loan program. 379 Mr. Fauske Discussed performance measures. Noted that net income went from $95,916 million dollars in FY98 to $79,85 million dollars in FY99. Net income dropped by $10 million dollars due to a requirement to start booking investments at market value rather than book value on assets. Since investments are held until maturity, there is no loss in funds. 475 Mr. Fauske There was an allowance for loan losses because of the increase in loan activity. Nearly $4.4 million dollars were put into debt service returns. These loans will generate more income in the long-term. 514 Co-Chair Mulder Concluded that AHFC would not have trouble meeting its financial commitment to the state. 544 Mr. Fauske Agreed and pointed out that their loan portfolio has increased by 11.7 percent. 574 Mr. Fauske Observed that the number of loan applicants increased in urban areas by 27.3. Rural applicants are down by 17 percent. 615 Co-Chair Mulder Asked how AHFC's growth in their loan portfolio compared to other lenders. 625 Mr. Fauske Based on the return of assets, AHFC is doing well. Stressed that he would like to see a higher rate, but emphasized that a 2.35 percent growth rate is healthy. 653 Mr. Fauske In response to a question by Co-Chair Mulder, Mr. Fauske compared AHFC's return on assets to other banks. AHFC had a return on assets of 2.1772. This was higher than many major national banks. 750 Mr. Fauske Observed that AHFC is below the national delinquency average. The rural delinquency rate is lower than the urban rate. Pointed out that AHFC has tripled their rural activity. The Corporation is attempting to increase its rural presence and is working in conjunction with FANNY MAE. 814 Representative Austerman Questioned the use of the delinquency rate as a performance measure. 828 Mr. Fauske The delinquency rate is used as a benchmark in that it can be monitored and tracked. Acknowledged that the economy can affect the delinquency rate. 878 Representative Austerman Maintained that if the delinquency rate went out of sight it would be a performance measure. 899 Co-Chair Mulder Referred to rural vs. urban loan rates. 906 Mr. Fauske Noted that rural loans were down. Pointed out that AHFC has initiated a one-stop shopping program in rural areas. They are trying to make the inspection system easier. 975 Mr. Fauske Observed that mortgage loan purchases are up 48 percent. 1017 Mr. Fauske Provided members with the Standard & Poor's Evaluation of AHFC (copy on file). 1048 Mr. Fauske Discussed performance completion dates. Noted that AHFC is on track for FY00 projects. 1109 Mr. Fauske Discussed the Standard and Poor's evaluation. AHFC was given the highest ranking, of Strong. 1163 Mr. Fauske Discussed bond sales. They sold $813.4 million dollars in bonds. 1241 Co-Chair Mulder Asked what the last bond sale went for. 1250 Mr. Fauske Did not have the information available. 1300 Mr. Fauske AHFC rates of issue are similar to other issuers of the same size. Pointed out that Alaska has had to combat the argument that oil revenues will cease and that Alaska's economy is based on "one- horse". Maintained that AHFC has done a good job of convincing buyers that Alaska is diversifying. 1404 Mr. Fauske In response to a question by Vice Chair Bunde, discussed the booking change that accounted for a paper loss in AHFC's net value. 1478 Vice Chair Bunde Asked for information on commingling of state and federal funds. 1500 Mr. Fauske Stressed that AHFC seeks to capture as much federal money as possible. Discussed anticipated federal funding. Maintained that AHFC has captured grant funding at a good clip. Anticipated that there would be more federal block grants. 1602 Vice Chair Bunde Asked how AHFC determines qualification. 1613 Mr. Fauske There are a variety of criteria depending on the program, including income and location. Federal guidelines are established under HUD. 1660 Representative Austerman Asked if there is competition with the Department of Labor and Workforce Development. 1690 Mr. Fauske Responded that there may be some competition within The Public Housing Division's Section 3 Program. 1719 WES, WEIR, DIRECTOR, DIVISION PUBLIC HOUSING, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE Explained that the AHFC program works with the Department of Labor and Workforce Development to recruit. He was not aware of any overlap. Training leads to programs administered by the Department of Labor and Workforce Development. Discussed training provided by AHFC. Carpenters use the training. 1829 Co-Chair Mulder Asked if it is more expensive to operate the program under AHFC. 1836 Maintained that the Section 3 Program is more expensive on the short term but not on the long term as it moves people out of public housing. 1850 Co-Chair Mulder Asked if the Department of Labor and Workforce Development would take over the training if it were discontinued by AHFC. 1869 Mr. Weir Did not think that the Department of Labor and Workforce Development would take over training if it were discontinued under AHFC. 1881 Representative Foster Asked about the Veterans Mortgage Program. 1892 Mr. Fauske The program is federally funded. AHFC Is fighting to keep the program. 1923 Representative Foster Asked if AHFC is self-insured. 1932 Mr. Fauske Responded that AHFC is self-insured. 1936 Representative Foster Referred to page 5 of the Standard and Poor's evaluation. 1963 Mr. Fauske Acknowledged that there is a rise in lower paying jobs. 1990 Representative Austerman Asked for statistics of success on the Corporation's training program. Questioned how the drop in population and increase of senior population affects housing needs. 2026 Mr. Fauske Emphasized that AHFC needs to stay abreast of assisted living and senior housing. Anticipated that additional money will be needed to keep up with the rising age of population. 2088 Mr. Fauske Noted that there is a demand for medium income housing for seniors such as the Chester Park facility in Anchorage. This is not assisted living housing. 2119 Representative Austerman Observed that there is a decrease in middle class jobs and a loss in the corresponding residents. 2166 Mr. Fauske Stated that AHFC is tracking trends in population. 2182 Co-Chair Mulder Asked that the AHFC's mission statement consider a state dividend. DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES 2269 JOSEPH PERKINS, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES Read from prepared statements: The department's mission is to improve the quality of life for Alaskans by cost effectively providing, operating and maintaining safe, environmentally sound and reliable transportation systems and public facilities. 2304 Commissioner Perkins Noted quality of employees and emphasized the need to support them. Maintained that he represents about 3,000 of the hardest working, conscientious employees from every corner of the state. 2348 Commissioner Perkins Discussed performance goals. The percentage of on-time departures of vessels - Current - 80% for the fleet as a whole but varies between vessels and route from 60% to 95%. The goal for FY01 is 85%. Tape Change, HFC 00 14,- Side 2 31 Commissioner Perkins Looking for a 5 percent improvement in on time vessels. 147 Commissioner Perkins Noted that the department will attempt to increase on-time departures through better scheduling, but emphasized that they will not compromise safety. 238 Commissioner Perkins Discussed the revenue received and expenditures made for each rider mile - Current - revenues range between $.58 - $.59 per rider mile over the past 3 years. Expenditures ranged between $1.05 and $1.12 per rider mile over the past 3 years. The performance measure was modified to track the ratio of revenues to expenditures for each rider mile. 364 Commissioner Perkins Washington state is at .6 or 60 percent revenue and 40 percent subsidy. Alaska is at .61 or 61 percent revenue and 39 subsidy. 434 Commissioner Perkins Discussed the total ridership, including passengers, vehicles, and cabin occupancy, compared to the five-year ridership average. - Current - passengers are down 2.4%, vehicles up by 3.5% and cabins down by 2.3%. Most of the money is made with vehicles. 551 Commissioner Perkins The onboard sales for each passenger. - Current - on board sales has increased from $9.82 in FY97 to $10.75 in FY99. The goal is to increase on board sales to $11.25 dollars. 644 Vice Chair Bunde Asked if private vendors could be used to operate on board services. 662 Commissioner Perkins There has not been any interest from the private sector. Labor contracts require the use of Department of Transportation and Public Facilities personnel. 692 Representative Austerman Questioned if the issue of on board sales is the same as food service. 723 Commissioner Perkins Explained that ship personnel that run the gift shops also have other jobs. The department is looking at the possibility of increasing the hours the gift shops remain open. 815 Co-Chair Mulder Questioned if there can be a better ratio of return. 846 Representative Austerman Asked if gift shops can be privatized. 864 Commissioner Perkins Did not know the answer, but emphasized that it is a small operation that only requires one part-time employee. A private operation would have to pay for the person's room and board. 917 Commissioner Perkins Reviewed the department's operation to establish performance goals and baselines. The department is proceeding carefully to support worthwhile goals. Observed that the system of performance measures can be costly. The department is looking at the most critical functions that can help management to increase efficiencies. 1025 Co-Chair Mulder Emphasized that the department would be working with the subcommittee. The subcommittee will help set policy. 1061 Commissioner Perkins Stressed that performance measures must be in a form that does not cost a lot of money to set up. 1097 Co-Chair Mulder Agreed that performance measures should not create additional bureaucracy. 1131 Commissioner Perkins The department completed an inventory of everything statewide and in the field, including their required work, status of work and identification of assets. 1167 Commissioner Perkins The inventory identified a deferred maintenance need for highways, aviation and facilities of $303 million dollars. The state is accumulating deferred maintenance at a rate of approximately $24 million dollars per year. This takes into account approximately $25 million federal dollars per year for highway surface maintenance. Concluded that deferred maintenance is building a time bomb. 1225 Co-Chair Mulder Noted that the department's estimated rate of growth for deferred maintenance is 8 percent. Asked for a list of deferred maintenance. 1291 Commissioner Perkins Acknowledged that the growth rate could be overstated. 1300 Co-Chair Mulder Felt an 8 percent growth rate was high. Asked why the deferred maintenance rate was higher than for other state agencies. 1310 Commissioner Perkins Observed that highways break up quickly in Alaska's climate. Discussed other conditions that could contribute to the high deterioration rate, such as rapid brush growth. 1401 Co-Chair Mulder Encouraged the use of spray to combat brush. 1415 Vice Chair Bunde Noted complaints by constituents that the department has equipment that is only used part of the year. Asked to look at contracting for equipment that is not needed all year. 1459 Commissioner Perkins Agreed and added that the department has looked at the issue. Did not think that the department has much equipment that is sitting around. Pointed out that federal equipment is used on big jobs. Maintenance equipment is limited. The federal government pays for drilling equipment. 1492 Vice Chair Bunde Referred to page 29 of SB169 section 137: The mission of the department with respect to aviation is to plan, establish, construct, enlarge, improve, maintain, equip, lease, contract, operate, regulate, protect, and police airports and air navigation facilities in the state system of airports. 1554 Commissioner Perkins Observed that technical equipment still belongs to FAA. Lights are state owned. 1572 Commissioner Perkins Discussed other goals: a goal for project design at 10% of the approved budget. The department is currently at 10.75%. 1585 Commissioner Perkins Discussed the construction goal of delivering the completed project within 5% of the contract bid price. The department is currently at 7%. 1599 Commissioner Perkins Observed that there is a goal to increase commercial driver and safety inspections to 3600 per year. The current level is 3514. 1614 Commissioner Perkins Added that there are additional goals such as maintaining a pavement condition index of 70 for runways and 60 for taxiways and aprons at the International Airports. 1634 Commissioner Perkins The department plans to continue the Highway Pavement Condition reporting project to insure that it feeds the state's Federal Statewide Improvement Construction Program. 1643 Commissioner Perkins Noted major changes in the right of way leasing process. 1682 Commissioner Perkins Discussed accomplishments: Developed and issued new procedures for construction related bid advertising. By displaying the public notice on the department's web site and then publishing a much smaller newspaper advertisement pointing interested bidders to the web address, the department will save over $100,000 per year in newspaper advertising costs. The quality of service available on the web is an improvement over the information previously available through the papers. 1716 Commissioner Perkins Noted that the department catalogued Y2K non-compliant systems in mission critical business functions and completed remediation and testing for most functions prior to end of FY99. Only minor problems were encountered. A sander on Thompson Pass wouldn't work. The date was set to 01 and it worked. Credit card swiper boxes on the Marine Highway vessels had to be replaced. 1759 Commissioner Perkins Observed that the department received a commendable report from the Federal Highway Administration on completion and review of the department's Affirmative Action Plan. This was a major effort due to federal changes. The department had until September 1, 1999 to meet the requirements or lose a portion of its federal funding. 1788 Commissioner Perkins Noted that the department completed the $7.5 million dollar reconstruction of the Alaska Highway between mileposts 1396 and 1398, bringing to grade, width and alignment the last substandard section of the Highway between Fairbanks and Canada. 1801 Commissioner Perkins Added that the department placed extensive effort with Federal surfacing program to smooth the roads statewide. 1825 Commissioner Perkins Observed that the department completed the $3.2 million dollar reconstruction of the roadway intersection at University Avenue and College Road, providing a more accessible link between the University of Alaska, Fairbanks and the Fairbanks community. 1835 Commissioner Perkins Emphasized that the department turned over harbors to local communities. 1878 Commissioner Perkins The department completed major construction of the Whittier Access Tunnel to facilitate opening to traffic in June of 2000. 1887 Commissioner Perkins The department began construction of the first phase of the $90 million program to widen and improve the Parks Highway from the Glenn Highway through the City of Wasilla. 1935 Representative Phillips Asked how far the four-lane highway will go. 1960 Commissioner Perkins The road will be four lanes from Anchorage to the other side of Wasilla, where it will switch to a three-lane road. 1966 Commissioner Perkins Noted that the department began construction of the Sutton to King River project on the Glenn Highway. 2018 Commissioner Perkins Spoke to contracting out and the amount of money received for that service. The department received a "safety at sea certification", which was required by the federal government. The Department has started the design and construction of the first fast ferry. 2079 Commissioner Perkins Observed that the department started the Anchorage Gateway Alaska program. 2100 Commissioner Perkins Emphasized the need to continue to do needs based selection of capital projects, to put maximum effort to obligate the federal program. He noted state dependence on federal construction funding. The department will also attempt to take full advantage of new and improved technology to be more efficient and save money. 2159 Representative Phillips Questioned if information would be coordinated with the State Troopers. 2170 Commissioner Perkins Affirmed that information would be shared. Noted that deferred maintenance needs to be addressed. In 1995, there were about 825 miles of the National Highway System, which was substandard. The department improved 210 miles and will do 125 miles in the next 3 years. He maintained that this important program must continue to receive a priority. 2198 Commissioner Perkins Stressed the need to reverse the graying of the construction work force. Emphasized the need to attract young people into the industry. Need to consider how to grow new engineers, 11% of DOT employees are eligible for retirement next year. There is going to be a problem getting professionals into the field. He urged members to consider programs that will encourage this. 2261 Commissioner Perkins Applauded the hard work of his staff. 2270 Co-Chair Mulder Asked about ADA compliance and the requirements of the federal government. 2283 Commissioner Perkins Responded that he would provide that information. 2288 Representative Austerman Expressed concern regarding the closure of a highway maintenance station in Kodiak and the affect of the closure on the Kodiak Launch Center. He spoke to rural highways being closed due to snow in the winter. He noted that rural Alaskans have different concerns than that of urban Alaskans. He voiced concern with the closure of the weigh- station during the winter. TAPE HFC 00-15 SIDE 1 000 Commissioner Perkins Replied that there are many considerations for the revenues of the department. He stated that the department would consider if the assets were correctly assigned. 098 Representative Austerman Asked reconsideration of the priorities of the department and the impact on the communities. 171 Co-Chair Mulder Questioned if the maintenance function is being contracted out. 187 Commissioner Perkins The department has extended the global station of each district. 221 Representative Austerman Pointed out that the weigh station was still being maintained with minimum access to the road responsibility. 271 Representative G. Davis Stated that the department was not supposed to consider the cost of the mission and measures. Asked if there is not enough money to man the need. Stressed that the purpose of the measure is to guarantee that the function continues to be provided. He noted that Craig Holt stressed that intent. 396 Co-Chair Mulder Pointed out that cost is the factor, but the policy and management of the policy is left up to the department. He questioned the management choices that led the department to specific decisions. He stated that the Commissioner is held accountable for the management. 502 Commissioner Perkins Stated that the Department is not afraid of performance statements. Emphasized that there are different standards that are acceptable to the people. Stressed that the standard needs to be established. 559 Co-Chair Mulder Acknowledged that the standards were an improvement. 581 Representative Moses Recommended that the answer to the problem would be a municipal dividend addressed by the municipalities. 613 Representative Austerman Spoke to prioritization. 657 Co-Chair Mulder Encouraged Representative Austerman to work with the Commissioner at the subcommittee level. 681 Representative Austerman Remarked that the weigh station was closed because of budget cuts. 702 Co-Chair Mulder Stated that Representative Austerman was owed an explanation why that action happened. 726 Commissioner Perkins Stated that he would provide further explanation. He noted that the Department went through extensive analysis to determine the action taken. DEPARTMENT OF NATURAL RESOURCES 775 JOHN T. SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES Spoke to the missions and measures of the Department. The department's mission is to develop, conserve, and enhance natural resources for present and future Alaskans. He noted that the department's budget is driven by personnel costs. The department has a large number of seasonal employees. Budget reductions have resulted in a loss of staff. The department had 80 fewer positions in FY99 than in 1994. However, the number of fields has expanded. Mining activity and claims are up. The Department is getting more efficient. 937 Commissioner Shively The department did not meet its goal in regards to land leasing. This was in part due to the BP/ARCO merger. 984 Commissioner Shively The department's goal to survey a 1,000 square miles was exceeded. 1038 Representative Phillips Observed that an Australian University has a course on mining in Alaska. 1077 Commissioner Shively Noted that the number of mining claims has grown. 1134 Commissioner Shively Observed that 120 state parks were maintained in FY99. One park was turned over to the Mental Health Trust 1158 Commissioner Shively The department met its goal to keep good public records. There were 14,000 transactions. 1185 Commissioner Shively Noted that timber sales were down. The department only took in $300 thousands dollars from timber sales, but there were 25 value-added timber sales, which tend to be smaller. 1229 Commissioner Shively Pointed out that the department did not anticipate the BP merger and how much of the department's time it would take. 1259 Commissioner Shively Observed that Anchorage personnel have moved into the Frontier Building. 1268 Commissioner Shively Discussed leases and land disposals. Shallow gas regulations have been issued. The department has also issued right-of- way leases to Alpine, Northstar, and Nuiqsut. Noted that the department sold or disposed of 4,500 acres of land. 1300 Representative Foster Asked the status of the BP/Arco merger. 1313 Commissioner Shively Noted that BP is attempting to negotiate with the Federal Trade Commission (FTC). The issue is broader than the state of Alaska. BP has put in a 20-day notice. The FTC has to act by the end of 20 days. The Governor is looking to resolve the issue. 1375 Representative Phillips Asked about the proposed university land bills. 1383 Commissioner Shively The Administration has opposed additional land grants to the university. He did not think the University should receive oil and gas leases. 1463 Commissioner Shively Noted that the department is taking a strong stand against congressional roadless designations in Alaskan national forests. 1504 Commissioner Shively Discussed the impact of DNR surveys to landowners. 1527 Representative Foster Questioned if any parks would be closed in the next year. 1538 Commissioner Shively Noted that there is a backlog of deferred maintenance at the existing parks. Expressed concern that the quality of the park experience is starting to decline due to funding shortfalls. There are lost opportunities to use federal funding for new facilities because there are not enough personnel to maintain them. 1587 Representative G. Davis Referred to the Kenai land grant. 1593 Commissioner Shively Discussed the Kenai land grant. There are a lot of competing uses for the land. 1646 Co-Chair Mulder Observed that there were a number of missions and measures within SB 169 that were not addressed by the commissioner. Stressed that the legislation is serious in maintaining missions and measures. Stated that he wished to see the department's performance measures further refined. 1677 Commissioner Shively Stated that he supports missions and measures. Emphasized that they are a work in progress. 1714 Co-Chair Mulder ADJOURNMENT The meeting adjourned at 3:45 p.m. HOUSE FINANCE COMMITTEE LOG NOTES January 21, 2000 House Finance Committee 14 1/21/00