HOUSE FINANCE COMMITTEE April 18, 2000 2:45 P.M. TAPE HFC 00 - 125, Side 1. TAPE HFC 00 - 125, Side 2. TAPE HFC 00 - 126, Side 1. TAPE HFC 00 - 126, Side 2. CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 2:45 P.M. PRESENT Co-Chair Therriault Representative Foster Vice Chair Bunde Representative Grussendorf Representative Austerman Representative Moses Representative G. Davis Representative Phillips Representative J. Davies Representative Williams Co-Chair Mulder was not present for the meeting. ALSO PRESENT Senator Rick Halford; Mike Tibbles, Staff, Co-Chair Therriault; James Baldwin, Assistant Attorney General, Department of Law; Keith Laufer, Chief Financial and Legal Affairs Manager, Alaska Industrial Development and Export Authority (AIDEA), Department of Community & Economic Development, Anchorage; Ken Taylor, Director, Division of Habitat and Reforestation, Department of Fish and Game; Kaitlan Markley, Development Specialist, Alaska Industrial Development and Export Authority (AIDEA), Department of Community & Economic Development, Anchorage; Diana Rhoades, Staff, Senator Johnny Ellis; Devon Mitchell, Debt Manager, Department of Revenue; Eddie Jeans, Deputy Commissioner, Department of Education and Early Development; Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; John Bitney, Legislative Liaison, Alaska Housing Finance Corporation (AHFC), Department of Revenue; Wendy Redman, Vice President, Statewide Services, University of Alaska, Fairbanks. SUMMARY HB 281 An Act providing for the issuance of general obligation bonds in the amount of $665,000,000 for the purposes of paying the cost of design, construction, and renovation of public elementary and secondary schools, renovation of state buildings, capital improvements at the University of Alaska, and capital improvements to state harbors; and providing for an effective date. HB 281 was HEARD and HELD in Committee for further consideration. SB 34 An Act relating to tattooing and body piercing; and providing for an effective date. HCS CS SB 34 (FIN) was reported out of Committee with a "no recommendation" recommendation and with a fiscal note by the Office of the Governor dated 2/23/00. SB 204 An Act extending the termination date of the Alaska Commission on Aging; and providing for an effective date. SB 204 was POSTPONDED for consideration at a latter date. SB 212 An Act authorizing the commissioner of fish and game to award grants for certain resource activities; and providing for an effective date. HCS CS SB 212 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Fish and Game dated 1/21/00. SB 248 An Act relating to the financing authority, payment in lieu of tax agreements, and tax exemption for assets and projects of the Alaska Industrial Development and Export Authority; relating to renaming and contingently repealing the rural development initiative fund within the Department of Community and Economic Development, and establishing the rural development initiative fund within the Alaska Industrial Development and Export Authority; and providing for an effective date. HCS CS SB 248 (FIN) was reported out of Committee with a "do pass" recommendation and with a zero fiscal note by the Department of Community & Economic Development dated 2/8/00. SJR 34 Proposing an amendment to the Constitution of the State of Alaska relating to certain public corporations. CS SJR 34 (FIN) was reported out of Committee with "no recommendations" and with a fiscal note by the Office of the Lt. Governor dated 2/23/00. CS FOR SENATE BILL NO. 248(FIN) am An Act relating to the financing authority, payment in lieu of tax agreements, and tax exemption for assets and projects of the Alaska Industrial Development and Export Authority; relating to renaming and contingently repealing the rural development initiative fund within the Department of Community and Economic Development, and establishing the rural development initiative fund within the Alaska Industrial Development and Export Authority; and providing for an effective date. KEITH LAUFER, FINANCIAL AND LEGAL AFFAIRS MANAGER, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT, ANCHORAGE, explained the intent of the legislation. He summarized each section: ? Section 1 would clarify changes to property tax exemption provisions. Together with Sections 6, 7 and 8, it would make clarifying changes in tax exemption and payment in lieu of tax provisions relating to AIDEA owned projects. ? Sections 2-4 would transfer the Rural Development Initiative Fund Program (RDIF) to AIDEA. ? Section 5 would extend AIDEA's general bonding authority which would otherwise sunset on July 1, 2000. Bonds for development finance projects in excess of $10 million dollars would continue to require legislative authorization. ? Section 6 would amend AS 44.88.140(a) to recognize the permissive property tax exemption that local governments may grant for AIDEA's own projects. ? Section 7 would amend AS 44.88.140(b) to clarify the mechanism to be used by local governments and users of AIDEA projects for entering into payment in lieu of tax agreements. The bill would make clarify that these agreements are to be made directly between the local governments and the project users. ? Section 8 would amend AS 44.88.140 to add a clarifying definition section for "local political subdivision". The provision provides that the political subdivision in which the AIDEA project is located is the "local political subdivision" for purposes of the statute. ? Sections 9-11 references the transfer of the Rural Development Initiative Fund Program (RDIF). ? Sections 12-15 provides for an effective date. Co-Chair Therriault referenced Page 4, Line 22, the "$2 million dollar" issue. He pointed out that he had submitted Amendment #1 to address that concern. [Copy on File]. Mr. Laufer replied that the amendment would present no problem. Representative J. Davies asked if there was a limit to the amount of a conduit bond. Mr. Laufer replied that there was no limit on the size of a conduit bond, but that AIDEA does limit bonds that can be issued in a one-year period. Conduit bonds would be subject to that limit. There is a limit under the federal Internal Revenue Service (IRS) laws as to the amount that the entire State can issue for private activity bonds. The current limit is $150 million dollars. The State Bond Committee makes the allocations for those bonds. Mr. Laufer noted that most conduit revenue bonds would fall within that cap and that certain bonds for non- profit do not fall within the cap. Co-Chair Therriault MOVED to ADOPT Amendment #1. MIKE TIBBLES, STAFF, REPRESENTATIVE GENE THERRIAULT, explained that he had worked with AIDEA and Tam Cook, Alaska Legal Services, on the amendment. Representative J. Davies asked the purpose of the amendment. Mr. Tibbles stated that the language had been adopted in the Senate Finance Committee and then passed to the House Finance Committee. The language clarifies that the assets transferred to the fund by that authority may not exceed $2 million dollars. He noted that there had been a question regarding what "asset" meant in this circumstance. He pointed out that the amendment would clarify that language. Representative J. Davies asked if the amendment would provide for a total or one time limit. Co-Chair Therriault replied that it would be a total limit. Mr. Laufer interjected that AIDEA supports the $2 million dollars being sufficient to turn this into a "true" revolving loan program. Representative J. Davies voiced concern with "other assets" becoming available. He inquired if they would have to be addressed through statute. Mr. Tibbles explained that the intent was to reflect "other" funds outside the previous sentence. Beyond that, then there would be a $2 million dollar limit. Representative J. Davies pointed out that those are items transferred to AIDEA and thought the language should be modified by AIDEA. Mr. Laufer advised that the new language begins with "in addition" after listing the assets that could be put into the account. That language reflects the fact that it would be other than those that had been appropriated to AIDEA. Mr. Laufer added that he did not think adding that language would change the meaning; the new language was designed to recognize assets that had been transferred to AIDEA for that purpose. Co-Chair Therriault agreed, pointing out the comment "in addition" to those funds. Mr. Laufer stated that it could be clarified by adding "in addition to the assets described in the previous sentence". Representative J. Davies agreed that would make him more comfortable. Co-Chair Therriault recommended moving a conceptual amendment, "in addition to these assets" in order that the drafters could make it work grammatically. Co-Chair Therriault modified the original MOTION to include language as discussed above. There being NO OBJECTION, it was adopted. Representative G. Davis MOVED to ADOPT Amendment #2, 1- GS2009\DA.1, Cook, 4/17/00. [Copy on File]. Co-Chair Therriault OBJECTED for the purpose of discussion. Mr. Laufer explained that this was a status quo amendment. The way it is written, it only applies to facilities that AIDEA would own that are open to the public. That type of asset is typical of government infrastructure assets. AIDEA has been used as a unique financing mechanism in the State for these purposes. Representative G. Davis questioned the contract between COMINCO and AIDEA. He pointed out that it had been agreed upon that it could be used by other entities. It could be treated as a public facility for roads and ports. Co-Chair Therriault noted that local government agrees that it should be a tax-exempt infrastructure. He asked why the company would be paying a payment in lieu of tax. Mr. Laufer replied that COMINCO and Nannana have not only the interest in the use rights of the road and the port, but also have the mine itself, which is not owned by AIDEA and which is not subject to these provisions. They entered into a payment in lieu of tax provision that they thought had encompassed cooperation. Co-Chair Therriault asked if they were getting tax proceeds under another name. Co-Chair Therriault WITHDREW his OBJECTION to Amendment #2. Representative Phillips noted that there would be a conceptual amendment submitted that would put a January 1, 1999 retroactive date into it. Representative Phillips MOVED an amendment to Amendment #2, which would place in the retroactive effective date. Representative Bunde OBJECETED and asked if the taxes had already been collected. Mr. Laufer replied that they were not yet subject to payment and that they would "kick in" in July 1999. Representative Bunde WITHDREW his OBJECTION. Representative J. Davies noted that the amendment would preserve the status quo. He asked if the tax assessor had made a statement regarding the policy. Co-Chair Therriault replied that the effect was that there was only one user of the facility. Representative J. Davies asked if there had been an event that triggered the decision. Mr. Laufer explained that there currently is a new tax assessor; he came to a different conclusion than the original one. There being NO OBJECTION to Amendment #2 as amended, it was adopted. Representative J. Davies asked which other properties would the amendment apply to. Mr. Laufer replied that it would apply to the AIDEA port in Unalaska. Another potential spot could be the AIDEA facility in Skagway. That facility is not being used at this time and there would be no tax ramifications. Representative J. Davies questioned the distinction between the road and the load-out facility. Mr. Laufer replied that there was a possibility of using it as a coal facility. Representative J. Davies inquired if the company using it would pay a fee. Mr. Laufer replied they would and that under the agreement with COMINCO, it provides including a toll structure for other users. In the event that there are other users, COMINCO would have a smaller burden. Representative J. Davies asked if the local municipality was able to tax COMINCO's leasehold interests in that facility. Mr. Laufer responded that under the provisions adopted, they would not be able to do so. Representative J. Davies commented that this is not really a public facility. Mr. Laufer pointed out that it would be AIDEA charging the other user. COMINCO's right is not exclusive now so the extent of other users would be making a toll payment. COMINCO would be receiving a credit against its toll payments. There being NO OBJECTION to the amended Amendment #2, it was adopted. Co-Chair Therriault referenced Section #6 of the bill questioning if that language should be included. Mr. Tibbles suggested that the language does not make sense and that it would not create a tax exemption. Mr. Laufer agreed that the section was not needed. Representative J. Davies asked the inference to AS 29.45.050(P). Mr. Laufer explained that section is the provision that deals with municipality's ability to grant exemptions for facilities. It is a stand-alone exemption that exists in law and that nothing in that section creates a tax exemption. Co-Chair Therriault MOVED to delete Section #6. There being NO OBJECTION, it was adopted. Representative J. Davies asked if a new sunset had been inserted. Mr. Laufer explained that the new sunset was July, 2003, as indicated in Section #5. Representative Foster MOVED to report HCS CS SB 248 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. HCS CS SB 248 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by Department of Community & Economic Development dated 2/8/00. CS FOR SENATE JOINT RESOLUTION NO. 34(FIN) Proposing an amendment to the Constitution of the State of Alaska relating to public corporations. Co-Chair Therriault noted that the proposed resolution was the companion piece to HJR 52, which the Committee previously took action on. There was additonal language in Secton 1, which allowed the Legislature to exclude corporations. That language was not necessary and is not included in the Senate version. Discussion followed among Committee members regarding the legislation proposed by Representative James. SENATOR RICK HALFORD stated that the Alaska Constitution provides for legislative confirmation of any board or commission at the head of a principal department or regulatory or quasi-judicial agency. That would include the Board of Education, the Board of Game and all the professional and regulatory boards, such as the Board of Dispensing Opticians. Senator Halford noted that in sharp contrast, public corporations which manage much money in State assets, are not subject to the provision. The corporations including the Permanent Fund Corporation, Alaska Railroad and Alaska Housing Finance Corporation, have a tremendous impact on all Alaskans and our State's economy. Members are appointed at the Governor's pleasure and removed in the same manner, without legislative oversight. Senator Halford stated that the amendment proposed in SJR 34 is a necessary addition to Alaska's Constitution. It would ensure that the people who control Alaska's largest assets are subject to a formal appointment, confirmation and removal process, and not the whim of a newly elected Governor. He stated that the framers of the Constitution would have passed this legislation if they had had the above named entitities before them. The size and scope of these corporations has gone far beyond the imagination anyone 20- 30 years ago could have envisioned. He believed that the legislation would establish a better working relationship between the Executive and Legislative Branches of government. Representative J. Davies disagreed that the founding fathers would have written the Constitution differently. He stated that the entities included, the Alaska Railroad and the Alaska Permanent Fund, were set up to be private corporations. The purpose in establishing them was not to make them departments in the State of Alaska. One of the rationales for setting them up the way in which they were, was to have them separate from the government process so that they could operate more like a business. Representative J. Davies stressed that there was a reason for making the separation, in that they are meant to be an executive function. They are meant to execute the operations of a business of the State. Otherwise, they would have been set up as a department. Senator Halford commented that when the constitutional fathers did look at "high breds", they wanted them to have some independence. They worked hard on the University of Alaska while continuing to provide for confirmations. Representative J. Davies argued that creating an educational enterprise is different than creating a business enterprise. Senator Halford replied that to protect the Railroad from internal conflict, that protection was necessary. He argued that how the Railroad deals with the Legislative branch is currently a problem. He did not agree that government can operate effectively and function in the way that private business does. Senator Halford claimed that the Judiciary review process belongs to the people. Representative J. Davies inquired why not run them as a department of the State. Senator Halford replied that in the case of the Alaska Railroad, the State was attempting to get involved into all the arguments. He believed that would be determinental to the operation of the Railroad. Representative J. Davies stated that making these boards responsive to legislative confirmation would put politics back into the corporate business structure. Senator Halford noted that of the major appointments, only 2% have been turned down. Most legislators generally agree to give the Governor his choice. Representative J. Davies disagreed with that statement, given votes the last six years. He pointed out that on all the significant issues, there had been controversy. Representative J. Davies voiced concern that the State would get into situations in which there would be discussions regarding each of those appointments. He agreed that a staggered appointment system would work, however, the cure being proposed could be worse than the problem fixed. (TAPE CHANGE, HFC 00 - 126, Side 2). Representative J. Davies reiterated that the political process functions well. Representative Grussendorf asked what the resolution would correct. Senator Halford stated that the ability to support staggered terms to maintain an on going policy. He noted that the last two governors had replaced the entire Permanent Fund Board. He stated that was a mistake as continuity is important and added that protection is tenuous and noted that the Railroad is difficult to deal with through the legislative branch only. Senator Halford spoke to the confirmation process and the possibility of creating a better working relationship. Representative J. Davies agreed with the notion of staggering the terms. He asked if there had been consideration given how to accomplish the staggering of terms without legislative appointment. Senator Halford noted that a bill passed the legislature to do that and it was vetoed by Governor Knowles. The ability to control terms and placements is derived from the sharing of appointment which comes through confirmation. There are questions as to whether one can reach the enforceability in staggered terms. Representative J. Davies agreed that the law passed did not work. He reiterated his question if there was a constitutional method that would simply provide for staggered terms. Senator Halford did not know. JAMES BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, voiced caution regarding the legislation. He advised that there are technical problems with the resolution. Initially, there are questions whether corporations other than the Permanent Fund are separate corporations to insulate the State from liability. He agreed that the Permanent Fund should be included, however, Alaska Industrial Development and Export Authority (AIDEA), Alaska Housing Finance Corporation (AHFC) and the Alaska Railroad Corporation (ARRC) all have their own separate assets. The language of the resolution creates a "disconnect" between what the drafter intended and what the language reports to do. It does not reach the public corporation that manages their own assets. To bring language into the Constitution to manage State assets would be dangerous. Mr. Baldwin added that when interpreting the Constitution, the wording in Section 26, speaks to the governing entity of a public corporation. Elsewhere, in Article 9, it speaks about public corporation, debt exemption, in which you could issue debt through a public corporation enterprise; that language refers to a public corporation enterprise of a State. He did not know if any entity could be "managing" State assets and if the legislation would be applicable to those members. Representative J. Davies asked if there was concern with the phrase, "as defined by law". Mr. Baldwin responded that there would not be any uniformity in accomplishing that. Certain corporations would escape the provision for reasons that are not rationale and would not be included in the requirement that their board members be confirmed. Mr. Baldwin pointed out that there is not guidance as to what is "significant". That word does not appear much in the Constitution as it is a difficult word to define. Representative J. Davies asked if "as defined by law" was used to define the word "significant". Mr. Baldwin did not know and recommended that the language be tightened up to establish the intent. Vice Chair Bunde asked if the Permanent Fund Board would be covered by the proposed legislation. He believed that other entities were not as clear. Mr. Baldwin acknowledged that. He asked that his testimony not be misconstrued to look like this was a good idea. He added, it would become more of a problem when moving beyond the Permanent Fund. Representative Phillips inquired if the legislation would cover the Commercial Fishing and Agriculture Bank (CFAB). Mr. Baldwin stated that it was initially formed as a production credit association. Representative Phillips pointed out that they manage State assets. Mr. Baldwin did not know. Representative Phillips noted that could bring the Legislature into the banking business. Senator Halford stated that in reference to the things that Mr. Baldwin had pointed out, the drafters solution was for each of those questions to be decided by the Legislature. He reiterated that each case would be a negotiation between the Legislative and the Executive Branch. Representative J. Davies asked about concerns raised regarding AIDEA and AHFC and how their assets are not considered to be the State's but rather assets of the corporation. Senator Halford replied that would depend upon what State law defines. He stated that "as defined by law" could be read to apply to that. The Court would interpret in a constitutional amendment, the simplest version of what the words meant. Representative J. Davies advised that the concern is, if the State passes a law that would clarify that those assets were assets of the State, and hence, they would fall under this, would there then be a risk of not having those liability assets for liability protection purposes and separate from the State. Senator Halford explained that is the discussion that would occur at the time of the decision and added that the confirmation question would decide the assets of the State. Representative Grussendorf asked which public corporations would be included. Senator Halford responded that AIDEA, AHFC, Alaska Railroad Corporation and the Permanent Fund. He emphasized that all those boards deal with large amounts of State assets. Representative Grussendorf asked if there had been complaints about how these corporations had managed their portfolios. Senator Halford explained that from a business point of view, he had received complaints regarding the Alaska Railroad Corporation. Representative Williams MOVED to report CS SJR 34 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. Representative Grussendorf OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Bunde, G. Davis, Phillips, Williams, Austerman OPPOSED: J. Davies, Grussendorf, Moses Representative Foster, Co-Chair Mulder and Co-Chair Therriault were not present for the vote. The MOTION FAILED (5-3). Representative Bunde noted that the Committee would need six votes for passage out of Committee. Representative Foster MOVED to RECONSIDER the passage of moving the bill out of Committee. There being NO OBJECTION, the bill was again before the Committee. Representative Foster MOVED to report CS SJR 34 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. Representative Grussendorf OBJECTED. A roll call vote was taken on the motion. IN FAVOR: G. Davis, Foster, Moses, Williams, Austerman, Bunde OPPOSED: Grussendorf, Moses Representative J. Davies, Co-Chair Therriault and Co-Chair Mulder were not present for the vote. The MOTION PASSED (6-2). CS SJR 34 (FIN) was reported out of Committee with a "no recommendation" and with a fiscal note by the Office of the Lt. Governor dated 2/23/00. CS FOR SENATE BILL NO. 212(FIN) am An Act authorizing the commissioner of fish and game, with the concurrence of the Board of Fisheries or the Board of Game, to award grants for habitat restoration, access, or enhancement projects; and providing for an effective date. KEN TAYLOR, DIRECTOR, DIVISION OF HABITAT AND REFORESTATION, DEPARTMENT OF FISH AND GAME, stated that the bill would authorize the Commissioner of the Department to award grants for certain resource activities. Under the bill, the Commissioner would have express authority to directly award grants that serve core missions of the Department, protecting, maintaining and improving public access to fish, game and habitat resources of Alaska. Current law necessitates the Department to channel money through other agencies which cause delay and add considerable administrative costs. Mr. Taylor added that an increasing amount of federal funds are available to restore fish habitat and passage. The legislation represents a cost-effective way to continue efforts on private and public land to rehabilitate riverbanks, protect fish streams and enhance access to these areas. Vice Chair Bunde asked for further explanation of Line 10, the "concurrence by the Board of Fisheries or the Board of Game". Mr. Taylor replied that during review in the Senate Resources Committee, language was amended to provide for the concurrence of those entities. Most of the programs would be targeting salmon restoration activities. Mr. Taylor explained the process. The State program would come to the Legislatture with a capital request for the item. If the Legislature denied it, the funding would not be made available; however, if it were approved, they would go to the Board of Fisheries to determine if they approved of the plan. Vice Chair Bunde pointed out that they give the Board of Fisheries veto power. Mr. Taylor agreed. Representative Phillips questioned why the language insinuated that this practice had been standard in the past. Mr. Taylor explained that it had not been a standard practice and that there had been a separation between the fiscal powers of the Department and the Board. It is a deviation from standard practice. Representative Phillips stated that the Legislature does not have the power to designate appropriation authority to anyone else. She MOVED a conceptual amendment, deleting language on Line 10. Vice Chair Bunde OBJECTED for discussion purposes. Representative Austerman asked why the legislation was before the Committee. Mr. Taylor advised that in the past, there were Exxon Valdez oil spill (EVOS) criminal settlement funds, which were appropriated through the Senate Capital Improvement Project (CIP) to the Department for restoration activities. The funds could not be granted directly to private landowners to do that work and were handled through a cooperative agreement with a federal agency. That process was cumbersome. The State did all the work and then the credit went to federal agencies. Many decisions were placed in the federal agencies. Representative Austerman understood that some of the concerns were about access. He noted the title. Mr. Taylor replied that the bill was amended on the Senate floor to include "access" as a project category that federal receipts would be applied towards. He stated that the receipts, which were going to be available, would be for habitat restoration and enhancement. Mr. Taylor noted that he did not envision many federal receipts available for purchasing access. Representative Grussendorf asked what would occur if the legislation did not pass. Mr. Taylor replied that the Department would continue to be partners with federal agencies to funnel money in order to get people the grants. Representative Grussendorf asked if they would actually have veto power. Mr. Taylor explained that there had been an amendment proposed by the Senate Resources Committee. Representative Phillips MOVED the amendment which would remove Line 1 from the title, "with the concurrence of the Board of Fisheries or the Board of Game" and Line 9, "The award of a grant under this section is subject to concurrence by the Board of Fisheries or the Board of Game, whichever is appropriate." There being NO OBJECTION, Amendment #1 was adopted. Representative J. Davies MOVED that the appropriate title resolution be drafted to accompany the legislation. Representative Grussendorf again asked the Department's intent with passage of the legislation. Mr. Taylor responded that the Department was attempting to gain better administrative efficiency. There being NO OBJECTION, the title change was so ordered. Representative Austerman reiterated his concern regarding the access. Mr. Taylor explained that the access had been included by an amendment proposed on the Senate floor as a category of activities that federal receipts could be used for granting mechanisms. Mr. Taylor did not envision any receipts, which the Department would be able to spend in that manner. Discussion followed regarding access concerns. Representative Phillips questioned if it had been added as a result of the EVOS monies. She suggested that the language be removed. Representative Austerman MOVED to remove "access" on Lines Davies pointed out that it would not cause a problem for the Department, however, it could provide a problem for the legislation. Representative G. Davis voiced his objection to the amendment also. Representative Austerman WITHDREW the MOTION to adopt the amendment. Representative Foster MOVED to report HCS CS SB 212 (FIN) out of Committee with individual recommendations and with a fiscal note by the Department of Fish and Game dated 1/21/00. There being NO OBJECTION, it was so ordered. HCS CS SB 212 (FIN) was reported out of Committee with a "do pass" recommendation and with a fiscal note by Department of Fish and Game dated 1/21/00. HOUSE CS FOR CS FOR SENATE BILL NO. 34(L&C) An Act relating to tattooing, body piercing, and ear piercing; relating to other occupations regulated by the Board of Barbers and Hairdressers; relating to fees charged by the Board of Barbers and Hairdressers; and providing for an effective date. Representative Bunde pointed out that in previous testimony, concern had been voiced if ear piercing should remain a part of the legislation. DIANA RHOADES, STAFF, SENATOR JOHNNY ELLIS, noted that Senator Ellis was supportive of the draft committee substitute before Committee members. She added that there were two changes made in that draft which had been previously discussed. The first was to guarantee that the exam for sterilization and health and safety was written and the second was a technical change made in the definition of tattooing and permanent cosmetics. Representative Foster MOVED that work draft #1-LS0279\X, Lauterbach, 4/18/00, be the version of the legislation before the Committee. There being NO OBJECTION, it was adopted. Representative J. Davies asked if the draft had removed ear piercing. Ms. Rhoades noted that it had not been removed, but that there would be amendment offered. Representative Bunde advised that Co-Chair Therriault had voiced a concern regarding removal of that language. Discussion followed regarding removing ear piercing. Representative J. Davies voiced concern that the bill recognized that this would be a secondary level and that it did not require beaucratic effort. Vice Chair Bunde suggested that the problem would rest with the enforcement. Representative J. Davies replied that the language would add clarity regarding standards. Representative Phillips interjected that there should not be regulations which cover each jewelry store in the State. (TAPE CHANGE, HFC 00 - 126, Side 1). Representative Foster MOVED to report HCS CS SB 34 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. HCS CS SB 34 (FIN) was reported out of Committee with a "do pass" recommendation and with fiscal notes by Department of Environmental Conservation dated 4/14/00 and Department of Community & Economic Development dated 4/14/00. RECESSED The Committee recessed at 4:20 p.m. RECONVENED The Committee reconvened at 6:15 p.m. HOUSE BILL NO. 281 An Act providing for the issuance of general obligation bonds in the amount of $665,000,000 for the purposes of paying the cost of design, construction, and renovation of public elementary and secondary schools, renovation of state buildings, capital improvements at the University of Alaska, and capital improvements to state harbors; and providing for an effective date. Co-Chair Mulder observed that there have been a number of legal questions regarding if this fund would be dedicated. He provided members with a legal opinion from James L. Baldwin, Assistant Attorney General, Department of Law, dated 4/15/00. [Copy on File]. DEVON MITCHELL, DEBT MANAGER, DEPARTMENT OF REVENUE, provided information on the legislation. He explained that he has had limited conversations with the State's Bond Counsel. The issuing entity, an arm of Alaska Housing Finance Corporation (AHFC), would be responsible for the issuance. Mr. Mitchell explained that the Commissioner of Department of Revenue would negotiate a sale of the revenue stream to the subsidiary of AHFC. The securitization of the revenue stream would be set up with a 40-year nominal debt service schedule. This is the minimal amount that is required to be paid over a 40-year life, being the worst case scenario. The amortization would be flexible. If revenues are above that level, which is the expectation, all of the revenues, less $1.4 million dollars, would be applied to debt service. The average life would be reduced to 10 years. In response to a question by Co-Chair Mulder, Mr. Mitchell explained that the $269 million dollar target was based on market conditions, the expectation that investment grade bonds would be issued, and the cash flow that is expected from the Tobacco settlement. The requirement of security which would be required from the cash flow, limits how far a revenue stream can be stretched when it is being securitized. Investors are willing to take risks within an investment grade scale. If the amount were increased there would be a higher interest cost. He noted that more would be paid for the capital if the revenue stream were spread because it would be a higher risk for the investor. Co-Chair Mulder questioned what would happen if $269 million dollars was not derived from the sale. Mr. Mitchell did not know. He observed that the legislation authorizes the commissioner to sell the revenue stream to reach the target. He clarified that the State's hand would not be tipped by stating the amount desired and that the State bond counsel would not have a role in the issuance. In response to a question by Representative Williams, Mr. Mitchell explained that the revenue stream is complex. There is a base amount in the settlement that is on going. There is an initial payment amount and there are strategic contribution payments that come in from 2007 to 2018. The on-going payment and the strategic contributions are adjusted for inflation and volume. Inflation pushes the number up and volume adjustment pushes the number down. There are a variety of opinions on how the adjustments would impact the revenue stream over time. In order to obtain something close to a single A rate bond issuance, there has to be an assumption of a 2.5 percent decline overtime. A requirement exists to be within an annual debt service amount that would allow volume adjustments to be made. Speculations on increased smokers would be penalized in the bond issuance. Mr. Mitchell provided the analogy of a person with a known salary, attempting to get a bank loan. The bank allows a home payment of 20 percent of their income, which is based on the opinion of how much of disposable income could be used on the home. Vice Chair Bunde noted that Section 5 was dropped out of the bill, the School Major Maintenance Grant Fund. EDDIE JEANS, DEPUTY COMMISSIONER, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, provided information on the HB 281. He thought that section had been inadvertently included in the legislation. Co-Chair Mulder asked if Section 5 would inadvertently suspend the local match. Mr. Jeans noted that Section 5 suspended the evaluation process of the Capital Improvement Projects (CIP) list. The projects that are in the bill are the ones in which the State share and the local match has been applied. Co-Chair Therriault questioned how the State guaranteed that 70 percent would be covered. He asked what would happen if the project came under budget. Mr. Jeans noted that grant agreements are issued on every project. If the cost were under the local match, it would be adjusted to assure that the local match is 30 percent. That authority is under AS 14.11.088. He noted that when local communities go out for bonds, they are reimbursed on a bond schedule. Projects in the bill are grants and can be adjusted by the authority listed in AS 14.11.088. Co-Chair Mulder questioned if AS 14.11.088 should be included. Mr. Jeans did not think it was necessary. The local match requirement for school construction grants is established. Co-Chair Therriault referred to Page 3, Line 12. He noted that AHFC "shall" make the proceeds of the bonds issued under that section available to the Department. On Page 3, Line 22, the legislation states that the provision is subject to an appropriation. He noted that the legislation is not an appropriation bill. Mr. Jeans explained that the dollar amounts would have to be listed in a capital budget bill. Co-Chair Therriault questioned if the dedicated fund argument was based on the use of "shall" and if replacing it with "may" would alleviate the problems. Representative J. Davies noted that Line 11 indicates that the pledge would be subject to agreements and appropriation. Co-Chair Mulder stated that there have been discussions regarding inclusion in the capital bill. The decision would be to add an introduction to an appropriation bill to accompany the HB 281. Co-Chair Therriault questioned if the projects would need to be listed in the accompanying capital bill. Mr. Jeans stated that inclusion of a list would tie the projects between the two bills. Co-Chair Mulder agreed. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, spoke in support of the discussion. She agreed that the projects would not be needed, but that they could add convenience. The administration supports the use of Tobacco Funds securitization. She emphasized that the securitization approach assists in shifting risk about the future of the tobacco companies to the bondholders and would allow projects to be done now. There is a timing issue which must be addressed. She observed that other states are attempting to securitize against the risk. There is $10 - $15 billion dollars of investment opportunities nationwide. She estimated that the capacity could be tapped before another legislative session. Ms. McConnell provided members with a letter indicating states aligning themselves to securitize their tobacco revenues. [Copy on File]. Co-Chair Mulder acknowledged that other states are attempting to securitize those revenues. Co-Chair Mulder questioned what would happen if the capacity were met before the State's issuance. Ms. McConnell responded that then there would not be a very good market for the bonds. She stressed that the State is well positioned to move quickly. She clarified that after the bonds are paid the revenue of the Tobacco Settlement would go into the general fund. Co-Chair Mulder noted that "annually" should be inserted on Page 2, Line 7 and Line 24 after "$1,400,000". Ms. McConnell stressed that K-12 and university education makes sense as part of the tobacco securitization plan. She maintained that the amount for K-12 funding should be increased. She observed that there are other vehicles to handle transportation projects and added that it is important to go through the priority list. She recognized the need for balance between the districts that can do their own bonding and those that can't. She recommended a combination of school debt reimbursement going further down the list for major maintenance and school construction. Ms. McConnell believed that it would be possible to do all of the major maintenance. She concluded that HB 281 is the right vehicle. JOHN BITNEY, LEGISLATIVE LIAISON, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, provided information on the legislation. He pointed out that there are two timing issues: ? The purchase of the assets; and ? The issuance. Mr. Bitney clarified that these could happen at the same time depending on the cash flow. He stated that AHFC would try to complete the transactions by the upcoming fall. He agreed that actions of other states are an issue. In response to a question by Co-Chair Mulder, Mr. Bitney responded that the goal would be set up as an agreement that would not require the districts to concern themselves with the issuance of the bonds. Co-Chair Mulder asked if the issue of risk in relationship to the funds as a dedicated revenue stream has been discussed with bond counsel. Mr. Bitney stated that there had been some discussion with their bond counsel and that they have been requested to look at the concern. The AHFC bond counsel did not indicate that it was a problem in earlier conversations. He observed that the concern is that there is a pledge of the revenue stream for debt service payments. He pointed out that the State was reimbursed up front for the right to purchase the revenue stream. He noted that it has been viewed by AHFC as a purchase and that dedication is a non-issue. Ms. McConnell clarified that even if the money was available, communities would have to go through a bidding process and that construction would probably not happen this year. Co-Chair Mulder pointed out that Mr. Baldwin's letter had omitted "not" on Page 2. JAMES BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, provided information on the legislation. He agreed that his letter should have stated that "this transaction does not violate the dedicated fund prohibition." He explained that under Alaska law, the term "property" is defined to include what is known as a chosen action; the right to receive something pursuant to a court type proceeding. That is a recognized type of property in Alaska and other jurisdictions. Since, it is property, it can be sold or conveyed by a State agency, given proper authority by the Legislature. The legislation grants the proper authority. (TAPE CHANGE, HFC 00 - 126, Side 2) Mr. Baldwin explained that it would pick out a period of time, stream of revenue, would reserve certain amounts for tobacco programs and to convey this property right to AHFC in the form of a true sale. There have been other ways that these transactions have been done in the State by contributing the property to another entity. He added that because of the dedicated fund prohibition, it would be a cleaner transaction and would support the validity better if it were a clean sale. The Department proposed that the bonds are issued for the projects, and in the capital bill, it would be appropriated proceeds for those projects, which would cover any indicated fund addressed. The Legislature would retain its ability to appropriate the proceeds. Co-Chair Mulder asked about the protection of a separate bill. Mr. Baldwin explained the Governor's approach, which would have a bond authorization and actual appropriations would be somewhere else in an appropriation bill. Co-Chair Therriault referenced the Four Dam Pool process. He asked the amount in the Governor's bill for the appropriations. Mr. Baldwin replied that their numbers were in the Capital Bill as amendments. He noted that a similar approach was taken with the approval of the rural development loans in the AIDEA bill. There is a well established precedence treating these as property rights that can be sold. Co-Chair Therriault noted that there is a prohibition against substantive legislation and appropriations in the same bill. Mr. Baldwin encouraged the Committee to take the appropriation step. He noted that sometimes in a bonding context, the bonding bill itself could be viewed as proper authorization. In the proposed situation, it would be better to have a separate appropriation. Co-Chair Mulder asked if the revenue stream was expected to flow between two points without an appropriation. That arrangement could be vulnerable under Article 9, Section 13 of the State Constitution. By selling the State assets and then appropriating them money back to those entities could conflict with Article 9. Mr. Baldwin interjected that there would not be a problem and that it would be a sensible transaction. It would address the problem that the dedicated fund was attempting to remedy, that being, taking a revenue source and removing it completely from the Legislature's discretion and appropriating it for any purpose it wants. Co-Chair Therriault noted that clearly, AHFC does not own the revenue stream. He asked if the Legislature would have to consider a two step process to transfer that revenue stream over to that ownership. Mr. Baldwin noted that the Governor proposed that authority could be given to Department of Revenue to convey it. Then the conveyance was made to AHFC, and they would be given value for that. Then the Legislature would appropriate the value which was received back. He suggested an additional step would be to appropriate the revenue. Describing it could get "messy". The easiest approach would be to authorize revenue to convey it in such a way that satisfies bondholders. Co-Chair Mulder referenced Section 3, "the sale of right to receive anticipated special revenue..". He asked if that language would satisfy what Mr. Baldwin was referencing. Mr. Baldwin stated it would. The next step would be to separate appropriations of that money. Later in the bill would be the authorization of specific capital projects, and their needs as a step to appropriation, beyond that. Ms. McConnell added that there was another aspect in the process. The point is to protect the State from the risk that the ultimate amount of payment would be less than anticipated. It is important to insure that the State's full faith and credit is not involved. There are aspects of the proposed transaction that do not have to do with the mechanics of the sale, but to insure that the bond holders do not become limited. She acknowledged that would add to the complexity of the issue, at the same time, providing for greater safety. Co-Chair Therriault asked about the revenue stream for the capital projects. Mr. Baldwin replied that the fund source would be corporate receipts. Co-Chair Therriault asked if the projects would be pro-rated. Mr. Baldwin replied that current language of the bill states that the fees would be allocated. Mr. Baldwin added that the projects are allocations and if you run short in one project, you could reallocate to another. That is how a shortage would be addressed. There would be an issuance for a set principle amount. It is an allocated process and can reallocate to another project. Co-Chair Therriault asked if that would address the issue should a project come in over budget. Mr. Baldwin explained that in the Legislative Drafting Manual, a General Obligation (GO) bond issue would take the allocation approach. AHFC would be managing the funds. Co-Chair Therriault did not like the idea of AHFC deciding, when short of capital, which areas would be cut. He suggested that it is important to determine if the money would flow out of Department of Education and Early Development. Co-Chair Mulder suggested that it would be an interesting "turf war". He asked if AFHC would be at risk with that structure. Mr. Baldwin replied that would be determined in how the structure plan was determined. Ms. McConnell interjected, that aspect had not yet been covered. She noted that once it was in the market, would be the time to determine much more. She noted that they would come back to the Legislature to determine how to move forward. Representative J. Davies recommended cleaning up language on Page 2, Line 27, and Page 6, Line 26. He noted that there needs to be a method to reconcile that language. He pointed out that how to deal with the shortfall is included in the appropriation language contained in the second vehicle. Co- Chair Mulder agreed that reconciliation would be a way to address that concern. Co-Chair Therriault asked to clarify the mechanism. He did not think that AHFC would be "fronting" the State money and then going out and recouping the transfer. Mr. Baldwin understood that AHFC would hold the funds for a certain amount of time and then the Department of Education and Early Development would make the request, and then the funds would be transferred. AHFC would be holding the funds as long as they can. Co-Chair Therriault pointed out that would occur after the sale. Representative J. Davies commented that normally when something like this is established, there is a fund to which the money can be transferred. He asked if there was a school construction fund. Mr. Bitney noted that in 1998, when SB 360 passed, it was the last $200 million dollars of AHFC general obligation bonds. In that session, the appropriation fund source was created called AHFC Bond Proceeds. All the appropriations for each project in the capital budget were given its own fund source. Mr. Jeans indicated that the Department did not perceive that to be a problem. Vice Chair Bunde asked what would happen if there was too much money. Ms. McConnell explained that the way it was structured, it is not just a 40-year bond plan. The idea was to pay it back more quickly. She noted that $1.4 would be reserved before AHFC was to receive any of the revenue stream. Representative J. Davies commented that if there were excess funds, they would presumably reside at AHFC. If they were in an account called AHFC proceeds, then the Legislature would know where they were and how to find them. Co-Chair Mulder asked if the Department had anticipated preparing an amendment to address what would happen in the case of a shortfall. He noted that there is an appropriation bill in Committee, the Governor's Capitol budget. He advised that there is a committee substitute being prepared that would marry the two recommendations. Co-Chair Therriault referenced Page 5, the University deferred maintenance project and asked if it was essential to "lock" the University into those different categories. He pointed out that in the past, they had been linked together to give the University flexibility. He recommended in the new committee substitute to have the language structured to indicate deferred maintenance/renewal/code of compliance. Co-Chair Mulder questioned if the Bond Council would care where the money was spent as long as there was revenue coming in. Mr. Bitney replied that this would need to be done for public purposes. The only instance where that could be a problem would be in situations where grants were provided to non profit agencies. Co-Chair Mulder agreed that the new committee substitute should reflect as an allocation toward the University for deferred maintenance/code compliance/renewal replacement. Representative Williams asked where the numbers came from. Co-Chair Mulder replied that the numbers came from the University. Co-Chair Mulder replied that the list came from the actual University list and in consultation with the specific campuses. Representative Williams noted that he was concerned with moving the money around. Ms. McConnell noted that the Administration recommended clustering the deferred maintenance projects to avoid extra accounting. That would be consistent with how other deferred maintenance projects have been addressed. Representative J. Davies advised that each item was an estimate. The language would provide the University more flexibility. WENDY REDMAN, VICE PRESIDENT, STATEWIDE SERVICES, UNIVERSITY OF ALASKA, FAIRBANKS, noted that the money is allocated to the individual campuses. There is a detailed list of the deferred maintenance and code compliance projects. The list contains the top priority projects from each campus. The money would not move from campus to campus. There are many points of accountability on how the money is spent. Representative Austerman observed that renewal and replacement could be listed as deferred maintenance. Ms. Redman reiterated that the deferred maintenance was the University's highest priority. The deferred maintenance is the renewal and replacement that did not get done last year. In fact it has not been done for many years. She noted that with the AHFC bond with $35 million dollars in deferred maintenance, this was the wording used and that it provided flexibility to address some of the unexpected thing that may come up. Representative J. Davies pointed out that the Board of Regents has to approve each project and each expenditure. Co-Chair Mulder advised that there would be a new committee substitute drafted which would consolidate all the concerns which had been voiced. Representative Grussendorf asked what happened to the original premise of HB 281. He spoke about transferring harbors to the local municipalities. Co-Chair Mulder clarified that it was still the intent that harbors be transferred to the local communities. He noted that the Department of Transportation and Public Facilities would be addressing that concern. With regard to the Sitka project, unfortunately, there was only one harbor not placed into HB 269. Representative Grussendorf emphasized that the communities that he represents are coastal communities and that they could take over these operations and turn them into an enterprise. Representative Phillips pointed out that every community on the list had made the agreement that they would take it over. Representative Grussendorf advised that there had been some added that were not on the original list. Representative J. Davies asked if all the projects were in fact "ready to go" in the next year or so. Representative Phillips assured members that her district was ready. Representative Grussendorf noted that in the original HB 281, there was a three-year period in which there would be $10 million dollars available. This is no longer the approach. Co-Chair Mulder commented that they would continue to work on the language so to expand that concept. HB 281 was HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 7:40 P.M. H.F.C. 26 4/18/00