HOUSE FINANCE COMMITTEE February 14, 2008 1:43 p.m. CALL TO ORDER Co-Chair Meyer called the House Finance Committee meeting to order at 1:43:38 PM. MEMBERS PRESENT Representative Kevin Meyer, Co-Chair Representative Bill Stoltze, Vice-Chair Representative Harry Crawford Representative John Harris Representative Les Gara Representative Mike Hawker Representative Reggie Joule Representative Mike Kelly Representative Mary Nelson Representative Bill Thomas, Jr. MEMBERS ABSENT Representative Mike Chenault, Co-Chair ALSO PRESENT Suzanne Armstrong, Staff, Co-Chair Meyer; Brett Carlson, Chairman, Northern Alaska Tour Company; Ron Peck, President and Chief Operating Officer, Alaska Travel Industry Association (ATIA); Chip Toma, Juneau; Representative Nancy Dahlstrom; Jennifer Baxter, Staff, Representative Nancy Dahlstrom; Jeffrey M. Briggs, Director, Legislative Affairs, Alaska Professional Fire Fighters Association PRESENT VIA TELECONFERENCE Matt McSorley, Alaska Professional Fire Fighters Association SUMMARY CSSB 72(FIN) "An Act relating to the community revenue sharing program; and providing for an effective date." CSSB 72(FIN) was heard and HELD in Committee for further consideration. HB 147 "An Act relating to matching funds in state tourism marketing contracts with trade associations." CSHB 147(FIN) was REPORTED out of Committee with a "do pass" recommendation and with a new zero fiscal note by the Department of Commerce, Community and Economic Development. HB 200 "An Act relating to the presumption of coverage for a workers' compensation claim for disability as a result of certain diseases for certain occupations." HB 200 was heard and HELD in Committee for further consideration. 1:44:37 PM CS FOR SENATE BILL NO. 72(FIN) "An Act relating to the community revenue sharing program; and providing for an effective date." 1:45:22 PM Representative Thomas MOVED to ADOPT the work draft for CSSB 72(FIN), labeled 25-LS0506\F, Cook, 2/13/08. There being NO OBJECTION, it was so ordered. 1:46:04 PM SUZANNE ARMSTRONG, STAFF, CO-CHAIR MEYER, recalled that last year during testimony on SB 72 there were elements that surfaced as important in a statutory program: fairness, stability, affordability, and sustainability. She maintained that the Community Revenue Sharing proposal contains these elements. Ms. Armstrong referred to a handout entitled "Community Revenue Sharing" (copy on file.) She explained the elements of the proposed revenue sharing: the fund, the formula, and the mechanics. Ms. Armstrong highlighted page 4, Community Revenue Sharing Fund. The purpose of the fund is for making community revenue sharing payments to local communities. It consists of appropriations of 20 percent of the revenue generated under the progressivity surcharge, not to exceed the great of $50 million or the amount to bring the fund balance to $150 million. Interest earned on the fund may be appropriated to the fund. The money in the fund does not lapse and is not a dedicated fund. Ms. Armstrong explained the formula on page 5. If the fund balance at the end of the fiscal year, June 30, is at least $50 million, there will be revenue sharing. Without further appropriation, the Department of Commerce, Community and Economic Development will distribute one third of the fund balance as revenue sharing payments. The amount of distribution is very similar to the amounts used during the last two years - $50 million as grants in the capital budget. Ms. Armstrong turned to the chart on page 6 to show how the basic payments are distributed. 1:48:23 PM Representative Nelson asked if these were place holder numbers or actual numbers. Co-Chair Meyer replied that they are good place holders and work similarly to last year's capital budget distribution. Representative Gara pointed out that in 2007 there were Energy Assistance and PERS, instead of revenue sharing. He asked if there was a PERS reduction this year. Co-Chair Meyer said this legislation is separate from PERS/TRS. Ms. Cunningham related that this bill is separate from SB 125, which deals with PERS/TRS changes. In previous years revenue sharing was not done through statutory program, but as grants in the capital budget, and was used to assist communities with energy assistance and rising retirement costs. 1:50:29 PM Representative Kelly thought it was important to follow through with Representative Gara's point. He agreed that it was an addition to the PERS/TRS payment. Co-Chair Meyer compared it to a three-legged stool: the PERS/TRS fix, revenue sharing, and education funding. He added that the $50 million figure was a place holder. The Governor is proposing $75 million. Representative Nelson noted that under the Governor's proposal it would be a 50 percent increase and would a matching grant program. The revenue sharing could then be used for operating costs as well as for capital expenditures, which she thought was good because some communities ran into red tape in the past. Co-Chair Meyer said there were no strings attached. Anchorage will be using it for property tax relief. Representative Nelson recalled the heroes list, those communities that paid retirement costs into the future. She wondered if the hero communities would be accounted for in other areas of the budget. Co-Chair Meyer thought that would happen in the PERS/TRS fix. Ms. Armstrong agreed that would be addressed in SB 125. 1:54:18 PM Representative Gara pointed out that the minimum amount an unincorporated city would get is $20,000 to $25,000, which he thought was low. He recalled that last year's minimum was closer to $40,000. He shared a history of the amount allotted for revenue sharing. He expressed concern about cutting the amount. Co-Chair Meyer noted different ways revenue sharing has been implemented throughout the years. Ms. Armstrong explained that the basic payments in this bill are similar to the basic payments allowed for in the capital budget grant last year. There is also a per capita distribution on top of the basic payment. Representative Gara repeated that $20,000 was too small. Co-Chair Meyer agreed, but thought the amount would go to very small communities that didn't need as much money. 1:56:18 PM Ms. Armstrong turned to page 7, the Per Capita Distribution. She explained that the remaining balance of the $50 million is distributed per capita. Communities in an unorganized borough cannot have a total payment that exceeds the city basic payment. The excess amount is then distributed to the remaining qualifying communities in the unorganized borough. The population of each city in a borough is deducted from the total borough population. Ms. Armstrong addressed what happens when the amount available is larger than $50 million, page 8. The formula has a "floating" basic payment structure. Ms. Armstrong described what happens when there is less than $50 million available, page 9. The floating payment kicks in, but in reverse. The basic rationale is that every community would retain their slice of the pie. 1:58:26 PM Representative Nelson asked if it was a 50/50 distribution regarding base and per capita. Ms. Armstrong replied that it was actually 40 percent basic payment and 60 percent per capita. Representative Nelson asked if that was flexible. Co-Chair Meyer said it was. Representative Crawford asked who does the counting of population. Ms. Armstrong reported that the Department of Commerce does it. There is language in the bill defining how population is considered. She recalled it was by PFD qualification or by an allowable method that the department determines appropriate. 1:59:49 PM Representative Gara said he understands there are two methods of revenue sharing, an appropriation or an endowment. He related that he does not understand creating a $150 million endowment to spin off $50 million. Co-Chair Meyer reported the Senate's concept of the progressivity rate for three years so municipalities could adjust. Ms. Armstrong added that it was to provide stability to communities. Ms. Armstrong continued with page 10. She explained that a minimum base has been inserted in order to protect smaller communities when there is less than $50 million available for a program. The minimum borough basic payment in the draft proposal is $220,000. Ms. Armstrong showed page 11 to explained the minimum basic payments when the program is at $36 million Ms. Armstrong turned to page 12 to explain the fund mechanics. Each of the three years there would have to be a payment of $50 in order to keep the fund balance at $150 million. Ms. Armstrong explained page 13, a hypothetical example of what happens when oil prices fall below $60 per barrel and remain there through FY 2013. 2:03:56 PM Ms. Armstrong reported on page 14 that the fund has bounce back potential. Interest may be appropriated to the fund by the legislature. Other revenue such as general funds may be appropriated to the fund. Most importantly, when higher oil prices trigger the surcharge, the fund can immediately recover to the $150 million level and payments the following year would be $50 million. Ms. Armstrong summarized the revenue sharing program on page 15. She reviewed the four elements need to decide if it meets the test: fairness, stability, affordability, and sustainability. The fund has basic payments that adjust with the funds available for the program, coupled with a per-capita payment. The communities will know payment levels well in advance. The program is funded when the surcharge is triggered or other appropriations are made. The fund has quick "bounce back" potential, as long as the total cost of the program is a sustainable cost for the state. Co-Chair Meyer commented that public testimony would be held at another time. He noted that there is an on-line revenue sharing model available to look at. He emphasized that there was an attempt to keep the distribution similar to the last two year's distributions. 2:06:50 PM Representative Thomas asked if the overhead could be made available. Ms. Armstrong said she would make the information available. Representative Gara requested more information about the progressivity surcharge formula on page 5, lines 4 and 5, "20 percent of the money received by the state during the previous calendar year under AS 43.55.011". Ms. Armstrong said that was the statutory reference. Representative Gara asked for a projection of 20 percent at various oil projections. Ms. Armstrong agreed to provide that information to the committee. She referred to subsection (b) on page 5 as a work in progress. The intent is that it would be 20 percent of the money received under the surcharge in an amount not to exceed $50 million or what it would take to capitalize the fund at $150 million. Representative Gara inquired if the intention is that the fund never exceeds $150 million. Ms. Armstrong replied that subject to legislative appropriation, it could. This draft bill idealizes a $50 million revenue sharing program. Representative Gara commented that it makes it a maximum of $50 million, which will decrease with inflation. He said he liked the progressivity element. 2:10:25 PM Co-Chair Meyer commented on what happens when oil prices are higher. Representative Kelly noted that there are at least three competing schemes for the same oil dollars. Representative Crawford thought that this bill might be a direct conflict with the progressivity piece. He thought the concepts should be combined. Ms. Armstrong pointed out that a constitutional amendment would trump statute. 2:13:06 PM Representative Joule said that there is nothing that prohibits the legislature from earmarking funds for revenue sharing down the line. The challenge could be in the first five years. Ms. Armstrong referred to documents that portrayed how the payments would look under several scenarios. Representative Gara wished to hear from the Administration on the bill. CSSB 72(FIN) was heard and HELD in Committee for further consideration. 2:16:09 PM HOUSE BILL NO. 147 "An Act relating to matching funds in state tourism marketing contracts with trade associations." Vice-Chair Stoltze MOVED to ADOPT the work draft to HB 147, labeled 25-LS0560\E, Bannister, 2/11/08. There being NO OBJECTION, it was so ordered. 2:17:27 PM SUZANNE ARMSTRONG, STAFF, CO-CHAIR MEYER, explained that the CS proposes to change the tourism marketing campaign contract between the state and the qualified trade association, Alaska Travel Industry Association (ATIA). In current statute it is a 50/50 matching grant. The CS proposes to change the distribution to 30 percent of the state funds that are used to pay for the marketing campaign described in the contract. It becomes a 70/30 ratio; however, the percentage is on the funds the state provides and not on the total cost of the contract. The intent is to limit the amount of state money used for the marketing campaign to $8 million; however, the appropriation power cannot be limited in statute. Ms. Armstrong related that the second section sunsets the 70/30 program and puts the 50/50 program back into place. 2:19:00 PM Representative Harris recalled that the ratio was 90/10 when the bill was first introduced. That bill said for ATIA to qualify for whatever money the state appropriated, it would only have to contribute 10 percent. Ms. Armstrong replied it was 10 percent of the total marketing campaign. The CS proposes to change that to 30 percent of the state's contribution to the marketing campaign. Representative Harris asked if that is acceptable to ATIA. Co-Chair Meyer remarked that public testimony would be opened up later on. Vice-Chair Stoltze asked what ecotourism means. He wondered about competition with other state management policies if ecotourism is promoted. Speaker Harris defined ecotourism as people who come to Alaska to view and experience nature. 2:21:57 PM Representative Gara pointed out that the non-cruise ship tourism industry paid $2.5 million in FY 07. Under this bill they would pay even less because of the new formula: 30 percent of the amount the state pays, not 30 percent of the marketing campaign which is $10 million. He explained he had a problem with that, as well as with not accounting for the burden companies face for their own marketing campaigns. He requested to know if there is a need, that the program is effective, and that it is a priority. He maintained that it lessens the payments even from last year. Co-Chair Meyer noted the intent to limit the state's contribution, and not have this item in the capital budget, but in the operating budget. In the past the match was 50/50 and companies were not able to meet the match. Representative Gara clarified that the non-cruise ship industry would pay less than two years ago. 2:25:15 PM BRETT CARLSON, CHAIRMAN, NORTHERN ALASKA TOUR COMPANY, related that the state can support tourism marketing in order to help Alaska travel businesses help themselves grow the private sector economy and contribute to local and state governments. The challenge is that the tourism marketing funding model is broken. The first phase of the plan to fix it is the survival plan, which is to ensure that Alaska's tourism marketing program continues to exist. He maintained that a $10 million funding level for the core program represents survival-level funding. Two elements make survival a reality: in FY 09, reinvestment of $8 million into the core tourism marketing program, and the industry must be able to access those funds. The CS for HB 147 does represent a workable comprise for ATIA. Mr. Carlson agreed with Representative Harris's comment that ATIA's original request was for 90/10 based on a $2 million contribution from private industry. Mr. Carlson addressed Representative Gara's question about money from the private sector. The $2.5 million came from cruise contributions, $2 million came from non-cruise businesses, and an additional $500,000 came from destination marketing. He spoke of the comprise requiring the small businesses to contribute $2.4 million, a substantial contribution. 2:28:57 PM Mr. Carlson pointed out that only 16 states make a private sector contribution. Only in California and Florida does the private sector contribute more than $2.4 million. He pointed out that the model of sustainability is focused on matching dollars generated by the vehicle rental tax. Co-Chair Meyer pointed out that most states have a state sales tax or bed tax that contributes to tourism marketing. RON PECK, PRESIDENT AND CHIEF OPERATING OFFICER, ALASKA TRAVEL INDUSTRY ASSOCIATION (ATIA), agreed that some states have those taxes, but only 16 have voluntary contribution programs. Mr. Carlson noted that 34 states do not require private sector matching. Co-Chair Meyer pointed out the three-year sunset in the bill. The state's contribution would be $8 million over the next three years, which would allow for gradually matching on small business's part. 2:32:13 PM In response to a question by Representative Gara, Mr. Carlson reported that the $2 million comes primarily from small Alaskan companies. The other $550,000 comes from DMO's, which are essentially chambers of commerce and convention and visitors bureaus. Representative Gara inquired if, under the new match, they would contribute again. Mr. Carlson clarified that they would be asked again. Representative Gara asked if that would be included in the new formula. Mr. Carlson said that is under discussion. He noted that the $2 million from private companies are non-voluntary contributions. A portion, $350,000, comes from cooperative marketing contributions. Over and above that they are contributing $500,000 voluntarily. Representative Gara summarized the math. He asked if the $2 million, plus the $500,000 counts toward the 30 percent match. Mr. Carlson said that was correct. Representative Gara maintained that the companies would contribute less. Mr. Peck replied that those same companies would be contributing at the $2 million level. Representative Gara thought that the contribution would be $100,000 less than the amount two years ago. Co-Chair Meyer thought Representative Gara was counting contributions made by DMO's, which the industry is not certain of collecting. Mr. Peck agreed. 2:35:50 PM Representative Harris asked what kind of revenue tourism marketing brings to the state of Alaska. Mr. Peck replied that a traveler in Alaska spends $934. That nets more than $1.5 billion dollars each summer to the state. Representative Harris asked how much stays in state. Mr. Peck said all of it. Representative Harris inquired what happens to Alaska's economy if small tourism folds. Mr. Carlson replied that global capital plays an important role. He encouraged a seat at the table for small Alaskan businesses in attempting to make a more diversified product. He hoped to see the entire package sold with a balanced opportunity. Representative Harris asked how much Alaska donated 15 years ago for marketing. Mr. Carlson replied that in 1990, it was $23 million. He stated that it has declined over the years. Representative Harris asked about tourism's affect on rural Alaska. Mr. Carlson replied it injects new private sector dollars into the economy. Representative Harris noted that all parts of Alaska are affected by tourism. He acknowledged that rural Alaska is one of the more difficult places to do business. He questioned if advertising were to be removed for rural destinations, if that would have an effect on rural economy. Mr. Carlson said it would. Representative Harris stated that if the legislature contributes more effort toward tourism marketing, it would help the entire state economy. Mr. Carlson agreed. 2:40:55 PM Representative Gara agreed that the state's contribution was useful; however, the question is how much should be contributed. He asked if there had been a study determining how effective tourism marketing has been. He inquired how much the state could make without the state match. Mr. Peck stated that ATIA reaches out to a substantial number of people, impacting 560,000 tourists. Of the 1.7 million visitors that come to Alaska, 1 million take a cruise and 55 percent do things on an independent basis. About 30-40 percent of the people that are reached by ATIA come to Alaska. Representative Gara wanted to know the type of campaign ATIA funds. He disliked the "before you die campaign. Mr. Peck stated that was their campaign, it cost less than $200,000, and was not being continued, even though it was successful. 2:44:03 PM Vice-Chair Stoltze commented on the contribution to the small scale businesses statewide. Representative Joule noted he had been a tour guide when he was young. He believed that the face on Alaska Airlines has a lot to do with tourism investment. He appreciated the effort to get tourists to the rural village areas. He pointed out that that effort no longer exists. If the investment is not made, the effort to build it back up will be extensive. He stated that Alaska is a great destination, but it must be marketed. 2:48:00 PM Co-Chair Meyer explained the intent was to extend the state's contribution for three years and to list the total amount, maximizing the contribution. CHIP TOMA, JUNEAU, pointed out that the draft proposed by the committee is a drastic change from the current package. There is not a crisis at this time; the visitors keep increasing. There has been no diminishment in the number of tourists coming to the state. Each year, the forecast is "rosey" for coming to Alaska. He noted the ads occurring in all magazines throughout the United State. He emphasized that ATIA is becoming less effective with the amount of dollars placed into advertising Alaska. Mr. Toma stated that the request is a subsidy and that the state should no longer request the subsidy. He supported the efforts of ATIA in the rural areas and in Fairbanks. He encouraged a redirection of the focus of the industry. Co-Chair Meyer closed public testimony. 2:53:03 PM Representative Kelly commented that Alaska is in a state of flux for the tourism program. He remarked about the progress in addressing the confusing split between the capital and operating budget. He stated that the program has diminished over the years. The fear of going under the "critical mass" should be addressed. He said that the proposal is accountable and that the industry should stabilize within the timeframe. He encouraged the 70/30 match and urged passage of the bill. 2:55:14 PM Representative Gara asked how the formula works for an individual company's contribution. Mr. Peck replied that there is a membership program based on size. The participant, depending on the level of advertising and marketing level, also purchases ads in the vacation planner and access to the web site. Each business makes that determination individually. Representative Gara asked if there is any plan to address the concern that rural communities are not getting enough marketing attention. Mr. Peck responded that the marketing plan is reported to the Department of Commerce, Community and Economic Development annually. ATIA recognizes the concern about tourism in rural areas and has taken extra effort to promote long-haul highway travel. He hoped to identify areas to grow small businesses in tourism in communities that are interested in promoting tourism. Representative Thomas asked how many jewelry stores are members of ATIA. Mr. Peck did not know the number but thought it was very small. Representative Thomas recommended getting them to join. 2:58:56 PM Representative Kelly asked Mr. Carlson for a response to previous testimony. Mr. Carlson replied that he had not had a conversation with Mr. Toma. He reiterated that ATIA is effective. Mr. Peck added that ATIA does not focus on one area or destination. He thought it was unfair to portray it as focusing only on one area. Representative Gara wondered if an inflation adjustment contribution should be added. He thought that the match should be closer to a 35 percent match. Mr. Carlson thought such a match would be $2.8 million. He added that $2 million would work for ATIA. The program is focused on bringing the independent traveler to Alaska. The marketing budget has declined and has hurt the independent segment of the market. Representative Gara did not accept that the private match should be less than it was two years ago. He asked what was going to change from last year to this year with emphasis on rural Alaska. Mr. Peck stated that there is a committee of 35 marketing persons who ultimately make the recommendation to the Department of Commerce, Community and Economic Development and it does change every year. Mr. Carlson added that the program can focus on bringing those independent travelers to rural Alaska; that is what the dollars do at this time. The program does not need to change focus. Representative Gara asked if the program does not need to change the focus and it was not good enough for rural Alaska last year, how would it be good enough this year with the same amount of money. Mr. Carlson emphasized that it was good enough for rural Alaska; it was just underfunded. Vice-Chair Stoltze referenced previous passionate testimony. He noted that his community wants private sector funding, seasonably. He commented that it is an opportunity to promote tourism into interior Alaska. Co-Chair Meyer pointed out that it is a three-year program. He thought of the $8 million as ATIA's share of the car rental tax which is to be used to market tourism. 3:07:16 PM Representative Thomas said the Alaska Marine Highway has dropped travel to Bellingham. He wondered if that would impact tourism. Mr. Peck responded that the focus could be to drive to Prince Rupert. Representative Thomas asked if Mr. Peck had ever driven the road. He commented that many had never driven the road. The ferry is the way to go. Mr. Peck voiced concern about the ferry schedule. Representative Kelly emphasized that you can't force business. He thanked ATIA for the high energy presentation and spoke in support of the bill. Representative Crawford commented on driving the Alaska Highway. 3:11:09 PM Speaker Harris MOVED to REPORT CSHB 147(FIN) from committee with individual recommendations and the accompanying fiscal note. Representative Gara OBJECTED. He commented that he still has a problem with private industry's contribution. He suggested moving private industry's match to 33 percent, which would bring their contribution from $2.5 million to $2.64 million, an amount equal to past contributions with an inflation factor included. He thought there should be an amendment to that effect. Co-Chair Meyer thought that was only a $200,000 difference. He recalled testimony that DMO's could not be counted on. Representative Gara reported that he has not heard testimony that the DMO's would not continue. Representative Kelly agreed that is the struggle. He pointed out that last year the expectation was about 10.9 and they ended up with 1.6. He maintained that the industry took a hit last year. 3:15:23 PM Representative Gara WITHDREW his OBJECTION. CSHB 147(FIN) was REPORTED out of Committee with a "do pass" recommendation and with a new zero fiscal note by the Department of Commerce, Community and Economic Development. 3:16:23 PM HOUSE BILL NO. 200 "An Act relating to the presumption of coverage for a workers' compensation claim for disability as a result of certain diseases for certain occupations." REPRESENTATIVE NANCY DAHLSTROM, Sponsor, explained that SB 200 establishes a presumption in the workers' compensation program for professional and volunteer firefighters who have had a qualifying medical exam and who have been on the job for at least seven years. There is inherent risk of exposure to toxic chemicals for firefighters and first responders. HB 200 identifies certain illnesses that have been directly related to their jobs. She said a great deal of thought has gone into the bill and into the defined parameters as to who qualifies. It comes down to a policy call whether legislators believe that first responders deserve this coverage. She requested support for SB 200. 3:19:28 PM Representative Harris noted the letter from the Alaska Municipal League (AML) which is not supportive of the bill. He asked Representative Dahlstrom if she has talked to AML about their concerns. Representative Dahlstrom responded that in previous committees AML testified against the bill and it was difficult to come to agreement about statistics. Other states that have implemented this law have added other illnesses to the list at a later date because costs were not what they were projected to be. Speaker Harris asked if the maximum amount of time involved is 5 years or 60 months. Representative Dahlstrom said it was. 3:21:04 PM Representative Gara reported that these cases are very hard to prove. He did not think the bill would cost a lot of money because it changes the law very little. To prove a case, it has to be proven that something is more than 50 percent likely. The bill states that an employer would have to bear the burden of proof 51 percent. 3:22:49 PM JEFFREY M. BRIGGS, DIRECTOR, LEGISLATIVE AFFAIRS, ALASKA PROFESSIONAL FIRE FIGHTERS ASSOCIATION, pointed out that 40 other states have similar legislation. Testimony against the bill has been tied to the Alaska Municipal League. Mr. Briggs gave a personal example of a response to an accident. He spoke of vast support for this legislation. He reported that the bill would cover about 1,000 firefighters statewide. Vice-Chair Stoltze wondered about AML's resistance to the bill. Mr. Briggs responded that their testimony would be at a future meeting. 3:27:01 PM MATT MCSORLEY, ALASKA PROFESSIONAL FIRE FIGHTERS ASSOCIATION, said the bill would grant fire fighters protection. He shared two personal stories as a hazard materials responder. He described how the fire fighters job has changed. He urged support for the bill. HB 200 was heard and HELD in Committee for further consideration. ADJOURNMENT The meeting was adjourned at 3:32 PM.