HOUSE STATE AFFAIRS STANDING COMMITTEE March 5, 1994 8:00 a.m. MEMBERS PRESENT Representative Al Vezey, Chairman Representative Pete Kott, Vice Chairman Representative Gary Davis Representative Harley Olberg Representative Fran Ulmer MEMBERS ABSENT Representative Bettye Davis Representative Jerry Sanders COMMITTEE CALENDAR HB 400: "An Act relating to administrative proceedings involving a determination of eligibility for a permanent fund dividend or authority to claim a dividend on behalf of another." PASSED OUT OF COMMITTEE *HB 373: "An Act relating to investments of the permanent fund involving equity interests in and debt obligations secured by mortgages on real estate; and providing for an effective date." PASSED OUT OF COMMITTEE HB 483: "An Act relating to payment of permanent fund dividends of certain individuals who have been absent from the state; and providing for an effective date." PASSED OUT OF COMMITTEE SB 186: "An Act relating to state agency publications." NOT HEARD HB 328: "An Act relating to motor vehicle registration and registration fees; to fees for drivers' licenses and permits; and providing for an effective date." FAILED TO PASS FROM THE COMMITTEE *HB 407: "An Act relating to issuance of commemorative gold rush motor vehicle license plates." HELD OVER *HB 375: "An Act relating to investments of the permanent fund in certain limited partnerships each of whose principal purpose is investment in securities of public or private companies; and providing for an effective date." NOT HEARD WITNESS REGISTER WILLIAM H. SCOTT, Executive Director Alaska Permanent Fund Corporation P.O. Box 25500 Juneau, AK 99802-5500 Phone: 465-2047 POSITION STATEMENT: Addressed HB 373 PETE JEANS, Real Estate Investment Officer Alaska Permanent Fund Corporation P.O. Box 25500 Juneau, AK 99801-5500 Phone: 465-2047 POSITION STATEMENT: Answered questions on HB 373 REPRESENTATIVE PETE KOTT Alaska State Legislature Alaska State Capitol, Room 409 Juneau, AK 99811 Phone: 465-3777 POSITION STATEMENT: Prime sponsor of HB 483 and addressed HB 328 JACK PHELPS, Staff Representative Pete Kott Alaska State Capitol, Room 409 Juneau, AK 99811 Phone: 465-3777 POSITION STATEMENT: Outlined CSHB 483 TOM WILLIAMS, Director Permanent Fund Dividend Division Department of Revenue P.O. Box 110460 Juneau, AK 99811-0460 Phone: 465-2323 POSITION STATEMENT: Answered questions on HB 483 JANE BUTLER, Staff Representative Pete Kott Alaska State Capitol, Room 409 Juneau, AK 99811 Phone: 465-3777 POSITION STATEMENT: Outlined HB 328 JEANIE LARSON, Staff Representative Terry Martin Alaska State Capitol, Room 411 Juneau, AK 99811 Phone: 465-3783 POSITION STATEMENT: Answered questions on HB 328 JUANITA HENSLEY, Chief of Driver Services Division of Motor Vehicles Department of Public Safety P.O. Box 20020 Juneau, AK 99802 Phone: 465-2650 POSITION STATEMENT: Answered questions on HB 328 and HB 407 RON KING Department of Environmental Conservation 410 Willoughby Ave. #105 Juneau, AK 99801 Phone: 465-5100 POSITION STATEMENT: Addressed HB 407 PREVIOUS ACTION BILL: HB 400 SHORT TITLE: PFD ADMINISTRATIVE PROCEEDINGS SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 01/26/94 2154 (H) READ THE FIRST TIME/REFERRAL(S) 01/26/94 2154 (H) STATE AFFAIRS, FINANCE 03/03/94 (H) STA AT 08:00 AM CAPITOL 102 03/03/94 (H) MINUTE(STA) BILL: HB 373 SHORT TITLE: PERMANENT FUND INVESTMENTS IN REAL ESTATE SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT JRN-DATE JRN-PG ACTION 01/14/94 2065 (H) READ THE FIRST TIME/REFERRAL(S) 01/14/94 2066 (H) STATE AFFAIRS, FINANCE 03/05/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 483 SHORT TITLE: PER. FUND DIVIDENDS OF ABSENT INDIVIDUALS SPONSOR(S): REPRESENTATIVE(S) KOTT JRN-DATE JRN-PG ACTION 02/14/94 2378 (H) READ THE FIRST TIME/REFERRAL(S) 02/14/94 2378 (H) STATE AFFAIRS, FINANCE 02/22/94 (H) STA AT 08:00 AM CAPITOL 102 03/05/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: HB 328 SHORT TITLE: BIENNIAL VEHICLE REGISTRATION SPONSOR(S): REPRESENTATIVE(S) MARTIN,BARNES,Phillips,B.Davis JRN-DATE JRN-PG ACTION 01/03/94 2013 (H) PREFILE RELEASED 01/10/94 2013 (H) READ THE FIRST TIME/REFERRAL(S) 01/10/94 2013 (H) STATE AFFAIRS, FINANCE 01/13/94 2054 (H) COSPONSOR(S): B. DAVIS 01/22/94 (H) STA AT 08:00 AM CAPITOL 102 01/22/94 (H) MINUTE(STA) 01/29/94 (H) MINUTE(STA) 02/08/94 (H) STA AT 08:00 AM CAPITOL 102 02/08/94 (H) MINUTE(STA) 03/01/94 (H) STA AT 08:00 AM CAPITOL 102 03/01/94 (H) MINUTE(STA) BILL: HB 407 SHORT TITLE: COMMEMORATIVE GOLD RUSH LICENSE PLATES SPONSOR(S): REPRESENTATIVE(S) FOSTER,Toohey JRN-DATE JRN-PG ACTION 01/27/94 2166 (H) READ THE FIRST TIME/REFERRAL(S) 01/27/94 2166 (H) STATE AFFAIRS, FINANCE 01/31/94 2207 (H) COSPONSOR(S): TOOHEY 03/01/94 (H) STA AT 08:00 AM CAPITOL 102 03/01/94 (H) MINUTE(STA) BILL: HB 375 SHORT TITLE: PERMANENT FUND INVESTMENTS - LTD PARTNERS SPONSOR(S): RULES BY REQUEST OF LEGISLATIVE BUDGET AND AUDIT JRN-DATE JRN-PG ACTION 01/14/94 2066 (H) READ THE FIRST TIME/REFERRAL(S) 01/14/94 2066 (H) STATE AFFAIRS, FINANCE 03/05/94 (H) STA AT 08:00 AM CAPITOL 102 BILL: SB 186 SHORT TITLE: STATE AGENCY PUBLICATIONS SPONSOR(S): SENATOR(S) FRANK JRN-DATE JRN-PG ACTION 04/07/93 1221 (S) READ THE FIRST TIME/REFERRAL(S) 04/07/93 1221 (S) STATE AFFAIRS 04/14/93 1354 (S) STA RPT 3DP 04/14/93 1354 (S) ZERO FISCAL NOTE (ADM) 04/14/93 (S) STA AT 9:00 AM BUTRVICH RM 205 04/14/93 (S) MINUTE(STA) 04/14/93 (S) MINUTE(RLS) 04/26/93 1761 (S) RULES 4 CALENDAR 4/26/93 04/26/93 1762 (S) READ THE SECOND TIME 04/26/93 1762 (S) AM NO 1 ADOPTED UNAN CONSENT 04/26/93 1763 (S) AM NO 2 ADOPTED UNAN CONSENT 04/26/93 1764 (S) AM NO 3 FAILED Y10 N10 04/26/93 1764 (S) ADVANCE TO THIRD READING FAILED Y11 N9 04/26/93 1764 (S) THIRD READING 4/27 CALENDAR 04/27/93 1842 (S) READ THE THIRD TIME SB 186 AM 04/27/93 1842 (S) PASSED Y20 N- 04/27/93 1842 (S) DONLEY NOTICE OF RECONSIDERATION 04/28/93 1891 (S) RECONSIDERATION NOT TAKEN UP 04/28/93 1893 (S) TRANSMITTED TO (H) 05/06/93 1661 (H) READ THE FIRST TIME/REFERRAL(S) 05/06/93 1661 (H) L&C,STATE AFFAIRS,JUDICIARY, FINANCE 02/17/94 (H) L&C AT 03:00 PM CAPITOL 17 02/17/94 (H) MINUTE(L&C) 02/18/94 2455 (H) L&C RPT 5DP 02/18/94 2455 (H) DP: PORTER,SITTON,MULDER, GREEN,HUDSON 02/18/94 2455 (H) -ZERO FISCAL NOTE (ADM) 2/18/94 03/05/94 (H) STA AT 08:00 AM CAPITOL 102 ACTION NARRATIVE TAPE 94-22, SIDE A Number 000 CHAIRMAN AL VEZEY called the meeting to order at 8:00 a.m. Members present were REPRESENTATIVES ULMER, G. DAVIS, KOTT and OLBERG. A quorum was present. HB 400 - PFD ADMINISTRATIVE PROCEEDINGS CHAIRMAN VEZEY announced the committee had passed HB 400 out of committee on Thursday, March 3, 1994; however, the Clerk's Office informed him the fiscal note was not in proper order. Therefore, HB 400 has been brought back into committee to adopt a proper fiscal note. CHAIRMAN VEZEY took an at ease at 8:02 a.m. for the committee to examine the new fiscal note. The meeting reconvened at 8:05 a.m. CHAIRMAN VEZEY moved the committee's previous action, which passed HB 400 from the House State Affairs Committee, be rescinded. The committee secretary called the roll, and the passage of HB 400 by the House State Affairs Committee was rescinded. Number 071 REPRESENTATIVE HARLEY OLBERG moved the new fiscal note for HB 400 be adopted. Number 072 CHAIRMAN VEZEY recognized the motion and asked the committee secretary to call the roll. The new fiscal note for HB 400 was adopted. Number 085 REPRESENTATIVE GARY DAVIS moved that HB 400 be passed out of committee with individual recommendations. Number 095 CHAIRMAN VEZEY recognized the motion and asked the committee secretary to call the roll. HB 400 passed from the House State Affairs Committee with individual recommendations. HB 373 - PERMANENT FUND INVESTMENTS IN REAL ESTATE CHAIRMAN VEZEY opened HB 373 for discussion. Number 127 WILLIAM H. SCOTT, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION (APFC), asked if PETE JEANS could join the table with him. CHAIRMAN VEZEY allowed his request. MR. SCOTT introduced himself. PETE JEANS, REAL ESTATE INVESTMENT OFFICER, ALASKA PERMANENT FUND CORPORATION introduced himself. Number 142 MR. SCOTT said, the APFC was not requesting the legislature do something that changes the investments the APFC already has, but actually to provide for better management of the real estate portion of APFC's assets and to improve the investment ability of these assets. MR. JEANS gave a background of the APFC and its acquisition of assets. APFC began investing 10 years ago, and the legislation that was passed allowed APFC to do 40 percent of any one real estate deal. The legislature then felt the APFC was inexperienced in dealing with real estate, and only 40 percent would force the APFC to "piggyback" on the major pension funds and institutional investors around the country. APFC started off in real estate doing comingled funds, the same as most of the pension funds around the country. They had very little control, and a lot of the properties they bought were in blind pools, so they didn't even know what they were buying. MR. JEANS said, after about a year or a year and one-half, APFC began separated account investments, co-investing with other major pension funds around the country. This worked well for APFC. There weren't that many pension funds investing in real estate, and APFC was able to negotiate some controls in the deals; although, they were always in the minority possession. The APFC would always ensure they had a "shoot out clause" or a "buy/sell arrangement," so they could get out of a particular investment. MR. JEANS commented money is now returning to the real estate markets, after their decline in the 1980s, as are pension funds; therefore, the APFC is competing with a lot of money to try to get decent real estate investments. The current statutes do not provide the APFC with the ability to negotiate for the controls they were able to get around five years ago. APFC has had to turn down deals because they could not get any kind of controls. MR. JEANS said, APFC has become a major investor in real estate markets, with smaller pension funds willing to co- invest with APFC; however, not having control of the real estate is very limiting. MR. JEANS stated the APFC Board did unanimously support Resolution 93-11. If HB 373 were to pass, the APFC would still co-invest on major deals, however, they would negotiate to have controls. With smaller properties they would choose to retain 100 percent control. MR. JEANS commented that APFC has become one of the top 10 major real estate holders of all the pension funds in the country. Number 254 REPRESENTATIVE OLBERG asked what took the APFC so long to introduce these changes. MR. JEANS replied, the APFC had been able to get their desired controls until the last couple of years. APFC is now losing out to co-investors, who are choosing to take over the whole deal. Other investors no longer need the funds of the APFC because of the recent influx of money in the markets. CHAIRMAN VEZEY asked if REPRESENTATIVE OLBERG was in favor of the concept of HB 373. REPRESENTATIVE OLBERG responded he was very much in favor of HB 373. CHAIRMAN VEZEY went through the contents of the packet. He questioned the Morrison & Foerster letter which frequently mentions the 1974 ERISA statute. He asked MR. JEANS to explain the letter. Number 314 MR. JEANS responded, the Morrison & Foerster outlined the legal points of the control issues, specifically the controls the APFC would no longer be able to acquire in a minority position. He noted the problems in negotiations are leading to enormous legal costs. Number 324 CHAIRMAN VEZEY quoted the Morrison & Foerster letter (on file), "We believe that this proposed amendment would be beneficial in carrying out the investment policies of the APFC for several reasons." He assumed the proposed amendment refers to the suggested statutory changes. Number 330 MR. JEANS confirmed CHAIRMAN VEZEY. He stated the APFC had been accepted in the real estate industry as the leader in co-investment. The APFC is written up almost monthly in different national magazines about co-investing. He referred to "The Institute in Real Estate" letter (on file), which covers the disadvantages of co-investment, and he stated it relates to some of the difficulties the APFC has come across. Number 348 REPRESENTATIVE FRAN ULMER pointed out the phrase she found in Resolution 93-11 adopted by the APFC Board which states, "The Alaska Permanent Fund Corporation has lost opportunities to acquire high return, low risk real estate." She stated the issue is, the risk is being changed by changing the percentage of ownership by the APFC. She assumed the previous legislature's debate over APFC controls was probably more over what level of risk was acceptable, and at what point would the permanent fund be put in a unacceptable higher risk category. REPRESENTATIVE ULMER asked, if HB 373 were to pass, what sort of risk limiting strategies does the APFC plan to employ. MR. JEANS responded, once a year, when the APFC has their asset allocation for the permanent fund, the APFC Board passes a resolution that governs the real estate investments. The resolution is rather specific regarding what APFC can do as far as property type and amounts to about 20 pages. Number 391 MR. SCOTT continued, the APFC is also restricted, whereby they cannot buy a property which is not at least substantially leased, meaning 75-80 percent occupied. With HB 373, the APFC will continue to co-invest; however, with the ability to have more than 40 percent, they can easily put together 50/50, or 2/3 and 1/3 deals. APFC would like equal or complete control. REPRESENTATIVE OLBERG did not think the degree of risk would change, as compared to the degree of exposure. Risk is inherent in an investment. Number 413 MR. JEANS believed some of the risk would be eliminated with the gain in control of the property deals. He gave an example of property found by the APFC, introduced to Colorado for co-investment with the APFC's commitment to fund the property when it was leased, and Colorado took over the whole deal when the APFC kept vying unsuccessfully for controls. In 1993, the APFC had almost four deals fall out in this manner. Number 433 MR. SCOTT pointed out APFC exposure is limited by their asset allocation percentage. Number 438 CHAIRMAN VEZEY thought the legislature would be concerned that fiducial standards would not be decreased. Without controls, the APFC would establish less fiducial responsibility, than with controls. MR. JEANS replied CHAIRMAN VEZEY was correct. Number 449 CHAIRMAN VEZEY clarified the APFC Board has policies intact which preclude it from investing in development properties. MR. JEANS confirmed CHAIRMAN VEZEY. Number 454 CHAIRMAN VEZEY continued the APFC would also be precluded from investing in speculative properties without reasonable assurance of positive cash flow. MR. JEANS responded that provision would remain in statute. Number 460 CHAIRMAN VEZEY asked what degree of public scrutiny would any policy change by the Board receive. MR. JEANS said proposed changes are advertised for Board meetings and the resolution passed every year is done at a public meetings. Number 467 CHAIRMAN VEZEY stated the actions of the APFC Board are reviewed by both the Governor's Office and the legislature. The APFC is subject to frequent audits by the Legislative Budget and Audit Committee. Number 473 REPRESENTATIVE PETE KOTT pointed out to the committee there is a companion bill to HB 373 in the Senate with four committee referrals. This companion bill already had a committee substitute offered in the Senate State Affairs Committee. HB 373 only has two committee referrals. Number 478 REPRESENTATIVE OLBERG moved HB 373 be passed from committee with individual recommendations. Number 480 CHAIRMAN VEZEY recognized the motion, the committee secretary called the roll, and HB 373 passed from the House State Affairs Committee with individual recommendations. HB 483 - PERMANENT FUND DIVIDEND FOR ABSENT INDIVIDUALS CHAIRMAN VEZEY opened HB 483 for discussion. Number 497 REPRESENTATIVE PETE KOTT, prime sponsor of HB 483, addressed his bill. He felt HB 483 conforms to the original intent of the permanent fund dividend (PFD) program. He stated HB 483 would provide a dividend check for those who intend to remain in Alaska. This was challenged in the U.S. District Court in 1986, and confirmed. The intent of HB 483 is to place into trust accounts within the dividend, or general fund, dividends for those individuals who remain out of state for more than 181 consecutive days in a permanent fund calendar year. Individuals would not receive their check for that year, instead they would continue to apply and the money would be appropriated into an account by the Permanent Fund Division. This money would be provided to the individuals, once they return to the state and have met the existing requirements. REPRESENTATIVE KOTT felt HB 483 would help prevent potential fraud. He brought version E of the committee substitute, before the committee. Number 528 REPRESENTATIVE OLBERG moved to adopt version E of the committee substitute for HB 483. Number 529 CHAIRMAN VEZEY recognized the motion and asked the committee secretary to call roll. The version E of the committee substitute for HB 483 was adopted. Number 533 REPRESENTATIVE KOTT announced there had been changes from the original bill which are essentially conforming changes to the existing policy. Number 535 JACK PHELPS, REPRESENTATIVE PETE KOTT'S STAFF, outlined the changes made by the CS for HB 483. The changes made were primarily technical, recommended by the Department of Revenue, to make the PFD program easier to operate. They had suggested the language in CSHB 483, relating to the amount of days absent, conform to existing regulations. He referenced paragraph 1, lines 10-11, the allowable absence was increased in the returning year from 30 days to 90 days. Currently, the state allows for an unexplained absence up to 90 days, and if a stricter standard in the requalifying year was applied, an equal protection problem could arise. A stricter standard would also have required additional oversight by the Department of Revenue to review those individuals with a 30 day absence limit separately from individuals with a 90 day absence limit. MR. PHELPS noted the change in paragraph 2 is strictly technical, not changing the intent the HB 483. MR. PHELPS stated subsection (D), lines 8-9 of HB 483 became unnecessary once the other changes had been made; therefore it was deleted. Number 566 CHAIRMAN VEZEY pointed out paragraph C, section 1, dealing with the subject of probate, and asked if REPRESENTATIVE ULMER concurred with the wording. He felt it was the wrong approach to pay part of an estate to an appropriate person, rather than paying the money the estate. Number 574 MR. PHELPS responded subsection C is included in CSHB 483 to cause the bill to be consistent with its purpose. One of the stated purposes of the dividend program, affirmed by court decision, is to encourage people to maintain their residence in Alaska. CSHB 483 provides a mechanism for people to demonstrate their intention to maintain their residency in Alaska. Subsection C is included to account for those individuals who die before they can demonstrate their intent. Number 593 CHAIRMAN VEZEY asked how the PFD Division could determine who the appropriate person would be to distribute money. REPRESENTATIVE ULMER replied she would have drafted CSHB 483 "to the estate of the individual", as opposed to "the person." REPRESENTATIVE G. DAVIS felt, after listening to MR. PHELPS' statement, that it would be up to someone else to show the intent of the deceased person. He did not believe this would be possible. Number 605 CHAIRMAN VEZEY interpreted the statute as to someone who has applied, expressing their intent, however, died in the process. He thought the PFD would automatically be paid. CHAIRMAN VEZEY wanted to know how the funds would be issued. A tremendous responsibility may be lifted from the PFD Division if the funds were paid to the estate, plus the funds would capitalize the estate when capital for the estate may be needed. CHAIRMAN VEZEY mentioned estate litigation can continue for several years. MR. PHELPS clarified CHAIRMAN VEZEY's point was that the funds could be paid to the estate, and not a particular person. Number 620 CHAIRMAN VEZEY stated the legal definition of "person" would include an estate. REPRESENTATIVE OLBERG questioned how many dividends an individual could receive after being out of the state for a period of time. If, for example, an individual has been out of the state for 20 years, and had the dividend denied because of not visiting enough, would CSHB 483 apply. Number 628 REPRESENTATIVE KOTT replied if they were originally going to get the dividend check, they would continue to be allowed to receive the dividend check with CSHB 483. CSHB 483 would place their money into an account. Number 631 REPRESENTATIVE OLBERG clarified the individual had been disallowed in his example. Number 632 REPRESENTATIVE KOTT responded if the individual had been disallowed he/she would have been disallowed under CSHB 483. Number 633 REPRESENTATIVE OLBERG asked the benefit of CSHB 483. REPRESENTATIVE KOTT answered, under current practice, individuals with uncertain intent are receiving dividends. CSHB 483 closes this loophole. An individual has to return for over a year. Number 645 MR. PHELPS pointed out subsection (B) clearly states any time during that period, if a person fails to apply or fails to qualify, they have disallowed themselves for the dividends. A person cannot leave for three years, not qualify for one year, and expect to return and collect those three previous years. Number 654 REPRESENTATIVE OLBERG asked how Congressman Don Young would respond to CSHB 483. REPRESENTATIVE ULMER thought Congressman Don Young would receive a dividend check, anyway. CHAIRMAN VEZEY introduced TOM WILLIAMS as the next to testify. Number 662 TOM WILLIAMS, DIRECTOR, PERMANENT FUND DIVIDEND DIVISION, DEPARTMENT OF REVENUE, answered questions on CSHB 483. The PFD Division did supply zero fiscal notes for both the original HB 483 and CSHB 483. He felt it would be simple to administer the program under CSHB 483. The PFD Division does currently issue dividends to the estate of a deceased individual, if the individual had qualified and applied for the dividend before they died. He did not see a problem with the current language in CSHB 483 regarding this. MR. WILLIAMS stated the changes in CSHB 483 minimize the impact on the PFD Division, whereby additional forms would not have to be created. All those who were eligible would be included in the calculation of the dividend so there would not be an effect on the amount of the dividend. He pointed out the only difference would be, when it came time for payment, those specific individuals would be put in a special pending status, and the PFD Division would not issue their checks until they met the requirements of returning to Alaska and staying for all 90 days. Individuals would be sent a notice when the dividend would normally come up for payment. TAPE 94-22, SIDE B Number 000 MR. WILLIAMS continued, the first year in which the individual, with dividends on account, indicated on the application they had not been absent for more than 90 days would trigger the release of all prior year dividends. The PFD Division did not see any problems in administering the program. Number 020 REPRESENTATIVE ULMER clarified CSHB 483 would include all those individuals out of state on an allowable absence. MR. WILLIAMS confirmed REPRESENTATIVE ULMER. Number 028 REPRESENTATIVE ULMER asked if the money not paid out of the PFD every year the individual is absent would be kept in separate accounts, for example, a separate account for FY 95, FY 96, FY 97 or will it be kept in the one big dividend pool. MR. WILLIAMS answered there is one dividend fund. Every year, the money left over, the PFD Division transfers in earnings from the APFC, deducting administrative costs and prior year dividends. The remaining money is used to calculate the current year dividends. He said there was no need for a separate account and prior year obligations would be reserved in the fund itself. Number 059 REPRESENTATIVE ULMER inquired if CSHB 483 would have any impact on the calculation of the dividend level in the future. She felt if an individual collects their dividends after ten years, and the money has been kept in the fund for all of those years, it may offset the new calculations. MR. WILLIAMS responded the only effect would be if someone who previously claimed a dividend, and had been included in the calculation with a portion of funds set aside to pay their dividend, at some later point did not qualify for a dividend. Those funds would then be released and are included in a subsequent year's calculation. There would be a small incremental increase. There would not be a detrimental effect on the dividend. Number 107 REPRESENTATIVE ULMER clarified the excess money would be put aside so the PFD would always be able to be paid. Number 109 MR. WILLIAMS noted there is no provision in the dividend fund for setting something aside and paying interest on it. Therefore, the money would not accrue interest, because the funds are not set aside separately. Number 119 REPRESENTATIVE G. DAVIS stated he understood CSHB 483 would include college students, also. Students would not receive their dividends until they returned for a year from college. Number 125 MR. WILLIAMS corrected CSHB 483 states "181 consecutive days" and any college student returning in the summer would not have their dividend withheld. The qualifying year would be a calendar year. Most students would not be absent for a straight 181 day consecutive period. Number 147 REPRESENTATIVE G. DAVIS stated most students attend school from September-June and he thought they would be required to come home for Christmas. CHAIRMAN VEZEY clarified the calendar year begins January 1 and ends December 31. Number 165 REPRESENTATIVE OLBERG asked if the committee wanted to amend paragraph C, line 7, deleting the words,"the appropriate person on behalf of," and just pay the dividend to the estate of the individual. CHAIRMAN VEZEY responded MR. WILLIAMS indicated the wording was not a problem. He asked REPRESENTATIVE ULMER if the wording troubled her. Number 176 REPRESENTATIVE ULMER felt the wording was fine, as long as MR. WILLIAMS was comfortable with it. She note saying "to the estate" would be cleaner. REPRESENTATIVE G. DAVIS moved to pass CSHB 483 from committee with attached fiscal notes. Number 200 CHAIRMAN VEZEY recognized the motion and asked the committee secretary to call the roll. CSHB 483 passed from HOuse State Affairs Committee. CHAIRMAN VEZEY called a recess at 8:59 a.m. The meeting resumed at 9:10 a.m. SB 186 - STATE AGENCY PUBLICATIONS CHAIRMAN VEZEY said SB 186 by Senator Steve Frank was before the committee. CHAIRMAN VEZEY asked if anyone from Senator Frank's office was there to give a sponsor statement. Seeing no one from Senator Frank's office, the committee moved on to HB 328. HB 328 - BIENNIAL VEHICLE REGISTRATION CHAIRMAN VEZEY opened HB 328 for discussion. Number 228 REPRESENTATIVE KOTT, HB 328 subcommittee chair, moved that version R of committee substitute for HB 328 be adopted. Number 236 CHAIRMAN VEZEY recognized the motion and hearing no objection, version R of CS for HB 328, was adopted by the committee for discussion. Number 237 REPRESENTATIVE KOTT noted there were two major changes made to HB 328 which deal with policy. First, who'll be collecting the emission taxes. Secondly, the fee structure. Number 250 JANE BUTLER, REPRESENTATIVE PETE KOTT'S STAFF, outlined the changes made by CSHB 328. She indicated on page 8, line 26, "except for as provided under (d) of this section," and then "(d)". This does not require the municipality to collect the tax. If the municipality and a commissioner of Public Safety agree, upon their agreement, that is how they decide who collects the tax. She stated this would be the major change in CSHB 328. Number 265 CHAIRMAN VEZEY thought subsection (c) and (d) read differently; however, he understood MR. BUTLER'S intent. MS. BUTLER replied the change is basically that who collects the tax will be decided between the two parties. Number 277 REPRESENTATIVE KOTT confirmed CHAIRMAN VEZEY's interpretation. Number 280 REPRESENTATIVE ULMER asked how the eight percent tax rate was chosen. REPRESENTATIVE KOTT responded eight percent is currently in statute. REPRESENTATIVE ULMER inquired if the eight percent reflected what the program actually costs. CHAIRMAN VEZEY believed MS. HENSLEY had previously testified the Department of Public Safety was satisfied with the eight percent. Number 286 REPRESENTATIVE ULMER thought the percentage ought to be revenue neutral. The program should not cost the state. REPRESENTATIVE KOTT responded the state is currently collecting the tax and it has had a positive effect. Number 298 MS. BUTLER stated CSHB 328 needs to be changed on page 6, line 22, and on page 10, line 24, to read "biennial", instead of "annual." She also mentioned the fee structure on page 7, section 16, had been questioned as to whether or not CSHB 328 needed to dictate it. If the municipalities were allowed to collect their own taxes, she noted, then a fee structure would not have to be present in CSHB 328. DMV and the sponsor would rather have this issue taken up in the Finance Committee. Number 332 REPRESENTATIVE G. DAVIS asked what REPRESENTATIVE TERRY MARTIN's rationale is in reducing the fee lower than $35. JEANIE LARSON, REPRESENTATIVE TERRY MARTIN'S STAFF, responded that REPRESENTATIVE MARTIN, CSHB 328 SPONSOR, wanted to encourage people to adopt the biennial registration by lowering fees. He also felt making the fees less would make people more likely to register their cars. She noted there is an approximate 10 percent reduction in cost to the DMV. There will also be less need to hire new staff. Number 354 REPRESENTATIVE ULMER thought the intent of biennial registration was to save the state money and time. She noted CSHB 328 may save the state some staff time; however, at the price of $4.5 million, CSHB 328 did not sound like a good deal. She asked what the purpose of CSHB 328 would be. MS. LARSON responded REPRESENTATIVE MARTIN felt savings should be passed on to the consumer, and CSHB 328 would be a trade off with the decrease in staff time and new hires. Number 369 REPRESENTATIVE OLBERG asked why there was a difference in fees for pick-ups and mobile homes. MS. LARSON stated those fees were in current statute. JUANITA HENSLEY, CHIEF OF DRIVER SERVICES, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF PUBLIC SAFETY, answered questions on CSHB 328. Number 393 REPRESENTATIVE ULMER inquired what the fees would have to be to keep CSHB 328 revenue neutral. Number 395 CHAIRMAN VEZEY responded HB 328 had been discussed thoroughly at previous meetings she did not attend, and answered the existing fees would have to be doubled to make the bill revenue neutral. He thought the proposed fees in CSHB 328 are 1.5 times the existing fee, rounded off to the highest dollar. To be revenue neutral, the fee would have to be two times the existing fee. Number 402 REPRESENTATIVE ULMER asked why the committee chose not to make CSHB 328 revenue neutral. CHAIRMAN VEZEY replied the committee had referred HB 328 to a subcommittee and had asked them to report back. Number 408 REPRESENTATIVE KOTT, HB 328 subcommittee chair, answered the subcommittee worked with the sponsor and he felt there should be savings passed on to the consumer. He emphasized CSHB 328 did have a Finance referral and he was sure they would take care of the problem if there was a negative fiscal effect. He noted the committee had passed an earlier motor vehicle registration bill which increased registration fees. He felt the Finance Committee would take both bills into consideration. Number 427 REPRESENTATIVE G. DAVIS asked if the subcommittee had discussed with the sponsor that it would still be a benefit to the public to have the opportunity for biennial registration, even at the same rate. Number 434 REPRESENTATIVE KOTT replied it had been discussed, but the sponsor disagreed and the subcommittee succumbed to the sponsor. Number 438 REPRESENTATIVE OLBERG suggested CSHB 328 penalized people for requiring them to produce $70, instead of $35. Number 444 MS. HENSLEY stated CSHB 328 would allow individuals to also use credit cards if the DMV were to obtain the funding to pay the credit card fees. The $70 could be paid off over a period of time. REPRESENTATIVE OLBERG responded it did not cost anything to use a credit card, but it would be an additional revenue loss. He thought the state of Alaska would probably get a discount rate of one-two percent. Number 453 CHAIRMAN VEZEY thought this would account for certainly less than the time value of the money involved. MS. HENSLEY directed comments toward REPRESENTATIVE ULMER'S previous question regarding the eight percent administrative fees the state collects. She responded the fees would be deposited into the general fund. The DMV collects approximately $5.9 million from the municipalities, which would be would percent. She noted deleting the administration tax from DMV would also incur a several hundred thousand dollar loss to the state. Number 462 CHAIRMAN VEZEY believed approximately $400,000 would be lost as he remembered from previous testimony. Number 464 REPRESENTATIVE ULMER asked why the state would want to delete the administration tax from the DMV. Number 465 MS. HENSLEY replied some tax structure would have to be changed to allow municipalities to go to a biennial tax collection, as well as the DMV. The current tax structure corresponds with an annual registration and collection of fees. Number 473 REPRESENTATIVE OLBERG asked if CSHB 328 would be phased in. He was concerned about the following year, having no one to register, after the first year biennial registration begins. Number 477 MS. HENSLEY replied CSHB 328 does allow half the registrations to be done one year, and half the registrations to be done the next. Number 483 CHAIRMAN VEZEY moved to the Anchorage teleconference site. Number 485 RON KING, DEPARTMENT OF ENVIRONMENTAL CONSERVATION (DEC), answered questions on CSHB 328. Number 490 REPRESENTATIVE ULMER asked if MR. KING had reviewed the new CSHB 328 and if he had any problems with it. MR. KING responded DEC was preparing a fiscal note with an explanation of the impact of CSHB 328. Anchorage and Fairbanks staff for the vehicle inspection program are very concerned about the loss of effectiveness by changing to biennial registration. Annual inspections and annual registration provide the strongest enforcement mechanism available. Fairbanks feels the biennial program will be difficult to enforce and the additional work force will have a limited enforcement mechanism. MR. KING stated there were two areas which DEC felt were crucial for their ability to implement the program. First, a fee structure would have to include 4.5 positions, 3.5 within the DEC and 1 within the DMV. This addition would cost approximately $450,000. Secondly, a bailable offense would have to be added, which would take violators to either civil or criminal court. With a bailable offense, DEC would be able to hold additional employees at 4.5. Without a bailable offense, in Anchorage an additional five positions would have to be added costing approximately $100,000 more. Number 528 CHAIRMAN VEZEY asked MR. KING to explain his large fiscal note position. Number 532 MR. KING answered there would be two investigators in the Fairbanks regional office, combining equipment, utilities, supplies, and commodities, it would cost approximately $85,000 per position. The half time district attorney would cost approximately $68,000. The remainder of the fees pay for stationary mail outs, postage at approximately $50,000. In Anchorage there would be four principal investigators, each costing approximately $85,000, with a full-time district attorney, costing approximately $110,000. The commodities and supplies would be contractual. He noted the additional court costs. MR. KING noted, with a bailable offense, additional funds and positions would not be needed within the municipality of Anchorage. The Anchorage Parking Authority would take over representations, in agreement with the municipalities, of the violators. Number 566 CHAIRMAN VEZEY asked the pleasure of the committee. Number 569 REPRESENTATIVE ULMER believed CSHB 328 should return to the subcommittee. Number 571 REPRESENTATIVE OLBERG did not like CSHB 328, but wanted to pass it on. Number 572 REPRESENTATIVE G. DAVIS asked if the committee would have to wait for the additional fiscal notes. CHAIRMAN VEZEY replied CSHB 328 could be passed with the current fiscal notes; however, there are new fiscal notes coming to the committee. Number 579 REPRESENTATIVE KOTT moved to amend CSHB 328 on page 6, line 22, and page 10, line 24, to change "annual" to read "biennial." CHAIRMAN VEZEY recognized the motion and hearing no objection, REPRESENTATIVE KOTT'S amendment was adopted. Number 591 REPRESENTATIVE OLBERG felt the fees should be amended, but they would probably be taken care of in the Finance Committee. Number 597 REPRESENTATIVE KOTT moved CSHB 328 be passed from committee with individual recommendations. He felt Finance should deal with the technical aspects such as funding. He noted the money for the extra positions, as mentioned by the DEC, would not come from the general fund. The positions would be covered by the program receipts. Number 605 REPRESENTATIVE ULMER objected to REPRESENTATIVE KOTT's motion. She felt passing CSHB 328 would not be responsible action by the committee as it costs almost $5 million and does not achieve very much. The small amount of less work is not worth the money that will have to be spent on CSHB 328. REPRESENTATIVE G. DAVIS also objected to the motion. He asked if there was the possibility of an optional biennial program, for those who may have the fees to pay biennially and others may pay annually. He would not vote to pass CSHB 328 from committee. REPRESENTATIVE OLBERG objected to the fee structure, and he would not want CSHB 328 to pass if it were to allow DEC to have that many positions. Number 625 MS. HENSLEY responded DMV has considered a biennial registration, and regardless of the passage of CSHB 328, they would consider it in locations where they did not have to collect the emissions testing certificate and the municipal taxes. DMV collects taxes for approximately 10 municipalities and they do already have biennial registration as an option. CHAIRMAN VEZEY asked the committee secretary to call the roll, and with 3 YEAS and 2 NAYS, CSHB 328 failed to pass from the House State Affairs Committee. HB 407 - COMMEMORATIVE GOLD RUSH LICENSE PLATES CHAIRMAN VEZEY opened HB 407 for discussion under bills previously heard. He stated a proposed committee substitute, version J, for HB 407 was before the committee. CHAIRMAN VEZEY asked if there was a motion before the committee to adopt version J of committee substitute for HB 407. Number 651 REPRESENTATIVE G. DAVIS so moved. Number 652 Hearing no objection, CHAIRMAN VEZEY announced CSHB 407, version J, was adopted. MS. HENSLEY, DIVISION OF MOTOR VEHICLES, DEPARTMENT OF PUBLIC SAFETY, addressed CSHB 407. She stated REPRESENTATIVE RICHARD FOSTER, introduced the first committee substitute, version E, which basically allowed the commemorative Gold Rush license plate to be displayed for a four year period. After the four year period, the Alaska flag plates would resume. MS. HENSLEY stated CSHB 407, version J, deletes the four year provision and the commemorative Gold Rush license plate would become Alaska's standard issue license plate, effective January 1, 1996. DMV is neutral on this version. There would be 25 percent of the public requesting the new plate and everyone would not be required to obtain a new plate. MS. HENSLEY noted the total operating cost to the state would be $45,000 for the first year, because it would only be for half of that year, $90,000 the next year, and $45,000 for every year thereafter. Revenued generated from CSHB 407 would be $67,000 the first year, $135,000 the second year, and $67,000 every year thereafter. CSHB 407 would generate revenue with program receipts. Number 688 CHAIRMAN VEZEY questioned if CSHB 407 could be phased in so existing stock of Alaska flag plates could be used before the new plates were issued. Number 691 MS. HENSLEY said yes, the DMV would use the current supply and be able to order specific amounts through capital funds. TAPE 94-23, SIDE A Number 000 (REPRESENTATIVE OLBERG left the meeting at 9:50 a.m.) REPRESENTATIVE ULMER inquired about the design and choice process the DMV goes through to pick a new license plate. Number 014 MS. HENSLEY replied the process flows through a developed committee comprised of interested individuals who review designs which are submitted by the public. For example, a car club designed a special car plate and the committee had final say over the appropriateness of the design. In terms of the Alaska flag plate, the committee was very involved in the actual design. REPRESENTATIVE ULMER asked if there was a cost associated with the design process. MS. HENSLEY answered there has not been a cost in the past. Artists usually submit their work and then they work with 3M Company on the paint and coverings required. CHAIRMAN VEZEY commented selecting a design using the Alaska flag involved a series of artistic decisions. REPRESENTATIVE ULMER had trouble visualizing a Gold Rush license plate. MS. HENSLEY stated the committee on the Gold Rush Commemorative plate has already submitted a sample design of a drawing they would like. The state of Alaska is outlined and then it has a miner with a pick and a gold pan in the middle. She commented that a sample could be made available for committees to see within a couple of weeks. (REPRESENTATIVE OLBERG returned at 9:52 a.m.) Number 076 CHAIRMAN VEZEY stated CSHB 407 would be held in committee pending transmittal of a fiscal note. He asked if the committee would be interested in an amendment which would allow the plates to be phased in as existing stock is used up. He thought it may produce a very minor cost savings. REPRESENTATIVE G. DAVIS believed CSHB 407 would end up phasing in the plates, anyway. Number 096 MS. HENSLEY stated she would provide the fiscal note to the Governor's Office on Monday morning. Number 102 Hearing no more business before the committee, CHAIRMAN VEZEY adjourned the meeting at 9:53 a.m. ANNOUNCEMENTS Alaska Railroad Subcommittee will meet at 10:30 a.m., March 5, 1994, to review the final draft of the Alaska Railroad Report. OTHER BILLS NOT HEARD HB 375 - PERMANENT FUND INVESTMENTS - LTD PARTNERS