SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE February 22, 1995 1:40 p.m. MEMBERS PRESENT Senator John Torgerson, Chairman Senator Randy Phillips, Vice Chairman Senator Tim Kelly Senator Fred Zharoff Senator Lyman Hoffman MEMBERS ABSENT All members present COMMITTEE CALENDAR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 20 "An Act establishing the Alaska municipal basic services program, relating to certain programs of state aid to municipalities and recipients in the unorganized borough; and providing for an effective date." PREVIOUS SENATE COMMITTEE ACTION SB 20 - No previous action to record. WITNESS REGISTER Mayor Don Long, President of the Alaska Municipal League P.O. Box 629 Barrow, AK 99723 POSITION STATEMENT: Testified in support of SSSB 20 Doug Griffin Box 307 Valdez, AK 99686 POSITION STATEMENT: Supports SSSB 20 Leo Rasmussen Box 2 Nome, AK 99762 POSITION STATEMENT: Supports SSSB 20 Mayor Barbara Lacher Matanuska-Susitna Borough 775 E. Parks Highway Wasilla, AK 99645 POSITION STATEMENT: Testified in support of SSSB 20 Don Moore, Manager Matanuska-Susitna Borough 350 E. Dahlia Palmer, AK 99645 POSITION STATEMENT: Supports SSSB 20 Tom Smith, City Manager City of Palmer 231 W. Evergreen Ave. Palmer, AK 99645 POSITION STATEMENT: Testified in support of SSSB 20 Tom Quick, Vice Mayor City of Ouzinkie P.O. Box 109 Ouzinkie, AK 99644 POSITION STATEMENT: Supports SSSB 20 Gene Dusek, Budget Director Municipality of Anchorage P.O. Box 196650 Anchorage, AK 99519 POSITION STATEMENT: Testified in support of SSSB 20 Betty Glick Kenai Peninsula Borough Assembly P.O. Box 528 Kenai, AK 99611 POSITION STATEMENT: Testified in support of SSSB 20 Tom Boedeker, Attorney for Kenai Peninsula Borough 144 N. Binkley Soldotna, AK 99669 POSITION STATEMENT: Supports SSSB 20 Fred Armstrong Box 4 Kotzebue, AK 99752 POSITION STATEMENT: Supports SSSB 20 Lois Irvin 167 W. Bayview Homer, AK 99603 POSITION STATEMENT: Supports SSSB 20 Mayor Albert Dick City of Hoonah P.O. Box 360 Hoonah, AK 99829 POSITION STATEMENT: Supports SSSB 20 Mayor Alaire Stanton City of Ketchikan 334 Front St. Ketchikan, AK 99901 POSITION STATEMENT: Testified in support of SSSB 20 Mayor Thomas Greene City of Nondalton P.O. Box 089 Nondalton, AK 99640 POSITION STATEMENT: Testified in support of SSSB 20 Michael Cushing, Research Analyst Department of Community & Regional Affairs P.O. Box 112100 Juneau, AK 99811-2100 POSITION STATEMENT: Offered information on SSSB 20 ACTION NARRATIVE TAPE 95-5, SIDE A Number 001 SCRA - 2/22/95 SSSB 20 ALASKA MUNICIPAL BASIC SERVICES PROGRAM  CHAIRMAN TORGERSON called the Senate Community & Regional Affairs Committee meeting to order at 1:40 p.m., and noted Representative Ivan Ivan was in attendance. CHAIRMAN TORGERSON introduced SSSB 20 as the only order of business, and stated it was not his intent to pass the bill out of committee this date but to take only public testimony for the record. SENATOR TOGERSON opened the hearing to testimony over the Legislative Teleconference Network. Number 030 DON LONG, Mayor of Barrow and President of the Alaska Municipal League, testifying from Barrow, read the following prepared statement into the record: "The Alaska Municipal League strongly supports the concept embodied in this bill. It has not yet taken a position on the new changes in the sponsor substitute. The goal of the Alaska Municipal Basic Service is to educate the administration and the Legislature on the critical importance of state revenue sharing with municipalities. Each of the fifty states provide some form of revenue sharing with municipalities because political subdivisions carry out a large number of state mandates which would otherwise be totally unfunded state mandates. In Alaska, revenue sharing with municipalities is even more important because, in addition to many state mandates on municipalities, the current wealth of the state is primarily concentrated in a small area to the north. Without a redistribution of these resources to other areas of the state, current state services would virtually be impossible to sustain at any reasonable level. Likewise, without a reasonable level of revenue sharing with municipalities, the quality of life and essential services in many municipalities simply cannot be sustained. The January 25, 1995 Local Boundary Commission report to the Legislature notes that five municipalities are being recommended for dissolution. However, many more municipalities and areas of boroughs are seriously considering dissolution or detachment. Page 50 of the LBC report, which discusses the detachment of part of the Mat-Su Borough, states that the borough has been financially '..penalized because of incorporation. Anticipated continued reductions in state aid to local governments will only exacerbate the problem.' The financial cost to the state to provide services to additional unincorporated areas will be far greater than the cost of stabilization of revenue sharing at an adequate level. In the past nine years, the state has cut revenue sharing over 55 percent while the state operating budget has experienced moderate growth on the whole. It has been easy for the state to cut revenue sharing because the state is insulated from the decisions necessitated by the cuts. In fact, the cuts to revenue sharing have gone far beyond forcing political subdivisions to operate at maximum efficiency. The primary purpose for the creation of the concept of the Alaska Municipal Basic Services program is to gain your good faith support for the stabilization of state revenue sharing with municipalities this year and in the future." Number 090 DOUG GRIFFIN, City Manager, Valdez, presented a brief history on the concept of putting the legislation together. At the annual conference of the Alaska Municipal League in 1993, there was discussion about what members of the League and the municipalities could do to try to address dramatic cuts that have been made in revenue sharing. A resolution was passed and a committee was formed that looked at problems with the existing programs, and it was agreed that there was a need to come up with a better approach that they thought they could sell to the legislators: a category of basic services that legislators could relate to in terms of funds instead of a block grant approach. He said the bottom line is that they want to try to make is easier for the Legislature to understand the need for the dollars, the need for the services, and they see themselves as a partner with the state in providing critical services to Alaskans. Number 155 LEO RASMUSSEN, testifying from Nome, said in combining municipal assistance and state-shared revenue, they are hoping to maintain a program of funding from the state to all municipal governments with a reasonable level of funding. The level field they are trying to recreate was not created recently, but was created under a business tax program in 1978 and it has not been adjusted since. He said it doesn't matter what is done, there's going to be winners and losers. There is nothing fair about consolidation of basic services, but if something isn't done today, it is going to be even less fair when they take another 56 percent cut. He cautioned that if something isn't done early in the session with the legislation, that it will end up a political football, either failing to pass or completely rewritten. Number 195 BARBARA LACHER, Mayor, Matanuska-Susitna Borough, stated the borough supports the legislation in its present form. However, she observed that there will probably be a lot of changes between now and its passage, and she requested that members cautiously observe it through its process. Number 202 DON MOORE, Manager, Matanuska-Susitna Borough, voiced support for some kind of stabilization in the municipal assistance and revenue sharing funds. He suggested that as the committee works on the legislation to take a close look at the allocation formulas and the rationale that goes into them. He questioned why police are given a 17 percent allocation while fire and emergency medical services are given only 11 percent. He also suggested examining the philosophical change from rather than looking at local revenue generation, this seems to be based on local expenditures. Number 240 TOM SMITH, City Manager, Palmer, stated the city's support for SSSB 20 in its current form. The basic concept of the legislation is very good. He suggested the Legislature should keep dissolutions in mind because the state pays for them. He pointed out that last year petitions for dissolution of five cities were approved, and it is projected that 14 other cities may consider dissolution this year. Number 260 TOM QUICK, Vice Mayor of Ouzinkie, spoke on behalf of Mayor Chichenoff. He said they have been experiencing difficulty with managing their budget and coming up with enough money to provide essential services. The small communities don't have a taxation base; the majority of housing is provided by HUD and, as such, they are not permitted to tax that housing. He noted at the Alaska Conference of Mayors meeting in Homer, it was concluded that in a small community approximately $50,000 was about the minimum amount needed to provide the essential services, but under SSSB 20, the entitlement for his community is down to about $40,000. He stated he favors the bill overall, but he hopes that it can be kept down to as simple a concept as possible. Number 343 GENE DUSEK, Budget Director, Municipality of Anchorage, voiced the municipality's support for the concept of the municipal basic services program and their belief that the program makes a lot more sense than the current municipal assistance and revenue sharing programs. He expressed the hope that the Legislature will more adequately fund something that makes more sense. They see no real problem with the minimum entitlement provision, but they feel that the minimum entitlement should be subject to proration if funding is cut. He reiterated that the municipality is very supportive of the concept of the program, but they are concerned with the way the sponsor substitute is currently written and its impact on Anchorage. Number 390 BETTY GLICK, speaking on behalf of the Kenai Peninsula Borough Assembly, said they have been working with other municipalities to come up with a program that would be mutually acceptable to the Legislature and the local governments that does show some stability, predictability, and fiscal accountability. She said the Kenai Peninsula Borough supports the concept of SSSB 20 at this time, and they encourage the Legislature to continue working with the municipalities towards the development of a mutually acceptable program, keeping in mind that the municipalities are in partnership with the state. Number 420 TOM BOEDEKER, an attorney for the Kenai Peninsula Borough, said he has also served as chairman of thef Alaska Municipal League Legislative Committee, so he has been involved in this process. One of the issues that they addressed in the legislation, and they think is important for the Legislature to look at, is that the current program does not seem to garner a great deal of support when it comes time for funding. In fashioning a new program, they tried to determine what the essential services were, where the money was being spent, and identify those services and tie the funding to them so that it would have more support to show that the municipalities are providing these services. He pointed out that a certain portion of the state funding does go to provide services to the citizens, and that municipalities are often the best mechanism for delivering those services. Number 440 FRED ARMSTRONG, testifying from Kotzebue, stated support for the AMBS program. He spoke to the impact that the reductions in municipal assistance and revenue sharing have on small communities in his region. Significant reductions are seen as economic losses because local governments provide the majority of employment in their small communities. Any cuts not only affect the services but jobs as well. Since 1990, the City of Kotzebue has seen a 50 percent reduction in municipal assistance and 58 percent reduction in revenue sharing. He urged that legislators make a bipartisan effort to pass the legislation to ensure that municipalities can operate effectively. Number 460 LOIS IRVIN, testifying from Homer, expressed her appreciation for the legislation and her interest in seeing it passed by the Legislature. Number 490 MAYOR ALBERT DICK, testifying from Hoonah, voiced the City of Hoonah's support for the concept of SSSB 20. Like all the other communities, Hoonah has experienced major funding cuts in municipal assistance and revenue sharing. He said if the cuts continue, they may be losing their police department. Number 498 There being no other witnesses wishing to testify over the teleconference network, SENATOR TORGERSON closed that portion of the meeting and stated testimony would be taken in Juneau. Number 500 MAYOR ALAIRE STANTON of the City of Ketchikan related that she is also president of the Conference of Mayors. At their last meeting the conference passed a resolution in support of the concepts contained in SB 20. Even though the communities that she represents, Ketchikan, Saxman and the Ketchikan Gateway Borough do not either gain a lot or lose a lot under the current scenario, they feel that the concept contained in the revisions of the program are the ones they want to support. They believe it is appropriate that the state share in those basic services that are provided by the municipalities, because if the municipalities were not providing those services, the state would have to pick up on them. Number 510 MAYOR THOMAS GREENE of the City of Nondalton, speaking on behalf of the City of Nondalton and the Lake and Peninsula Borough, said it is quite obvious that the old programs are unfavorable in most areas of the state because of the conflicts of each program. The AMBS program puts this together and reflects a realistic look of what municipal basic services is. However, their are two concerns that both the city has and the borough has. One is the minimum entitlement and the other is the discretion of unincorporated communities within organized boroughs versus unincorporated communities outside of boroughs. There is thought that if both are sitting right on that boundary line providing the same services, one is going to do better just because it is outside of a borough. SENATOR TORGERSON said he had omitted a transition period in the original version of SB 20, mainly because of his concern that it would be leading this program to change the formulas by the transition instead of the merits of the bill. That transition period is in the sponsor substitute and it has raised a lot of questions. He asked Michael Cushing of the Department of Community & Regional Affairs to explain how the transition provisions would take effect, particularly if there was a cut to existing funding levels. MICHAEL CUSHING, Research Analyst, Department of Community & Regional Affairs, said as the transition provision is laid out in the bill, the provision provides for a maximum loss to municipalities of 2 percent in the first year compared to their FY 95 funding; in the next year it would 2 be percent compared to their FY 96 funding; and for the next year and out years it would be no more than a 5 percent loss in preceding years. He said the scenario is simple if we were to stay at the FY 95 funding level for the next 10 years. First they would run the basic formula that's presented in the bill. They would then put all of those numbers into the computer which would result in a new allocation. He agreed that when changing from one formula approach to another, there are going to winners and there are going to be losers. No matter what the formula, there is going to be someone changing up or down. Finally, the transition provision is applied. In this case, if there is a stable level of funding, essentially, you take money from the winners and move that down to the losers to bring that collective group of losers up to a maximum loss of 2 percent, so any given community would not lose more than 2 percent from the preceding year. However, if there was a fairly major cut in overall program funding, they would run the formula and see who are winners and losers in the formula. They would then attempt to do the second step of the process, which would be to take money from those who are still winners and move it down to those losers in attempt to bring them up to no more than a 2 percent loss. He added there is some point where there would not be enough winners to make up the money to bring the losers up to a 2 percent loss. TAPE 95-5, SIDE B Number 015 SENATOR TORGERSON asked if the 1978 business license tax base has ever received a cut since it has been in place. MICHAEL CUSHING responded that it hasn't. On the municipal assistance side, there is a $11.6 million base amount under municipal assistance, so if there are cuts to the municipal assistance program, they are taken out of the per capita sharing side of it. That base amount that is protected is about $11 million. SENATOR TORGERSON said he made that point because there may be people who are not aware that since this program has been existence, there are portions of it that aren't subject to a cut, and, with the AMBS program, all portions of the program are equal, except for unincorporated communities and volunteer fire departments. MICHAEL CUSHING said that exception would also include the $40,000 minimum entitlement communities once that is taken out. Number 035 There being no further witnesses wishing to testify on SSSB 20, SENATOR TORGERSON said it was his intent to continue working with the Alaska Municipal League and the Conference of Mayors on the formula and the transition provision. He then adjourned the meeting at 2:30 p.m.