SENATE COMMUNITY & REGIONAL AFFAIRS COMMITTEE February 14, 1996 1:37 p.m. MEMBERS PRESENT Senator John Torgerson, Chairman Senator Randy Phillips, Vice Chairman Senator Tim Kelly Senator Fred Zharoff Senator Lyman Hoffman COMMITTEE CALENDAR Report of the Local Boundary Commission 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." SENATE BILL NO. 207 "An Act authorizing the issuance and sale of revenue bonds to fund public wastewater systems, non-point source water pollution control projects, including solid waste management systems, and estuary conservation and management projects; authorizing the use of the Alaska clean water fund to pay and secure the bonds and to pay costs related to issuance and administration of the bonds; authorizing certain measures to secure payment of the bonds; and amending Alaska Rule of Civil Procedure 3." PREVIOUS SENATE COMMITTEE ACTION SB 20 - See Community & Regional Affairs minutes dated 2/22/95 and 2/7/96. SB 207 - See Community & Regional Affairs minutes dated 2/5/96. WITNESS REGISTER Darroll Hargraves, Chairperson Local Boundary Commission Department of Community & Regional Affairs 333 W. 4th Ave., Ste. 220, Anchorage, AK 99501¶(907)269-4500 POSITION STATEMENT: testified on the Local Boundary Commission Report Dan Bockhorst, Staff Local Boundary Commission Department of Community & Regional Affairs 333 W. 4th Ave., Ste. 220, Anchorage, AK 99501¶(907)269-4500 POSITION STATEMENT: testified on the Local Boundary Commission Report Joe Murdy Alaska Municipal League President Anchorage Assembly Member P.O. Box 196650, Anchorage, AK 99519-6650¶(907)343-4431 POSITION STATEMENT: supports SB 20 Dennis Egan, Mayor City & Borough of Juneau 155 So. Seward St., Juneau, AK 99801¶(907)586-5240 POSITION STATEMENT: supports SB 20 George Weurtz, Assembly Member Municipality of Anchorage P.O. Box 196650, Anchorage, AK 99519-6650¶(907)343-4431 POSITION STATEMENT: supports SB 20 Drew Scalzi, President Kenai Peninsula Borough Assembly 144 North Binkley, Soldotna, AK 99669¶(907)262-4441 POSITION STATEMENT: supports SB 20 Kevin Ritchie, Executive Director Alaska Municipal League 217 Second St., Ste. 200, Juneau, AK 99801¶(907)586-1325 POSITION STATEMENT: supports SB 20 Thomas Greene, Mayor City of Nondalton P.O. Box 89, Nondalton, AK 99640¶(907)294-2235 POSITION STATEMENT: supports SB 20 Judith Slajer, Chief Financial Officer Fairbanks North Star Borough P.O. Box 71267, Fairbanks, AK 99707¶(907)459-1370 POSITION STATEMENT: supports SB 20 Patrick Cole, Mayor's Staff City of Fairbanks 800 Cushman St., Fairbanks, AK 99701¶(907)459-6850 POSITION STATEMENT: supports SB 20 Lamar Cotten, Deputy Commissioner Department of Community & Regional Affairs P.O. Box 112100, Juneau, AK 99811-2100¶(907)465-4700 POSITION STATEMENT: supports SB 20 Bill Rolfzen Division of Municipal & Regional Assistance Department of Community & Regional Assistance P.O. Box 112100, Juneau, AK 99811-2100¶(907)465-4750 POSITION STATEMENT: supports SB 20 Representative Don Long State Capitol, Juneau, Alaska, 99801-1182¶(907)465-4833 POSITION STATEMENT: testified on SB 20 Donald Moore, Manager Matanuska-Susitna Borough 350 East Dahlia Ave., Palmer, AK 99645-6488¶(907)745-4801 POSITION STATEMENT: supports SB 20 Keith Kelton Department of Environmental Conservation 410 W. Willoughby, Ste. 105, Juneau, AK 99801-1795¶(907)465-5135 POSITION STATEMENT: representing governor-prime sponsor of SB 207 Lee Sharp 420 L St., Ste. 400, Anchorage, AK 99501¶(907)276-1969 POSITION STATEMENT: testified on SB 207 Bob Evans, Lobbyist Municipality of Anchorage 2822 Iliamna Ave., Anchorage, AK 99517¶(907)586-6252 POSITION STATEMENT: testified on SB 207 George Keeney City Planner & Public Works Director City of Cordova P.O. Box 1210, Cordova, AK 99574¶(907)424-6200 POSITION STATEMENT: supports SB 207 ACTION NARRATIVE TAPE 96-6, SIDE A Number 001 CHAIRMAN TORGERSON called the Senate Community & Regional Affairs Committee meeting to order at 1:37 p.m. The chairman informed everyone that he didn't intend the Local Boundary Commission's report to be turned into a debate on whether or not Lake Louise should be in or out of the Mat-Su Borough. As a matter of protocol, the legislature has 45 days to accept or reject the boundary commission's report. He then invited the chairman of the Local Boundary Commission to the table to make his presentation. Number 030 DARROL HARGRAVES, Chairperson, Local Boundary Commission, introduced Dan Bockhorst and Gene Kane, staff of the Department of Community and Regional Affairs and support staff for the Local Boundary Commission. He also introduced Pat Poland and Michael Cushing of the Department of Community & Regional Affairs. Also in attendance was Attorney Bob Hicks and former State Senator Vic Fischer. Number 064 CHAIRPERSON HARGRAVES introduced the other members of the Local Boundary Commission: Kathleen Wasserman-Vice Chairperson from Sitka, Nancy Cannington from Unalakleet, H. Toni Salmeier from Anchorage, and William Walters from Fairbanks. The annual report from the commission was filed with the legislature on January 17. Copies were provided to all legislators. If additional copies are needed, please contact Dan Bockhorst. Chairperson Hargraves informed the committee that the remarks made today reflect the information in the report. Number 080 CHAIRPERSON HARGRAVES remarked on the content of the Annual Report from the Local Boundary Commission (LBC). Number 278 CHAIRMAN TORGERSON stated it was his opinion that the LBC's recommendation that Lake Louise incorporate goes beyond the authority of the commission, in that the mandatory borough and the mandatory forming of a community rests with the Legislature, and not with commissions thereof. He agreed that the constitution clearly gives the boundary commission the opportunity to change boundaries, but he doesn't see anything that gives the commission the authority to mandate the formation of a local government. In committee members' bill packets are two letters from Tamara Brandt Cook, Director of Legislative Legal Services. The first one, dated January 27, 1996 answers the question of whether the Legislature can line-item veto a provision in the LBC's report: it cannot. In the second letter, dated February 13, 1996, Ms. Cook states: "I can find nothing that suggests that a court is likely to find that (the) LBC has acted beyond its power.... The court has recognized that the LBC is charged by statute (AS 44.47.567) with developing proposed standards and procedures for changing local boundaries.... The court has recognized that the purpose for creating the boundary commission was to deal with controversies over municipal boundaries that cannot be settled at the local level.... I expect that a court would find that the condition of incorporation imposed by the LBC in this case is in keeping with the purpose the commission serves." CHAIRMAN TORGERSON stated that letter didn't really answer his question as directly as he would have liked. He thought her response was basically that, it's never happened before, but it probably would be alright. He raised this point of issue, and he will probably pursue it through Legislative Legal Services, more for the precedence that it sets for other communities that think if they want to get out of a borough, all they have to do is form a second-class city. He still maintains that particular authority rests with the Legislature or with the people if they want to vote for it. Chairman Torgerson asked if there were any questions of the LBC. Number 315 SENATOR RANDY PHILLIPS asked how, mechanically, this $160,000 will work. DAN BOCKHORST, Local Boundary Commission Staff, replied it is an obligation that a future city of Lake Louise or the future Copper River Basin Borough would assume, and they would have to have the taxation power to generate the funds to repay the obligation. It would be a debt that the municipal government would have. SENATOR RANDY PHILLIPS stated he understands that, but he wants to know who will enforce it. MR. BOCKHORST responded that the matter has been discussed with the Department of Law, and it is an enforceable obligation. SENATOR RANDY PHILLIPS asked if DCRA, through Department of Law, would be able to enforce payment within two years. MR. BOCKHORST replied that the Department of Law envisions that the Matsu Borough could, and certainly the State of Alaska could attempt to do so as well, enforce that obligation. Number 333 SENATOR KELLY asked if it would be correct to say the money would be collected by forming a second-class city, and then having that second-class city collect property taxes. MR. BOCKHORST replied that is correct. SENATOR KELLY asked if the Lake Louise area has been paying $160,000 per year to the Mat-Su Borough. MR. BOCKHORST responded they have been paying approximately that much money. SENATOR KELLY commented that obviously there is a tax base there. His only question about the Lake Louise situation, is how the school scenario has been working. Is it correct that students haven't been going to Mat-Su schools? MR. BOCKHORST responded that is correct. The students have been attending school in the Copper River Basin. The Copper River Basin has been funded directly for those students through the education foundation program. The Mat-Su Borough is not even involved in the education of those students. SENATOR RANDY PHILLIPS commented it is only three or four students. SENATOR KELLY asked if nothing would change in that regard. MR. BOCKHORST responded that is correct. One change, in terms of the education funding, is that the Matsu Borough is making a local contribution in support of its schools that includes property within the Lake Louise area. And that Lake Louise area will be moving into the unorganized borough, so there will be a loss of local contribution on the part of the Matsu Borough, which is described in the LBC report. Number 354 CHAIRMAN TORGERSON asked the record to show that Senator Hoffman joined the committee meeting. The chairman remarked that the committee is going to start having hearings on the mandatory borough act. He knows that some of the concerns of the LBC have to do with workload, and he knows if the mandatory borough act does pass the Legislature, it will create a substantial amount of work. Chairman Torgerson asked the LBC to review that. If they have comments on that today, he would certainly hear those comments. He asks that the LBC begin preparing information on the mandatory borough act. Number 365 SENATOR RANDY PHILLIPS asked how real the Copper River Basin Borough is. CHAIRPERSON HARGRAVES responded that one of the things that became clear to the LBC is that when we put the requirement for the borough, we put Lake Louise folks in kind of an untenable situation: we judged that Lake Louise was an area that needed to be detached from the Mat-Su Borough, but when we required that they form a borough, that was a likely impossibility for them. We've not been petitioned out of the Copper River Area to create a borough. Yet, if you look at the total entity, it looks like a nice, compact area for a borough. We don't anticipate petitions from them in the near future. CHAIRMAN TORGERSON stated that the legislation he's introduced mandating boroughs uses LBC's 1993 report. CHAIRMAN HARGRAVES noted those are the model-borough boundaries the LBC set up. CHAIRMAN TORGERSON stated it is his understanding that those boundaries were penciled in such a way that a local government could operate within that tax base. Is that true? MR. BOCKHORST responded that in terms of economic viability, that was the one issue that the LBC didn't really consider with respect to the model borough boundaries. But prior to that, in 1988 and 1989, DC&RA had done a number of borough feasibility studies throughout the state in the unorganized borough. There were a great many of the areas that were determined to be viable, at least for a minimal form of government. The regions in the western part of Alaska might be an exception to that. CHAIRMAN TORGERSON thinks the Copper River Borough is one of the richer boroughs, because of the pipeline. SENATOR ZHAROFF asked if there is something already in place specifying formation of boroughs. CHAIRMAN TORGERSON replied he's introduced legislation. SENATOR ZHAROFF asked if there was anything predating that. CHAIRMAN TORGERSON and CHAIRPERSON HARGRAVES responded the constitution specifies the formation of boroughs. SENATOR ZHAROFF asked, then why do we have to have legislation to do that? CHAIRMAN TORGERSON stated it was to spur things along. SENATOR ZHAROFF commented that things are only going to move so fast anyway. SENATOR RANDY PHILLIPS said it would be a reminder. SENATOR ZHAROFF stated that seems redundant. CHAIRMAN TORGERSON stated he would be right behind Senator Zharoff in enforcing the constitution. If we don't need the legislation, he will be the first to pull it. Number 395 CHAIRMAN TORGERSON, hearing no other questions, thanked the LBC for their presentation. SB 20 ALASKA MUNICIPAL BASIC SERVICES PROGRAM Number 400 CHAIRMAN TORGERSON brought up SB 20 as the next order of business. The committee began by hearing an overview by the Alaska Municipal League (AML). The chairman stated that SB 20 is an attempt to rewrite the municipal assistance and revenue sharing programs that the State of Alaska has in place. The original intent of the bill was to come up with a creative formula that all the municipalities in the State of Alaska would think was a wonderful thing. Over the years, that hasn't been achieved without creating winners and losers. The intent is to prioritize services deemed necessary, which the state will reimburse municipalities for performing. The state will reimburse for mandated services. We will do this without actually changing much of the formula. The formula is maintained the same. There will be some changes in allocation of funds, because we are raising the minimum entitlement up to $40,000. Number 415 SENATOR KELLY asked if there is a fiscal note for SB 20. CHAIRMAN TORGERSON responded there is not a fiscal note for SB 20. We are making the changes within the funds appropriated to municipal assistance and revenue sharing. There is a spreadsheet in members' bill packets showing that. He has asked the AML to give approximately a 15 minute overview of how things are now, and how SB 20 would change things. JOE MURDY, Alaska Municipal League President, Anchorage Assembly Member, thanked Chairman Torgerson for his work on SB 20. Mr. Murdy introduced Mayor Tom Green, Vice-President of the Alaska Conference of Mayors. Mr. Murdy stated that Mayor Mystrom of the Municipality of Anchorage, President of the Alaska Conference of Mayors, was not able to attend, but he sends his greetings and urges support of SB 20. Mr. Murdy noted that a letter from Mayor Mystrom had been distributed to committee members. Other members of the Alaska Conference of Mayors assisting in the presentation were: Mayor Dennis Egan of the City & Borough of Juneau, George Weurtz, Assembly member from the Municipality of Anchorage and Co- Chairperson of the AML Legislative Committee, Drew Scalzi, President of the Kenai Peninsula Borough Assembly, Kevin Ritchie, Executive Director of the AML, and Tom Greene, Mayor of Nondalton, Vice President of the Alaska Conference of Mayors, and 1st Vice President of the AML. Other municipal officials were on-line via teleconference to offer comments and support, as well as in the audience today. Between the AML and the Conference of Mayors, the group represents over 135 municipalities, and over 95 percent of Alaska's population. The issue in SB 20 is fully supported by the members of both groups. Most of the concepts in SB 20 were proposed by a committee of the Alaska Conference of Mayors. Number 468 MAYOR DENNIS EGAN, City & Borough of Juneau, stated SB 20 is a critical goal of both state and local governments. The safe communities fund legislation is one of the first steps in what will be a long process to create stability in taxation and services for citizens. Mayor Egan explained some charts which give an overview of the partnership between state and local governments in providing services. The first chart shows that municipal budgets together, are approximately the same size as the state operating budget. The main overlap is the provision of education services, which is a constitutionally mandated responsibility of state government, but is largely administered on the local level. The second and third charts show an overview of state and local government services. Please note that a large number of the state services overlap with the services of local governments, for example: public safety, transportation, health and social services, and education. These charts show that there is no clear distinction between the state and local responsibilities. The fourth chart shows how state and local government is paid for in Alaska. People who assert that Alaska has very few or no personal taxes are clearly wrong. Alaska funds over 40 percent of it's services from personal taxes and fees, and the vast majority of those are collected by local governments. Alaska's fiscal crisis is the wedge of the pie chart marked "state reserves, 10 percent." He added that although Alaska's municipalities are proud of our role in supporting Alaska's budget, we have been given little choice in the matter. Number 508 MAYOR EGAN stated that since 1986, when oil revenues began decreasing, the state has cut municipal assistance and revenue sharing by over 60 percent, without generation of new revenue by the state nor significantly decreasing the overall dollar amount of its' budget. He noted that the State of Alaska and municipalities share the same citizens. It simply doesn't matter whether a tax or a fee is a local tax or fee, or a state tax or fee: the cost is still the same to our citizens. However, how taxes and fees are structured may be of critical importance to all taxpayers in terms of equity and affordability. If the State of Alaska continues to ignore the impact of its actions on local services and local taxes, our ability to offer safe communities to our citizens will be threatened. We believe that rebuilding the relationship between the state and local governments is absolutely critical. The framers of the state constitution felt so strongly about the future relationship between state and local governments, it specified that there must be a local government agency in the executive branch. This is the only executive branch agency specified in the constitution. He asks that it be remembered that cutting revenue sharing is not cutting the state budget, it is a new sales tax or property tax increase to the taxpayers of Alaska, and should be represented to the public as such. Number 532 SENATOR RANDY PHILLIPS commented that Hillside people would debate the question that services provided by troopers and city police are indistinguishable. MAYOR EGAN replied that there are some situations like that. He thinks that if there was a debate like that in Juneau, they would finally distinguish between troopers and city police. There is only one trooper in Juneau anyway. Number 539 SENATOR KELLY asked how much state money Juneau has received for schools between 1986 and 1996. MAYOR EGAN responded that there has been no percentage increase in that period. SENATOR KELLY asked if Juneau was not receiving more money today. MAYOR EGAN replied Juneau is receiving more money, but the population has gone up a tremendous amount. SENATOR KELLY said the Conference of Mayors has good numbers on revenue sharing, and he asked if the conference has any numbers on education funding. He doesn't discriminate between education and road service at the local level. He asked how much money Juneau has received for education, on a percentage basis, since 1986. MAYOR EGAN responded that he didn't have that information in front of him, but he would get those figures for Senator Kelly. He pointed out that the local school district's budget is $40,000,000, and over 50 percent of that comes from local tax payers. SENATOR KELLY asked then if half came from the state. MAYOR EGAN replied that it comes from the state and from the federal government. 5.8 mills of property tax increases were due directly to decreases in state shared revenue and municipal assistance. SENATOR KELLY stated he is trying to make the point that there has been a tremendous increase in the amount of money that the state has sent to municipalities to fund education. The state considers that as one pot of money. Mayor Egan would like to differentiate between municipal revenue sharing and education. The state thinks education funding is also assisting local governments. That is his point. Number 560 GEORGE WEURTZ, Assembly Member, Anchorage Municipal Assembly, commented that the education issue is a dispute whether it is added up as local or state. According to the state constitution, education is a state responsibility. As the state becomes increasingly concerned with finding ways to balance its own budget, shifting more budget problems to local taxpayers increases. The governor's proposed budget for this year includes direct cuts estimated to be in excess of $15,000,000. In addition to the 8% cuts to municipal assistance and revenue sharing, there are direct cuts to school transportation, elimination of funding for the state senior citizen tax, and cuts to many other programs. Mr. Weurtz itemized some of the cuts. He contended that little or no consideration has been given by the state to the escalating and cumulative effects of these cuts on local taxes and local public services. He thinks SB 20 is a good step in the direction of a win-win solution for everyone. SENATOR RANDY PHILLIPS asked, regarding the language on page 4, line 17--[end of Side A] TAPE 96-6, SIDE B --communities, versus municipal assistance; isn't it the same cat, only a different color? MR. WEURTZ responded that the issue is the priority of where the money needs to be spent. These dollars are focused on the functions that create a safe community for our citizens. CHAIRMAN TORGERSON informed Senator Phillips that there would be a presentation on that subject by DCRA that will explain in more detail what we're doing. Number 582 SENATOR HOFFMAN stated, "The problem that I see is that that was the governor's proposed cuts, and [interference] even further cuts and those haven't been delineated by the budget subcommittees yet, but it is my vision that what's going to happen is we're going to see substantially higher cuts than what the governor asked from this legislature." MR. WEURTZ responded that is a point they're aware of and concerned about. SB 20 brings us to the table to talk about equity and fairness. Number 575 SENATOR ZHAROFF stated that his concern is that as communities dissolve, services will still be needed, and somebody is going to have to provide services. CHAIRMAN TORGERSON stated that is the main driving force behind raising the minimum entitlement up to $40,000, in order to try to shore up some of the communities that have been prorated down by cuts. It should be higher, but what we're trying to do by changing this formula is take the money out of existing communities. So we're taking money out of tax-base communities. This approach has the support of all the mayors and the assemblies. They recognize that if we don't shore up local governments in rural Alaska, we're not going to have local governments in rural Alaska. Number 562 DREW SCALZI, President, Kenai Peninsula Borough Assembly, stated SB 20 is about stabilization. The state and municipalities need to get revenues and expenditures stabilized in order to have safe and prosperous communities. Mr. Scalzi explained three charts to the committee: the first one illustrates how we fared; the second chart gives proof of the correlation between local sales and property tax increases and municipal assistance and revenue sharing; the third chart illustrates the history of funding for municipal assistance and revenue sharing programs. Sharing revenues with municipalities is done in all 50 states, and Alaska is below the average in the western states, even if one considers the education funding as part of the revenue sharing. The major advantage of municipal assistance and revenue sharing is that it gives municipalities their share of Alaska's oil wealth without strings and the high administrative costs, like most other state and federal programs. However, the same flexibility is a disadvantage to municipalities, which is a factor in determining why it has been cut so much. Number 530 KEVIN RITCHIE, Executive Director, Alaska Municipal League, stated that SB 20 would make six major changes: 1) change the name municipal assistance to safe communities; 2) tie funding to safe community types of issues; 3) the minimum entitlement for incorporated communities would be set at $40,000; 4) the program retains the former allocation formulas, but allows for a more equitable proration; 5) funding will be distributed on July 31; 6) only six communities would actually receive less funding if a decrease in revenue sharing occurred. MR. RITCHIE stated that the Alaska Municipal League and the Alaska Conference of Mayors view SB 20 as a good first step in building a revenue-sharing program that will continue to evolve and improve. Number 485 MAYOR THOMAS GREENE, City of Nondalton, stated that municipal governments have always been the leaders in finding creative ways to meet community needs. A survey of members conducted by the AML and the Alaska Conference of Mayors showed that all but two communities responding reported significant service cuts and or tax increases. Mayor Greene related some of the remarks from communities. He stated that passing SB 20 will cost the state almost nothing, but it will be an important step in improving the process and ensuring accountability of funds. Number 408 JUDITH SLAJER, Chief Financial Officer, Fairbanks North Star Borough, testifying from Fairbanks, stated she was speaking on behalf of the Mayor Jim Sampson. Ms. Slajer stated that the Fairbanks North Star Borough supports SB 20. CHAIRMAN TORGERSON asked Ms. Slajer to put the borough's support in writing and submit that to the committee. Number 390 PATRICK COLE, Mayor's Staff, City of Fairbanks, stated he was representing the Mayor. He stated that the city supports SB 20. CHAIRMAN TORGERSON informed everyone that SB 20 will not be passed out of committee today, because not everyone has had a chance to review it yet. It will probably be held for a week. Number 382 LAMAR COTTEN, Deputy Commissioner, Department of Community & Regional Affairs (DCRA), stated that the department supports SB 20. DCRA sees three essential features of SB 20: 1) no longer holding harmless the base amount; 2) a minimum grant of $40,000; 3) the funds would be distributed in July, instead of February. CHAIRMAN TORGERSON asked DC&RA to explain the spreadsheet distributed to committee members. The intent of the spreadsheet is to show last years' funding levels, what the hold-harmless is, and the effect of removing the hold-harmless. Number 340 BILL ROLFZEN, Division of Municipal & Regional Assistance, Department of Community & Regional Affairs, explained the spreadsheets distributed to the committee. SENATOR KELLY asked if, under the current system, everyone would get a check for the third column amount in February. MR. ROLFZEN responded that is not correct. The first column, the revenue sharing payments, go out on July 31 of each fiscal year. The municipal assistance payments, the second column, go out February 1. CHAIRMAN TORGERSON stated that under SB 20, those payments would be lumped together, because we're consolidating the program. SENATOR KELLY asked if the state has currently been adding that interest revenue on their own books. CHAIRMAN TORGERSON responded, more than likely. SENATOR KELLY commented that if it is a plus here, it's got to be a minus somewhere else. CHAIRMAN TORGERSON replied he is sure it would be. He asked how much money that would be. MR. ROLFZEN responded the municipal assistance distribution this year was $31,900,000. CHAIRMAN TORGERSON asked how much revenue sharing was. MR. ROLFZEN responded it was approximately $26,000,000. CHAIRMAN TORGERSON thinks that interest revenue would probably be in the fiscal note from the department, when those become available. DC&RA staff responded that it would be roughly in the neighborhood of $600,000. CHAIRMAN TORGERSON noted that amount would only be for a yearly basis, when we're referring to a six-month period. So he doesn't think it will be that high. However, Senator Kelly is correct in that there will be some impact somewhere. There was a discussion on how accrual of interest would possibly affect the amount of money available. Number 264 SENATOR ZHAROFF asked about communities not included. MR. COTTEN responded that Metlakatla participates in the revenue sharing program as an unincorporated community, but they participate in the municipal assistance program as a municipality. That's why they're not included in the general spreadsheet. Egegik, based on the date of incorporation, was not eligible for the FY 96 revenue sharing program but was eligible for the FY 96 municipal assistance program. It is noted that there is an attempt to take care of Metlakatla's problem through other legislation. MR. ROLFZEN stated that under SB 20, all of the municipal assistance money will now have to be spent on priority public services, whereas in the past, it could be spent by the municipality for any public purpose for which they were legally authorized to spend funds. This bill does not tinker with the revenue sharing formula. It would take about 60% of the total money and designate it for specific public services. CHAIRMAN TORGERSON notes the existence of another spreadsheet listing the hold-harmless portion, and how that is applied. The chairman called Representative Long to testify. Number 205 REPRESENTATIVE DON LONG, former mayor of Barrow and president of the AML, stated he spent most of the last year working on this subject. Currently, small communities are unincorporating because there is no support from the state. Citizens of small communities need support, just as do people of larger communities. He had no specific statement to make relating to SB 20 at this time. DONALD MOORE, Manager, Matanuska-Susitna Borough, stated he is conveying support from the borough and Mayor Lacher for SB 20. Right now, revenue sharing and municipal assistance is at about the same level as it was in the late 1970's. The guessing game that goes on from year to year is as much a hazard to us as the decline, so we appreciate the work that's gone into the development of this formula and this proposal. CHAIRMAN TORGERSON, seeing that there was no further testimony, stated that SB 20 would be held in order to receive further comment. SB 207 REVENUE BONDS: WATER & WASTE PROJECTS Number 138 CHAIRMAN TORGERSON brought up SB 207 as the next order of business before the Senate Community & Regional Affairs Committee. He stated it is his intent today to concentrate on the cap level we want imposed. There are several recommendations in members' bill packets. Number 114 SENATOR ZHAROFF asked which communities would actually be affected by SB 207. CHAIRMAN TORGERSON thinks that would depend on the language we put in the bill now. Currently, he thinks everyone supports that every municipality must have a revenue stream. Senator Hoffman has asked the committee to expand this and look at housing authorities. If we do get into housing authorities, the scope of this bill will be changed to bring in things that aren't a municipality. There are currently 162 municipalities in the State of Alaska. KEITH KELTON, Department of Environmental Conservation, stated, in answer to Senator Zharoff's question, that in members' bill packets is a list of the communities that DEC has made loans to in the six- year history of this program. They are primarily larger, urban communities that have a dedicated revenue stream. This does not preclude a smaller community with a revenue stream from entering in to this program. Any incorporated community with a revenue stream is eligible. He believes there have been 24 loans to date. One third of which have gone to Anchorage; that third represents about 60% of the money that has been loaned. It is anticipated that some of the smaller communities will participate in this program. But it is fair to say that the program is predominately designed to aid the larger communities. Number 070 CHAIRMAN TORGERSON asked Mr. Kelton if he's reviewed the amendment that Mr. Sharp sent to the committee defining "other qualified entity" and changing the name from state agencies. It goes on to say "regional housing authority". Do you support that amendment? What would the impact of that amendment be? MR. KELTON responded that he sees no problem with that amendment. He really doesn't see an impact to the program with that amendment. The amount to be loaned will depend upon the ability to repay the loan. For a regional housing authority to qualify, it is his understanding that this can only happen if they're tied in with a municipal government, and the municipal government remains responsible for repaying the loan. The government would remain the responsible entity. He asked for verification of his analysis of the amendment. CHAIRMAN TORGERSON thinks Mr. Kelton's analysis is correct. The chairman asked Mr. Sharp if he would like to make a statement. Number 030 LEE SHARP, testifying from Anchorage, thinks that once there is an agreement, the regional housing authority could exercise all of the authority of the municipality with respect to that particular facility. However, the state would still be in control of which entity they're going to lend the money to. TAPE 96-7, SIDE A Number 001 MR. SHARP stated that the municipality is the entity that would ultimately be responsible for repaying the loan. Number 010 CHAIRMAN TORGERSON asked Mr. Sharp how he reads the agreement between a municipality and a service area. Is that covered in the interagency language? Or is the intent to include a service area? MR. SHARP responded that there is no intent to include a service area. He still thinks that ultimately, it is the borough that would be the responsible agency. You could have a service area for the purpose of establishing a sewer system. But it would still be the borough that would be responsible for establishing fees to be charged and ensuring repayment of the loan. Number 040 CHAIRMAN TORGERSON asked if there could be a service area and a mill rate levied instead of a fee. Also, if the municipality could then dedicate that money as a revenue source. MR. SHARP responded there would have to be a vote to do something like that. CHAIRMAN TORGERSON asked if that could be done on just the service area level. MR. SHARP responded that it could. CHAIRMAN TORGERSON asked, would the creation of a service area, with the intent of entering into this agreement, establish that? He thinks it would. He asked if a municipality would have the power to raise taxes for one service area, or if it would have to be voted on by residents of the area. MR. SHARP replied that unless it is a home-rule municipality, there are some additional restrictions on the formation of service areas. The borough assembly can create a service area, then once it's approved by the voters in the service area, the assembly then has the authority to raise taxes in that area. The assembly does need the voters' approval if they're going to raise the sales tax just in that area. Number 109 CHAIRMAN TORGERSON stated he does not want municipalities to be precluded from entering into service area agreements with areas. The chairman stated that the amendment needs to cite federal statute USC 1383. The chairman has no idea what that is. MR. SHARP replied that is the Clean Water Act. CHAIRMAN TORGERSON asked how many regional housing authorities there are in the State of Alaska right now. MR. KELTON thinks there are 12 or 13. Number 155 SENATOR KELLY asked who Government Finance Associates, Inc. is. MR. KELTON responded that they are the financial advisors to the State Bond Committee in the Department of Revenue. That company was used as bond counsel to develop SB 207. Number 188 CHAIRMAN TORGERSON stated that the Municipality of Anchorage had submitted some suggested amendments, but he thinks they want to withdraw those amendments. SENATOR KELLY asked Mr. Evans if the municipality still wants the amendments adopted, or if they want them withdrawn. BOB EVANS, Lobbyist, Municipality of Anchorage, thinks they are, but he hasn't talked to them recently. There are a number of committees to which the bill still will go, so he thinks there will be opportunities to address that later. SENATOR KELLY thinks maybe they just don't want to submit them in the C&RA committee because of committee member opposition. CHAIRMAN TORGERSON stated it is the committee's intent to work out most of the problems before releasing SB 207 from committee. Number 199 GEORGE KEENEY, City Planner and Public Works Director, City of Cordova, testifying from Cordova, stated he supports SB 207. It will give municipalities another option for funding these projects. CHAIRMAN TORGERSON asked Mr. Keeney if he would like to see any amendments to the bill, or if he is happy with it as it is. MR. KEENEY responded he is happy with the way it is, except he would like to know about the ceiling on the bonds. CHAIRMAN TORGERSON replied that is currently not in the bill, but it is something the committee is discussing. He stated that SB 207 will be held over for one more meeting, and he asked committee members to think about what kind of cap they'd like to see. He is hopeful that a couple of the other committee referrals will be waived if the problems can be resolved in this committee. SENATOR ZHAROFF asked if the cap wasn't simply determined by the funds available. CHAIRMAN TORGERSON stated there is no cap now. They could sell as many revenue bonds as there is demand. MR. KELTON added that it would depend on what the market would bear. SENATOR KELLY stated that one assumption is that it would be stretched out quite a ways. CHAIRMAN TORGERSON responded that's where we might start. SENATOR ZHAROFF stated his concern with a cap would be that smaller communities might be edged out of the running for funds. CHAIRMAN TORGERSON replied that one suggested option would be to put a $250,000,000 cap and sunset it, so it comes back before us. There are members who think this program is circumventing the appropriations process. SENATOR ZHAROFF is concerned that some communities might not be able to get involved if the cap has been reached. CHAIRMAN TORGERSON thinks the division has criteria and a point system in use. SENATOR KELLY asked if they have had the ability to do this in the past. Number 255 MR. KELTON responded the way it's worked in the past is that DEC is under some federal requirements for the administration of the program. One of those is that we have to go out and solicit input on an annual basis from those communities interested in the program. We then rank those projects, put them out for a public hearing, and develop an annual intended use plan. So it's unlikely that there will be a need that we haven't anticipated. The only problem he can foresee is if there is a rapid increase in demand above the current level of demand, the cap might cause a problem. If you set the cap on a gross amount, say it can't go over $100,000,000 on an annual level, or put some kind of an upset limit on an annual basis, if we get one large project--normally we could fund $15,000,000 a year, with an upset provision on a single year base of another $5,000,000 or something, he thinks they could handle any of the concerns he can foresee happening in the immediate future. So he does not think it's a significant problem. SENATOR ZHAROFF asked if the committee could get something along those lines drawn up. CHAIRMAN TORGERSON asked Mr. Kelton if he could draw up something like that. MR. KELTON responded he would certainly give it a try. SENATOR KELLY commented that if this were a grant program, there would be no shortage of applicants, however, since it's a loan program, DEC doesn't anticipate such a big rush of applicants. MR. KELTON stated DEC has seen an increase. The first four years of the program, it was averaging about $7,000,000 per year. The last two years it's been 12-13 million. As the general fund capital budget gets harder to produce, he anticipates an increase. But he doesn't think it will be a dramatic amount. As the chairman has pointed out, DEC would have the opportunity to come back to the committee with problems. He doesn't see it as a problem that can't be taken care of. CHAIRMAN TORGERSON asked Senator Zharoff what exactly he wanted drafted up. Number 270 SENATOR ZHAROFF responded that if there is any type of a safety measure that could be put in SB 207 allowing some flexibility, he would like to see that. CHAIRMAN TORGERSON asked if the federal 80/20 match for this program was gone. MR. KELTON responded that is a good question, and until they reauthorize the Clean Water Act, they won't know for sure. DEC expects the Act to be reauthorized, even though they think it will be at a lower rate. CHAIRMAN TORGERSON stated he would get together with Senator Zharoff on the language and intent. He will reschedule SB 207 as soon as possible. SENATOR KELLY sees what Senator Zharoff is worried about: one of the larger cities taking all the money. CHAIRMAN TORGERSON shares that concern. In the past, DEC has handled that through their ranking system. SENATOR KELLY thinks that a lot of the communities getting the 80/20 money now won't be eligible for the loan money. CHAIRMAN TORGERSON also thinks there would be different requirements than the federal requirements. MR. KELTON noted that the requirements become less, as the money cycles through. CHAIRMAN TORGERSON adjourned the Senate Community & Regional Affairs Committee meeting at 3:32 p.m.