MINUTES SENATE FINANCE COMMITTEE February 8, 1993 9:05 a.m. TAPES SFC-93, #14, Side 2 (561-001) SFC-93, #16, Side 1 (561-001) SFC-93, #16, Side 2 (001-561) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 9:05 a.m. PRESENT In addition to Co-chairs Pearce and Frank, Senators Kelly, Kerttula, and Sharp were present. Senator Rieger arrived while the meeting was in progress. Senator Jacko was not present. ALSO ATTENDING: Director Gary Bader, Administrative Services, Director Karen R. Crane, Libraries, Archives & Museums, George Smith, Deputy Director, Libraries, Archives & Museums, Mary Lou Madden, Assistant Director, Postsecondary Education Commission, and Doug Hanon, Finance Officer, Postsecondary Education Commission, Department of Education; Judy DeSpain, Deputy Director, Ray Utter, Administrative Manager, AHFC, and Barry Hulin, Executive Director, ASHA, Department of Revenue; Mike Greany, Director, and Karen Rehfeld, Fiscal Analyst, Legislative Finance Division; and aides to committee members. SUMMARY INFORMATION SB 50 - An Act making appropriations for capital projects; and providing for an effective date. Budget Overviews were conducted for the following departments: Department of Education Department of Revenue Overview by the Department of Education C0-CHAIR DRUE PEARCE invited Gary Bader, Director, Administrative Services, to join members at the committee table and proceed with the Administrative Services presentation. Co-chair Pearce asked Mr. Bader to outline departmental requests and not deal with the list of school requests. GARY BADER said the first request was in the amount of $350.0 for State library materials and equipment. Because of higher costs for magazines and periodicals, the library had lost 75 percent of its purchasing power over the last nine years. He felt this funding would purchase a core collection of materials for research needs. In answer to an inquiry by Co-chair Steve Frank, KAREN CRANE, Director, Libraries, Archives & Museums, answered that funding was $200.0 last year, and the year prior, $250.0. She said the library had additional needs this coming year and no money was available in the operating budget for these acquisitions. The next priority was a request for the implementation of a pilot project for a statewide data management system in the amount of $100.0. Mr. Bader explained a planning session had been held in Anchorage in October 1991 with DOA, DOE and private sector representatives in order to work out a cooperative plan for linking existing state systems whenever possible. Mr. Bader stated the next request was for major maintenance to the Alaska Vocational Technical Center at Seward for a cost of $236.8. Projects included improvement of the dormitory area, replacement of the gym floor, renovation of the mechanics area, redesign of the food service scullery area, providing ADA requirements, and the removal of the drilling rig. Discussion followed between Co-chair Frank and Senator Kerttula regarding the removal of the drilling rig. Mr. Bader agreed to have the director fax a letter explaining the removal of the drilling rig. GEORGE SMITH, Deputy Director, Libraries, Archives & Museums, Division of Education, explained the drilling rig was going to be moved to the outside and the area it had occupied inside could be used for other programs. Mr. Bader addressed the request for $290.0 for an upgrade from magnetic storage to micro image optical system. The magnetic storage in present use is predicted to be full in a year. The teacher certification records are kept on this system. The next project request was for $213.7 for equipment purchases in the Alaska Vocational Technical Center. Programs enhanced would be the mechanic's program, building maintenance and training department, food service, and library materials. Co-chair Frank asked if the department would list specific equipment rather than examples. In answer, Mr. Bader listed dollars dedicated for specific items - $14,400 would be spent on building maintenance and training, $15,000 in the food service program, $28,500 in fisheries, $10,000 for the library, $50,000 in mechanical training, $80,000 in administration and $15,800 in the forestry department. He agreed to supply a specific list of items for the allocated funds. Mr. Bader directed attention to a request for $140.0 for the public library construction fund. The federal money expected to be received was $140.0 and these funds would be allocated to various libraries around the state. These funds must be matched by 55 percent of local funds. The last request was for stabilization of the museum environment in the amount of $809.5. In FY 1991, $880.0 had already been appropriated for this project but was not sufficient to complete it. He said the estimate by DOT for completion of the project was $1,064.3. SENATOR TIM KELLY asked what the original amount of the request was in 1991. Mr. Bader answered $900.0 was the 1991 DOT estimate. Senator Kelly inquired again why the original estimate was half the cost of the project. George Smith stated in 1991, DOT estimated the cost of the entire project to be $900.0. When the project was put out to bid, the cost was found to be approximately $1.5M. DOT, rather than scrapping the project, went ahead with Phase I, using the money appropriated by the legislature. He admitted the cost of construction was more than 50 percent higher than the estimate by DOT. Discussion followed between Co-chairs Frank, Pearce, Senators Kelly and Kerttula regarding the discrepancy of DOT's estimates and the cost of construction, not only for this project but in general. Co- chair Pearce asked the department to supply copies of the paperwork by DOT of the estimate and the actual cost of construction for the museum. Mr. Smith also agreed to let the committee know what would be done now that the Governor had reduced the project request from $1,064.3 to $809.5 Co-chair Pearce asked Senator Sharp if a hearing had been held on EO 87 that transferred facilities maintenance into a new division in DOT. SENATOR BERT SHARP answered affirmatively that one hearing had been held but he had not received a request to move it to the next committee. Co- chair Pearce asked Senator Pearce if he would move EO 87 on to the Senate Finance committee. Co-chair Pearce invited Mary Lou Madden, Assistant Director, and Doug Hanon, Finance Officer, Postsecondary Education Commission, Department of Education, to join members at the committee table and proceed with the postsecondary education presentation. SENATOR JAY KERTTULA inquired about the priorities of the largest capital construction projects. Co-chair Pearce answered that Senator Rieger would hear those projects in H&SS committee meetings and within departmental subcommittee meetings. DOUG HANON pointed out the focus of the department's request was to improve staff productivity. In answer to Co-chair's Pearce's inquiry, he answered there were 92 staff and 18 additional temporary staff who were being terminated on June 30, 1993. Mr. Hanon stated the first capital project request was for the intelligent phone dialing system in the amount of $200.0. The automatic dialing system would dial borrowers who are 30, 60 and 90 days past due on their accounts. Discussion followed between Senators Kerttula and Kelly regarding the difficulty of reaching staff in the postsecondary education department and the high cost of this system that would not address the incoming call problem. MARY LOU MADDEN said ten staff and ten lines to the phone system had been added to address the problem of incoming calls. She said the automatic phone system would be used only for dialing out-going phone numbers of borrowers who were on the verge of default. Mr. Hanon said over 1,000 accounts were brought up to date last year when three temporary employees were hired to reach past due borrowers. He explained this phone system would help reduce their default rate which impacts the cost of money needed by the department for additional student loans. Co-chair Frank asked if the department's computer system automatically mailed an 8-day or a 15-day notice to past due borrowers. Mr. Hanon replied the system could be reprogrammed to do that but at this time it only mailed a 30-day late notice. Ms. Madden explained that the billing system was not working correctly but authority was going to be given to the department to charge a late fee and a 15-day late notice could also be mailed. End SFC-93 #14, Side 2 Begin SFC-93 #16, Side 1 Co-chair Frank asked when the automatic phone system reached the borrower would that call be given to any particular staff person. Ms. Madden answered staff were assigned particular collection accounts and the phone system would connect the delinquent borrower to the assigned staff person. She said the phone system was going to cut down on staff time by actually dialing numbers and estimated staff productivity could be increased three times. Senator Kelly failed to believe productivity would be increased three times. Discussion followed between Co-chairs Pearce, Frank, and Ms. Madden regarding the computer system and its failure to be used successfully by postsecondary education. Ms. Madden indicated in July 1991, when files had been transferred to the new system, 10-11,000 loans had not transferred correctly. Many staff hours had been used to correct this situation. Mr. Hanon agreed there were problems in the system and steps were being taken to resolve them including getting the payment notice out correctly, initiating a 15- day late notice and turning overdue accounts over for collection. Ms. Madden, in answer to Co-chair Frank's question, said approximately 70 of the staff worked with loans and 18 of those handled overdue accounts. She explained a family loan was a loan a parent or other family member took out on behalf of the student. It had a lower interest rate with payments beginning a month after receiving the loan. Ms. Madden said the computer enhancement in the amount of $250.0 was for additions to the existing computer system. She indicated that the system did generate a 30-day notice and could generate a 15-day notice if reprogrammed. This upgrade would include loan origination fees, automatic deferment, and forgiveness processes. SENATOR BERT SHARP asked when the first payment was due once a long was funded. Ms. Madden explained that could vary depending upon the student's decision to continue his/her education. She explained the loan provided for a grace period of a year after a student left school. Therefore, students could receive a deferment from payments as long as they attended school or were in the military or peace corps. She indicated a school usually sent notification if a student dropped out. About halfway through the grace year, the department mails out a notice that a payments will begin in six months. Ms. Madden, in answer to Co-chair Frank's question, said the computer company had gone bankrupt that had put together the original system in 1991. She said the department had one programmer on staff who was able to do system enhancements but was unable to because of the day to day workload. Co- chair Frank interpreted the $250.0 request to equal three programmers full time for one year to accomplish the requested enhancements. Ms. Madden explained the request had not been put out to bid and this was an estimate. Co- chairs Frank and Pearce felt the request was too high for the project outlined. Co-chair Pearce asked Ms. Madden and Mr. Hanon to provide the committee with information regarding the original RFP that provided for the computer upgrade in 1991 and how postsecondary education had arranged payment to the company that went bankrupt. Co-chair Frank asked the programmer for postsecondary education to appear before the committee, explain the computer enhancement request and the high cost. Mr. Hanon directed attention to the last request in the amount of $50.0 to provide a study to determine if the agency's records should be replaced with an electronic imaging system. This study would be done in conjunction with the Department of Administration. Recess 10:13am Reconvene 10:15am Overview by the Department of Revenue Co-Chair Pearce invited Barry Hulin, Executive Director, Alaska Housing Finance Corp., Judy DeSpain, Deputy Director, and Ray Utter, Administrative Manager, Alaska State Housing Authority, Department of Revenue, to join members at the committee table and proceed with the department presentation. BARRY HULIN reported that ten years had gone by since Alaska Housing had submitted a capital budget to the legislation. The capital budget now presented was a result of the merger with ASHA and transfer of programs from DC&RA. RAY UTTER explained most of the programs were a continuation from the old DC&RA budget. The first program was low income weatherization which provided statewide weatherization for low income people. He explained it was a federal based program and the state expected to receive $1.6M in federal receipts and Alaska Housing Finance Corp. (AHFC) would add approximately $5M, about $1.5M more than what had been spent in previous years. Senator Kelly asked why AHFC was coming before the Senate Finance Committee. Mr. Hulin said the department was now under the Department of Revenue and any capital budget requests had to come before the legislature. Senator Kelly confirmed that AHFC was asking for authority to spend their own money. Mr. Utter said they needed authority to spend federal dollars as well. Co-chair Pearce asked if the income guidelines for the state matched low income federal guidelines for other programs. Mr. Utter answered affirmatively. Mr. Utter directed attention to the Warm Homes for Alaskans program. This program included the Alaska Craftsman Home Program, Energy Rated Homes of Alaska and formed a partnership between the state and the private sector. Co- chair Pearce asked how this compared with last year's funding. Mr. Utter answered the funding was approximately the same, $500.0. He was pleased to announce Alaska was a leader in the weatherization area. The Chief of Energy Programs had been invited to a panel in London consisting of energy experts. He pointed out this program had helped improve the quality of homes around the state which was a major problem. End SFC-93 #16, Side 1 Begin SFC-93 #16, Side 2 Co-chair Frank asked for an explanation of the Supplemental Housing program. Mr. Hulin said this long standing federal program had come with the merger and matched federal funds that come from HUD to the Regional Housing Authorities for housing projects. Through this program a match of up to 20 percent of the money would be provided for roads, sewer, water and electric hookup for those projects. He explained, historically, when HUD gave the Regional Housing Authority money it was never enough to complete any given project. He said it leveraged about 5-1 federal dollars. Co-chair Frank confirmed, that for the first time, the state would be using almost $10M of HFC's equity to fund what had been funded out of the general fund and asked what the general fund appropriations had been in prior years. Mr. Hulin answered in FY 93 it was $8.2M. (There is no tape available for the next portion of the meeting.) Co-chair Frank asked for a report listing the subsidy programs and what money had been spent out of the AHFC reserves. Senator Sharp questioned the commingling of AHFC and HUD funds, and asked whether any loans were available to the senior housing program. Mr. Hulin agreed that federal restrictions came along with federal funds and that projects would not pencil out in the black without subsidies. In answer to SENATOR STEVE RIEGER, Mr. Hulin said the whereabouts for 1994 projects is unknown at this time. Senator Rieger felt AHFC should have some knowledge of upcoming projects especially if they wanted the legislature to approve a large appropriation. (Tape is available for the rest of the meeting.) Discussion followed between Co-chair Frank and Mr. Hulin regarding an arbitrage refunding transaction that occurred a year ago December. Co-chair Frank confirmed that this circumstance was new, and the money must be loaned at below market to avoid paying federal income taxes and that this was not due to the merger. Mr. Hulin said programs were in the process of being identified that could be loaned this arbitrage money at less than market rate. Mr. Hulin indicated one possibility was to join with the Regional Housing Authority and form a lower rate loan pool for rural and other deserving areas. Co-chair Frank asked if the weatherization program had been accomplished through non-general fund sources over the past several years. Mr. Utter answered that the funds came from the old Exxon overcharge fund. Mr. Utter also indicated the original money set aside for weatherization had been expended. Mr. Hulin stated that the department would like to take a longer term approach to housing problems. For instance, it takes approximately $220M to heat homes in the state. He felt if this problem was addressed at construction, a big savings could be accomplished. He hoped the legislature would support that kind of approach. Co-chair Frank felt that dealing with HFC over the years had been a tug-of-war relationship. He indicated this $17M was a change of posture from prior years. He also wanted a better understanding of HFC's capability of income for use in other housing programs. Mr. Hulin indicated that $220M was given over to the general fund for FY 93 and has had an impact on the corporation's liquidity. Cash versus assets was an interesting concept for AHFC. With the merger and the mandate of the board, the corporation was making an effort to become more forthcoming with funding. He said the programs that came from DC&RA are an integral part of housing and the AHFC felt it should support those programs. Co-chair Frank indicated that it was appropriate for the state's assets to be spent through the legislative appropriations process but he wanted the legislature to know what AHFC's total capabilities were in regard to subsidy programs and contributing funds to the general fund. Senator Kelly asked if there had been any downsizing in regard to employees since the merger. Mr. Hulin said 9 or 10 higher paid positions had been eliminated. He said this budget did not include public housing. At the present time, the accounting and data processing department were being merged. He suspected over time there would be more reductions. There were 28 offices around the state and those would not be eliminated but were primarily paid for by HUD. He indicated most of the consolidation is being done in Anchorage. Co-chair Pearce announced that there was interest in obtaining the Cambridge Energy Research Associates oil pricing information again this year. For the first time, the House had agreed to pay half of the $17,500 fee. She said since the Senate's half would be over the $5,000 limit, even with a 10 percent discount, the committee would have to approve the expenditure. Senator Kelly moved to approve the Cambridge Energy Research Associates contract. Co-chair Frank objected to the motion for purposes of discussion. Senator Kelly withdrew his motion. Co-chair Pearce announced the Cambridge contract would be discussed on Monday, February 15, 1993. ADJOURNMENT The meeting was adjourned at approximately 10:55 a.m.