MINUTES SENATE FINANCE COMMITTEE January 26, 1994 9:00 a.m. TAPES SFC-94, #13, Side 1 (000-end) SFC-94, #13, Side 2 (end-000) SFC-94, #15, Side 1 (000-225) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:00 a.m. PRESENT In addition to Co-chair Frank, Senator Kerttula was present. Senators Kelly, Rieger, Sharp, and Jacko joined committee after the meeting was in progress. Co-chair Pearce did not attend the meeting. ALSO ATTENDING: Senator Judith Salo; Senator Georgianna Lincoln; Jerry Covey, Commissioner, Department of Education; Duane Guiley, Director, School Finance, Department of Education; Joe McCormick, Executive Directory, Postsecondary Education Commission, Department of Education; Frank Prewitt, Commissioner, Department of Corrections; Paul Fuhs, Commissioner, Department of Commerce & Economic Development; Guy Bell, Director, Division of Administrative Services, Department of Commerce & Economic Development; Jetta Whittaker, Dana LaTour, Kathryn Daughhetee, fiscal analysts, and Mike Greany, Director, Legislative Finance Division; and aides to committee members and other members of the legislature. SUMMARY INFORMATION HB 370 - APPROP: FY 95 OPERATING AND LOAN BUDGET Presentations were made by Jerry Covey, Commissioner; Duane Guiley, Director, School Finance; and Joe McCormick, Executive Directory, Postsecondary Education Commission, Department of Education. Presentations were made by Frank Prewitt, Commissioner, Department of Corrections. Presentations were made by Paul Fuhs, Commissioner; and Guy Bell, Director, Division of Administrative Services, Department of Commerce & Economic Development. DEPARTMENT OF EDUCATION OVERVIEW Co-chair Frank invited Commissioner Jerry Covey, Department of Education, to come before the committee. COMMISSIONER JERRY COVEY said he was before the committee to present the FY95 budget overview for the Department of Education. He also introduced Joe McCormick, Executive Director, Postsecondary Education Commission, Department of Education, and said he would present the Commission's budget. Senator Kerttula said of most interest and worry was that the only local tax payer's group about to be significantly impacted was property owners. He felt they were already paying a substantial amount and over the years it had risen at a factor of 10. Senator Kerttula wanted to know how the department's budget would impact the local governments. Commissioner Covey said he would be making comments at the end of his presentation that might add even more concern in regard to impacting tax issues on a local area. He said he did not have a solution but felt there was a better understanding of the problem and would include that in his concluding remarks. Commissioner Covey went on to say that since FY91, the non- formula portion of the budget had been significantly reduced. There had been a general fund reduction of over $2.4M and 37 full time positions had been eliminated since FY91. As a result, the department has been significantly restructured, giving the best service it could to students, school districts, and communities. In the process of reorganization over the past three years, and with the cuts that have been made, he felt the department had increased its fiscal accountability, and had improved working conditions and morale. The following are a number of significant items being worked on, many included in the Alaska 2000 initiative. A series of public hearings are being held on proposed student performance standards in math, english and science. Meanwhile, committees are developing student performance standards in history, geography, government, citizenship, and skills for healthy living, which should be available for next year. Three more standards will follow those. In all, there will be 38 recommendations included in Alaska 2000 initiative. It will take several years to accomplish those changes. He went on to say that at the same time, new standards are being established with the University system for educator trainer programs. For the first time in recent history, the backlog in teacher certification has been eliminated and is operating efficiently. Within the last year, the department has implemented the Americans With Disabilities Act. A tech prep plan has been prepared and approved, grants applied for. In regard to distance education all around the state, about 38 districts, approximately 150 schools, and over 1,600 students were involved. Commissioner Covey referred to the handout, Department of Education, FY95 Budget Overview, dated January 26, 1994 (Attachment A, copy on file). He said the budget is basically a maintenance one and any changes are described on pages 4 and 5. He said a few increases in agency operations are described on pages 11 and 12. The highlights are a general fund increase of $200,000 for independent living services for vocational rehab, a $39,000 increase for publication of the Alaska Bluebook, and some increases in program receipts. This year, the UCAN network was made available to all public school students and teachers throughout the state. He felt it was a great expansion of services and a successful joint venture with the University. He also said federal authorization had been increased for carry forward on grants that cross state and federal fiscal years, and new federal grants were available for student performance standards. Commissioner Covey stated the changes in the formula programs were described on pages 19 and 20 of the handout. He pointed out the most significant of those was the fact that there is no increase for the foundation program with the exception of $1.7M in general funds to offset the loss of PL 874 Impact Aid funding, and the decrease in public school revenues resulting in the proration of the instructional unit value to $59.8. Additionally, there is a $1.5M reduction in pupil transportation which would fund that account at 90 percent. Page 27 shows the detail of that proration and its effect on different districts. Senator Kerttula questioned the funding of only 90 percent of the students transportation. He stressed this would effect the local districts that are the most impacted. Commissioner Covey agreed that local districts would be impacted. Senator Kerttula went on to say that over the last couple of years, the MatSu district has been showing gains in various components of student performance, and less and less funds will effect those gains. Senator Kerttula said he would like to see how the decrease in the formula foundation program and transportation will effect his district. Commissioner Covey said the FY95 budget resulted in a reduction of two full time positions from the FY94 budget. To date, no one had been laid off because of the previous year's reduction in staff by 37 full time positions. Twenty-seven of those positions came between FY92 and FY93, and another nine between FY93 and FY94. He felt the department had taken the initiative to trim and reduce the staff without a lot of external pressure, the department was acting in a responsible manner, and doing the best it could with what it had. This year the department had requested 17 position waivers because of the hiring freeze. Nine of those had been approved (the majority of those from non- general funds). He stated the Governor's proposed level of funding is still unknown for the FY95 capital budget but the department's request had been included in pages 32 through 34. There are no new full or part-time positions requested in the budget. It requests six non-permanent positions all related to federal grant programs. Those positions will be deleted when the projects are completed. A $6.5M supplemental, based on student enrollment, and a supplemental of $242.0 to fully fund payments to school districts for transportation for FY94 has been forwarded to OMB. Commissioner Covey concluded his highlights of the budget by commenting that his $1 billion a year program was running on about a two percent overhead. He said the department was about as efficient as it could be and still provide the services it provides. In addition, he wanted to comment on three other issues. The first had to do with the potential for a significant revenue loss in the state foundation through the federal impact aid program. He explained that this program is up for reauthorization this year before Congress and there is a significant attempt to challenge the method being used to distribute those funds. It could put a $35-45M "hole" in the state's foundation if that money was eliminated in the distribution mechanism. Alaska is one of seven states that could be effected, and one of two that would be effected the most. Currently, the department, in conjunction with the other states and our representatives in Congress, is working on this issue. He reiterated it was a serious threat. Commissioner Covey said another issue that is of concern is the single site issue. The state board has taken a stand that says if full funding is provided to all other school districts and there is no proration or withholding of funding to them, then they would support a legislative fix to address the single site needs, but only at that point. The third issue Commissioner Covey spoke to was the migrant education program which currently provides $12M of revenue to the state. The federal government is in the process of reauthorizing this program. Even though that money is not figured directly into the foundation, it is still significant. The reauthorization plan could take away about half of the $12M for the state's use which would impact many school districts. In conclusion, Commissioner Covey felt he should comment on a recent court decision in the Fairbanks busing case. It could cause far-reaching ramifications in regard to transporting private school students throughout the state and may significantly impact transportation budgets. Senator Jacko asked the effect of the maintenance budget in the amount of real dollars per instructional unit. Commissioner Covey said it means a reduction from $61.0 to $59.8. Senator Jacko asked why there was a reduction of PL 874 funds, and commented that there had been a proposed change in prior years suggesting that money would go directly to communities. He commented that some PL 874 money went to Native children in the schools. Commissioner Covey asked Duane Guiley, Director, School Finance, Department of Education to speak to Senator Jacko's questions. DUANE GUILEY said that the decrease in Impact Aid was due to the reduction of student enrollment of eligible students. He pointed out the significant reduction in Adak school district alone. He also stated that of the $1.7M loss in the two programs, only $79.3 is related to Impact Aid. The balance is related to the loss of earnings of the public school fund, relating to Native students or students that live on Native lands subject to reauthorization by Congress. He turned the committee's attention to a handout titled FY95 Impact Aid Program Proposal that gave background on that reauthorization and would help answer questions for the committee (Attachment B, copy on file). Senator Jacko said that this issue put more pressure on the legislature to change the formula. Mr. Guiley agreed it would, at least, apply pressure to relook at the public school foundation formula as a whole, depending on the outcome of reauthorization. In answer to Co-chair Frank, Mr. Guiley said that $1,636,100 was the loss in the earnings of the public school fund. The public school fund is a resource to the foundation formula and actual earnings only are annually made available to the formula. Due to a reduction in interest rates nationwide, that state fund did experience a loss. The balance in the fund is slightly over $26M. Again in answer to Co-chair Frank, Mr. Guiley said the fund was established before statehood, and reestablished and renamed the public school fund. The new fund receives earnings from certain fees, registrations, and sale and rents on land and leases that were previously set aside for public schools. The Department of Revenue annually provides a statement of earnings to the Department of Education for utilization in the budget process. Co-chair Frank asked Mr. Guiley for a report from the department on long term effects and trends in regard to the fund. In answer to Senator Kerttula, Mr. Guiley said that the states involved in the possible aforementioned reduction of Impact Aid were Alaska, New Mexico, Arizona, Wisconsin, Maine, and Nebraska. They all participate through the recognition of federal dollars received at the local level in the distribution system of state aid to the same school districts. One of the items in the reauthorization proposal is to eliminate that possibility whereby the districts would continue to receive the money directly but the state would be barred from taking into account that money received when determining the level of state aid. He pointed out this loss to the budget would require an additional allocation of general fund money. If the legislature did not approve the supplemental request necessary to fund this loss, the law provides for additional proration of the instructional unit value. The proration would approximate another $5,000 per unit, making it close to a $55,000 value. Senator Kerttula said that the states effected do not hold much political clout in Congress, and asked for the Congressional delegation's evaluation of the issue. Commissioner Covey said this issue was serious and prospects of amending it were not great. This movement has grown significantly in strength over the past four or five years and is going to be very difficult to offset. Currently, communication is going on with the Congressional delegation and a plan is being formulated. In February, a meeting is being held with all effected delegations so influence can be maximized. John Katz is involved and helped formulate a plan. The proration that Mr. Guiley addressed, the additional $5,000 will further impact those districts that are not significantly dependent or receiving little Impact Aid money. He explained that, as the unit value decreases, the ability to tax themselves locally to contribute to their school system will be reduced as well. Senator Salo said that she had a question relating to the proration of the formula and asked if this year's requested supplemental accounted for new students, and was the plan not to request it next year? She also asked Mr. Guiley if the impact of that decision was equal across the state? Mr. Guiley said that the impact is not equal in that if the unit value is prorated (based upon state statute), the proration comes at the level of basic need, the calculation of basic need. From basic need, there are two reductions before the level of state aid is determined. One reduction is the eligible Impact Aid reduction and the other reduction is the formula local tax equivalent. The value of that varies throughout the state. So the proration ranges from approximately 1.9 percent to 3.9 percent, approximately 2 to 4 percent throughout the state. In the recognition of the unit value, the unit value is exactly equal from district to district. The actual reduction in looking at state aid to state aid varies by 2 percent. Senator Salo asked, in his opinion, which districts were the hardest hit. Mr. Guiley said in attachment A, pages 27 and 28, the projected entitlement by district and actual proration of the unit value as currently estimated, was listed. He said, by far, Anchorage would absorb most of the proration with the reduction of $4.4M from entitlement, Fairbanks $1.5M, Kenai $1M, MatSu $1.2M, and so on. Senator Salo asked if some districts, such as Kenai and MatSu, were getting a double cut because of the 10 percent reduction to transportation. Mr. Guiley said the pupil transportation reduction by district was also listed on page 27. He said it showed those districts, such as MatSu and Fairbanks, that receive a disproportionate share of the pupil transportation money, also have a significant reduction in that area. Senator Kerttula said that issue of disproportionate share is an interesting question. He observed there are a group of rural systems, and asked how the department was going to get those children to school. Mr. Guiley said that he did not mean the word disproportionate as a derogatory comment, just that, based upon the number of students served, those districts receive a higher percentage of the pupil transportation money due to the fact that they have a greater need for pupil transportation. Senator Kerttula said he appreciated the clarification of the terminology. Senator Salo asked, with the reductions listed, what data had been received from the districts outlining the impact on their educational programs. Mr. Guiley said the impact on districts would vary significantly because the proration is based upon entitlement. Anchorage's actual entitlement, for example, which is due to receive the greatest level of proration, is going up to $6.6M. Even after the proration of $4.4M, they will receive a $2.2M increase in real dollars in FY95 over FY94. Senator Salo said that might be acceptable if they did not have new students. Mr. Guiley said that Anchorage is scheduled to receive 771 new children. Based on the fact that they receive capital dollars this year to build the classroom space, and if their only real need is new teachers, they could pay those teachers average salaries and benefits of $70,000, and still meet their need to house and educate their students - if the only need was a teacher. Senator Salo said that the frustration was the same as last year when the budget was passed. She said the state is asking the children of Alaska to pay for what the legislature has done (and should not have done) last year. She stated the reduction in unit value is significant. The small raise from $60,000 to $61,000 was overdue and only kept heads above water. She asked how can the state roll those districts back again? She said she wanted to see information from the districts and the impact they perceived because of these reductions. Senator Kerttula said that this budget was "back to basics" consideration. He saw his school district terribly impacted and did not know how roads or airports would be maintained. Co-chair Frank asked for more questions from the committee. There being none, he concluded the Department of Education's portion of the meeting. RECESS - 9:55 A.M. RECONVENE - 10:05 A.M. Log notes of the overview for Postsecondary Education, the Dept. of Corrections, and the Dept. of Commerce and Economic Development; handouts distributed by the departments; and tape recordings of the meeting are on file in the office of the Senate Finance Committee Secretary, Room 520, State Capitol Building, Juneau, Alaska, (465-2618) and may be obtained through that office or the Legislative Finance Division, P.O. Box 113200, Juneau, Alaska 9811-3200 (465- 3795). ADJOURNMENT The meeting was adjourned at approximately 11:15 a.m. SENATE FINANCE COMMITTEE JANUARY 26, 1994 9:00 A.M. LOG NOTES - SFC-94, Tape #13, Side 1 (375) DOE - POSTSECONDARY EDUCATION COMMISSION JOE McCORMICK, Executive Director Postsecondary carries out its role via four functions: 1. Administration of the Alaska Student Loan Program Current portfolio of over $500 million and awards $55 million a year in loans to approximately 13,000 students. 2. Provision of a program of consumer protection for students in oversight of schools that operate in Alaska. 3. Licensing and institutional authorization. 4. Administer special programs such as WAMI and WICHE. The Alaska Student Loan Corporation provides the funding mechanism for the student loan program by issuance of tax-exempt bonds. A total of $230 million in bonds has been issued to date. The plan is to issue another $40 million this year. Mr. McCormick provided information on his background in student loan programs and past experience as president and CEO of the student loan corporation in Texas. FY 95 operating budget represents a modest increase of 6.8% over last year. Of that total, 67% is devoted to student loan administration. None of the funding derives from general fund revenue. The budget is funded from corporate receipts of the loan fund, except for a small amount of federal funds for institutional review and evaluation. The budget includes: 1. Full funding of an internal auditor position. 2. Three full-time, pre-collect positions. 3. One full-time programmer/analyst. 4. Slight increase in expenses associated with issuance of tax-exempt bonds. Budget is intended to assist in addressing deficiencies in the loan servicing system and provide enhancement of efficiencies in services to students. It will reduce loan approval time from approximately 8 weeks to 2 weeks. Corporation is considering electronic funds transfer to reduce the cost of issuing and mailing checks to schools in Alaska. The budget will upgrade the loan servicing system and record management process now in place and assist in resolving telephone problems experienced over the past several years. Privatization will also be addressed. A full report will be presented to the legislature before the end of the session. The commission will present a list of proposal for streamlining administration of the program prior to conclusion of the session. The budget represents a firm commitment by both the commission and corporation to: 1. Provide services to the student. 2. Explore and examine constant innovation. SEN. KERTTULA - Failure of legislature to fund $10 million need to sustain the program and "eventually take us out of bonding." What is happening here? MR. McCORMICK - Commission is examining the financial and actuarial soundness of the student loan program, based on qualification criteria and track record of repayment. Fund must be actuarially sound. If the program continues with no changes, and forgiveness provisions remain in law, over a ten to fifteen-year period the fund would deplete itself. The commission is addressing means by which the legislature can offset that effect. A deposit of $10 million a year from the general fund is one possibility. There are other ways to make the fund whole. The commission will explore those possibilities and present options to the legislature. SENATOR SHARP - Question regarding soundness of receivables and for an aged-list of those receivables. Net retained earnings? MR. McCORMICK - A required surplus is maintained for bondholders. The net worth of the corporation is sound at this time. SENATOR SHARP - Question regarding requested increases in program administration. MR. McCORMICK - Of the 30% increase, almost 77% is $150.0 in federal funds dedicated to the institutional review process the commission is required to initiate under changes to the higher education act of 1965, enacted in July of 1992. This is strictly federal funds. No general funds are involved. SENATOR SHARP - Is contract for loan forgiveness broken by borrower default? MR. McCORMICK - Default breaks the contract, and the forgiveness provision does not apply. SENATOR SHARP - Has forgiven amount been reinstated upon default? MR. McCORMICK - Not to my knowledge. End: SFC-94, #13, Side 1 Begin: SFC-94, #13, Side 2 SENATOR SALO - Question MR. McCORMICK - Recognition of the fact that Alaska has one of the oldest loan programs in the country. Over the period since 1971, the state has changed the provisions of the program. Some loans are at 5%, some are 8%, etc. Students thus received different loans with different provisions. The commission will request that the legislature amend the law to allow the commission to offer refinancing or consolidation of different loans into one new loan that will be easier for the commission to administer and service and easier for the student to pay back. SENATOR KERTTULA - Questioned whether the interest rate would increase under refinancing. MR. McCORMICK - The student would have to volunteer and weigh the options presented to him or her. Our intention is to offer a variable interest rate that floats with the cost of money. The commission may be required to go back to the bondholder and seek an amendment to the indenture to allow refinancing. The commission would most likely use new bond moneys to pay off older bonds when refinancing student loans. The refinancing incentive is generally a lower monthly payment stretched out over a longer period of time. DEPARTMENT OF CORRECTIONS FRANK PREWITT, Commissioner, Dept. of Corrections. The FY 95 Corrections' budget is maintenance and very nearly tracks FY 94. It was submitted with a caveat that the department would not be in position to know what budget would be adequate until the population management plan, implemented in July, is applied. Results of the plan initially indicate that this budget may not accommodate the current picture much less additional crime legislation pending in the legislature. Reference to FY 94 Population Management Plan, memorandum from the department to the Criminal Justice Working Group, current population statistics sheet. At the close of the session last year, the department was in an emergency overcrowding situation with a motion to hold the department in contempt of court, pending. The department faced need to reduce institutional population below maximum capacity. The department identified five strategies: 1. Revising the classification system. This has been completed and will be implemented over the next three of four months. 2. Development of a furlough program for graduated release toward the end of an inmate's sentence. The new program was implemented October 1. 3. Addressed intermediate sanctions: electronic monitoring, supervision, etc. 4. Implementation of Project Hope--the Pt. MacKenzie Rehabilitation Program. This effort calls for development of a program for low-custody inmates that would accomplish renovation and restoration of the farms and focus on over-representation of Alaska's Native inmate population. 5. Focus on the backlog of 2,000 misdemeanants waiting to serve sentences. Development of work camps and programs, furlough beds, etc. The backlog was eliminated as of December. When the focus on furlough beds shifted from misdemeanants to inmates, the backlog accumulated again. Misdemeanants can be dealt with through work programs. Need for achieving compliance with Cleary requirements relating to parity for female inmates. A program has been developed at the Lemon Creek Correctional Center at Juneau. Under the management plan, the department was "just keeping up" rather than achieving the goal of reducing the prison population beneath the maximum. That is due to population increases. Data sheets indicate a total population of 2,978 as of May. Today the number is 3,189. That is a net increase of 200. The is approximately the average size of a prison facility. The strategy of using intermediate sanctions and halfway houses through the furlough program enabled the department to maintain the status quo. The department is thus at the same emergency capacity it was in May even though it has moved 150 to 200 prisoners into other alternatives. The population continues to grow. Reference to line graph showing a 5% increase in the past projected into the future. SENATOR FRANK - What percentage is due to a general increase in incarceration versus accommodation of those on the backlog list? PREWITT - Will provide that information as well as analysis of the population. Asked that Alaska Judicial Council to participate in a population management session. One of the reports presented to committee contains the findings of the meeting. Statistics will consist of data from the department, the University of Alaska, and the Alaska Judicial Council. The department has made significant strides in terms of intent language on the furlough program and the Pt. MacKenzie project. However, facilities at emergency capacity, a net increase of 200 prisoners, and projected increases indicate that the department continues to have a serious population problem. The system is beginning to scrape the bottom of the barrel in terms of low-risk offenders that qualify for intermediate programs. SENATOR LINCOLN - Question regarding the January 11 report to the Criminal Justice Working Group and three rejected proposals--one of which is concept of a boot camp. PREWITT - These are the recommendations of the working group. Discussion of boot camp involved a presentation that persuaded the group that a boot camp concept for adult offenders may not be as effective as previously believed. Canada has conducted analysis of effectiveness of intermediate sanctions. That was the basis of rejection. SENATOR LINCOLN - Question regarding 23 new troopers. That will impact the department. Has that, along with passage of pending crime bills, been taken into consideration? PREWITT - Yes. Corrections is impacted. If major crime legislation is passed, and additional police are added, it will impact correction. If the front end of the system is funded, attention must be paid to the rear end as well. Much of the pressure on the correctional system now stems from the fact that the punishment of preference in Alaska is incarceration. The department is aggressively pursuing other sanctions to match up with offenders. The FY 95 budget does not reflect possible impact of crime legislation. It also does not reflect the growth that we are experiencing this month. SENATOR LINCOLN - Question regarding Native population. Two years ago, 47% of the incarcerated population was Native. Last May, the percentage was 37%. Last month, it increased to 39%. How is the system dealing with that? PREWITT - If there is a bright spot, it is in dealings with the Native situation in Alaska's prisons. While Natives represent 15% of the state's general population, the Native inmate population ranges from 33% to 40%. Every racial group has a "certain percentage of predators." The system reserves its hard beds for these individuals. The over-representation of Natives in the prison system should not be construed to assume that "all of those individuals or even a majority of those individuals" are predatory. Working with Native groups, the department is endeavoring to develop a non- conventional, more culturally relative program at Pt. MacKenzie. The Native inmate problem involves male Natives only. DEPT. OF COMMERCE & ECONOMIC DEVELOPMENT PAUL FUHS, Commissioner, Dept. of Commerce & Economic Development, and GUY BELL, Director, Administrative Services, Dept. of Commerce & Economic Development. MR. FUHS - Page 17 of the overview documents charts use of general funds, program receipts, and other revenues. Downward sloping line is general fund spending--cut almost in half over the last four years. Uptrending line is program receipts which have almost doubled in the same period. Banking & Securities, Occupational Licensing, Business Licensing, handle hundreds of thousands of personal and confidential transaction. There has never been a breach of confidence, and there have been very few complaints. The Banking & Securities section handles all Native corporation elections in Alaska. Revenue numbers for FY 94 and FY 95 are "a little bit conservative." The legislature can count on $32 or $33 million from the department to the general fund. After expenses are deducted, the department nets an approximate $17 million profit for the state. Page 18 charts economic development within the department and includes costs and funding for the Commissioner's Office. Lines for ASMI and ATMC are tending downward. That policy is supported by the Office of Management and Budget. Reductions in ATMC does not reflect lack of need for tourism marketing. The administration and legislature are seeking to explore ways in which the industry "could pick up more of these themselves." Organizational changes include transfer of the energy division to the Dept. of Community & Regional Affairs, except for the portion dealing directly with utilities. That portion remains within AIDEA. The Governor's Office has proposed two executive orders: one would move measurement's truck size and enforcement program to the Dept. of Transportation and Public Facilities, the second would move the Alaska Science and Technology Foundation to the Dept. of Commerce & Economic Development. Page 19 contains specific program changes from last year. 1. Occupational Licensing, $235.0 in program receipts to pay for boards and their meetings. 2. Alaska Public Utilities Commission, program receipts for policy analyst positions. 3. Administrative Services use of CIP moneys to phase out existing WANG computers and implement a new, open architecture, IBM system. 4. The Made-in-Alaska program has been privatized. 5. Office of International Trade. The division of tourism transferred some funds to help out with the Korean trade office. 6. Alaska Energy Authority. Numbers shown evidence transfer of the program to Dept. of Community and Regional Affairs. 7. Division of Investment staff has been reduced by six positions. 8. Fisheries enhancement tax receipts are down because of lower salmon prices. This is a straight pass- through program. 9 Tourism Marketing Council. The Governor's budget reduces the council by $3 million. 10. AIDEA. Positions relate to AIDEA take over of the energy authority. There are no general fund changes compared to last year. The total budget request is $61.4 million, down from $91.7 million the previous year. The budgets requests $19 million in general funds, down from $24.5 last year. The $19 million includes $1.1 million in matching funds for $8.5 million in federal funds for ASMI. A general fund match of $2.8 matches the industry contribution for ATMC. The $19 million also includes $1 million for the truck weight and enforcement division scheduled for transfer under the associated executive order. The $9.5 million in general funds relate to direct line level agency positions. Under the Clinton administration, the department has spent an increasing amount of time and effort defending the rights of existing activities: changes to mining law, cancellation of Alaska Pulp Company's timber contract, objections to the central Prince of Wales timber contracts, changes in the endangered species and marine mammal protections acts, etc. Statements regarding the department's efforts to maintain the Usibelli coal contracts with Korea, overcome objections to the Healy clean coal project, initiate feasibility review of converting the Alaska Pulp Company facility to a medium density fiberboard plant, deal with EPA in the handling of fish waste at the Kodiak fish plant, etc. The focus of the tourism effort is to see that more money stays with Alaskan businesses. International efforts have focused on winter and shoulder season visitors. It is in the public interest for state government to assist in oil and gas development advocacy. The industry cannot do this alone. Part of last year's funding will provide for a competitive analysis of Alaska; Alberta, Canada; Colombia; Russia, etc. End: SFC-94, #13, Side 2 Begin: SFC-94, #15, Side 1 Strengths and weaknesses of oil and gas development in Alaska will be presented to the legislature next session. Need to become more competitive. Due to the hiring freeze, the department has been unable to hire four positions that are needed. The freeze will definitely have an impact. GUY BELL - The net position count is down 67 full-time positions, largely due to transfer of the rural energy related employees to the Dept. of Community and Regional Affairs and reorganization of the Alaska Energy Authority. The department has added positions in AIDEA/AEA to accommodate the transfer of operating facilities. A total of 66 of the 67 positions related to AEA transfer. AEA employees were also reduced by 20. MR. FUHS - Chart within "Sustaining Alaska's Economy" shows private employment trends in Alaska. The department's program to diversify and stabilize the economy is working. Every industry sector, except for pulp mills, has increased employment in Alaska. Much of the growth relates to tourism, although many service jobs are directly related to resource development. Large retailers investing in Alaska reflect that diversification and stabilization. SENATOR SHARP - Commented that tourism focus is still too much from the deck of a cruise ship. Problems with expenditure of $500.0 for a CBS special which will not cover the state. MR. FUHS - Those concerns revolve around Alaska Tourism Marketing Council programs. ATMC does the travel planner and generic domestic advertising. The division of tourism handles international marketing and helps Alaska businesses develop their products. It also works with people on the road system through Tourism North--a joint venture with the Yukon and British Columbia governments to promote road travel. Staff from the division also attends tourism trade shows. SENATOR FRANK - Revamping ATMC to provide greater diversification of industry interest on the council? MR. FUHS - Task force worked on roles and responsibilities of the division and ATMC. That needs to be cleared up. Statutes evidence duplication. Nothing has been done to change the composition of ATMC. SENATOR RIEGER - Breakdown of 13% oil and gas industry increase? MR. FUHS - Job increases occurred in exploration and gas reinjection plants. SENATOR RIEGER - Need to reconcile budget and position changes relating to AEA and the department. GUY BELL - AIDEA has created two organizational units. One relates to operations and maintenance associated with ongoing facilities. AIDEA was also given additional authority relating to financing of energy projects. AIDEA added two staff positions for that new authority. The six other positions relate to operation and maintenance of ongoing projects. SENATOR RIEGER - Question regarding feasibility work on the interties. MR. FUHS - The Dept. of Community and Regional Affairs will conduct the study. While AIDEA conducts this type of study, the Dept. of Community and Regional Affairs is the entity that actually "puts out the money." The department is also complying with legislative directive to transfer these facilities out of state ownership to local utilities. The Dutch Harbor geothermal project is the only other large project under review. Financing within the Dept. of Commerce and Economic Development relates to large-scale projects. Small- scale rural projects are all within the Dept. of Community and Regional Affairs. SENATOR KERTTULA - Need for greater understanding of all state energy efforts. SENATOR FRANK - Concurred. Will follow up on that.