MINUTES SENATE FINANCE COMMITTEE May 12, 1995 11:10 p.m. TAPES SFC-95, #71, Side 1 (000-end) SFC-95, #71, Side 2 (575-105) CALL TO ORDER Senator Rick Halford, Co-chairman, convened the meeting at approximately 11:10 p.m. PRESENT In addition to Co-chairmen Halford and Frank, Senators Donley, Phillips, Rieger, Sharp, and Zharoff were present. ALSO ATTENDING: Senate President Drue Pearce; Senator Adams; Senator Duncan; Senator Hoffman; Senator Leman; Senator Miller; Senator Salo; Senator Taylor; Senator Torgerson; Representative Brice; Representative Davies; Representative Kubina; Representative Williams, Annalee McConnell, Director, Office of Management and Budget; Nancy Slagle, Director of Budget Review, Office of Management and Budget; Mike Greany, Director, Legislative Finance Division; Fred Fisher, fiscal analyst, Legislative Finance Division; John Bitney, aide to the Legislative Budget and Audit Committee; and aides to committee members and other members of the legislature. SUMMARY INFORMATION HB 268 - APPROP: FY 96 CAPITAL PROJECTS BUDGET A sectional review of draft SCS CSHB 268 (Fin) (9- GH0024\O, Utermohle, 5/12/95) was presented by Co- chairman Halford. Comments in response to the draft were made by Annalee McConnell and Nancy Slagle on behalf of the administration. Technical corrections to the document were highlighted for subsequent amendment on the floor of the Senate. SCS CSHB 268 (Fin) was REPORTED OUT of committee with a "do pass" recommendation. CS FOR HOUSE BILL NO. 268(FIN) An Act making and amending appropriations; and providing for an effective date. Co-chairman Halford directed that CSHB 268 (Fin) be brought on for discussion and referenced a draft SCS CSHB 268 (Fin) which he explained includes a number of components. He acknowledged need for technical amendments, citing a duplicate section as an example, and referenced a list of reappropriation sections by district. The capital portion of the bill totals approximately $112 million in general fund dollars. In terms of categories, it commences with the federal match for roads, airports, sewer, and water; adds the capital matching grant program at a total of $20 million; picks up approximately $10 million in statewide programs and projects (primarily the executive branch and the court system); picks up the sewer and water municipal match; includes the largest project in each House district; picks up "some university projects in Fairbanks, Anchorage, and MatSu; includes a number of agency and governor's office adjustments; picks up the short list of AHFC projects; includes 70 sections of reappropriations; includes supplementals; provides statewide university maintenance at $35 million out of AHFC; includes full funding for the education foundation formula and the full single site school list for a total of $890 million; and also includes a deposit to the principal of the permanent fund. Co-chairman Halford explained that projects associated with federal match (roads, airports, sewer, water) are similar to earlier versions of the bill. The other $18 million relates to projects that have "gone back and forth." The university and sewer and water projects represent the two major needs. The Governor's budget contained approximately $200 million in proposals. The proposed Senate version is shorter. However, there are few items in the Senate version that were not also in the Governor's budget. Projects were selected in an attempt to maximize federal funds. ANNALEE McCONNELL, Director, Office of Management and Budget, and NANCY SLAGLE, Director of Budget Review, Office of Management and Budget, came before committee. Co-chairman Halford explained that the list of municipalities in the front section of the bill evidences those that have not applied for the capital matching grant programs. Listing reflects reservations for those communities. Other communities are listed with the specific grant for which they have applied. There is $20 million in the capital matching grant program. Expenditure are not exactly the same for all because communities can maintain moneys in the fund and build for a particular project. Co-chairman Halford noted that he had earlier neglected to mention that matches for the base school in Fairbanks and the two in Anchorage are included with contingency language that requires receipt of federal funds or the match lapses back to the general fund. That funding was in the original $100 million draft. Numbers for the Anchorage schools are "a little bit less," based on recent communications with the military. Co-chairman Halford commenced the following sectional review of the bill: Sec. 1 relates to federal receipts. Secs. 2 and 3 provide appropriations for the capital matching grant program. Grants are contained in the long list within the bill and in actual community allocations shown in the back section of the bill. Secs. 4 and 5 retain interest on grant accounts. Sec. 6 contains base school language. Annalee McConnell advised that there is no assurance of federal funds for Aurora and Ursa Minor. She recommended that rather than add them at this point and tie up general funds that may or may not work for the match, it would make more sense to include intent language allowing for consideration in January and wait to "see where we end up with Congress." Ms. McConnell acknowledged a $500.0 need relating to life and safety at Aurora and concurred that that appropriation should be made at this time. For the school at Eielson, Ms. McConnell recommended that since in-hand federal funds cover the amount needed for repairs to bring the school up to code, funding should be at that level. Should Fairbanks wish to have a new school instead of upgrade of the two existing schools, the community could bond the issue. Senator Zharoff expressed concern and raised questions regarding REAA schools listed on the priority list and submitted by the Governor in his capital request. Co- chairman Halford acknowledged that REAA schools were not included in the proposed draft. Ms. McConnell advised that the administration's school list totaled $13,674.0. She noted that the school at Eielson is ranked 28th or 29th on the Dept. of Education list and stressed need to fund schools in the priority order listed by the department. The administration is not recommending construction of new schools. It is focusing on maintenance only. Co-chairman Halford explained that base schools were selected because of an understanding that they are federally matched and federal moneys are available. Further discussion ensued regarding funding for REAA schools and bonding for construction of schools in municipalities. Senator Zharoff stressed that opportunities for new schools are very limited in REAAs. He urged that funding adhere to the priority list prepared by the Dept. of Education. Ms. McConnell said she would provide alternative, contingent language for schools, similar to that proposed for DOTPF federal match funding. Sec. 7 appropriates $2 million from the Alaska marine highway system vessel replacement fund to marine highway system improvements/overhaul. That represents half of a $4 million appropriation. The other half is from the general fund. Secs. 8 and 9 contain DOTPF public facilities language presented by the administration. Senator Rieger asked what the amount in Sec. 8 (a) is expected to be. Nancy Slagle responded, "approximately $1.5 million," relating to highways. Senator Rieger asked if the amount represents matching funds for federal projects reappropriated to "any DOT project." Ms. Slagle said it must be used to access federal dollars. Sec. 10 appropriates $100,000 from the general fund to the reforestation fund per the Governor's budget. Sec. 11 contains a list of municipal capital grant funds for smaller communities. Co-chairman Halford reiterated that the list represents communities that have not yet applied. As they apply, they are subtracted from this list and placed on the list of actual capital matching grants within the bill. Communities should not be listed twice. Sec. 12 reappropriates $400,000 from the Mount Roberts project, per the Governor's budget, but to the statewide communications project rather than university housing. Ms. McConnell voiced the administration's position that the funds were appropriated for Juneau and should remain within the community. She stressed that the use proposed by the Governor was identified as high priority by the university. It was part of a package of funding that covers university projects at Anchorage, Fairbanks, and Juneau. Ms. McConnell advised of broad support statewide, full support of the Governor, full support of the delegation in Anchorage, and full support by the university for use of the funding as intended by the Governor. She stressed that Alaska has a statewide university system. Priorities for determining university projects should be followed. There is clearly a need for university housing in Juneau. Sec. 13. appropriates $1,800,000 for integration of the state's criminal justice computer systems, per a request from the administration. Co-chairman Halford noted a question concerning the correct number. Annalee McConnell explained that a multi-year project is involved. Much of the tracking throughout the system is now done manually. Pieces missing from the proposal consist of need for $300.0 for the public safety component for maintenance of the fingerprinting system, $250 for the Dept. of Law, and $250 for the court system. That is considerably scaled back from the original proposal. Nancy Slagle advised that the amount of funding for the Dept. of Corrections at page 6, line 23, should be $750.0 rather than $1,500,000. The remainder of the $2.5 million in federal dollars shows up in deferred maintenance in the back portion of the budget. Sec. 14 contains four-dam pool language and appropriates $4,000,000 from the Southeast energy fund to the power development fund. Co-chairman Halford acknowledged questions surrounding the language submitted by the Office of Budget and Management and asked how the appropriation would work. Nancy Slagle referenced submission of two proposals for language. The first appropriates $4,000,000 to the power development fund, $4,000,000 to power cost equalization, and $2,000,000 to the power project fund. The remainder would be distributed on the 40/40/20 basis, per statute. Following discussion with attorneys and staff in Senate Finance co-chairs offices, it was determined it would be simpler to leave the 40/40/20 language in the front section of the operating bill and appropriate the $4,000,000 from the Southeast energy fund to the power development fund. SENATOR TAYLOR came before committee in opposition to the appropriation, terming it "a simpler way to steal $4,000,000 out of my district and put it into a state obligation." He remarked that the state has failed to repair power lines that supply Tyee power to Wrangell and Petersburg. The state is currently being sued by four-dam pool members because of that failure. Deferred maintenance totals $35 million for the Tyee line and the Terror Lake project at Kodiak. Senator Taylor attested to a lack of communication with the Governor's Office on the issue and urged that the legislature demand that "the law that was passed that appropriated these moneys, three years ago, be enforced." He referenced earlier comments by the administration asking that moneys appropriated to Juneau be preserved while the same continuity of care does not extend to the $4,000,000 appropriated for a $60 million intertie line. Ketchikan is presently burning diesel to provide power. The city has been doing so since September, while there is a surplus of power at Tyee. The $4,000,000 transfer recommended by the administration kills a $60 million intertie on which the Senator advised he had been working for several years. Senator Taylor said he had prepared an amendment to correct the problem and return the moneys to the original appropriation. Co-chairman Halford asked that amendments be held until conclusion of overall review of the bill. Senator Zharoff asked if a memorandum of understanding had been reached by four-dam pool members. Nancy Slagle said that proposed language is based on negotiations between the administration and attorneys representing utility companies. She acknowledged that the administration does not have a signed agreement with all parties at this time, although a few have signed. It will take time for city councils to meet, vote on the issue, and sign. While that process is underway, it is not complete at this point. In light of needed repairs, Senator Zharoff expressed concern that an agreement was not in place. Sec. 15 appropriates $1,000,000 in federal receipts from the National Marine Fisheries for the Kenai River project Sec. 16 extends the lapse date on disaster relief funds from June 30, 1995, to June 30, 1996. Co-chairman Halford subsequently advised that this language is duplicated in Sec. 94 Sec. 17 contains appropriations from unrestricted mortgage loan interest payments to AHFC to accompany new legislation in the executive budget act which applies to AHFC. Senator Rieger asked if the $350,000,000 and the $50,000,000 set forth in subsections (a) and (b) respectively, are numbers with which AHFC is comfortable. Co-chairman Halford voiced his understanding that the numbers were provided by AHFC. Sec. 18 contains denial of prior authorization for runway extension at Anchorage International Airport. Sec. 19 appropriates the balance in the Alaska Science and Technology Endowment earnings reserve to the Alaska Science and Technology Foundation for grants for FY 96. Sec. 20 contains supplemental funding for salvage timber harvests. Co-chairman Halford advised that funding would generate more revenue than expenditure. Sec. 21 reappropriates the balance of funding for Petersburg Elementary School code upgrades to Petersburg city Schools for the middle school/high school shop addition. Co-chairman Halford advised that reappropriations are contained in Secs. 21 through 94. He then queried members concerning whether they wished to proceed section by section or merely raise questions and discuss specific items. Members chose to discuss specific reappropriations. Senator Rieger directed attention to Sec. 72, page 19, lines 3-5, and noted that the reappropriation is made from an appropriation enacted during 1995. Co-chairman Halford advised that the Lake and Peninsula Borough undertook school projects without going through the bond, debt service program. The reappropriation removes moneys that would have been used for debt service for those schools from the debt service allocation. The net effect on the general fund should be zero. The request derived from Senator Hoffman's office. Senator Rieger next inquired concerning the mechanics of Sec. 83 at pages 20 and 21. Co-chairman Halford explained that the reappropriation was proposed by the Governor's Office. Nancy Slagle advised that subsection (a) allows for unexpended balances of the longevity bonus program to be available to the office of public advocacy which is $330,000 short this year. What cannot be made up from subsection (a) will be made up from subsection (b) funding derived from a 1994 appropriation for medical assistance, medicaid facilities, where a lapse is expected. Senator Donley referenced Sec. 37 and said he was responsible for the original appropriation for Cambridge Way/Tudor Road traffic improvements. He then voiced his understanding that reappropriations were not to occur unless district legislators all agreed. Co-chairman Halford acknowledged that the criteria was for House and Senate members to get together. If that is not the case on this item, the "normal thing would be to delete the reappropriation" for the Campbell Creek Trail. He suggested that action be held in abeyance and that discussion return to Sec. 37 at a later time. Following discussion of questioned reappropriation items, Co-chairman Halford continued his sectional review of the bill. Sec. 95 contains a $2,700,000 appropriation for the Shepard Point road and response equipment storage facilities from settlement fund moneys. Sec. 96 reflects a reappropriation of $5,669,400 in legislative carry forward moneys to DOTPF for nonroutine and deferred maintenance. Sec. 97 contains an Anchorage Caucus reappropriation for the Ship Creek redevelopment project. Sec. 98 reappropriates funding from the high speed ferry system to the Alaska Science and Technology Foundation. Sec. 99 contains a reappropriation within Senator Ellis' district from the Williwaw Elementary School district to Mountain View Elementary School. Sec. 100 reflects a reappropriation proposed by the Governor for the Prince William Sound Science Center. Co-chairman Halford directed attention to page 25, line 23, and noted need to insert "not to exceed $300,000" after the word "appropriation." Secs. 101 through 106 contain additional reappropriations. The net effect is zero general funds. Senator Zharoff inquired concerning Sec. 104. Co-chairman Halford noted that it reappropriates moneys from the legislative lapse to the University of Alaska, Anchorage, for design and construction of campus parking facilities, the second or third item on the priority list. Senator Duncan inquired concerning the rationale behind the appropriation. Co-chairman Halford advised that there was no particular tie between the original appropriation and the reappropriation project. He referenced an earlier reappropriation from legislative funding to DOTPF maintenance. Sec. 105 provisions lapse a number of old appropriations. Senator Rieger requested an explanation. Co-chairman Halford advised that the section was included at the request of the Legislative Budget and Audit Committee. It relates to budgets prior to 1990. JOHN BITNEY, aide to the Legislative Budget and Audit Committee, explained that early in the session, the legislative auditor provided legislators a computer listing of old capital project balances. Language within Sec. 105 repeals unobligated and unencumbered general fund balances in projects prior to 1989. As of January 23, 1995, the total was $8.8 million in general funds. Following a request by Senator Donley, Co- chairman Halford asked that Mr. Bitney make a list of repeal items available for review. Sec. 106 appropriates program receipts from occupational licensing fees to the division of occupational licensing for operating costs for FY 96. Senator Rieger subsequently asked if the foregoing provision was standard. Nancy Slagle explained that it ensures that program receipts received on a biennial basis can be used for operational expenditures over a two-year period. According to statute, program receipts from fees are intended to cover board expenses. Further discussion of overall division expenditures followed. Ms. McConnell advised that OMB would review and clarify the issue. Sec. 107 appropriates all but $100,000,000 from the earnings reserve balance to the principal of the permanent fund. Annalee McConnell commented that the appropriation within Sec. 107 represents one of the most important acts to be taken by committee. She noted that it was transpiring in "a little less than four seconds at five of midnight." She stressed that the action is of enormous impact to the state and should receive considerable attention. The administration is opposed to the provision. End : SFC-95, #71, Side 1 Begin: SFC-95, #72, Side 2 Ms. McConnell noted that the above appropriation would impact whether a three-quarter vote or a simple majority is needed to access the constitutional budget reserve when it was "clearly the intention of the people that these are the circumstances under which a three-quarter vote should be required." The issue involves "making major changes in the reserves policy of the State of Alaska just before the long- range fiscal planning commission does its work." In her concluding comments she termed the above appropriation "premature and a very unwise move at this point." Co-chairman Halford advised that the bill making the above appropriation "passed the Senate quite some time ago," and the House version has advanced to the Rules committee. The approach has thus had several months of consideration, affirmative passage in one body, and consideration through the committee structure in the other body. It is not intended to be hidden. Senator Duncan inquired concerning the amount remaining and not subject to appropriation in SB 84. Co-chairman Halford voiced his understanding that SB 84 retained $250,000,000. Senator Duncan voiced concern that the appropriation would impact dividends. Co-chairman Halford explained that a review of projections indicates no impact on the dividend, except possibly guaranteeing that they do not decline in the future because of legislative spending. He further noted that the effective date in SB 84 was the last day of FY 95. The effective date for Sec. 106 is FY 96. It would not be available to be used in some way to "get the budget passed with a simple majority . . . ." Senator Duncan questioned the impact on next year's budget. Co-chairman Halford acknowledged a constitutional question. Senator Duncan suggested that while the arrangement would not bypass the three-quarter vote this year, it would, in effect, do so next year. Co-chairman Halford acknowledged that anytime a deposit to savings is made, the appropriation for the year is increased. It was not the intent of the constitutional budget reserve to keep deposits to principal of the permanent fund from being made. Senator Duncan stressed that when the constitutional budget reserve was established, it was not the intent that the three-quarter vote requirement be bypassed. Sec. 108 appropriates the sum of $711,150,130 to the Dept. of Education for full funding, including the projected $18 million increase and single site schools, for the FY 96 education budget. Specific numbers listed on pages 27 through 29 were provided by the administration. Annalee McConnell referenced page 27, line 29, and noted need to delete the word "trust" from general fund/mental health funding. Referencing page 28, line 10, public and nonpublic pupil transportation, Ms. McConnell advised that the administration budget showed public transportation as a separate line item and zero funding for nonpublic pupil transportation. The amount listed in the draft, $32,842,200, is the public amount. The effect of Senate funding would be to reduce the amount of money going to public schools for transportation, in order to transport students to private schools. Discussion of litigation relating to school transportation followed. Ms. McConnell advised of requests for transportation to private schools in addition to that from Fairbanks giving rise to the litigation. Co-chairman Halford asked how the case was decided. Ms. McConnell explained that Alaska statutes provide for private school transportation, subject to appropriation. The court case was not appealed by the state. It ordered the state to provide transportation to students at Monroe. Ms. McConnell urged appropriation as two separate items. In the course of further discussion, Ms. McConnell said that the total potential impact of transporting students to private schools would be $3 to $6 million. Discussion of regulations setting policy on the issue followed. Nancy Slagle voiced need to include Sec. 108 within Sec. 113 provisions for a July 1, 1995, effective date. Co-chairman Halford concurred that funding in Sec. 108 is intended to be the education component of the FY 96 budget. Sec. 109 contains a $35,000,000 appropriation from AHFC to the general fund. Ms. McConnell said that the administration does not support using AHFC funds for non- housing purposes. That is the reason the administration put together a package that included deferred maintenance at university student housing, housing for seniors, pioneer homes, special needs housing, etc. Sec. 110 reflects "sweep language of the constitutional budget reserve . . . ." It would return money to the power cost assistant fund, the science and technology fund, the marine highway system, and the mitigation account of the 470 fund. Mr. McConnell advised that the administration maintains that this should be done by a three-quarters vote. Co-chairman Halford concurred in the interpretation. Sec. 111 relates to the three-quarter vote in the constitutional budget reserve fund. Remaining sections apply effective dates. Nancy Slagle noted that a number of the supplemental items requested by the Governor do not appear in the draft bill. She noted specifically judgments and claims by the Dept. of Law; settlement of claims for the Toksook Bay oil spill; reimbursement for the Alaska Gateway School District; Dept. of Fish and Game vendor compensation; funding for community jails; settlement of personal lawsuits for Dept. of Corrections; Cleary contempt court fines; University ACCFT, and miscellaneous stale dated warrants. Co-chairman Halford acknowledged that the foregoing were not included. He advised of extensive discussion and a conscious decision regarding Toksook Bay. There was no conscious decision on the remainder of the foregoing which total approximately $3 million. While the Senate Majority would like to solve the Toksook Bay question, it seeks a solution that includes both state and school district liability as well as some method of fixing the problem so this case does not become an example of a way for communities to sue themselves for their actions and ultimately require the state to cover the cost. Ms. McConnell asked if public discussion of the Toksook Bay issue had occurred. Co-chairman Halford advised that it had. Senator Donley commented on lack of testimony by the attorney who handled the settlement on behalf of the Dept. of Law. He said that he subsequently met with the appropriate attorneys and received "entirely different responses to the questions." He advised he was satisfied with those answers and had developed a positive feeling toward the settlement. Ms. McConnell stressed that the state has an opportunity to accept a settlement which would be of extreme advantage. A jury trial could produce a significantly higher judgment. The administration is well aware of other claims. An interdepartmental task group is working on the issue of bulk fuel spills, liability issues, etc. The intent is to conduct intensive work during the interim and make recommendations in January. She urged support for the settlement and warned that the financial situation would be significantly worse if the case goes to jury trial at Bethel. Citing the Co-chairman's indication that non-controversial supplemental items were not consciously left out of the draft, Ms. McConnell inquired regarding the process at this point. Co-chairman Halford advised that supplementals would probably be included in a technical amendment offered on the floor. Ms. McConnell suggested that she make copies of a spread sheet so members could review the funding. Co- chairman Halford directed that the meeting be recessed pending copying and distribution of the spread sheet. RECESS - 12:20 A.M. RECONVENE - 1:05 A.M. Co-chairman Frank MOVED for adoption of SCS CSHB 268 (Fin) and requested unanimous consent. No objection having been raised, SCS CSHB 268 (Fin) was ADOPTED as a working document. Co-chairman Halford noted that amendment of the bill to effect both technical and other needed corrections would require substantial time and reprinting. He then voiced his intent to prepare a technical amendment to "pick up all the technical changes." He further acknowledged that there would likely be substantive amendments as well, and suggested that the bill be reported out of committee with the understanding that those amendments would follow and be offered on the floor. He referenced circulation of information on supplemental funding by the administration and said the committee would be taking the advice of conference committee co-chairs on the operating budget in including supplemental funding in amendments to be offered on the floor. In response to a question from Senator Randy Phillips, the Co-chairman advised that he would do his best to combine changes within a consent amendment and go forward from there. He urged members to carefully examine reappropriation items within their districts for accuracy. Senator Rieger MOVED that SCS CSHB 268 (Fin) pass from committee with individual recommendations. Senator Zharoff OBJECTED, voicing exception to several sections, Sec. 107 in particular. He further spoke to lack of opportunity to offer amendments in committee and cited questions concerning funding sources, the school priority list, water and sewer projects, appropriations from AHFC receipts, and why some projects were included while others were not. Annalee McConnell voiced concern regarding supplemental housing for AHFC. She said that in reducing funding from the requested $7 million match, the state would not be able to capture the full $60 million in federal funds. Capture of the $60 million would require addition of $7 million at page 32, line 22. Co-chairman Halford noted that funding provided at page 32 is higher than "the minimum number that was previously provided by AHFC." He further acknowledged concern "back and forth on that question." Ms. McConnell concurred and referenced recent receipt of correspondence from HUD clarifying the issue. Ms. McConnell spoke to projects which were not on the administration's list such as the agricultural education demonstration project. Funding for Dept. of Transportation and Public Facilities remains $2 million short in deferred maintenance funding. Nancy Slagle advised of need for $1.2 million for an additional Dept. of Health and Social Services project for life, health, safety block grants. Ms. McConnell referenced submission of information on the school at Port Protection where the state can solve a $1.6 million problem with $100.0, the cost of moving relocatable classrooms in an effort to avoid need for a major construction project. She further spoke to the situation at Kalskag where the school burned down. Although the community is insured for replacement, it was not insured for interim classroom space. She next recommended funding of $300.0 for the SLED project which makes data resources available to libraries throughout the state. She stressed the growing popularity of the project and the fact that it serves school children as well as adults. Ms. McConnell urged that no unallocated general fund reduction of $1.5 million be made to the village safe water program, page 55. She further noted that a number of projects were missing from the priority list for the municipal matching program and funding amounts for some projects differ from those submitted by the communities and the administration. She recommended return to funding per the priority list. Funding for repairs and life, safety features at community jails is also not included. The finance committee requested that this $155.0 item be moved from the operating budget to the capital budget. Ms. McConnell also stressed need for inclusion of funding for completion of the Machatanz Building at the university, even though it was not part of the package put together by university regents. Co-chairman Halford called for a show of hands on passage of the bill. The motion CARRIED on a vote of 5 to 2, and SCS CSHB 268 (Fin) was REPORTED OUT of committee. Co-chairmen Halford and Frank and Senators Rieger and Sharp signed the committee report with a "do pass" recommendation. Senators Donley, Phillips, and Zharoff signed "no recommendation." ADJOURNMENT The meeting was adjourned at approximately 1:20 a.m.