MINUTES SENATE FINANCE COMMITTEE February 15, 1996 9:15 a.m. TAPES SFC-96, #26, Side 1 (000-575) SFC-96, #26, Side 2 (575-470) CALL TO ORDER Senator Rick Halford, Co-chairman, convened the meeting at approximately 9:15 a.m. PRESENT In addition to Co-chairmen Halford and Frank, Senators Phillips and Zharoff were present. Senators Rieger and Donley arrived soon after the meeting began. Senator Sharp did not attend. ALSO ATTENDING: Anne Carpeneti, Assistant Attorney General, Criminal Division, Dept. of Law; Wendy Redman, Vice President for University Relations, University of Alaska; Nancy Jones, Director, Permanent Fund Dividend Division, Dept. of Revenue; Betty Martin, Comptroller, Treasury Division, Dept. of Revenue; Sara Hannan, Executive Director, Alaska Environmental Lobby; Tom Walker, President, Union of University Students, Anchorage; Mike Greany, Director, Legislative Finance Division; Tom Williams, aide to Senator Frank; and aides to committee members and other members of the legislature. SUMMARY INFORMATION SB 232 - PFD NOTICES AND ELIGIBILITY Comments were presented by Tom Williams, Nancy Jones, and Anne Carpeneti. An amendment requested by the Dept. of Revenue was referenced and discussed. The bill was subsequently HELD in committee for further review. SB 250 - UNIV. OF ALASKA: LAND GRANT & ASSETS Discussion was had with Wendy Redman, Tom Walker, Sara Hannan, and Betty Martin. Ron Swanson also testified via teleconference. Amendment No. 1, suggested by the University, was ADOPTED. Amendment No. 2, offered by Senator Phillips, failed on a vote of 2 to 4. CSSB 250 (Fin) was REPORTED OUT of committee with a $170.0 fiscal note from the University, a $78.0 note from DNR, a $63.1 note from DF&G, and a -$5.0 note from DOR. SENATE BILL NO. 250 An Act relating to the University of Alaska and to assets of the University of Alaska; authorizing the University of Alaska to select additional state public domain land, designating that land as `university trust land,' and describing the principles applicable to the land's management; and defining the net income from the University of Alaska's endowment trust fund as `university receipts' subject to prior legislative appropriation. Co-Chairman Halford Directed that SB 250 be brought on for discussion. Senator Frank explained that the bill makes technical changes in legislation vetoed by Governor Knowles, last year. Work by the University and the Dept. of Natural Resources addresses concerns which gave rise to the veto. WENDY REDMAN, Vice President, University Relations, University of Alaska, came before committee. She told members that the major change within the legislation puts "a lot more responsibility back with DNR rather than trying to detail a lot of specifics in the bill." The commissioner will determine, through a best-interest finding, which lands will be available for conveyance to the University. Technical changes made at the request of the Dept. of Natural Resources relate to internal management issues. Additions to the bill relate to: 1. Protection of proprietary information. The state currently enjoys this protection while the University does not. This has caused problems for past applicants wishing to bid on University land management opportunities. The University could not guarantee that certain business information would remain protected from other bidders. 2. Foreclosures. The University process was much more complicated than that utilized by the state. Bill language adopts state provisions for foreclosures. The legislation includes a section on transfer of investment authority from the Dept. of Revenue to the University. Since statehood, the Dept. of Revenue has had responsibility for managing and investing income from the land-grant trust fund. The University has achieved a substantially better return over time and believes it can produce greater income if these funds are merged with other investment moneys. The Dept. of Natural Resources and the Governor have no objection to the transfer. Ms. Redman advised that, over the summer, she met with environmental groups in an attempt to address their concerns. Some headway was made, and the board of regents developed draft policies for management of University lands. The draft attempts to accommodate concerns raised by environmental groups. Ms. Redman acknowledged that the foregoing had not satisfied all concerns. Environmentalists critical of the bill indicate that "They really like the status quo." Ms. Redman voiced her belief that the University could "be a good manager of land." It has a good history. If the committee believes "more land needs to get into development in Alaska," it should pass SB 250. In her closing remarks, Ms. Redman referenced veto language indicating the administration's preference for Dept. of Natural Resource management of all state lands. The department held all University lands for thirty years. During that time, it made $590.0 on the University's 112,000 acres. In the nine years the University has held the land, it made $32 million. The Dept. of Natural Resources does not have sufficient resources to adequately and appropriately manage state lands for development. Senator Randy Phillips voiced his understanding that while last year's Senate version of the bill contained 500,000 acres, the bill that ultimately passed the legislature specified 350,000. Ms. Redman concurred. Senator Zharoff referenced proposed Amendment No. 1 and inquired concerning the difference between "patent" and "quitclaim deed." Co-chairman Halford voiced his understanding that the quitclaim deed would merely convey state interest while a patent would both convey interest and guarantee title. RON SWANSON, Director, Division of Land, Dept. of Natural Resources, spoke via teleconference from Anchorage. He concurred in the above description, saying that in this instance the department would utilize the same type of quitclaim deed used for conveyance of mental health lands. Senator Zharoff raised concern regarding further restriction of entitlement lands for municipalities. Wendy Redman noted that provisions within the bill vesting responsibility with the Commissioner of natural resources seek to address that concern. The bill contains protections for current municipalities. The Commissioner will be aware of emerging municipal movements and will know which lands to avoid. The University is most interested in adding contiguous acreage rather than further fragmenting ownership. Senator Phillips voiced his understanding that the University presently holds "a little over 112,000 acres." He then asked why the University needs the extra acreage. He noted that last year he voted in support of an additional 350,000 and advised that he would stick with that figure this year. Co-chairman Frank MOVED for adoption of Amendment No. 1. Co-chairman Halford noted objection. Ms. Redman explained that language to be inserted at page 7, line 7, speaks to concerns raised by Senator Zharoff. The insert clarifies that land conveyed to the University will not "include valid, existing selections by a municipality." Language further states that in land selection disagreements between the University and the Dept. of Natural Resources, the Governor will make the final decision. Ms. Redman next directed attention to a change at page 8, line 13, and explained that it relates to submerged lands. Since submerged lands extend as far as three miles, the Dept. of Natural Resources is reluctant to convey all of that to the University. However, there may be situations where it is appropriate to make such a conveyance. Language was thus changed from "shall" to "may." The department would seek to ensure that conveyance of submerged lands is deducted from the total acreage due the University. That will be worked out over time. Remaining changes effected by Amendment No. 1 are technical. TOM WALKER, President, Union of University Students, Anchorage, next came before committee. He stressed need for the state to fulfill its financial obligation to the University. Alaska presently ranks 49th of 50 states in total spending on higher education. As the University budget remains flat, the cost of going to school increases every year, and increasing numbers of students are financially unable to begin or continue their education. This is politically untenable. The land grant is one solution to the University's financial problems. While it is not a short-term solution, it will serve as a signal that the legislature is concerned about the long-term viability of the University. SARA HANNAN, Executive Director, Alaska Environmental Lobby, next came before committee. She advised that she is an alumna of the University of Alaska, Fairbanks, and a former member of the board of regents. She said that the foregoing should relieve fears that the environmental community consists of "outsiders here to lock up Alaska." As background information, Ms. Hannan noted that from commencement of statehood, state policy concerns regarding land management differed from those of the University. She referenced lengthy litigation whereby the University "finally got cash and land that was originally to be the land grant that the state had mismanaged." The legal obligation for a land-grant University is fulfilled in Alaska. Ms. Hannan concurred that the University has made substantially more from management of its lands than did the Dept. of Natural Resources. The reason for the difference is that the state obligation for management of land is for multiple use for all Alaskans (hunters, fishermen, hikers, tourism business, developers, etc.). All have a say in how state land will be utilized. When land is transferred to the University, it becomes, in essence, private land. Concern is that access will no longer be available. Further, the University's purpose in developing land is to make profit. Many state lands adjacent to communities provide a buffer between development and the expanding community. Much state land is adjacent to currently owned municipal lands. Ms. Hannan suggested that if the legislature believes more state land should be in development, that effort should be undertaken through a comprehensive land-use study. Giving a private landholder one-half million acres without the forethought of a comprehensive plan, limits the state's options. The University will not become financially independent through this additional land grant. The University has not been badly treated by the legislature. Substantial funding has been provided through the years. The state has supported University development of land, and the University has aggressively pursued that development. The broader policy question of what the state would like to do with remaining multiple-use lands should be addressed prior to giving the University an additional half million acres. In response to a question from Co-chairman Frank concerning the environmental community stand on the proposed bill versus the vetoed legislation, Ms. Hannan acknowledged the University's attempt to openly discuss concerns. She voiced her belief that technical changes in the "amount and way that the land is transferred are no where near approaching our concerns." There is a "grand philosophical difference." The difference is between those who think that the land has a multiple-use obligation to all Alaskans and those who say the state should undertake a private transfer. While the bill is better than the one offered last year, it does not relieve philosophical differences and concerns. Co-chairman Frank asked if provisions requiring the Dept. of Natural Resources to work on land-use conflicts and develop a package of lands upon which the legislature will "ultimately have another say" and the public will have opportunity to express concerns, provide a greater level of comfort than the previous bill. Ms. Hannan responded, "a small degree of comfort . . . from the inverse." It does a lot for the half million acres the University seeks, but the state owns million of acres. Questions need to be addressed at a broad policy level, first. The proposed bill narrows those discussion exclusively to acreage to be transferred to the University. Co-chairman Frank referenced the existing public process for other state lands and their development. Ms. Hannan suggested that decisions regarding land use and development happen in "fairly hit or miss patterns." The state has never been directed by the policy body, the legislature, to deal with overall land management. When called upon by Co-chairman Halford, Mr. Swanson testified from Anchorage that the administration is neutral on the legislation. He concurred that the present version is much improved over that passed last year and vetoed by the Governor. Concern continues over the availability of suitable land and the ability of that land to generate revenue. Experience in reconstituting the mental health trust evidenced public outcry from "just about every parcel that was identified . . . ." The department was unable to "come up with a full million acres for the mental health settlement. The best we could do was come up with 940,000 acres." A substantial portion of that was "mineral only." Under the proposed bill, the department would "be looking at mainly surface values" to convey acres to the University. Mr. Swanson voiced his belief that neither the present administration nor future administrations would agreed to "give any oil and gas lands up, although they would probably be willing to give up some mineral lands." Mr. Swanson referenced two further concerns. He noted that the bill calls for conveyance of 500,000 acres. He then voiced a preference for language conveying "up to" whatever acreage the legislature "comes up with." The department will, hopefully, achieve the 500,000 acres. Mr. Swanson expressed his hope that the department would not be sued "over the last 5 or 10 or 100 acres that we can't identify." The department will attempt to convey "anything that the Legislature approves." Referencing Sec. 8(g) at page 9, line 5, Mr. Swanson noted provisions requiring that the University pay all costs relating to the selection and conveyance process. He then recited a listing of items (records, escrow accounting, contract amendments, etc.) which he advised would be included. Co-chairman Halford inquired concerning the $170.0 fiscal note from the University. Co-chairman Frank voiced his understanding that funding reflects University receipts. Wendy Redman explained that the $170.0 represents income from the land. Part of it involves transfer of investment authority from the Dept. of Natural Resources. The department currently takes $50.0 from University earnings for management of University funds. Senator Zharoff asked for an explanation of the following language within the Dept. of Revenue fiscal note: This bill would transfer the $35 million Trust to the University for management. BETTY MARTIN, Comptroller, Treasury Division, Dept. of Revenue, briefly came before committee. She explained that custodial contracts and personal services are allocated across funds for which Treasury provides management services. Following transfer of the $35 million, a portion of those management costs would no longer be allocated to the University. The transfer, however, would not be sufficient to cause a reduction in Dept. of Revenue costs. Costs would thus have to be reallocated to other funds, primarily general funds/CBRF. Discussion followed between Senator Zharoff and Ms. Redman regarding interest generated by the $35 million fund. Ms. Redman explained that the fund is presently generating $2.7 million after inflation proofing. She referenced a draft annual report on the natural-resource-related projects funded from earnings last year. Senator Donley stated his continuing lack of faith in University personnel policies. He voiced concern that the University is out of compliance with statutory requirements of good-faith bargaining in collective bargaining matters. During budget overviews, the University was less than candid about ongoing negotiations. The fact that few meetings have occurred during the two-year negotiating period raises questions regarding University management abilities. Co-chairman Halford called for further questions or comments. None were forthcoming. He then called for objections to adoption of Amendment No. 1. No objection having been raised, Amendment No. 1 was ADOPTED for incorporation within a finance committee substitute. Senator Randy Phillips MOVED to amend page 6, line 30, by deleting "500,000" and inserting "350,000" as the total acreage to be conveyed to the University. Co-chairman Halford called for debate. None was forthcoming. Senator Rieger noted his objection. Co-chairman Halford called for a show of hands on Amendment No. 2. The motion failed on a vote of 2 to 4. Co-chairman Frank MOVED that CSSB 250 (Fin) pass from committee with individual recommendations and accompanying fiscal notes. Senator Zharoff again commented on concern regarding selection of lands in areas where municipalities might be formed and expressed hope that both the University and Dept. of Natural Resources would be sensitive to that issue. No objection having been raised, CSSB 250 (Finance) was REPORTED OUT of committee with a $170.0 fiscal note from the University, a $78.0 note from Dept. of Natural Resources, a $63.1 note from the Dept. of Fish and Game, and a -$5.0 note from the Dept. of Revenue. Co-chairman Frank and Senator Rieger signed the committee report with a "do pass" recommendation. Co-chairman Halford and Senators Phillips and Zharoff signed "no recommendation." SENATE BILL NO. 232 An Act relating to permanent fund dividend program notice requirements, to the ineligibility for dividends of individuals convicted of felonies or incarcerated for misdemeanors, and to the determination of the number and identity of certain ineligible individuals; and providing for an effective date. Co-chairman Halford directed that SB 232 be brought on for discussion. Senator Frank explained that the proposed bill would remove third-time misdemeanants from eligibility for permanent fund dividends. He noted that those moving in and out of the correctional system incur substantial costs for the criminal justice system. It is thus appropriate that they contribute their permanent fund dividends toward defraying part of that cost. The major change from the bill that was vetoed last year is that collection of the dividend is not accelerated, and dividends are not utilized in the current budget year. TOM WILLIAMS, aide to Senator Frank, explained that under current law an individual incarcerated for a felony conviction is ineligible for a permanent fund dividend in the next calendar year. The law also allows the amount that would have been paid to individuals, for the next fiscal year, to be appropriated from the dividend fund (without notice on the dividend stub) to three entities: 1. The crime victim compensation fund. 2. Counsel on domestic violence and sexual assault 3. Dept. of Corrections The proposed bill will accomplish four ends: 1. Increase the pool of individuals ineligible for the permanent fund dividend to include those who, in a given year, are convicted of a felony or incarcerated for their third or subsequent misdemeanor conviction. 2. Require that the dividend stub provide public notice of the criteria for denying individuals, the legislative purpose for denying those individuals, the amount that would have been paid in the prior fiscal year to the individuals, and how that money was appropriated to the above-noted agencies in the subsequent fiscal year. 3. Add the departments of Public Safety and Law to the list of criminal justice system agencies authorized to receive the funds. 4. Clarify the purposes for which the funds may be used. Mr. Williams directed attention to file materials containing a sectional analysis of the bill and a comparison of agencies now receiving funds and those which would received funds under the proposed legislation. Fiscal notes from the Dept. of Public Safety and Dept. of Revenue are the same as last year. The note from the Dept. of Corrections is $68.0 as opposed to zero last year. While the original approach contemplated that notice provisions be added to this year's dividends, a proposed amendment would start notification a year from now. Concerns regarding prior legislation pertained to whether agencies that presently garnish permanent fund dividends would be impacted. The estimated effect on child support enforcement garnishments is negligible (less than one tenth of one percent of child support). Mr. Williams further commented on diversion of permanent fund moneys to child support and indicated that discussion of that issue would be ongoing. Department proposals will be explored. END: SFC-96, #26, Side 1 BEGIN: SFC-96, #26, Side 2 In response to a question from Senator Zharoff, Mr. Williams noted that legislative attorneys raised constitutional questions over denial of funds to felons and subsequent appropriation to a specific individual or case. Senator Frank advised that the bill would be held in committee to work on the issue. NANCY JONES, Director, Permanent Fund Division, Dept. of Revenue, next came before committee. She referenced the above-noted amendment and asked that it be favorably considered. Speaking to expansion of the class of ineligible permanent fund dividend recipients, Ms. Jones said that the department has no problem with addition of felony convictions and incarcerated misdemeanants. Income diversion, however, remains a concern. Ms. Jones further attested to technical problems with the bill concerning the flow of information on convictions, particularly for those who are convicted but not incarcerated. Ms. Jones voiced support for disclosure requirements of the bill. She explained that the department interprets bill language to require that information flow to felons ineligible to receive the dividend rather than to the general public. The department fiscal note is higher than last year because of a noticeable increase in the number of appeals as a result of the program. The department thus seeks funding for a position to handle appeals. The issue is the same within the Dept. of Corrections. Ms. Jones described the transfer of information between the two departments during the appeal process. In her closing remarks, Ms. Jones reiterated support for expansion of the class of ineligible recipients and urged that the committee give favorable consideration to addition of child support--the largest recipient of funds--if that provision can be added to the bill. ANNE CARPENETI, Assistant Attorney General, Criminal Division, Dept. of Law, came before committee. She noted that denial of dividends to third-time misdemeanants and those convicted of but not incarcerated for felonies removes possible funds to pay orders of restitution to victims of crime who are not covered by the violent crimes compensation board. Co-chairman Halford asked if statistics are available showing how many dividend dollars are used for restitution and child support. Both Co-chairmen concurred in need for those numbers. Co-chairman Frank advised that analysis indicates that only a small percentage flows to child support enforcement. ADJOURNMENT The meeting was adjourned at approximately 10:10 a.m.