MINUTES SENATE FINANCE COMMITTEE 31 January 1997 9:03 a.m. TAPES SFC-97, #27, Side 1 (000 - 590) Side 2 (590 - 232) CALL TO ORDER Senator Bert Sharp, Co-chairman, convened the meeting at approximately 9:03 a.m. PRESENT In addition to Co-chairman Sharp, Senators Pearce, Phillips, Donley, Torgerson, Parnell and Adams were present when the meeting convened. ALSO ATTENDING: Bill Rolfzen, State Revenue Sharing, Division of Municipal and Regional Assistance, Department of Community and Regional Affairs; Vern Voss, Cash Manager, Treasury Division, Department of Revenue; Dennis Egan, Mayor, City of Juneau; Kevin Ritchie, Director, Alaska Municipal League; Mike Greany, Director, Division of Legislative Finance; and aides to committee members and other members of the legislature. Via Teleconference: Marlin Starnes (ph), Mayor pro tempore, Delta Junction; Pat Poland, Department of Community and Regional Affairs, Anchorage; Carolyn Floyd, Mayor, City of Kodiak; Rick Mystrom, Mayor, City of Anchorage; George Wuerch, Anchorage Assemblyman; Jerome Selby, Mayor, Kodiak Island Borough; Edwin Anderson, Mayor, Bristol Bay Borough; and Dave Bouker, Dillingham. SUMMARY INFORMATION CS FOR SENATE BILL NO. 29(CRA) Senator John Torgerson testified before the committee on behalf of this bill. He moved amendment #1 and without objection it was adopted. Amendment #2 was moved and after discussion between committee members and Mr. Bill Rolfzen it was unanimously decided to separate this amendment at the request of Senator Adams. Amendment #2(a) was moved and without objection it was adopted. Later without objection it was rescinded. Amendment #2(b) was moved and then withdrawn by Senator Torgerson. Amendment #3 was not submitted. Co-chairman Sharp held the bill in committee. CS FOR SENATE BILL NO. 29(CRA) "An Act relating to certain programs of state aid to municipalities and recipients in the unorganized borough; and providing for an effective date." Senator John Torgerson, sponsor of the bill, explained that SB 29 was essentially the same bill as last year, SB 20. He said the bill renamed municipal assistance to priority revenue sharing and renamed the rest to safe communities fund. Under safe communities funds it is indicated that the money spent out of this fund must go to certain public purposes and identifies those purposes as police protection, fire protection, water and sewer, solid waste management and other services. It required the municipalities to list the amount of money received from this on a notice to taxpayers to show money coming from the state and identified it as a safe communities fund. It removed a hold harmless provision from the base amount and allowed that amount to be proportionately reduced in the event of a reduction in this appropriation. The base amount was $12.4 million that was set in 1978. It had not been reduced as the rest of the program through budget cuts. The hold harmless provision would be taken off and allowed to be reduced as the rest of the program. This legislation would also raise the minimum entitlement to smaller communities from $25,000 to $40,000. This is in recognition that it costs more money to operate a local government. Some thirty communities in rural Alaska would be affected. It also moved the date of payment. One portion of revenue sharing is paid in July and municipal assistance is paid in February. This would move the February portion of $29,400,000. up to the July 31st date and they would both be paid at the same time. This was an important component to the bill because the municipalities would now have the opportunity to invest that money to offset the amount it cost to raise the minimum entitlement from $25,000 to $40,000. It would be revenue neutral as far as communities were concerned. Senator Adams said he supported the bill as presented, however, some difficulty would arise with regards to amendment #2 in stating the minimum amount of money to be presented and it would have an impact on small communities. Senator Torgerson offered amendment #1. He said the amounts could be set mathematically in the statutes by using the terminology one-third versus two-thirds in both of these programs and AS 29.60. 360 and 370. Due to reductions in the programs that were applied last year the one-third versus two-thirds amount did not work for that calculation. This amendment was given by the administration to set this base amount in and use this as a guideline for a starting point. Senator Adams indicated he had no objection to this amendment. Without objection amendment #1 was adopted. Senator Torgerson offered amendment #2. The minimum entitlement would not be allowed to be held harmless. He wanted it to be reduced along with the program so that it would be equal. If there was no reduction in this then any reduction in the entitlement would come out of the tax based communities to raise this minimum entitlement. All communities should be treated equally. Any future reductions would be prorated. Senator Adams said he had no problems with the first section of the amendment. However he objected to page 7, following line 13 which reported an amount. The legislature could put any amount they want in municipal systems revenue sharing and it is determined on an annual basis instead of trying to put it in a statute. The way it was noted there would be a reduction in the communities throughout the State, especially the smaller communities. Bill Rolfzen, State Revenue Sharing, Division of Municipal and Regional Assistance, Department of Community and Regional Affairs was invited to join the committee. He said that amendment #2 established an over all minimum entitlement for this program at $40,000. After a municipality's revenue sharing payment and safe communities payment if they are not at $40,000 it is added to their over all entitlement bringing them up to that amount. However, if there was a cut to the FY 97 appropriation the over all minimum entitlement would be reduced. If there was a ten percent cut from 1997 to 1998 the over all minimum entitlement to communities would be $36,000. Senator Torgerson asked if the amount of $29,402,300 was shown and Mr. Rolfzen indicated it was so that in future fiscal years whatever the appropriation was it could be compared to this year to come up with a percentage. Senator Adams indicated that his concern was with this reduction. He suggested the question be divided and a vote be taken separately. He asked for this division based on the fact that the majority could put in any money amount they wanted and a minimum entitlement amount was not necessary. Co-chairman Sharp divided amendment #2 accordingly. Amendment 2(a) included up through line 12 and amendment 2(b) included lines 14 through 19. A vote was taken and unanimously approved. Senator Torgerson moved amendment Torgerson moved amendment #2(b). Senator Parnell requested that there be further testimony taken from several mayors present or via teleconference. Senator Torgerson moved amendment #2(b) be removed from the table for the present and without objection it was removed. Mr. Vern Voss, Cash Manager, Treasury Division, Department of Revenue was invited to join the committee. He explained consolidation of payments to be made 31 July instead of one in February. It would require the general fund to pay out monies and if there were not enough funds, to borrow from the Constitutional Budget Reserve. Senator Torgerson said it would be assumed the communities would reinvest the money thereby using the money to make the transition to the $40,000. He said there were difficulties with the fiscal note from the Department of Revenue with regards to managing the funds differently. There should only be a one year transition and not a continuation of the fiscal note. Dennis Egan, Mayor, City of Juneau was invited to join the committee. He said the members of the Alaska Municipal League and the Alaska Conference of Mayors felt this bill introduced by Senator Torgerson was so critical to cities throughout Alaska. He gave a short background on the "safe communities" bill. Creating safer communities was the most important goal of State and local governments. It would help create stability, taxation and insure services to our citizens. He explained several charts with the assistance of Mr. Kevin Ritchie, Director, Alaska Municipal League. He noted that combined municipal budgets were approximately the same size as the State's operating budget. The main budgetary overlap was the provision of education services, which is a constitutionally mandated responsibility of the state government but was being administered locally. Charts number two and three showed an overview of State and local government services. Many of these services also overlapped with the services of local governments. Public Safety, Transportation, Health and Social Services and Education were noted in particular and Mayor Egan said there was no clear line drawn between State and local responsibilities. Chart number four indicated how State and local governments were paid for in Alaska. Alaska funds over forty percent of its services from personal taxes and user fees. A vast majority of those were collected by local governments under the authority of the State government. Alaska's municipalities are proud of their role in supporting Alaska's budget. Since the beginning of the oil revenue crisis in 1986 the State of Alaska has been gradually withdrawing the municipal share of Alaska's oil wealth by cutting municipal revenue sharing over sixty percent without any significant decrease in the State budget. The State of Alaska and the cities and boroughs of Alaska both share exactly the same citizens and taxpayers. It does not matter to citizens if they are driving on a state or municipal road when they have to depend on safe roads to go to work. It does not matter to citizens whether a municipal police officer or State trooper responds to an emergency. It does not matter if a tax or fee is a local or State tax or fee. It still comes out of the pocket of essentially the same citizen. However, how the taxes and fees were structured was a critical importance to all taxpayers. If the State of Alaska ignored the impact of its actions on local services and local taxes the ability to offer safe communities to citizens would be threatened. This bill was very important in rebuilding the state and local partnership and focusing the use of state revenue sharing on the most important joint priority of safe communities. Senator Adams referred to amendment #2(b) and said that this bill did not make the communities stable because the amendment says there is no minimum of $40,000 unless monies appropriated for municipal assistance would never be reduced. If the amount appropriations to municipal assistance would be reduced by ten percent, passage of this amendment would not give communities $40,000 but $36,000. Mayor Egan said it would be a reduction of ten percent and communities throughout the State would like it kept at $40,000 and would like the revenue sharing to remain the same. Senator Torgerson said the reason he wanted this amendment in was because larger municipalities receiving more than $40,000 would contribute the difference to the reduction. The bill would equalize the program and recognize that all would share equally to any reductions to the program. Senator Adams asked the Alaska Municipal League to advise how many small communities are in IRS category presently because smaller communities cannot take any more cuts. They are subject to IRS prosecution because they cannot make their payments. The larger communities can take the cuts because they have a source of funding they can get to. Senator Torgerson said under this bill each community would have $15,000 more. In the future any reductions in the program would be shared equally. Senator Phillips asked about priority for State Troopers or city police and Mayor Egan said in his area there were few State Troopers and more city police. In response to Senator Torgerson's comments he said it would have to be pointed out that the smaller communities throughout the State would have to have some minimum level or the Department of Community and Regional Affairs would become a super department because the State of Alaska would be managing all the communities and would be providing staff because these communities would continue to fail. Carolyn Floyd, Mayor, City of Kodiak testified before the committee via teleconference. She stated she was President of the Conference of Mayors and member of the Board of Directors of the Alaska Municipal League. She urged and supported passage of SB29 without further amendments. She stated both the Conference of Mayors and the Alaska Municipal League have a strong commitment to create safe communities and strong local economies. She felt this bill would help set a minimum of entitlements in order to continue attracting new local business. George Wuerch, City of Anchorage assemblyman, testified before the committee via teleconference. He stated he was serving as chairman of the AML legislative committee. He said this was an important piece of legislation being an opportunity to reverse funding legislation throughout the State, to continue toward common goals and share the burden collectively. This would assure that the money given the local communities was spent on the proper things; police, fire, emergency medical, water and sewer issues. He fully supported and urged passage of SB 29 and noted they were ready to share their portion of the burden with the State and local governments. Senator Parnell referred Mr. Wuerch to page five of the bill, section nine, (d) other services determined by the governing body that have the highest priority. He asked if this meant the money did not have to be spent on public safety related purposes, but rather were these funds for basic governmental services or for anything else the municipalities wanted. He wanted something on the record establishing why this language should remain. Mr. Wuerch responded that the whole reason for this bill was for safe communities. Senator Parnell asked if the municipality of Anchorage spent municipal assistance funds on anything other than what would be construed as making a community safer. Mr. Wuerch deferred to Rick Mystrom, Mayor, City of Anchorage. Rick Mystrom, Mayor, City of Anchorage testified before the committee via teleconference. He responded to Senator Parnell that the money was not defined specifically for safety. He said there were four important elements to the bill. The most important one was the movement of the payment to 31 July. He further noted that they had been working for the last two and a half years on this bill. Marlin Starnes, Mayor pro tempore, Delta Junction, testified before the committee via teleconference. He said he supported section nine on priorities and especially the section where the money could be spent on a number of things for the community. He urged passage of this bill. Senator Torgerson said this bill would move funding ahead by six months. That meant if the bill were signed into law, both payments would be received 31 July of this year. Mr. Starnes said he did not feel that the bill needed any amendments. Jerome Selby, Mayor, Kodiak Island Borough, testified before the committee via teleconference. He said it was important for the municipalities to have flexibility in using their funds. It may be necessary to fix a leaking water pipe before spending the funds for something else. He noted they were still restricted under section (5) as to what the funds could be spent on however it was important to be able to make decisions about the spending at the local level. Five communities on Kodiak Island were struggling to stay alive. Forty thousand dollars might be their only funds to survive. He felt the 31 July date was critical and asked larger communities to help support the $40 thousand minimum. This would help both large and small communities in terms of having the 31 July date. This bill would help introduce stability into the local communities. He urged passage of the bill. Co-chairman Sharp said that the larger communities were willing to guarantee the $40,000 in future years by absorbing the cuts out of their share of the municipal revenue sharing. That is what would happen without amending the bill to at least pro-rate any future cuts. In the past, those in the minimum had not been subject to any reduction. Other communities may have been subject up to thirty percent reduction. Mr. Selby advised that everyone had taken significant cuts over the last several years. The "hold harmless" factor that they are asking to be removed and is also featured in this bill would distribute the money differently. All the communities have been taking pro-rations and reductions. He said it specifically reduced all payments in equal proportion and specifically mentioned section 372, which is the minimum payment section. It was their understanding that it would be prorated. Edwin Anderson, Mayor, Bristol Bay Borough testified before the committee via teleconference. He supported monies going into Public Safety and health services. His community was coping with the situation and urged passage of SB 29. The $40,000 minimum would have a very good impact because they could take those on part time jobs to try to get the work done that needed to be done in the communities. Dave Bouker, Mayor, Dillingham, testified before the committee via teleconference. He noted that the city of Dillingham had suffered cuts in municipal assistance and revenue sharing to the extent that four departments were shut down, including a library, museum and the recreation director and planner. Unfunded mandates received from the State were causing problems, i.e. Title 47, which required a substantial effort by the local community to take care of inebriates. The other was DEC land fill requirements. In addition to shutting down four departments there was a 5% sales tax in Dillingham and the village rate on property tax had been raised. That is not a cure all especially in the rural areas because a large portion of the property is not taxable, i.e. government land and those lands held by native allotments. He recommended passage of SB 29. Pat Poland, Director, Division of Municipal and Regional Assistance, Department of Community and Regional Affairs testified before the committee via teleconference. He believed the bill as written represented a good faith effort of the legislative, executive and municipal branches of government to tackle some very difficult issues. He pointed out there were fiscal implications associated with moving the date forward from 1 February to 1 July. It was their preference that the minimum entitlement be an equal dollar amount. If the safe communities program were to be cut significantly the municipality would not fall below the amount they would get under revenue sharing. If the overall minimum fell to $25,000 the revenue sharing payment would not be reduced. Senator Torgerson asked Mr. Rolfzen to explain page 7 of the bill. Mr. Torgerson said the way the bill is currently written what is prorated is the minimum payment. What would be prorated would be the $4,544; it would be subject to a ten percent cut. The intent is that the overall entitlement is subject to proration. Senator Adams requested the department look at the municipal assistance budget. It was being reduced by 2.3 percent. Without the language he referred to in section 13 every community whether large or small would get a 2.3 percent reduction. Mr. Rolfzen concurred. Senator Adams further asked what would happen to communities around the State with the 2.3 percent reduction if the amendment were included. Mr. Rolfzen indicated that with the amendment the overall minimum would not be $40,000 it would be $39,080. He further explained that SB 29 does not affect the revenue sharing program. It affects the municipal assistance program. It amends the hold harmless, changes the name and allows for an overall minimum entitlement. Under the revenue sharing statutes there is a minimum entitlement for cities of $25,000 times COLA. Senator Adams renewed his objection of amendment #2(b). (The committee took a brief at ease.) Senator Torgerson moved amendment 2(b) be removed and without objection it was withdrawn. He also moved amendment 2(a) be rescinded and without objection it was rescinded. Amendment #3 was not submitted. Senator Torgerson requested his bill be held over to a more proper date so the amendments could be worked out. Co-chairman Sharp held the bill in committee. Co-chair Pearce announced that the overview of the changes to the State's health insurance plan would be held Monday, 3 February 1997 at 9:00 a.m. ADJOURNMENT The meeting was adjourned at approximately 10:35.