MINUTES{PRIVATE }   SENATE FINANCE COMMITTEE   27 February 1997   10:05 a.m.      TAPES    SFC-97, Tape 45, Side A CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 10:05 a.m. PRESENT In addition to Co-chair Pearce, Senators Phillips, Donley, Parnell, and Adams were present when the meeting convened. Senators Sharp and Torgerson were excused. Dan Spencer, Budget Analyst, Office of Management ALSO ATTENDING: and Budget; Nico Bus, Chief of Financial Operations, Department of Natural Resources; Laurie Perkins, Director, Division of Administrative Services, Department of Revenue; Nancy Slagle, Director, Division of Administrative Services, Department of Transportation and Public Facilities; Brenda Markey, Support Services Manager, Marine Highway System, Department of Transportation and Public Facilities; and aides to committee members and other members of the legislature. SUMMARY INFORMATION   SB 83 SUPPLEMENTAL & OTHER APPROPRIATIONS SB 83 was HEARD and HELD in committee for further consideration. FY 97 supplemental requests for the Departments of Administration, Natural Resources, Revenue, Public Safety, and Transportation and Public Facilities were discussed by the above-listed individuals. SENATE BILL NO. 83 "An Act making an appropriation for management fees for the constitutional budget reserve fund (art. IX, sec. 17, Constitution of the State of Alaska); and providing for an effective date." Co-chair Pearce explained that the initial overview of the supplemental requests would continue. She informed the committee of five new supplemental requests that had come in and that backup would be available. Three of the requests were from the Department of Law, which planned to combine two of them. One of the requests was from the Department of Community and Regional Affairs for Power Cost Equalization (PCE). One request was from the Department of Fish and Game. She added that the new supplemental items would be addressed the following week. She expected to see more new requests. Senator Adams asked whether the PCE item amounted to $1,750,000. Co-chair Pearce replied that the number was $1.5 million. DEPARTMENT OF ADMINISTRATION DAN SPENCER, BUDGET ANALYST, OFFICE OF MANAGEMENT AND BUDGET (OMB), provided a general overview for Section 8. He noted that each year OMB had two types of items: Warrants included in the Department of Administration request · that were older than two years, including checks that were not cashed. Miscellaneous claims, consisting of old bills the departments · had received. By statute, if a department received a bill within two years of the time the cost was incurred, and any money was lapsed in either of the years, the department had to pay out of the current year's appropriation. Anything beyond two years had to go to the legislature for an appropriation. Mr. Spencer explained that there were around 250 pages of backup available, including photocopies of all the bills. DEPARTMENT OF NATURAL RESOURCES NICO BUS, CHIEF OF FINANCIAL OPERATIONS, DEPARTMENT OF NATURAL RESOURCES, testified regarding Section 9. He detailed that the request for $3.7 million was for fire suppression activities that would get DNR through June 30. He reported that some of the money appropriated the year before for a fire had carried into FY 97. The appropriation was for $10 million; $7.8 million was used in FY 96 and $2.1 million was carried into FY 97. The fires were still burning in July and August so the carryover was used. The $3.7 million request would pay the balance of fixed costs for January through June, plus a one-project fire (historically experienced in May and June). Senator Adams asked whether there were other outstanding bills that could be expected in a second or third supplemental bill. Mr. Bus answered that DNR had accounted for all of the previous year's activity. He noted that fires generally ended in August and September, leaving October through December to do accounting clean-up. He stated that the supplemental being discussed was what the department anticipated needing for January through June. Co-chair Pearce asked how the fixed-cost requirement totaling $4.68 million compared to the previous year. Mr. Bus replied that the amounts stayed fairly stable. The department did not always know whether the fires would be federal fires, which would mean additional federal money and a reduction of state costs. The $4.6 million was the estimate based on experience of actual costs. Co-chair Pearce referred to a contract with Larry's Flying Service, Inc. with different planes used in different years. She questioned why the current year's aircraft cost $200,000 when the prior year's aircraft cost $100,000. Mr. Bus answered that all aviation contracts were going out to bid; the numbers were based on the market price. He referred to the example of significantly higher fixed costs for the Exxon Valdez oil spill because there were very few helicopters and aviation equipment available. He noted that sometimes prices went down. He offered to get more information on why the cost had gone up. Co-chair Pearce thought the price went up because of the use of a different aircraft, and wanted to know why the aircraft was considerably upgraded. Mr. Bus offered to get more information. Co-chair Pearce referred to Bureau of Land Management (BLM) contract services and queried OV10 aircraft support for $59.9, which was a new component. Mr. Bus was not familiar with the detail and offered to get more information. Co-chair Pearce queried another new BLM item, TTY support. She also wanted to know what DNR support services were (at $300,000). Mr. Bus answered that DNR support services related to charging the federal government for indirect costs when any administrative charges were charged back to specifically non-general funded entities. He referred to a mutual agreement between the federal government and the state of Alaska. Rather than exchange bills on indirect costs, the state would pay its estimated share of $300,000 out of the fire suppression and BLM would pay its indirect costs out of its core services. The $300,000 would be the equivalent of indirect for the federal suppression program. Co-chair Pearce asked who received the indirect payment. Mr. Bus replied DNR support services. He explained that the payment was in lieu of the indirect cost rate between the state and federal agencies. Co-chair Pearce asked who the federal indirect money went to. Mr. Bus replied that the indirect cost rate was 15 percent, for example. When there were fires, the state preferred to charge the federal government the 15 percent. The federal government did not have a negotiated rate, and could set the rate at whatever level. The federal government said it may charge 30 percent if the state charged it 15 percent. Rather than exchanging indirect cost billings, the proposal was that the state pay for administrative services out of the state fire-suppression budget and the federal government pay indirect cost out of its budget. The fire suppression budget then pays the administrative services group for the support of the fire activity for the federal government. He stressed that the Legislative Budget and Audit Committee (BUD) had looked at the process. Initially BUD had determined that DNR should not do it, but should do billing exchanges. Some years, the state would make a bit of a profit; other years the state would save significantly more. The conclusion was that the method was good. Co-chair Pearce queried the balance in the state fire-suppression account on February 1. Mr. Bus responded that the balance on December 31 was $1.5 million. Against that there were fixed obligations of $2.3 million. Fire expense activity for initial attack was about $3 million. The total estimated expenditures for January through July were $5.3 million. The supplemental was $3.8 million. Mr. Bus moved on to the veterans' discount program. He referred to an eligible veteran who had died (Mr. Sisson?); his loan was recalculated. In 1991 legislation was passed that gave veterans a land discount. The land discount was discontinued, and legislation was passed to give the veterans a land discount. There was an investigation by the ombudsman, who agreed with Mr. Sisson and said that DNR should go back and recalculate all the discounts. About 36 veterans qualified for the discount, so DNR was asking the legislature in the supplemental to refund the veterans for the application of the discount program. Senator Phillips queried the total if there was a recalculation back to the beginning. Mr. Bus replied that DNR estimated the recalculation would amount to about $270,000 in payments; the total including interest would be between $400,000 and $450,000. Senator Phillips estimated the total would be as much as $720,000 if the request (principal plus interest) was honored. Mr. Bus thought the total would be $450,000 total. There was a discussion about the math. Co-chair Pearce queried the department's position on the interest on the overpayments. Mr. Bus answered that the legislation specifically stipulated that "the department shall credit without interest to the account of a person who qualifies for the land discount" under Section 2 of the act. He stated that DNR had not included the interest on the overpayments based on its interpretation of the intent of the legislation. He noted that the ombudsman agreed. The supplemental request was a request to recalculate the amortized loans without the amount for interest included. Co-chair Pearce asked whether DNR had gotten a legal opinion from the Department of Law (DOL). She was concerned that if the state chose to pay a certain amount, but did not have a contractual agreement, the person could sue for the interest, and the state could spend more money on the lawsuit than it would cost to just pay the interest. On the other hand, she thought a decision should be made based on the law (if such a law existed). She had read the report by the ombudsman, but wondered whether there had been an attempt to negotiate an agreement with the people in question. Mr. Bus responded that there had not; DNR had tried to interpret the law. The department was aware of the interest issue. He stated that DNR would be happy to contact DOL and calculate the amounts. He added that there could be other programs; other people could do the same evaluation. Co-chair Pearce thought that the department should work with DOL to figure out how to keep from ending up in court with the present litigants or other groups. She requested DNR to work with DOL and to inform the legislature of other cases with overpayments. Senator Parnell was concerned about the claims growing increasingly larger. He asked for more information about the requested payment. Mr. Bus answered that the ombudsman agreed that the state should not pay the interest. He added that initially the situation had seemed straightforward; 35 people requested and received their discount because the intent was clear. Recalculating the loans would mean annual actions. Mr. Bus turned to a $100,000 request that would be used to remove remaining contaminated buildings in Eagle (from the Old Eagle school site). A settlement required that the money be asked for before June 30 to allow the site to be cleaned of oil contaminants. He noted that part of the request would be in the capital budget, and that the supplemental portion was for removing the structures on the site to make the site available for the necessary work. Co-chair Pearce reminded the committee that the DNR ratifications had already been reviewed. Co-chair Pearce returned to the request for Perseverance Trail repair. She recalled a question she had had in an earlier hearing about permitting; someone had claimed that the creek did not have fish. She had thought that there had been a problem with fish dying in the same creek at an earlier date. Mr. Bus referred to research he had done on the question, including speaking to Department of Fish and Game personnel and the Division of Parks, which had done similar projects. He reported that salmon did not come up the stream, although there might be trout higher up. He stressed that no sediment would enter the creek from the blasting, which would happen above the trail. He had been assured that no permits would be required for the project and that the project could be completed in 30 days. He referred to a handout with a map detailing the project. DEPARTMENT OF PUBLIC SAFETY Mr. Spencer addressed Section 10, Village Public Safety Officer (VPSO) contracts. He explained that the item would allow the Department of Public Safety (DPS) to take any money that might lapse from the VPSO contracts and use it in the following year. The department did not know exactly how much money would lapse. He noted that a lot of the money was not under DPS control; a lot depended on whether a vacancy occurred in a VPSO position, the ability of the local non-profit to fill the position, and other factors. The request was an attempt to get more positions filled. Senator Parnell verified that the reason for the lapse was unfilled positions and that the governor had submitted a budget with an appropriation to increase VPSOs by $300,000. He asked why there was a need for lapsed money. Mr. Spencer replied that the lapse would occur because of unanticipated vacancies that could not be filled. He stressed the difficulty of filling the positions. He described the intent to take advantage of funding when a position was not filled in order to fill them to the extent possible. Senator Parnell summarized that 15 positions would be authorized instead of 10. He asked why the budget did not ask for 15 positions instead of authorizing the use of lapsed funds. Mr. Spencer replied that the intent was not to add new positions, but to use leftover money to fill positions. He added that there was no good estimate of the anticipated amount of the lapse, but the department has estimated between $45,000 and $70,000 based on historic trends. He thought the amount would be well under $100,000. DEPARTMENT OF REVENUE LAURIE PERKINS, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF REVENUE, addressed Section 12 related to equity management fees for a supplemental appropriation for the Constitutional Budget Reserve (CBR) fund. Co-chair Pearce referred to an earlier discussion related to the issue during the CBR overview. She reminded the committee that the section would require a three-quarter vote as it was related to the CBR. A member queried the CBR vote and an oil and gas litigation item for $900,413 in FY 96 CBR funds. Co-chair Pearce reported legal advice from Tam Cook regarding the need for a three-quarter vote on the floor. She thought the other item was more straightforward. She noted that verbally the answer to the section was "yes." She reminded the committee that during discussion of the item, Mr. Baldwin had been asked for an opinion. DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES NANCY SLAGLE, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES (DOT/PF), addressed Section 13, a request for $391,400 to meet the increased cost of fuel for the marine highway vessels for FY 97. She explained that the majority of the estimated need was in Southeast Alaska, for 7,126,000 gallons of fuel. The budget had been based on a projected fuel cost of $0.74 per gallon; the current cost was ranging between $0.83 and $0.85. The need for Southeast was anticipated to be $352,400. The estimated need for the Southwest region was 1,022,000 gallons budgeted at $0.80 per gallon; actual cost was between $0.83 and $0.86. She emphasized that the cost had been increasing on a weekly basis. She offered a minor technical change to the language in the section. The appropriation was stated as from the general fund to DOT/PF, Alaska Marine Highway System. She wanted the word "fund" after "System" to avoid accounting problems. Co-chair Pearce expressed surprise at the prices. She queried the kinds of fuel contracts used by the ferry system. BRENDA MARKEY, SUPPORT SERVICES MANAGER, MARINE HIGHWAY SYSTEM, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, replied that general services negotiated the contracts. She added that new fuel contracts had been negotiated in September for the various locations. The contract locked a price in for seven days; the price was based on a (CPC?) system like the Oil Price Information Service (OPIS). In previous years, when expenditures were much higher, the system had some locations based on a 7-day lock-in and other locations based on a 30-day lock-in. At that time, markup was considerably more than present contracts. The base price applied everywhere, and then each location (Ketchikan, Juneau, Skagway, and Bellingham) had a markup; the markups ranged from $0.06 over the base price in Bellingham to as much as $0.30 over the base price in some locations. The difference in cost was related to delivery systems. Senator Phillips asked where the ferry system bought its fuel. Ms. Markey replied that the fuel was purchased in different locations in Alaska, including Skagway (the next cheapest location). She noted that the ferry system tried to fuel or top off tanks at the cheaper locations. She noted that the ferry system had not had a fuel contract with Prince Rupert [British Columbia, Canada] since 1991 because of a tax. She detailed that prices could be higher for vessels that could not stop at Skagway. Senator Adams noted that the same argument about higher prices would be used in the argument around Power Cost Equalization. He noted that Alaska received approximately $400 million more. He thought all the systems with increased fuel systems should be looked at. Co-chair Pearce discussed backup materials for various items and the upcoming schedule for the committee. ADJOURNMENT The meeting was adjourned at 10:45 a.m.