MINUTES SENATE FINANCE COMMITTEE March 14, 1997 9:10 A.M. TAPES SFC-97, Tapes 58 and 59 CALL TO ORDER Senator Bert Sharp, Co-Chair, convened the meeting at 9:10 a.m. MEMBERS PRESENT Senator Sharp, Co-Chair Senator Pearce, Co-Chair Senator Donley Senator Parnell Senator Phillips MEMBERS ABSENT Senator Adams Senator Torgerson ALSO PRESENT Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Janet Clarke, Director, Administrative Services, Department of Health and Social Services; Guy Bell, Director, Administrative Services, Department of Commerce, Community and Economic Development; Kevin Brooks, Director, Administrative Services, Department of Fish and Game; Ken Bischoff, Director, Division of Administrative Services, Department of Public Safety; Mike Pauley, Legislative Aide to Senator Leman; Marie Sansone, Assistant Attorney General, Civil Division, Department of Law; fiscal analysts and aides to committee members. PRESENT VIA TELECONFERENCE Janice Adair, Director, Division of Environmental Health, Department of Environmental Conservation. SUMMARY SB 41 ENVIRONMENTAL AUDITS CSSB 41(FIN) was REPORTED OUT with a previous zero fiscal note from Department of Health and Social Services, a new zero fiscal note from the Department of Labor, and new reduced fiscal notes from the Court System (35.9), and the Department of Law (121.3). REVIEW: GOVERNOR'S SUPPLEMENTAL BUDGET APPROPRIATION REQUESTS Co-Chair Pearce pointed to page 2 of a supplemental list provided by the Legislative Finance Division. She noted that the Department of Revenue, Permanent Fund Dividend Division had submitted a request for $3.35 million for the payment of back dividends. ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, explained that the Permanent Fund Dividend Division had been making significant headway to reduce the number of backlogged dividends requiring payment. As a result the number of individuals qualifying for the dividend had risen above the department's original estimate. The administration recommended making an appropriation from the earnings reserve account in order to payout dividends on a timely basis. She relayed that her office had briefed Co-Chair Pearce and Senator Hanley the past week. DEBORAH VOGT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE noted that the estimation process for calculating the dividend amount was not an exact science at the time the potential number of eligible applicants was determined. There were a number of applications that had yet to be processed for the year; the calculation was made annually in September and applications began being processed in January. She explained that at the time the calculation had been made the prior year there had been 25,000 applications yet to be processed. The department had estimated that out of the 25,000 approximately 12,000 would be paid by the end of that year. She elaborated that a higher percentage of applicants had been paid than had originally been anticipated. Changes had been made to make the Permanent Fund Dividend application process easier to navigate for Alaskans, which had resulted in the higher percentage of dividends being paid. Additionally, every year there was typically a roll forward from the prior year; there were always outstanding applications at the end of the year. She addressed that the division had increased its efforts to process the backlog of applications in the current year. Due to the increase more money was needed to pay dividends. Co-Chair Sharp asked if there were any policy changes that accounted for the higher percentage of application approval. Ms. Vogt agreed that the percentage seemed high; however, looking at the larger picture showed that the amount was less than 0.5 percent of $642 million. She spoke to a couple of recent changes. The methodology on requests for further information had been changed the prior year; the group of individuals who were asked to provide further information had previously been denied in May or June; if the individuals did not respond to the request they were not given a dividend. The process had been changed to give the individuals until the end of the year to submit the requested further information. Secondly, the department decided that a qualified applicant would receive a dividend notwithstanding that the information was not received by an arbitrary deadline. She discussed that some out of state college students had registered to vote in another state and had subsequently been denied a dividend. The division's policy had been changed to allow those students to correct their voter registration, which would allow them to apply for a dividend the following year. Co-Chair Sharp asked for verification that the annual March 31 application deadline had not been modified. Ms. Vogt replied in the affirmative. Co-Chair Sharp concluded the extension was only for applicants who needed to supply further information. Ms. Vogt responded in the affirmative. Co-Chair Sharp asked for confirmation that there had been no loosening of qualifications for individuals out of state. He asked if policy changes had resulted in more dividends going out of state. Ms. Vogt replied that she did not have the statistics; however, most dividend recipients received dividends at Alaska addresses. Some dividends were sent to students out of state. Co-Chair Sharp did not have a problem with sending checks out of state to college students; however, he thought it would be suspicious if an increased number of checks were sent out of state for other reasons. Ms. Vogt did not believe the number had increased. Co-Chair Pearce moved on to address RPLs: RPL 570626: Department of Education and Early Development (DEED), Teaching and Learning Support, Special and Supplemental Services Ms. McConnell hoped that that the RPLs would provide clarification on how they should be handled in the future. The administration had provided additional information on existing timing issues. The administration was open to making changes in the 1998 budget process related to which federal receipts were shown. For example, there were a number of cases particularly in DEED where the state was currently holding federal funds that were to be distributed to school districts; the state did not have the federal expenditure authority to make the distributions at present. She discussed that over the past several years there had been an effort by the legislature and administration to look at federal program receipts to try to bring the budget estimates closer to historical figures. She elaborated that whether the state would receive federal grants was speculative; given the federal budget cycle timing, the administration was not able to provide a definitive answer about the receipt of particular federal funds. She explained that most of the funds for DEED would be passed directly to those entitled to them after distribution approval was granted. Ms. McConnell discussed that the administration had encouraged Mt. Edgecumbe to use its facility as much as possible with additional workshops and other in order to help with the overall facility expenses. She discussed an opportunity with the Sitka Jumpers and relayed that the administration wanted the ability to provide the school with as much notice on whether the program could be held in the school facility. She continued that the administration did not consider the items to be emergencies, but it was interested in funding the items quickly. She observed that supplemental budgets were approved by the legislature at different times during session each year. The administration was happy to have the DEED items included in the supplemental if it would proceed quickly. She concluded that it would require the legislature and the administration to be on the same page regarding the handling of the 1998 budget with respect to federal funds and other program receipts that were variable in nature. RPL 670144: Alaska Psychiatric Institute (API) Department of Health and Social Services $200,000 General Fund Program Receipts Co-Chair Pearce noted that the Legislative Finance Division recommendation had been to defer the item until the finance subcommittee had reviewed the RPL along with the FY 98 budget request for API. JANET CLARKE, DIRECTOR, ADMINISTRATIVE SERVICES, DEPARTMENT OF HEALTH AND SOCIAL SERVICES (DHSS) addressed the RPL. She explained that API was funded through an intricate mechanism called disproportionate share through Medicaid. She elaborated that the federal government agreed to pay a lump sum to the state given that API served a disproportionate share of low income individuals. She furthered that the federal government did not treat API as a state facility, but as a hospital when providing the payment; therefore, the state had to comply with hospital accounting for the facility. The payment formula was based on the previous year's expenditures for API. All revenue was backed out of what the hospital earned from third-party insurers regardless of whether they had been budgeted or not. She elaborated that the prior year API had some increases in third-party revenues that went into the state General Fund as program receipts; $2 million had been earned from Medicare, the Veterans Administration, and other, with only $1.3 million budgeted. Therefore, when the federal government had calculated its payment, it required API to back out the entire $2 million. She explained that the process was used because typically hospitals spend all of the money they make. Ms. Clarke relayed that the prior summer the department had devised a plan to deal with the shortfall due to the calculation problem and subsequently the RPL had been submitted to OMB in October to ensure the facility was operating safely. Coincidentally there had been a number of serious assaults on staff at API the prior spring and summer; therefore, the department was concerned about liability, safety, and security. Subsequently the department had increased the number of staff per ward during graveyard shifts from two up to three people. She relayed that the RPL had been deferred twice by the Legislative Budget and Audit Committee (LB&A). The department had also been concerned that it may have a shortfall that would require supplemental funding; however, that had been worked out internally. The department had done budget projections that would allow it to have a safe and secure hospital. Co-Chair Pearce asked if the funding request would only occur one time due to changes in accounting practices. Ms. Clarke replied in the affirmative. She elaborated that the conference committee authorization for API was approximately $15 million in FY 97 and FY 98. The federal government payment was approximately $6 million to $7 million per year; however, the facility was still required to comply with hospital accounting rules that did not work very well with the way the state accounted for revenue. RPL 670196: Indoor Radon Monitoring Grant Department of Health and Social Services Ms. Clarke explained that the $99,300 request included two items. One portion was for part of a federal tuberculosis (TB) grant and the other portion was for funds received from the Environmental Protection Agency (EPA) for a radon program. She explained that the request had been discussed at an LB&A meeting; there had been a request for additional information about the radon program and how it worked with the University of Alaska. The department had submitted a significant amount of additional information to the committee. She shared that the funds went to the university and were focused on an area identified in the Fairbanks region where radon detection had occurred. She did not believe the committee had a problem with the program, but it had not been acted on at the last meeting. Co-Chair Pearce asked for verification that the federal grant was passed through DHSS and on to the university. Senator Phillips noted that LB&A had seen the RPLs two to three weeks earlier and had been operating on limited time. The committee had decided to act on the most time critical RPLs. The committee had run out of time and had not been able to deal with the remaining RPLs. Co-Chair Pearce asked what the university would do with its portion of the funding. Ms. Clarke replied that the funds would go to the University of Fairbanks Cooperative Extension Service; the service had been the recipient of the EPA grant in the past. She explained that an additional grant had been developed and funded through DHSS to help supplement the work done by the cooperative extension. The funding was primarily for training of contractors, builders, and other on how to detect radon. She elaborated that workshops were primarily held in Fairbanks that provided participants with credits towards contractor licensing. The effort was specialized and provided technical assistance for interested parties. Co-Chair Pearce wondered why DHSS asked for the grant if the money was used by the university. She questioned why the university did not apply directly for the grant. She surmised the university would receive more money if it did not have to pay the administrative fee. Ms. Clarke answered that sometimes the federal government tried to funnel some portions of its grants through the primary state agency, which was one reason DHSS was more involved in federal programs than most agencies. She did not have further information. Co-Chair Pearce noted that DHSS received $78,000 and passed $71,100 on to the university. She wondered what the administrative take was for the university before the money was passed on for workshops. Ms. Clarke did not know the precise administrative take, but knew that a portion of the funds would go to that purpose. She would follow up with the specific amount. Co-Chair Pearce believed the goal was positive and that federal funds should be captured when available; however, she opined that hitting one grant with two administrative fees was excessive. She asked about the TB portion of the grant. Ms. Clarke responded that the department had some existing federal funds for the TB program; the RPL supplemented the program. Co-Chair Pearce remarked that it looked like the request was for additional receipt authority for a grant that had been received. Ms. Clarke replied that the cost was higher than the budgeted amount. Co-Chair Pearce asked for verification that the request was for additional funds for a current program. Ms. Clarke replied in the affirmative. Co-Chair Pearce surmised there was no impact to the department's general fund spending. Ms. Clarke replied in the affirmative. Ms. Clarke relayed that she would follow up with the committee on why the federal funds had not gone directly to the university. She would also provide the information on administrative charges to the grant. RPL 870163: Department of Commerce, Community and Economic Development GUY BELL, DIRECTOR, ADMINISTRATIVE SERVICES, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT relayed that the request was for a total of $4,300 in third-party travel reimbursements from the National Conference on Weights and Measures. He elaborated that the current Division of Weights and Measures chief had been appointed to be the chairman of the national conference for the next year. Subsequently, the appointee would be traveling out of state several times to take on chairman duties. He explained that all expenses would be reimbursed by the conference; authority to receive and expend the money was necessary due to a requirement that third-party travel payments had to be authorized for expenditure by the legislature. The department had $3,000 budgeted for convention and meeting travel; the cost in the RPL was above the budgeted amount and had been unanticipated. Co-Chair Pearce asked for verification that the $3,000 had been appropriated in general funds whereas the RPL represented funds that would be reimbursed to the state. Mr. Bell replied in the affirmative. Senator Phillips wondered how the state directly benefited from employees working for national organizations. Mr. Bell replied that the national conference set national standards for weighing and measuring. He believed providing Alaska with exposure on a national level was positive; it also ensured that the state's employees were up to date nationwide. He believed the state's participation in developing national standards was beneficial to Alaska. Co-Chair Pearce asked about public disclosure requirements related to travel for executive branch employees. She noted that legislators were required to disclose expenditures for similar travel. Mr. Bell did not believe there was an ethics disclosure requirement in the particular case. The travel was considered travel in the capacity of a state employee. Senator Donley asked who was paying the state for the travel. Mr. Bell answered that the entity was the National Conference on Weights and Measures. Senator Donley asked if the state paid the entity a membership fee. Mr. Bell would follow up on the question. Senator Phillips asked for a specific example of how the state benefited from the conference appointment. Mr. Bell replied that his prior answer included indirect benefits to the state. He did not know a specific direct benefit and would follow up with an answer. Co-Chair Pearce noted that the legislature did not normally receive similar requests. She surmised that departments generally had excess program receipt authority. She asked for verification that the department had no excess program receipt authority. She wondered whether the situation was unusual. Mr. Bell replied that the Division of Measurement Standards had its own single appropriation; therefore, it could not transfer program receipts from one area to another. The division had a small amount of program receipts included in its budget, which had been fully used. He elaborated that existing budget authority for designated program receipts was for weights and measures inspection related travel where a company needed to have a scale certified for a construction related job; inspectors were paid to certify the scales. Ms. McConnell followed up on Senator Phillips' question. She explained that the administration had been concerned about federal changes in the transportation area. Alaska's transportation situation was very different than that of other states. She noted that while it may be difficult to pin down specifics, it had helped the state to have visibility on the national level related transportation issues. Communications was another area where Alaska's geographic makeup was different than other states. Subsequently, the state was working to stay on top of communications and transportation at the national level to ensure that changes did not adversely affect the state. Another advantage included conferences coming to Alaska. She shared that Anchorage and Fairbanks were working to boost their shoulder season; many times the participation of Alaskans on executive committees of some national associations had helped bring conferences to the state. She pointed to a large conference that had been held in Anchorage related to the Division of Insurance. RPL 1170234 Wildlife Conservation Special Projects Department of Fish and Game Co-Chair Pearce noted that the request was all federal funds but some carried forward new federal funds. KEVIN BROOKS, DIRECTOR, ADMINISTRATIVE SERVICES, DEPARTMENT OF FISH AND GAME (DFG), discussed that several projects were included. The largest was a sea lion marine mammal project. Projects would begin as early as April 1 of the current year; all funds requested would be expended by June 30, 1997. He explained that the fiscal year ended in the middle of the department's field season; therefore, it was difficult for DFG to gauge the exact funding level it would need. The prior year DFG had run into difficulty when the marine mammal project had been late getting into the field; therefore, some of the expenditures were pushed into FY 97 instead of FY 96, which caused a shortfall. A budget request to increase federal authority for FY 98 had been made in order to prevent needing to make RPL requests in the future. Co-Chair Sharp pointed to backup documents and observed that the papers included information on spotted seals but not sea lions. Mr. Brooks responded that the sea lion project fell under the National Marine Fisheries Service (NMFS) marine mammal program. He did not have the same backup documentation and would look into the question. Co-Chair Sharp looked at the second largest project request in the amount of $100,000 that focused on determining the sustainable harvest of heavily hunted populations of black bear in the Tanana Flats area. He noted that backup stated the money would be spent in FY 97 for radio collaring and scientific data. He wondered if the project would be ongoing. Mr. Brooks answered that DFG expected the project to continue; therefore, DFG had increased its federal receipt authority in the FY 98 budget to enable for the collection of the funds in the future. Co-Chair Pearce disclosed that she sat on the AWAIC [Abused Women's Aid in Crisis] board, which was a grant recipient from the Council of Domestic Violence and Sexual Assault. RPL 1270124: Council of Domestic Violence and Sexual Assault Department of Public Safety KEN BISCHOFF, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF PUBLIC SAFETY, explained that the request was for an increment of two federal grants to carry over from FY 97 into FY 98. He discussed that the grants contained one aspect to encourage mandatory arrests related to domestic violence kits. He elaborated that the council had advised the department that if the kits could be accelerated that a price break would be received; after March 1 the council believed it would incur another $38,000 in cost. He explained that approval of the RPL would allow the department to issue purchase orders for the kits and would save the $38,000. Senator Donley mentioned discussion on rehabilitating offenders. He had been contacted with concern that the mandate had not been funded. He believed in the importance of treatment programs and their role in breaking the [domestic violence] cycle. He did not believe shifting the funds to other items was appropriate. Mr. Bischoff was not aware of the grant details. He would follow up with the council to address the question. RPL 2170165 Child Assistance, Head Start, and Community and Regional Affairs $50,000 Ms. McConnell communicated that occasionally there was opportunity to receive additional federal funds in overall programs. She pointed to additional one-time federal receipts; the specific pot of money had not been anticipated when the budget had been prepared the prior year. The funds would allow for improvements in training for early childhood providers. Co-Chair Pearce asked if the state could expend the funds without an adverse impact on the program the following year given that the funds would only be received once. Ms. McConnell replied that when one-time funds were received the administration worked to ensure that the funds were directed in a way that would provide a boost, but not an ongoing dependence. Co-Chair Pearce noted that additional DEED RPLs would be heard the following Thursday. She asked Ms. McConnell if she was prepared to address the debt service figure. She wondered whether the administration had made a letter regarding the debt service available to all committee members. Ms. McConnell replied that the letter had been provided to the House and Senate Finance Committee co-chairs. She asked Co-Chair Pearce if she wanted to discuss the Sitka training academy. Co-Chair Pearce replied in the affirmative. Ms. McConnell relayed that the two projects were capital requests. Given tight capital budget constraints the administration had been unable to include funding for the Police Academy shooting range and a women's dormitory. The administration had worked to locate the funds in another location. The administration had found capacity within the Alaska Housing Finance Corporation (AHFC) FY 97 capital budget. She pointed to a $50 million AHFC dividend and $53 million in capital projects. The legislature had appropriated approximately $2 million less than the available amount the prior session, meaning that there was still some money that could be appropriated. The administration felt that it would be appropriate to use AHFC funds on a dormitory project. She explained that the partnership would allow for the shooting range; costs had been brought down significantly in work with City and Borough of Sitka; the city was contributing $300,000. The AHFC funds, city funds, and a small appropriation from old DPS capital projects would enable the project to proceed quickly. Sitka would do the shooting range construction in an agreement between the city and the state. Senator Donley wondered why the project was more important than dealing with overcrowding in the state's correctional system. Ms. McConnell replied that the issues were equally important. The administration had recommended a proposal to set aside Cleary [litigation] fines as part of a capital appropriation, with specifics to be determined by the legislature. She did not believe one issue was more important than the other, but the administration did not believe there was reason to hold back on the police training academy; the need had long been identified. Senator Donley asked for verification that the administration believed the police academy project was as important as overcrowding in the state's correctional facilities (the state was currently being fined daily by the federal government for not meeting the requirement). Ms. McConnell replied that both issues were important. The administration had included money in the supplemental budget for corrections. She expounded that the administration had presented a long-term corrections plan to the legislature the prior session that had not passed and was still under discussion. She believed it was well known that the administration was very concerned about overcrowding in prisons, which was why it had proposed using the fines to address the problem. Co-Chair Pearce added that she had received a letter from one of the plaintiff's attorneys in the Cleary settlement stating that it was nice that the administration had asked for $2.3 million in supplemental funds, but they did not consider it as an offset to the fines. She stated that it was clear to her that unless the attorneys got to make the decisions that they had no interest in working with the legislature on taking care of some of the problems. Senator Donley surmised that what the plaintiffs' attorneys wanted and what the court said were two different things. He did not believe the police academy project compared to the corrections need. He believed the state may want to consider getting out of the business of training the state's police officers. He was concerned that investing more capital funding into the area would sink the state further into the program, which may or may not be appropriate for the state to continue. Co-Chair Sharp agreed and thought that the state should look into how many other states maintained training academies. He wondered whether there were regional training academies that handled the needs of multiple states. He rated the priority of a women's facility higher than a shooting range and dormitory. Ms. McConnell acknowledged that there was reason to discuss the state's role in training individuals around the state; however, the state had an obligation to ensure that its own employees were well trained. She stressed that the issue was a significant state responsibility. Mr. Bischoff remarked that the items were all significant public policy issues. He believed the primary issue in Alaska was that most of its smaller police departments did not have the infrastructure. He discussed the issues of why police standards and training were needed, where smaller cities should come up with money for training, should there be multiple academies throughout the state, should officers go south for training, and other. Over the past 25 years the issue had evolved and currently Anchorage had an academy that handled approximately half of the state's population; the Sitka academy handled the other half. The academies trained troopers, municipal police, students, state agencies, and external agencies. The administration believed that based on Alaska's dynamics that the current setup was the most efficient way to provide training for quality public safety officers. Senator Donley wondered about the impact of a five-year plan for increased AHFC spending. Co-Chair Pearce clarified that the funds did not represent an increase; they were a reappropriation. Ms. McConnell clarified that the funds were not a reappropriation. The available $53 million in capital funds for AHFC had not fully been used in the current fiscal year. She detailed that money was not being redirected. Co-Chair Pearce believed the funds would not affect the $103 million dividend from AHFC in the current year. The question related to funds in the current year was how much would be used for capital and how much would go to the General Fund. She discussed the difference between the legislature's plan versus the governor's plan. Senator Donley asked if the legislature's five-year plan from the prior year showed an expenditure for $53 million or the actual expenditure. Co-Chair Pearce replied that they would need to look at the item. She elaborated on the AHFC funding method. She noted that the legislature could take the $2.3 million that had not been spent on capital for deposit into the General Fund. Co-Chair Sharp noted that the $2 million could be used to fund project overages. Co-Chair Pearce believed the project should be put alongside all other projects in the capital budget request and should be prioritized along with the others. She moved on to discuss a request for $23,000 in General Funds from the Alaska Court System to pay for outside counsel for two current investigations. Senator Parnell communicated that when the original supplemental request had come through the commission had not had a meeting; the meeting occurred on February 7. He explained that up to that point there had been one investigation going; following February 7 a second investigation was ongoing; both investigations were requiring more funds than anticipated. He detailed that the first investigation had gone beyond the probable cause stage and required further work. The $23,000 would pay outside counsel to continue the investigations. Senator Donley noted that the money was in the court's constitutional function. He opined that the committee should ensure that the funds were provided if needed. He voiced concern related to efficiencies of the commission and noted that it had received a budget increase in recent years that he did not believe was warranted. Co-Chair Pearce relayed that she would provide committee members with a March 13, 1997 request for amendments to the governor's operating budget. She asked Ms. McConnell to address the amendment related to debt retirement. Ms. McConnell shared that the state had a number of old general obligation bond funds that had been used for projects. She detailed that sometimes, due to the nature of a project, it took considerable time for something to be cleared completely out. The administration had been able to close some of the bond funds the prior year; it had recently completed a review in consultation with Department of Transportation and Public Facilities, which determined that three additional bond funds could be closed. She noted that there were still some pending obligations against some of the bonds and the money had been reserved aside. One of the bonds was a fund from 1978; the other two were bond packages from 1980. The total to be released from the funds was $7.7 million. She explained that the administration would make a recommendation to the state bond committee to release the funds. When the unobligated portion of the funds were released they would drop into the state debt fund, which meant the state did not need to invest as many new General Fund dollars into the account to fully pay its obligations for FY 98. She relayed that there were very few of the bond funds remaining; the administration continued to review them for eventual closure. She added that the administration would provide committee members with a detailed letter on how much money would come from each of the retiring funds. Co-Chair Pearce noted that the committee would hear from DEED on its RPLs the following Thursday. Co-Chair Sharp pointed to the $3.75 million DEED RPL. He asked the department to bring detailed information regarding the request. Ms. McConnell would provide the information. Co-Chair Pearce discussed her intention related to future committee action on the supplemental budget bill. SENATE BILL NO. 41 "An Act relating to environmental audits to determine compliance with certain laws, permits, and regulations." CO-CHAIR SHARP announced that the committee would continue with pending action on SB 41, which had been heard yesterday. Amendment 3 by Senator Parnell was on the table. SENATOR PARNELL WITHDREW Amendment 3 without objection. SENATOR PARNELL MOVED Amendment 10. SENATOR PHILLIPS OBJECTED for the purpose of discussion. MIKE PAULEY, STAFF TO SENATOR LEMAN, addressed the committee regarding the amendment. The senator, representatives from the administration and the drilling contractors tried to come up with new language to address their concerns. The redefinition of owner and operator brings independent contractors under the definition making them eligible for privileges and immunity under the bill. SENATOR PHILLIPS asked if the Department of Environmental Conservation (DEC) understood the amendment. CO-CHAIR SHARP called on JANICE ADAIR, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, who was available to the committee via teleconference. He asked her to speak to Amendment 10. MS. ADAIR asked Mr. Pauley if the amendment was their definition of owner and operator they had prepared yesterday. MR. PAULEY affirmed that it was the same definition except the words "all or part of" had been inserted before "regulated facility, operation or property." MS. ADAIR stated that DEC had no problems with the amendment. CO-CHAIR SHARP asked if there were further questions or comments. SENATOR PHILLIPS WITHDREW his OBJECTION. There being no further objection, Amendment 10 was ADOPTED. SENATOR PARNELL stated he did not plan to offer Amendments 4 and 5. He believed the Alaska Oil and Gas Association had withdrawn the amendments. CO-CHAIR PEARCE MOVED Amendment 8 on behalf of Senator Adams. SENATOR PARNELL OBJECTED. CO-CHAIR PEARCE read the rationale for the record: "In almost all cases the facts needed to prove exceptions (a)(1)-(4) to the self-audit privilege will be only within the knowledge and control of the owner or operator who conducted the audit. Without knowing what is in the privileged audit or communication, the party seeking disclosure would find it virtually impossible to establish that the privileged information falls within the exception. Our U. S. Supreme Court has held that 'The ordinary rule, based on considerations of fairness, does not place the burden upon a litigant of establishing facts peculiarly within the knowledge of his adversary. The 9th Circuit has said the same.'" Our supreme court has recognized that the burden of proof generally falls upon the party asserting a fact, particularly where that party controls the evidence bearing upon the fact." CO-CHAIR PEARCE believed Amendment 8 had been requested by the Department of Law. She was not familiar with the entire argument and hoped to have Senator Leman's staff speak to it. MR. PAULEY opposed Amendment 8 because it substantially undermined the privilege the bill provided. The subject of contention is language on page 7, lines 14-15 regarding the burden of proof. He said the language had been used in Oregon's law, the first state to pass audit privilege legislation. Of twenty states that have passed this law, the majority have that exact language. The proposed amendment unfairly shifts the burden on the industry that is asserting the privilege, in that the party claiming the privilege has the burden of establishing that the exceptions in (a)(1)-(4) don't apply. Mr. Pauley gave an example to illustrate his point, suggesting that everyone asserting this privilege has to prove they're not a crook. It didn't make sense to him. He sent the proposed language to a number of lawyers representing different industries that would be affected by SB 41. He had heard back from AOGA and they strongly disapproved of Amendment 8 and believed it would nullify the privilege the bill offers. SENATOR PHILLIPS asked to hear from DEC on the amendment. MS. ADAIR stated that the issue had been identified in earlier testimony as one that still needed to be resolved. They had a different amendment prepared that was something between Amendment 8 and what is currently in the bill. The department thought the current drafting of the bill was problematic, regarding asking that a potentially harmed party be required to prove information that they have no specific knowledge of or control over the documents that could produce that knowledge. They had suggested that the party, whether private, third-party or the state, make a prima facie case before the court that there was reason to believe that the audit documents should be disclosed for one of the reasons established in the bill. The department would like to see this problem addressed. MS. ADAIR confirmed that they would be happy with Amendment 8, but recognized that the sponsor had difficulty with it. They were prepared to continue to work to find compromise language. MR. PAULEY provided an additional concern that the amendment included third parties seeking to overcome the privilege. He clarified that the bill requires a 15-day advance notice of intent by the agency to conduct an audit in order to get the privilege and the immunity. The notice has to state when the audit will begin, end, and the scope of the audit, all of which was not privileged information, although the audit report is privileged. The notice information is available to the public and a third party could be aware of this and routinely file motions in court saying they believe the audit is being done for a fraudulent purpose. At that point, the burden of proof immediately shifts to the company doing the audit and they have to somehow prove that they are not undertaking it for a criminal purpose. Therefore, the legal counsel for companies doing audits would be forever tied up in court defending the fact that they aren't doing audits for a criminal purpose. He summarized by strongly opposing the amendment because it would injure the purpose of the bill. MS. ADAIR briefly responded to Mr. Pauley's comments. She stated that was the reason they had suggested the prima facie showing so they wouldn't end up with "fishing expeditions." With a prima facie showing, the court would have to be given solid information as to why the exception applies and it would insure fairness on both sides. CO-CHAIR PEARCE WITHDREW Amendment 8 with the understanding that they would try again if the department came up with language that all could agree to. There was NO OBJECTION to the motion and Amendment 8 was WITHDRAWN. There were no further amendments offered. SENATOR PARNELL MOVED CSSB 41(FIN) from committee with accompanying fiscal notes. CO-CHAIR PEARCE asked if the approved amendments changed some of the fiscal notes accompanying the bill. MR. PAULEY stated his understanding that the pipeline tariff amendment (Amendment 6 adopted the previous day) might have an impact on the fiscal note. CO-CHAIR SHARP asked if it would be a positive or negative impact. MR. PAULEY responded that it would reduce the assessed costs of the bill. CO-CHAIR SHARP requested a reconsideration of the fiscal notes. SENATOR PHILLIPS suggested modifying the motion pending fiscal notes. He asked to hear from the Department of Law. MARIE SANSONE, ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, DEPARTMENT OF LAW, addressed the committee. The fiscal note they had submitted included $75,000 for expert witnesses on the pipeline tariff cases, which would come out with Amendment 6. CO-CHAIR SHARP directed Senator Parnell to modify his motion. SENATOR PARNELL WITHDREW his original motion without objection. SENATOR PARNELL MOVED CSSB 41(FIN) from committee with individual recommendations and fiscal notes, with the exception of a downward revised fiscal note from the Department of Law. Without objection, CSSB 41(FIN) was REPORTED OUT with a previous zero fiscal note from Department of Health and Social Services, a new zero fiscal note from the Department of Labor, and new reduced fiscal notes from the Court System (35.9), and the Department of Law (121.3). ADJOURNMENT The meeting was adjourned at 10:55 a.m.