MINUTES SENATE FINANCE COMMITTEE 4 May, 1998 9:20 a.m. TAPES SFC 98 # 155, Side A (000-566) CALL TO ORDER Senator Bert Sharp, Co-Chair, convened the meeting at approximately 9:20 a.m. PRESENT In addition to Co-Chair Sharp, Senators Pearce, Donley, Torgerson, Adams, Parnell and Phillips were present when the meeting was convened. Also Attending: Senator LYDA GREEN; Senator JERRY MACKIE; Representative JOHN DAVIES; Representative MARK HANLEY; Representative NORM ROKEBERG; ANNALEE MCCONNELL, Director, Office of Management and Budget, Office of the Governor; SHARON BARTON, Director, Division of Administration, Department of Administration; JUANITA HENSLEY, Administrator, Division of Motor Vehicles, DOA ; KAREN REHFELD, Director, Division of Education Support Services, Department of Education; JANET CLARKE, Director, Division of Administrative Services, Department of Health and Social Services; JOHN BITTNEY, Alaska Housing Finance Corporation, Department of Revenue; WENDY REDMOND, Vice President, University Relations, University of Alaska; CHRIS CHRISTENSEN, Staff Council, Alaska Court System; TAM COOK, Director, Legal Services, Legislative Affairs Agency; MIKE GREANY, Director, Division of Legislative Finance; GINGER PATTON and JIM HAUCK, Fiscal Analysts, DLF; and aides to committee members and other members of the Legislature. via Teleconference: DAN FAUSKE, Alaska Housing Finance Corporation, Department of Revenue. SUMMARY INFORMATION SENATE BILL NO. 360 "An Act authorizing the issuance of bonds in the amount of $257,600,000 by the Alaska Housing Finance Corporation for certain capital projects; relating to those bonds and to the appropriation of revenue of the Alaska Housing Finance Corporation; and providing for an effective date." CS FOR SENATE BILL NO. 360(FIN) "An Act authorizing the issuance of bonds by the Alaska Housing Finance Corporation for certain capital projects; relating to those bonds and to the appropriation of revenue of the Alaska Housing Finance Corporation; and providing for an effective date." Co-Chair Sharp announced his intention to cover the capital budget and the AHFC bond bill. If time permitted, other bills would be addressed. TAM COOK, Director of Legal Services, Legislative Affairs Agency was invited to speak to the committee about the latest committee substitute of SB 231. She spoke as follows: "Mr. Chair and members of the committee, the committee substitute that you have in front of you does not make a great many changes to the original bill. I will try to identify the changes that are made and give an explanation of those." "On page two the significant change that is made is the insertion of subsection E. Subsection E contains a pledge by the state to the holders of bonds of AHFC that the state will not appropriate or transfer money during a current fiscal year from AHFC that exceeds the corporation's net income for the immediately preceding fiscal year. So that essentially the state is pledging to take no more money than what would be available from the - what would have been the net income from the preceding fiscal year minus the amount it is required to pay off the bonding costs that are associated with this bill here." "So, what this is, is substantive law to that extent it is no longer as an intent section. It is substantive in effect. There is the provision that AHFC may tell the state that it has additional unrestricted revenue. If it does the state possibly could appropriate that." "In addition, you will notice Section 3 has been added. And it is a repealer provision, which did not exist, in the original bill. This section repeals the bill to July 1 year 2006. Since the bond must mature under Section 2 not later than January 1, 2116, it's possible that this repeal could be changed to January 1. To be on the safe side, I put the repeal July 1, 2006. The reason I added the repealer is so that Section E is not of continuing duration. Section E being the pledge of the state not to appropriate more revenue out of AHFC than is permitted under the formula." "And that in principle is the only significant change in this CS as compared to the original bill that was introduced." Senator Adams supported the capital projects that this bill would encompass. However, he asked about the wording saying that one Legislature could bind and another future Legislature refuse to bind on this type of appropriation. Ms. Cook was uncertain how a court challenge would be ruled upon if a future Legislature passed legislation that violated the terms of Section E. It was possible that a court would find the appropriation was valid, she speculated, even if it did violate the provision. She theorized that if the Legislature appropriated an amount that was greater than the formula permitted in the subsection for a particular year, but was able to show factually that AHFC had remaining assets that were sufficient to fully cover all the bonded obligations, the court might find that the addition appropriation did not actually impair a contract to the bond holder. She offered another argument that the Legislature could not modify substantive law on appropriations. If the Legislature was to simply enact an appropriation of AHFC assets that was greater than the amount permitted in Subsection E, an argument could be made that essentially the Legislature was either suspending or repealing the substantive effect of E in an appropriations bill and therefore, the appropriation was invalid, according to Ms. Cook. She summarized that a couple of theories that could be made to attack an appropriation in excess of the formula and there was also the overriding power of the Legislature's purse on the other side, which might be used to defend such an appropriation. She guessed that the issue would probably not come up unless the Legislature elected to attempt to appropriate more than the formula permitted. Senator Adams requested suggested language the committee could use to prevent a challenge to the provisions. Ms. Cook responded that there was a tension between the constitutional provisions and she had nothing to suggest that would help. Assuming that the goal of the Legislature was to provide security in the marketplace for the bonds, she felt that there was no alternative but to include the provision to reassure the bondholders. She still had some legal question as to how enforceable the provision would be. DAN FAUSKE from the Alaska Housing Finance Corporation joined the discussion via off-net teleconference. He told the committee bond council was available for comment and that he had a statement from the corporation's financial advisor. Co-Chair Sharp updated the committee members that several meetings had been held with his office, AHFC, bond council and other Department of Revenue and Department of Law representatives as the first versions of the bill were drafted. As a result of later discussions, Subsection E was added. He explained that the process was a continuous evolution to write language that was acceptable to both the Legislature and AHFC. The committee invited JOHN BITTNEY from AHFC to speak to the latest CS. He commented as follows: "We did submitted this morning, a fiscal note for the piece of legislation that perhaps as a suggestion I could just brief you on that." "Assuming it's in your packets, Mr. Chairman, we have requested one position at the corporation, which would be a finance officer to track and monitor the expenditures of these bond proceeds throughout the agency. We feel this is necessary in order to monitor those expenditures. Apparently there are restrictions of course, on the use of bond proceeds. And therefore there will be some reporting requirements on AHFC about the use of those. As well as we anticipate that there's probably going to be a number of reports that the state, Legislature are going to be asking for over time as far as how the use of these of funds is going." "That's pretty much just it in a nutshell, Mr. Chairman. It's just one position for a Range 22 Finance Officer with some small amounts for travel, equipment and the like." Co-Chair Sharp agreed that extra work would be added because of Section B of the bill, where AHFC was asked to coordinate with various agencies on the projects. Mr. Fauske spoke about the provisions in the proposed Section E as follows: "The language in E has come a long ways towards the position that the corporation wanted to maintain that a pledge was essential for us to move forward an issue that's done on behalf of the state of deferred maintenance - all the projects that are listed. I have Eric Wolford (ph) here and one of the concerns is that we have a little bit more time to read it and possibly come back with any language we feel might be essential to help clarify this if that'd be the choice of the advice of our council. "I would like to commend thought that this has come a long ways towards the number one concern we had on making sure that AHFC be allowed to maintain the credit rating at its going concerned status. So that kinda resulted that a better product is brought back to the state in reference to the bonds that we would issue. That has been our concern all along is to make sure that we have the tools to work with, with the financial community so that Alaska is best served. And this has come a long ways towards that." Co-Chair Sharp told Mr. Fauske that the committee would continue work on the bill to keep the legislative process moving. AHFC would have opportunities to make further suggestions to the committee or else in the other body, when the bill reached it, he said. Senator Pearce referred to a portion of Section E, which she violently opposed. She asked if AHFC had ever come close to defaulting on any loan payment. Mr. Fauske replied that he didn't have any knowledge except for an instance two years before when the Legislative Audit proposed making a $435 million withdrawal. The corporation was immediately placed on credit watch. He was not aware of and defaults however. Senator Pearce wanted to know if there was any true financial repercussion to the state as a result of the audit. Mr. Fauske described the actual status compared to ideal circumstances financial analysts would prefer. He said that the issuance of dept as proposed in this bill was a different type of obligation than previous AHFC circumstances. Senator Pearce stressed that neither AHFC nor the Legislature had ever failed to step forward to cover debt reimbursement. Mr. Fauske appreciated the comment but pointed out the difference with this situation. He pointed out the trend with Wall Street investment advisers and other investors regarding housing authorities use by legislatures to cover agency costs in other states besides Alaska. He added that investors were leery of issues where there wasn't something set to insure their investment was protected and show what the operation was to entail. It wasn't so much a criticism by AHFC, just an attempt to insure security for the investor, he stated. Investors were very impressed with intent language for the corporation during the last four-year period, according to Mr. Fauske. Senator Adams pointed out that many of the projects in the bill were sidelined from typical AHFC programs and wanted to know the effect it would have on the bond rating. Mr. Fauske felt confident that with the discussed amount and type of projects proposed the bond rating should be maintained or strengthened. Senator Adams offered that once this pattern of funding was started, it would be hard to stop. He requested a plan for future years showing the amount of money that could be used for this purpose and not harm the agency or its bond rating. Mr. Fauske replied that some of that information was included with the current bill and that the corporation would give him more information. Senator Parnell moved for adoption of CS SB 360 Version H. Senator Pearce objected. Senator Pearce said she didn't like the legislative intent language. She stressed that the legislature had never failed to meet its obligations under debt retirement. She thought the language with too far and the original language was clear. She wasn't opposed to adding a repealer, but did not want the legislature to give up the power of appropriation. Senator Adams suggested that the bill would be repealed in the year 2006 even without the language. Senator Pearce agreed but noted that until then, the legislature would give up its appropriation power, which she did not approve. Co-Chair Sharp appreciated Senator Pearce's reluctance to accept Section E. However, he felt that forcing the issue was not in the best interest. He spoke of the insurance and comfort given to investors with the pledge. After all, he commented, the bonds had to be sold and given the best interest rates. He did agree with Senator Pearce that if AHFC had good years in the near future, the legislature might have some difficulty participating in the profits. Senator Donley requested some time to think about the matter. Co-Chair Sharp reminded the committee this bill would be linked with the capital budget bill. He preferred to not move either bill from committee until both were complete. Funds appropriated in the capital budget would need to come from the bonds, he pointed out. Senator Pearce asked if the proposed projected needed to be rolled into SB 360. Co-Chair Sharp said committee members and other senators would be more comfortable knowing what projects the bonds authorized. Senator Parnell withdrew his motion to adopt CS SB 360 Version H. There was no objection and it was so ordered. Co-Chair Sharp ordered the bill held in committee. Senator Pearce requested a copy of the Legislative Audit mentioned earlier. The committee took an At Ease at approximately 9:45 a.m., resuming at approximately 10:20 a.m. SENATE BILL NO. 231 "An Act making and amending capital appropriations and reappropriations and capitalizing funds; and providing for an effective date." CS FOR SENATE BILL NO. 231(FIN) "An Act making and amending capital, supplemental, and other appropriations; making appropriations to capitalize funds; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." The committee resumed consideration of amendments. Co-Chair Sharp announced the amendments to be addressed. FRONT #10: Senator Torgerson moved for adoption. Senator Adams objected for a question. Discussion was as follows. Co-Chair Sharp spoke to the motion he sponsored. He explained this was a reappropriation of old railbelt energy money that was appropriated in 1994. There was $3 million appropriated to the City of Seward as a loan. That amount had not been used and was available for reappropriation to projects in the amendment, he told the committee. He listed the projects and pointed out that the communities were matching at least fifty-percent of the project costs. Senator Adams was concerned on the original loan to the City of Seward for the transmission line to the Lawson station. He wanted to know that the project had been taken care of. Senator Torgerson assured him that the City of Seward found an alternative funding source and no longer needed the funds. Senator Adams removed his objection. The amendment was ADOPTED without objection. DOT #2 REV REV: Senator Donley moved for adoption. Senator Torgerson objected for explanation. Discussion was as follows. Senator Donley explained the change made since the previous meeting was an adjustment to AMAT allocations and appropriations. He referred to the Ship Creek Trail, which had been inadvertently deleted by the Department of Transportation, but should have been included on the AMAT list. Senator Adams had a question regarding page two, line 19. He wanted to know if the funds listed were new general fund money or utilized within the AMAT system. Senator Donley asked what was Senator Adams' definition of AMAT money. Senator Adams replied it was more that presently appropriated. There was further debate between the two senators. The committee took a brief At Ease at approximately 10:25 a.m. TAPE MALFUNCTION - portion of meeting not recorded The amendment was ADOPTED by a vote of 6-1. Senator Adams cast the nay vote. BOND #2: Senator Pearce moved for adoption. Senator Adams objected. Discussion was as follows. Co-Chair Sharp spoke to the amendment he sponsored. Senator Adams asked about changes to the Fish and Wildlife Protection Aircraft language on page 25. Senator Parnell explained the change was to correct language to clarify the project was for the Department of Fish and Game rather than the Department of Public Safety; Division of Wildlife Protection. Senator Adams removed his objection. Co-Chair Sharp noted the last paragraph had been removed. The amendment was ADOPTED without objection. HSS #2: Senator Torgerson said he would not offer the amendment action taken with BOND #2. HSS #7: Senator Adams said he would not offer the amendment due to action taken with BOND #2. DOA #5: Senator Phillips moved for adoption. It was pointed out that the amendment was identical to DOA #4 already acted upon. Senator Phillips withdrew his motion. DOA #4: Senator Phillips moved to rescind action taken earlier. Senator Phillips spoke about the request to use retirement and benefits funds to purchase new office furniture for the Division of Retirement and Benefits. Without objection, action taken on DOA #4 was rescinded. Senator Phillips moved for adoption. Without objection, the amendment was ADOPTED. The committee discussed another Department of Administration capital budget request for Electronic Commerce equipment, a Lease Database using AIDA funds. At the request of Senator Phillips, SHARON BARTON, Director of the Division of Administrative Services, DOA, came to the table. Ms. Barton spoke of the need for this project and the inability to use AIDA funds. She asked if general funds could be used instead. Co-Chair Sharp replied that other users should pay for the project through receipts. If not, he concluded the issue was dead. Ms. Barton countered that without the program, agencies would be faced with between $700,000 to $1,300,000 in additional new charge-backs in FY 99. That would translate into program reductions, she speculated. She added that the projects, if undertook, would result in cost savings in the future. Co-Chair Sharp said the committee would consider removing the project altogether if the agencies didn't think they could fund it. The committee took an At Ease at approximately 10:40 a.m. The meeting was turned over to Senator Phillips to chair. CS FOR HOUSE JOINT RESOLUTION NO. 2(JUD) Proposing an amendment to the Constitution of the State of Alaska relating to repeal of regulations by the legislature. Representative NORM ROKEBERG, sponsor of the bill, was invited to join the committee to speak to the constitutional amendment. He testified as follows: "[Along with] Representative James from North Pole, [we are the] two prime sponsors on this constitutional amendment to return to the legislature its rightful ability to repeal regulations by resolution, which was removed by the court in 1980 in the State of Alaska v. ALIVE Volunteer case." "I think everybody's familiar with this. I think the difference this year by returning to voters, I believe I have commitments from business groups around the state to support the ballot initiative with some money to educate the voters on the importance of the separation of powers and rebalancing to equilibrium the balance between the legislature and the executive branch." "With that, Mr. Chairman, I would ask that you favorably act on this. Its only got a $3,000 [undecipherable] fiscal note." There were no other witnesses to testify on this bill and no discussion by committee members. Senator Donley offered a motion to move from committee, HJR 2 with accompanying fiscal notes. Without objection, it was moved out of committee. ADJOURNMENT Senator Phillips recessed the meeting at approximately 10:55 a.m. and did not resume. SFC-98 (10) 5/4/98 am