GENERAL SUBJECT(S): OVERVIEW by Division of Legislative Audit Pat Davidson, Legislative Auditor The following overview was taken in log note format. Tapes and handouts will be on file with the Senate Finance Committee through the 21st Legislative Session, contact 465-2618. After the 21st Legislative session they will be available through the Legislative Library at 465-3808. Time Meeting Convened: 9:03 A.M. Tape(s): SFC-99 #8, Sides A and B PRESENT: X Senator Parnell X Senator Adams X Senator Torgerson X Senator P. Kelly X Senator Donley Senator Green X Senator Leman 9:10 Senator Phillips x Senator Wilken ALSO PRESENT: PAT DAVIDSON, Legislative Auditor, Division of Legislative Audit, NIKKI ROUGET, Audit Manager, Division of Legislative Audit; BOB BILDEN, Supervising Auditor, Division of Legislative Audit; WANDA COOKSEY, CLOSEUP; DAVID TEAL, Director, Division of Legislative Finance; aides to committee members and other legislative members. LOG SPEAKER DISCUSSION 000 CO-CHAIR PARNELL Convened the meeting. WANDA COOKSEY CloseUp introduced students that were observing the Senate Finance Committee meeting this morning. CO-CHAIR PARNELL Introduced Pat Davidson, Legislative Auditor and said she would be giving an Overview this morning. 037 PAT DAVIDSON Legislative Auditor, Division of Legislative Auditor was invited to join the committee. She thanked the committee for reviewing the audit reports submitted over the past several months. She noted there may be issues left over from last year that would still be brought before the committee this morning. She commenced with the Office of the Governor. Suggestions were made to the Office of Management and Budget. She noted that five departments paid their RIP obligations during the past year. The Governor's Office was asked to provide proper guidelines to the departments for their RIP obligations. She reviewed the Department of Revenue. It was noted that CSED was not able to keep up with their caseload and meet federal performance requirements. They have however made some improvements. She explained the evaluation of the regulation of gaming operations in the State of Alaska. Gaming process has been moved to more sophisticated and efficient systems. She explained the coordination between gaming personnel and the Department of Law. There have been no statutory changes. Re: Sunset review of the Alcohol Beverage Control Board date of 30 June 1999. It was only extended for one year by the Legislature last year and will be up for review this year. Ms. Davidson responded to a question by Senator Donley. She noted that a report was due April of this year regarding this matter. Re: Department of Education. There was a review of the Division of Vocational Rehabilitation. The department had done a review of their own on the expense accounts and approximately $1300 was returned to the account by the Director. This was for an insurance coverage. There are concerns over the implications of this situation. They suggested the Department of Education work closely with the Department of Administration regarding medical claims and coverage. There was a need for special education buses. They did feel the drug testing, driver training were sufficient. They were considering a bid system so there could be more competition for bus service. CO-CHAIR PARNELL Asked about the bid system for bus services. He said if there was a flat rate that may have impact on the bids. MS. DAVIDSON Said she would follow up on this matter because there was concern. SENATOR P. KELLY Asked about confidentiality and the budget for this department. MS. DAVIDSON Said confidentiality matters were not available to the Legislature. CO-CHAIR PARNELL Asked about Adak School District. MS. DAVIDSON Said that with the Adak school the Department of Education was going to take over paying those bills. They identified approximately $70,000 bills were paid by the Adak School District that the Department of Education should have paid. Further pursuance of the matter, due to grey areas, would need a Department of Law opinion. SENATOR DONLEY Asked about pupil transportation. Some districts were not complying and paying twice the minimum wage. He asked if this issue had been examined. MS. DAVIDSON Said the Department of Labor had looked into this matter and found that they were in compliance with State law. It may be that the Department of Law may have another opinion. SENATOR DONLEY Said he felt the Department of Labor opinion was wrong and the matter should be dealt with. MS. DAVIDSON Re: Federal Disabilities Act. She said the federal government had looked into the department's compliance. There were some defects found but they were not crucial. Department of Education has taken over the special education program in Ketchikan. Re: Health and Social Services. Ms. Davidson said significant compliance had not been adhered to. She asked that the Legislature pay close attention to their recommendations. Re: Medicaid. There were flaws in the design, implementation and integration of Medicaid into community mental health services. She noted poorly written regulations, unsupported rates, lack of a timely and cohesive quality assurance program, and incompatibility between the Medicaid system and general fund grant system have created systemic problems resulting in escalating costs. She commented briefly to "double dipping" and felt it could be averted through regulation. No pilot program for DMA and DMHD have been implemented as of January 1999. However, both divisions have been working with caregivers to solve the problem of double dipping. CO-CHAIR PARNELL Asked if there was any recommendation for solving this matter. MS. DAVIDSON Said they were working on solving this by summer, but this should be controlled to see if the department was really working on this. CO-CHAIR PARNELL Will ask the subcommittee, once it has been established, to look into this matter. MS. DAVIDSON Continued her review of the Division of Youth and Family Services. She hoped to have a follow-up status report. (a brief pause) SENATOR PHILLIPS NIKKI ROUGET MS. DAVIDSON CO-CHAIR PARNELL SENATOR WILKEN SENATOR PHILLIPS MS. DAVIDSON CO-CHAIR PARNELL BOB BILDEN SENATOR TORGERSON SENATOR TORGERSON SENATOR LEMAN MS. DAVIDSON SENATOR TORGERSON MS. DAVISDON CO-CHAIR PARNELL CO-CHAIR PARNELL CO-CHAIR PARNELL MR. BILDEN MS. DAVIDSON SENATOR P. KELLY MS. DAVIDSON SENATOR P. KELLY SENATOR TORGERSON SENATOR WILKEN NIKKI ROUGET MS. DAVIDSON MS. ROUGET SENATOR LEMAN SENATOR DONLEY SENATOR WILKEN SENATOR TORGERSON SENATOR TORGERSON SENATOR DONLEY CO-CHAIR PARNELL MS. DAVIDSON SENATOR PHILLIPS CO-CHAIR PARNELL Asked about another follow-up audit. Ms. Davidson said the second follow-up audit would be available for next Legislative session. Audit Manager, Division of Legislative Audit was invited to join the committee. She explained her review of the Department of Labor. There was a reduction in services in the amount of approximately $800,000. She explained the reduction of budgeted positions, however, actual personal service costs remained the same. Continued her review of the Department of Commerce and Economic Development. AMI would retain all advertising. She said there should have been an on the record agreement for expenses. DOT disagreed with the findings of the audit. She noted for the committee that they would be paying attention to this matter closely. Re: Occupational Licensing. She explained the statutes require the charges for the licenses be borne by the individual. It was found the division to be out of compliance. They have been complying at the board level, however, not at the division level. Ms. Davidson said, however, she felt the matter should be attended to if the division felt this was more economic to have the matter be handled at the board level. There had also been a review of sunset dates. Re: Alaska Science and Technology Foundation review. Overall their grant procedures were generally consistent with statutory changes since 1995. It was noted that many of the benchmarks contained in the original grant agreement had not been met but funding of the grant continued until May 1999. In response to Co-chair Parnell, she said they found monies being used for television and inventors to be an inappropriate use of the funds but they found nothing else. Re: Alaska Railroad Corporation. She briefly reviewed contracts with LoPatin, Chena Landings development and the lease between LoPatin and the railroad on the old General Office Building. These were not successful ventures. The financial status of the Comfort Inn hotel investment remained unclear. Contract with the Flamingo Brothers for gravel extraction had not provided a return for the Alaska Railroad. It was recommended the State would benefit from direct legislative oversight of the railroad. She noted specifically that the railroad appeared to be "buying its way out of trouble" and this was setting a bad example. Noted specifically the drop in termination payments to management employees in the amount of $36,000 since 1997, which reflected on the new management team. Tape: SFC - 99 #8, Side B 2:58 PM Asked if the Alaska Railroad would be making a presentation before this committee and Co-chair Parnell indicated that in the past they had and believed that Senator Torgerson would continue that policy. Comments to the committee. He recommended either LB&A or the Finance Committee submit legislation that the railroad come under legislative oversight. Said that in the past it had been discussed. Senator Phillips said that LB&A had requested this several years ago. He would rather have the committee introduce it. Said that if he wanted the committee to entertain this legislation it should be discussed further with Senator Torgerson Supervising Auditor, Division of Legislative Audit was invited to join the committee. Re: Department of Fish and Game. State Hatchery loan program. There was concern with the financial conditions of the hatcheries. To protect the State's investment in private nonprofit hatcheries it was felt that statute and regulation should be modified to allow roe extraction from salmon that exceed hatchery broodstock requirements. This would impact those fish that cannot be marketed due to deterioration of quality and which would die normally. He explained a modification process on debt payment. There was a concern to the viability to the FERLF (Fisheries Enhancement Revolving Loan Fund). They would not have operating capital to continue loans. Asked if hatchery loans have to be paid in 30 years? Mr. Bilden said there was a 30- year cap. He noted that there were severe repayment problems. Senator Torgerson asked if that 30-year cap should be extended. Mr. Bilden felt they should try to work out the troubled loans rather than extending the 30-year pay-off. However, it was an option still open. Asked about the fishery disaster this year. Mr. Bilden said he would investigate this matter and advise the committee. Asked about a Chapter 11 situation and pending judgment. Mr. Bilden was only just made aware of this matter and would investigate it. Commented on maintaining hatcheries. Many loans had been made to keep them going. (brief pause) Re: Sport Fish revenue. Commented on over a million dollars spent on board meetings. Said she would provide the actual schedule of the meetings and the specific costs incurred. She noted these were costs incurred by the State rather than citizens. The state employees provided overviews, reports, etc. They do make use of teleconference, however, many locations preclude use of video and teleconference. Asked about costs for state employees attending these meetings. Ms. Davidson said the costs incurred did not include members of the public. Asked for a specific breakdown of the costs. Ms. Davidson included travel, per diem, personal services costs. Did not include preparation time, only attendance of the state employees. Asked or clarification of personal services time. Ms. Davidson said all incremental costs were looked at. Personal services were identified as work hours spent at the board meeting. Continued his overview of the division of sport fish. He explained the sport fish budget was distributed approximately 48% going to salmon management and assessment programs, 28% to hatchery programs and less than 25% allocated between resident species, ground fish and shell fish programs. He said there was a slow shift from general funds to fish and game funds supporting fishery programs. Continued with the Department of Natural Resources. In particular was the Agriculture Revolving loan fund. Loans made in recent years were more likely to be paid on time. However, the fund had not been properly managing its collecting of old court judgments. The fund's cash balance had declined but should be sufficient for the next five years. The fund had not adequately managed its repossessed properties. In response to Senator Torgerson, she said they had not found any violations of how their funds had been used. Briefly commented. He said some choices were going to have to be made regarding this fund. Explained the situation with Matanuska Maid. They were unable to compete in the modern market. It was noted that Mat Maid purchased approximately 60% - 70% of their milk from Seattle. The plant would need substantial updating in order to compete or a new plant may have to be built. It was recommended that the Department of Natural Resources aggressively seek purchase offers from major dairy corporations. The department had no plans to sell the dairy and if the Legislature wanted to dispose of Mat Maid they would have to directly intervene. Asked Ms. Davidson to explain the milk purchase from Seattle. She explained that the milk was purchased from Seattle in bulk and then repackaged and sold in Alaska. She said that a purchaser may be paying for the trade name because Mat Maid had a high recognition. Asked about collateral rights. Ms. Davidson said the State's investment in Mat Maid was part of the reason the State purchased it. The loans to the dairy farms was the reason they purchased Mat Maid. They were trying to protect their collateral. She said cash invested was long-term gone. The operations of Mat Maid do not drain their cash flow, however. They were looking at either not providing cash to them or bringing new cash in. Asked about their profit/loss picture. Ms. Davidson said an analysis was done. Over the past couple of years substantial loss had been shown, but it was in depreciation, which was not a cash item. She can provide the committee with exact details of the audit. Rejoined the committee. Returned briefly to Department of Natural Resources Oil Company Hiring. They looked at resident hiring. It was found the State was not enforcing local hire. Resident workers in the oil patches have declined. If the local hire is not enforced by the department then the oil companies do as they want as far as hiring. This audit was done last year. Reviewed the Department of Environmental Conservation. All residents needed to be assured of safe water and proper sanitation. A limited opportunity exists for further privatization of village safe water. It was suggested DEC provide an accountability of the village safe water program and safe water program. Commented on authority for communities and the bid system to encourage more local hire. Ms. Davidson responded and said in looking at the benefits of rural sanitation projects it was to determine what they provided. It was a benefit to the community because the loan also brought wages into the community for the length of the project. Said it was his understanding the VSW program included Federal monies being available and the State adopted regulations consistent with this program. Refers to page 50 of the handout. Ms. Davidson said the $50 million was Federal and State funding for the Rural Sanitation 2005 Action Plan. She explained there may be multiple projects in a community providing different services. One could be looking at approximately 20 years involvement in some projects. Therefore continuing funding would be necessary for these projects. Re: Department of Transportation and Public Facilities. She explained how project costs were tracked and found the department did basically comply. The main deficiency was their inability to report expenditure activity for discrete output. She explained the department's outlook on the description of the projects. They also comply with legal reporting requirements. The department is aware of these deficiencies. Tape: SFC - 99 #9, Side A 2:58 PM Asked her to spend time on actual selection of the projects . Ms. Davidson said they outlined the process the department went through. He asked if they were in compliance with legislative requirements on projects. She said they looked specifically at marine and aviation projects. It is up to the department's discretion as to the projects to be funded. Explained his frustrations with the department. Veto power with respect to projects was with some mid-class employee. Asked about internal ranking of projects. He asked if the department's policy was looked at. Ms. Davidson said they looked at if there was some reasonable ranking criteria. Asked for any concluding recommendations. All recommendations were important. She did suggest looking at Charitable Gaming process to make it run more efficiently. She said "don't just look at what was paid in the past". It should be looked at getting the monies to the permittees. She also suggested looking at Community Mental Health services. Occupational licensing should be looked at, in particular licensing process. It did have an impact on state licensees. Under Natural Resources they should investigate Mat Maid and perhaps it should be sold off in the short term. Otherwise what are the long-term goals? The hatchery program should be also looked at under Fish and Game. They are rapidly running out of money. Asked that DFYS be added to the list Adjourned the meeting at approximately 10:50 a.m., Tape Number 9, Side A, log 161. SENATE FINANCE COMMITTEE LOG NOTES 01/27/99 9:03 a.m. SFC-99 12 01/27/99