MINUTES SENATE FINANCE COMMITTEE February 4, 1999 9:02 A.M. TAPES SFC-99 #20, Sides A and B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:02 A.M. PRESENT In addition to Co-chair John Torgerson, Senator Sean Parnell, Senator Dave Donley, Senator Loren Leman, Senator Gary Wilken, Senator Al Adams, Senator Pete Kelly and Senator Lyda Green were present when the meeting was convened. Senator Randy Phillips arrived shortly thereafter. Also Attending: JOE PERKINS, Commissioner, Department of Transportation and Public Facilities; NANCY SLAGLE, Director, Division of Support Services, Department of Transportation and Public Facilities; DENNIS POSHARD, Legislative Liaison, Office of the Commissioner, Department of Transportation and Public Facilities; THOMAS BRIGHAM, Director, Division of Statewide Planning, Department of Transportation and Public Facilities; GEORGE UTERMOHLE, Legislative Counsel, Legislative Affairs Agency; CAROL CARROLL, Director, Division of Support Services, Department of Natural Resources; and aides to committee members and other legislative members. Attending via Teleconference: DICK MYLIUS, Resource Assessment and Development, Division of Land, Department of Natural Resources, Anchorage; JUDY ROBINSON, Land Appraisals, Department of Natural Resources, Anchorage. SUMMARY INFORMATION SENATE BILL NO. 32 "An Act making and amending capital appropriations and reappropriations and capitalizing funds; and providing for an effective date." Co-chair Torgerson called the meeting to order. He outlined the meeting and said that Fred Fisher from Legislative Finance would testify first with regards to the Department of Transportation and Public Facilities. He voiced a concern to the committee that perhaps over authorizations had been made by the Legislature. FRED FISHER, Fiscal Analyst, Division of Legislative Finance was invited to join the committee. He provided a quick overview of the DOT capital budget. He commented on the surplus authorization and how this had evolved over the past couple of years. Capital appropriations that are made stay on the book or are administratively lapsed. Senator Dave Donley asked if this meant State or Federal appropriations. Fred Fisher replied State. Mr. Fisher testified that the scope of the Federal system makes it impossible for the Department of Transportation and Public Facilities to be totally precise in their estimates regarding the amount that goes in on a project by project basis. He continued, saying that emergency funds allocated are not always fully utilized and those unused amounts contribute to an excess allocation fund. New Federal legislation has allowed more highway funds to be used on a discretionary basis. That has made another contribution to the agency's discretionary budget. In some cases the Legislature has advanced certain projects. Those amounts are another contributing factor. This issue was initially raised by the Division of Legislative Budget and Audit and has been discussed by the legislature since that time. There has been a surplus spread over a period of time. Since 1976 the department has been working to reduce this surplus. It is presently at $764 million but they will continue to try and reduce it. It could go down by as much as $300 million - $400 million. He felt significant progress had been made to get this surplus off the books. Approximately $315 million pertained to this current year and about ten percent or $79 million to FY 98. There followed a brief review of the DOT capital budgets from 1993 to 1999. It had been a fairly simple appropriation structure. In FY 99 a seventy-percent money match was made and was allocated through individual projects. There were twenty-one individual appropriation items as compared to only three or four over the past years. This structure has become increasingly complex. Mr. Fisher then turned to the loss of mobility of dollars and the potential loss of Federal monies. Assurances must be provided for matching funds on these projects in order to capture Federal funds. Senator Pete Kelly asked about match dollars. Mr. Fisher said the agency has Federal dollars available, say for one of the twenty-one projects. Assurances were needed from the Legislature to provide match dollars in order to capture this money. Co-chair Torgerson asked if the Federal funds lapse? Mr. Fisher said they came under Title 37 and there was no provision for a lapse date. For the fiscal year 2000 the Department of Transportation capital budget request for the amount that goes in on a project by project basis structure had gone full circle and come back for appropriations. This was specifically for Statewide Programs and Aviation. The department was now preparing for this negotiation process. Senator Torgerson asked regarding the ten-percent monies not spent in 1998 and would these monies be tagged for projects? Mr. Fisher said he did not know if this assumption could be made. It depended on Federal appropriations and normally match rates were discretionary at twenty-percent under Federal law. Co-chair Torgerson wanted to know if the money could be shifted to another project? Mr. Fisher said no. Co-chair Torgerson asked if money was being held for a particular project that it was appropriated for? Mr. Fisher said yes. Sometimes there was an amount that would be put into a project that they were not able to use with Federal monies. Senator Torgerson asked if there was over-authorization on the funds? Mr. Fisher said they had been fairly careful with the DOT budget and he did not think there had been any over-authorization. Senator Leman asked about appropriations and uncommitted funds and their relation to Federal funds. Was it possible there may be general funds available for reappropriation? Or dollars available for something else? Is this net result the result of this paperwork? Is there any money? Mr. Fisher said that in some cases there may be match dollars available from the 1998 and 1999 years. However, the Legislature has put reappropriation language into the capital budget which allowed DOT to go back and pull out uncommitted monies. GEORGE UTERMOHLE, Legislative Counsel, Legislative Legal Services was invited to join the committee. He explained that the Legislature had few approaches available for authorizations currently on the books. One option would be to take the administrative approach allowing an agency to determine when to lapse funds. An alternative approach to the Legislature was to go in and directly repeal those expenditure authorizations. That money would then be gone and no longer on the books. He would recommend those be repealed at the appropriation level. By doing this on an appropriation basis it could tie that money to the specific appropriation. This would also allow for specific extension on projects. Future authorizations by the Legislature could continue under the existing situation. Capital projects lapsed when departments decided monies are no longer needed. The Legislature could have something more definite and could recommend a date certain. Repealing all lapse dates within seven years would also allow for an extension if necessary. Co-chair Torgerson asked about the end result. He was concerned about a list of items that had been put in by project, which had not been ranked high enough by the department. He asked if it were possible to have project by project appropriations listed and order that DOT apply specific funds to specific projects added as another section of the bill. Mr. Utermohle said he did not think that such language should be in the appropriations bill. Co-chair Torgerson said vetos were going on in the department that even the Commissioner was not involved in. It should not be left up to some low-level person to issue vetos. He would like the Legislature to make the necessary appropriations to insure they happen. Now they were forced to amend the STIP and then get Federal monies. Mr. Utermohle said this may be useful as a Legislative statement of intent. As to substantive effect it would not extend much more than beyond intent. Senator Torgerson asked if this language would be subject to a veto by the Governor? Mr. Utermohle said perhaps. JOE PERKINS, Commissioner, Department of Transportation and Public Facilities was invited to join the committee. Co- chair Torgerson thanked the Commissioner for his department's hard work on the handouts provided by them. The first item referred to by the Commissioner was past and current efforts to wipe out lapsed monies. He said they just couldn't get out a rubberstamp to close out projects. NANCY SLAGLE, Director, Administrative Services, Department of Transportation was invited to join the committee. She explained how they could acquire discretionary funds. They need Legislative assurance in order to get these funds. The Federal Aviation side needed to have Legislative assurance beforehand. In the past, Federal Aviation did not always agree with the projects DOT decided to give priority to. Now they have a better rapport with the FAA. Another item for concern was that general highway projects sometimes run into problems or difficulties such as right- of-way or environmental. She referred to her flow chart and explained the process of closing out a project. Billings, called a final voucher, were sent to Federal Highways. A review was done at that time for additional costs that may be eligible to be covered or other ineligible costs. There were difficulties in taking appropriations just blanket off the books. They may need to have more authority to deal with unforeseen adjustments. In the past four years they have opened three hundred seventy-nine Federal highway projects in the State and closed five hundred forty-four projects. The department has made concerted efforts to get these projects off the books. Further, they have eliminated $200 million of excess Federal authority monies. Still, she felt that there were some that could be eliminated. She explained that a team of three people, shifted from their regular duties, go back and look at projects and determine if they can be closed. Now they have to go back and evaluate before 1989. They were trying to evaluate the projects as systematically as possible. She felt very good about the accomplishments made in this effort. Ms. Slagle then reviewed environmental issues and right-of- way issues holding up some close outs. As she explained, they were trying to find resolution to these technical issues. There was, then, the problem of excess authority. They were trying to establish a departmental process whereby they would go in and hand-remove any authority on any projects sitting for more than ten years on the books. Co-chair Torgerson asked if "hand-removed" meant "within the department"? How could this be stopped from coming back up by the same hand that removed it? Ms. Slagle said appropriation authority could not be added without Legislative approval. Once it is taken off it is off. Commissioner Perkins further explained that this issue needed to be looked into. He felt strongly about prior projects that had lagged for perhaps twenty years. In comment to Mr. Utermohle's suggestion of seven years he suggested that it be ten years. He explained that FAA monies, if the project is closed out within five years for less money than appropriated by the Federal government, that remaining money stays in Alaska. Other monies would lapse back into the Federal pot. Co-chair Torgerson asked if the Federal government could be requested to reappropriate some of the lapsed monies for other State projects. Commissioner Perkins said that if all monies could not be spent for a specific project they would go back into the national pot. Co-chair Torgerson asked if the policies were done by regulations? Commissioner Perkins said it was not agreed upon policy or regulation. Co-chair Torgerson said there must be discipline if the change was going to work. He also agreed that it could be done for ten years, project by project, as suggested by Mr. Utermohle. Co-chair Torgerson asked if the project by project situation needed to come first before the Legislature? The Commissioner agreed. He said there were projects authorized specifically and there was no way those monies could be expended for a couple of years. Money will go with the authorized project down the years. However, they could have advanced another project if they would have had the authorization. (Tape #20 switched to side B, log 589 at approximately 9:57 a.m.) Commissioner Perkins continued. He explained they were going to be doing work in Wasilla and how it related to matched funds. If there was a reasonable bid, they would come back to the Legislature to get more matching funds. Otherwise, the project would not go. They were usually pretty good at estimating the bids, however, it would not be usual for them to be high or low. This system affected programs. The department would like to work with the committee so they can have some flexibility but still meet the concerns of the Legislature. If projects are added or changed within the years and nothing is taken out, they have more projects than money. Therefore, they rank the projects they have by priority. He explained what happened when a new project was then added. Does he keep his ranking system? If the Legislature wants to insure they do the projects they approve, there must be a whole left in the STIP so the department can delete a project. Otherwise, the money is not there to do the project. It was sort of a two-way street. A new project cannot really be added. Perhaps the department should provide a list to the committee of added projects. He further reiterated that he would do what the Legislature tells him to do if the money is available. Perhaps this would simplify some thought on how these projects should proceed forward. He explained that if he decided to bump a project then he had to tell the ranking committee and explain his decision. Co-chair Torgerson said he thought they were not confined to the STIP. Commissioner Perkins said they took out a bridge project from the STIP that was not authorized last year. Co-chair Torgerson said the Legislature could not amend the STIP. Senator Donley said he appreciated the Commissioner's offer. If the committee goes project by project, the Commissioner could ask the Federal government for an amended STIP. The Commissioner explained that if monies were not authorized by the Legislature he could not spend any on projects. Co-chair Torgerson agreed also with the offer but felt the STIP must be amended. He said the Legislature needed discipline to take a project out. He did not know if any of the projects appropriated in last year's STIP were going ahead. TOM BRIGHAM, Director, Statewide Planning, Department of Transportation and Public Facilities was invited to join the committee. He explained the updated spreadsheet from last year and the amended STIP as passed out at last week's meeting. There were more TEA-21 monies than ISTEA. With the exception of three projects everything has been put in the FY 99 budget. Perhaps the Legislature should review project by project so they could see that they have gone forward. Commissioner Perkins suggested this go through further discussions at the subcommittee level. Mr. Brigham explained the match side as real money and the Federal money as authority. Senator Donley asked for further explanation. There followed a brief discussion by Co-chair Torgerson, Senator Donley and the Commissioner regarding authorization. Co-chair Torgerson explained that he added the Funny River Bridge project last year. However, it fell under the ranking system, which was the main frustration. Mr. Brigham continued. He commented on the national highway projects and noted they have moved the Marine Highway into 1999. This was in addition to all other projects that had been reevaluated and moved up into design and construction for the year 1999. There were only three projects that did not do too well. He felt the ranking process was a fairly adequate way to handle this process. Co-chair Torgerson agreed that they did not want to do away with the ranking system, however it must be looked into. Actually, he did not care about the ranking system, but felt that if monies were appropriated for a specified project then they should be followed through on. Mr. Brigham explained that if legislative authority was given for ten projects and they only have money for nine then they have to choose which nine projects can be accomplished. Co-chair Torgerson said he understood this, however, if the Legislature has to tighten up they will. Personally he did not feel that this was too far apart on agreement. He would like to see an automatic amendment to the STIP. The Commissioner felt that no one more than he wanted to get the situation resolved with the Legislature. He said he would cooperate one hundred percent to get this accomplished. Co-chair Torgerson said everyone would work together under Senator Donley as subcommittee co-chair to resolve the outstanding issues. Senator Donley explained what he felt was wrong with the current ranking process. There was one standard for rural areas and they have no waiting period as compared to urban areas. This was grossly unfair. Senator Adams said rural programs and roads need to be looked at because the roads may be going to a water source or to a landfill site. Rural Alaska does have to meet criteria, however, the same as others. Commissioner Perkins referred to State roads. There are roads that have no connection other than tourism. The department was looking at the potential of developing and doing some other projects with the money that could be left in the pot. Mr. Brigham said that now the system has had two or three years to operate and projects have been put out to the public, the reason they have not suggested bush or remote projects was because they were going through. The demand for projects changes from year to year. Transit was a better example than remote areas. Most of the buses in the transit systems have been replaced around the State. Remote area roads, in initial thinking, had a priority on sanitation projects done in conjunction with sanitation and village safe water projects. Senator Donley said this was because of the way the department had designed their priority system. Mr. Brigham concurred saying there was a need to look at data and projects that were coming into the system. It may be appropriate to set up a "pot". Co-chair Torgerson agreed because he felt gravel roads have been left out. Otherwise the only way it would work was to put a garbage dump at the end of each road and then it would be taken care of. Senator Donley referred to SB 263 over in the House. In his testimony he had said that approximately eighty-percent was going to public safety projects. One fifth of the ranking went to other projects. The system has put the urban areas seriously behind. Co-chair Torgerson felt this was a good place to stop so the committee could continue on with the rest of their agenda. Commissioner Perkins made his concluding comments. They are preparing a new STIP as required by Federal law for 2000, 2001, 2002, 2003. This would be a document to implement any suggestions. (There followed a brief pause.) SENATE BILL NO. 49 "An Act relating to missions and measures to be applied to certain expenditures by the executive branch of state government and the University of Alaska from the state operating budget for the fiscal year ending June 30, 1999; and providing for an effective date." Co-chair Torgerson set aside SB 49 for Monday. He then called SB 6. SENATE BILL NO. 6 "An Act relating to the disposal of state land." Co-chair Torgerson then took up amended amendment #1. Senator Adams REMOVED his amendment to amendment #1. Co- chair Torgerson explained the amendment. It was his understanding that the appraiser in the specific case at hand did the wrong piece of property and that this was the source of all the misunderstandings. He felt the problem was with certification of appraisers and that there was no problem with the Department of Natural Resources. Perhaps they should take a new look at how appraisers are being certified. Senator Green said the seller should have established a basic price. She noted that this was her concern with regards to the Department of Natural Resources. Co-chair Torgerson agreed. However, the Administration does not care if the Department of Natural Resources sells property. Senator Adams MOVED that his amendment to amendment #1 be WITHDRAWN and WITHOUT OBJECTION was removed. Senator Donley MOVED to WITHDRAW amendment #1. WITHOUT OBJECTION it was WITHDRAWN. Senator Donley MOVED amendment #2. Senator Green OBJECTED. Co-chair Torgerson explained amendment #2. The amendment would allow them to add some flexibility. Senator Green felt line eleven was redundant to the original bill, noting the language was far too broad. Co-chair Torgerson explained that the two years were added last year. Otherwise, up until then, an appraisal could be given the next day. Senator Donley explained to Senator Green that the amendment was consistent with her point. Senator Green said she would rather move towards an actual setting of a price. She asked if there could be an arbitrary reason requiring anything from zero, unless the director said that there was evidence that there was a different value? Could it be said that each piece of property be reevaluated? She felt there was a bit of conflict. There was a short discussion between Senators Donley and Green. Senator Donley suggested a "clear and convincing" standard so the State could seek another appraisal. This would free up the director. (Tape change #21, Side A, log 000. DICK MYLIUS, Resource Assessment and Development, Division of Land, Department of natural Resources testified before the committee via teleconference from Anchorage. He explained the process used for appraising lands for sale. It depended on parcels and also on the rules as set out by statute. In response to Senator Phillips, he said the situation in Kenai was a unique one. He referred specifically to AS 38.05.067. There was a permit to purchase land from the Forest Service. And he explained, there was no lease with the State. Senator Donley MOVED to amend amendment #2, adding ".by clear and convincing evidence." to line eleven of the bill, making it consistent. Senator Adams OBJECTED and asked the Department to respond. Senator Kelly asked a question regarding grammar. Senator Donley said the drafters would conform the language. Senator Leman said there should be a standard for the appraisal, but it did not have to be this high. CAROL CARROLL, Director, Support Services, Department of Natural Resources was invited to join the committee. She commented on the amendment. She felt the standards should be used as the department uses them. The "clear and convincing" standard may be too high. Perhaps Dick Mylius or Judy Robinson in Anchorage could comment to this. Mr. Mylius explained that they were concerned with the language of the "clear and convincing evidence" standard. The department noted that value of land changes over a five-year period. Current wording on amendment #2 would make it more difficult for the department. Changing the two years to five years would also make it difficult for the applicant. The bottom line for the existing statute is that it works very well. Senator Leman said he would like to hear what the standards were. JUDY ROBINSON, Land Appraisals, Department of Natural Resources testified via teleconference from Anchorage that the USPAC non-profit group was made up of members from the United States and Canada, put together at the behest of the US Congress. The problem has to do with appraisals. She said they followed the Federal guidelines as used by all certified appraisers. The Department of Natural Resources also followed this same procedure. Senator Leman recognized the document she was referring to and then asked her what recommendation the director at the Department of Natural Resources followed? Ms. Robinson said she did not think the director should be required to follow USPAC. (pause on record) Co-chair Torgerson asked about the two-year time frame. It did not take an appraiser to tell whether the value of the property went up. He referred to Healy and that the land values have not gone up at all. He then asked for comments regarding the change to five years. Mr. Mylius referred to appraisals over the counter. Ms. Robinson said once an appraisal was done and property offered to the public there was no need to do another appraisal unless they thought the value had changed. Senator Green referred again to amendment #2. She asked about value changing within two years. Senator Donley engaged in further discussion. Senator Adams suggested the two-year question be posed to Ms. Robinson. Senator Donley asked if they went to a two year plan then would there would be a standard of review after two years? How would one deal with more recent changes in value during the two years? Ms. Robinson responded that if there was a reasonable belief to do a re-appraisal then she would do it. Senator Green read line thirteen of amendment #2. Senator Donley explained they could request this of the buyer. Co-chair Torgerson HELD the bill in committee. ADJOURNMENT Co-chair Torgerson recessed the meeting at approximately 11:00 a.m. SFC-99 (1) 02/04/99