MINUTES SENATE FINANCE COMMITTEE April 19, 1999 9:04 AM TAPES SFC-99 # 96, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:04 AM. PRESENT Senator John Torgerson, Senator Sean Parnell, Senator Loren Leman, Senator Gary Wilken, Senator Al Adams and Senator Pete Kelly were present when the meeting convened. Senator Lyda Green arrived shortly thereafter. Senator Dave Donley arrived later. Also Attending: ANNALEE MCCONNELL, Director, Office of Management and Budget, Office of the Governor; JOHN BARNETT, Executive Director, Storage Tank Assistance Board, Division of Spill Prevention and Response, Department of Environmental Conservation; STEVEN DAUGHERETY, Assistant Attorney General, Natural Resources Section, Civil Division, Department of Law; ROBERT DOLL, General Manager, Ferry Operations, Department of Transportation and Public Facilities SUMMARY INFORMATION SB 93-NAMES OF ORGANIZATIONS & BUSINESSES The bill was moved from committee with no debate. SB 113-FINANCES OF ALASKA HOUSING FINANCE CORP The committee adopted an amendment. The bill was held in committee. SB 128-STORAGE TANK ASSISTANCE FUND The committee adopted CS Version "I" and heard from the Department of Environmental Conservation and the Department of Law. The bill was held in committee. SB 129-M/V MALASPINA ACCOUNT The committee heard from the Department of Transportation and Public Utilities. An amendment was adopted and the bill was moved from committee. CS FOR SENATE BILL NO. 93(L&C) "An Act relating to the names of businesses and organizations and to the registration under the Alaska Trademark Act of marks that resemble the name of another business or organization; and providing for an effective date." This was the second hearing for this bill. Co-Chair John Torgerson reviewed the committee's intent at the last meeting to review the changes and possibly suggest more. There was no debate. Senator Sean Parnell offered a motion to move from committee CS SB 93 (FIN). Without objection, it was so ordered. SENATE BILL NO. 113 "An Act making activities of the Alaska Housing Finance Corporation subject to the Executive Budget Act, relating to appropriations to the Alaska Housing Finance Corporation; relating to bonds and bond anticipation notes issued by the Alaska Housing Finance Corporation; and providing for an effective date." This was the second hearing for this bill. Co-Chair John Torgerson spoke to a proposed amendment that would insert language to eliminate concerns about selling or refinancing bonds and appropriations. He stated it was his intention that the committee adopt the amendment, prepare and adopt a committee substitute for distribution and then bring the bill back for a hearing at a later date. Senator Sean Parnell moved for adoption of Amendment #1. Senator Al Adams objected. Co-Chair John Torgerson spoke to the amendment. This would exempt the practice of refunding of bonds and payment of principle or interest on bonds from the Executive Budget Act and state that payments or interest on bonds would not be subject to appropriation. This would leave the integrity of the corporation to sell bonds and make payments and refinance their bonds. Senator Al Adams maintained his objection as he did not know why the bill was even before the committee. There was nothing broken with AHFC and he had received many letters of support for the corporation. Amendment #1 was adopted by a vote of 6-1-2. Senator Al Adams cast the nay vote. Senator Dave Donley and Senator Randy Phillips were absent. The bill was held in committee. [NOTE: A committee substitute, 1-LS0640/G 4/19/99, was ordered after this meeting to reflect the changes made to the bill by Amendment #1. Although the Committee has not formally adopted this committee substitute as a Working Draft, is it still considered the Workdraft before the Committee because it incorporates action previously taken by the Committee.] CS FOR SENATE BILL NO. 128(RES) "An Act moving the termination date of the Board of Storage Tank Assistance to June 30, 1999; relating to the storage tank assistance fund; relating to financial assistance for owners and operators of underground petroleum storage tank systems; relating to discharges from underground petroleum storage tank systems; and providing for an effective date." This was the second hearing for this bill. Senator Sean Parnell moved for adoption of CS Version "I" as a Workdraft. Senator Al Adams objected. He wanted to know what the bill would do and how this would affect the state. Co-Chair John Torgerson spoke to the motion. The bill that came to the committee from the Senate Resources Committee converted the grant program to a straight loan program. In discussion in this committee, there was concern that some of the "mom and pop" businesses would suffer. This CS would establish an income limit on the tank closure and upgrade. Current statute granted up to $60,000. This version would continue that but add a ratio of four-to-one of assets. He detailed the formula. In order to qualify for the tank upgrade grant, an owner's assets would have to be less than $240,000. For the tank clean-up grant, the current grant of $1 million would be lowered to $250,000 and the same formula applied. Assets for this grant would therefore have to be under $1 million. Senator Al Adams maintained his objection. He realized the goal to change from a grant to a loan program. However, he was unable to determine who would and who would not benefit. He also wondered how the enabling regulations could be adopted by the time the legislation went into effect. Co-Chair John Torgerson noted there would be more testimony from the department. Senator Gary Wilken referred to the sheet in the packet that showed the upgrades. He questioned which companies would qualify for the grants. Co-Chair John Torgerson noted that SeaLand assets were presumably higher than the four- to-one formula for the project they requested and they would not qualify. Senator Gary Wilken asked if there would be another column on the spreadsheet to show the assets of the business. Co-Chair John Torgerson affirmed and reminded there were two different categories, the tank upgrade and closure and the tank cleanup. Senator Pete Kelly asked if the assets were corporate or individual assets. Co-Chair John Torgerson said it would depend if the company was corporate or individually owned. He qualified that should be clarified. Senator Gary Wilken asked if the assets would be net. Co- Chair John Torgerson said that should also be discussed. He noted that it was not his intention to do detailed audits to determine eligibility. He spoke to the value of contaminated lands. The CS was adopted as a workdraft by a vote of 6-1-2. Senator Al Adams cast the nay vote. Senator Dave Donley and Senator Randy Phillips were absent. JOHN BARNETT, Executive Director, Storage Tank Assistance Board, Division of Spill Prevention and Response, Department of Environmental Conservation, testified. He commended the co-chair on the progress this CS made. He did have concerns about the assets figuring that the amounts listed in the bill could be too low. He spoke of a lodge-owner's total assets of over $1 million. He proposed rewording the language to consider the net assets or raise the gross assets allowed. He offered to work with the committee to prepare new language. He then commented on the effective date saying this would take effect in the height of the construction season and would cause work stoppages. He suggested changing the effective date to July 1, 2000. Co-Chair John Torgerson pointed out that the board would have one year after the effective date before it sunset. He asked if the board needed to operate into 2001. John Barnett explained that the board would sunset in the middle of the construction season. He offered that the board could implement the program in phases. Co-Chair John Torgerson wanted to know if the multi-million dollar corporations would still be eligible for grants while the effective date was delayed. Barnett admitted that would be the case. He suggested implementing the insurance clause immediately, which would eliminate the large companies from the closure list. Co-Chair John Torgerson did not think it would eliminate all the large corporations. He did say that the committee should look at the effective date of the grant portion. The loan program would be delayed until the department adopted regulations. Senator Al Adams asked the percentage of income allowed under the current program. John Barnett answered that the original program had no income limits. He listed the maximum amounts available. The department was in support of the committee's efforts. Senator Gary Wilken had a question about the branding agents. He noted that some stations were owned and operated by the corporations. Others were independently owned and had a brand name agreement to sell the corporation's product. John Barnett spoke to the contractual relationships. Senator Gary Wilken wanted to know if there was a better way to determine the net assets. He wondered if setting a formula on the amount of gas pumped or by some other method. John Barnett said something similar had been considered. John Barnett suggested the best way to determine assets would be to require the owner to submit a certified statement of their assets. Senator Gary Wilken said the reason he asked those questions was due to a friend of his who had about $20 million in airplanes but only one fuel tank. He felt this operator should be given the grant. Co-Chair John Torgerson said it was his intent that a person who could afford it should pay for it. Co-Chair John Torgerson then asked again for explanations of the three programs. John Barnett explained there were really only two programs. Co-Chair John Torgerson broke down the amounts available for grants and the intent of the income limitations. He asked if the four to one assets formula was adequate. John Barnett said he felt it was too low. Co-Chair John Torgerson asked what was the average grant. John Barnett said the closure and cleanup programs were usually tied together and gave the figures. Co-Chair John Torgerson asked John Barnett for his definition of net assets. He asked the witness to focus on the $60,000 grant portion requirement. The other program could then be addressed under the same method later. Barnett had conferred with Steven Daugherety of the Department of Law. They used the proposed four-to-one formula and drafted language to read, "the owner/operator does not have tangible net assets that exceed the product of multiplying the estimated cost of cleanup by four." John Barnett defined the $60,000 program qualifications as tangible net assets after deducting liability not over $1 million at any time. STEVEN DAUGHERETY, Assistant Attorney General, Natural Resources Section, Civil Division, Department of Law came to the table at the request of the co-chair. Co-Chair John Torgerson asked if it was his recommendation to use tangible net worth in place of assets. Steven Daugherety described how this was taken from federal language. Co-Chair John Torgerson asked if it was his recommendation to raise the four-to-one ratio. Steven Daugherety responded that the ratio would probably work using the net asset definition. The liabilities would be removed. He detailed the liabilities involved in operating a business. John Barnett referred to earlier discussions about net worth and liability. He and Steven Daugherety had worked to draft language to remove that liability. Co-Chair John Torgerson then worked to define tangible net assets. There was discussion on corporate and personal assets. He stressed that the committee did not want to grant funds to the tank owners who could afford the cleanup. The legislation needed to be clear about that. Co-Chair John Torgerson asked how many of the pending closures or upgrades were corporations. John Barnett did not know specifically because that information was not required in the application process. He made estimates based on other information he had. He guessed that about half of the owners were incorporated. Co-Chair John Torgerson felt the tangible net assets provision was too broad. He admitted the four to one ratio he proposed might be too narrow. Co-Chair John Torgerson turned to the tank cleanup program and asked if the department wanted to use the same tangible net asset provision. John Barnett responded he did. Co-Chair John Torgerson then wanted to know if the four-to- one ratio was acceptable as well. John Barnett noted that the current ranking system worked well. The department placed most of the larger companies at the end of the list and most of the corporate projects would then drop off and not be funded by the state. Co-Chair John Torgerson clarified that the assets limit and the effective date were the only problems the department had with the bill. Steven Daugherety pointed out that with corporate entities, it might not be possible to require them to cover the cost of the cleanup. Co-Chair John Torgerson noted that the tangible net assets provision could be a giant loophole. Senator Al Adams suggested using the federal language along with a cap of $1 million. Another option would be to use the capacity of the tank as a guideline. Co-Chair John Torgerson did not have information to use as guidelines for any of the suggestions since the department did not require income as a requirement for the grants. Senator Al Adams had a question about the effective dates. Co-Chair John Torgerson did not want to leave a loophole for large corporations to receive the grants while waiting for the effective date. It was also not his intention to bankrupt "mom and pop" operations. Co-Chair John Torgerson ordered the bill held in committee. SENATE BILL NO. 129 "An Act relating to the Alaska marine highway system vessel, M/V Malaspina; and providing for an effective date." This was the first hearing for this bill, which was sponsored by the Senate Finance Committee. Co-Chair John Torgerson said he reviewed the legislation with Captain Doll of the Marine Highway System over the weekend and had concerns with the capital improvements fund provisions. He detailed the language deletions he felt should be made. He wanted a correction made to ensure that capital improvements were made through the regular capital budget process. Tape: SFC - 99 #96, Side B 9:51 AM Senator Sean Parnell asked for an explanation of the purpose of the bill. Co-Chair John Torgerson said it was to set up a separate accounting for the M/V Malaspina. It would direct the department to maintain the gross revenues generated by that ferry separately. An underlying reason was the intent of the Legislature to continue to subsidize the M/V Malaspina in its dayboat operation. That was clear in the original legislation that established the route and this bill would lay the groundwork. He noted language that allowed the Legislature to continue to appropriate funds if it desired. There was front section language in the FY00 Operating Budget bill that would relate to this. Senator Sean Parnell moved to amend page 1 line 12 and page 2 line 7 to delete the language relating to capital improvements. The amendment would direct the bill drafters to reword the language in an appropriate manner. There was no objection and it was ordered. ROBERT DOLL, General Manager, Ferry Operations, Department of Transportation and Public Facilities, testified to the bill. He spoke of the intensive discussion with the sponsor to clarify the language. The bill would segregate the revenue generated by the M/V Malaspina and direct the department to use those funds to operate the vessel. The department estimated expenditures of $3,900,000 for the upcoming summer season. Revenues were estimated at $3,057,000. The $33,000 difference was close enough that the department could manage the ship and ensure its operation. The amendment continued the current practice of allowing the department to make annual maintenance repairs on the vessel using capital funds. He explained that the extent of repairs was never known until the ship was dry-docked and examined. That annual process had always been addressed using a single capital appropriation. Senator Loren Leman noted that under this the ferry would not be operating in the black. Robert Doll agreed that the $33,000 difference would be a separate allocation. This was due in part to the expected higher maintenance costs this year. He speculated that the route would generate surplus revenue once it reached its full schedule of operation. Senator Loren Leman wanted to know if it would become closest ferry in the system to breaking even. Robert Doll said the M/V Columbia was the first, the M/V Malaspina was second. Both ferries operated in high revenue segments. Senator Gary Wilken asked how Captain Doll felt about the sponsor statement. He read, "we are sending a strong message that the Legislature does not intend to subsidize the operation of dayboats." Robert Doll commented that it was an ambitious statement that the department would be working towards in the long term. He discussed the different routes and the expected revenue they could generate in relation to the cost of operation. Senator Sean Parnell offered a motion to moved SB 129 as amended from committee. Senator Al Adams objected. He felt this legislation would set poor precedent in the establishment of separate accounting systems for certain services. He felt this was micro-management. He stressed that the Marine Highway System was Southeast Alaska's highway. He wondered if the intent was to someday micro- manage other highways in rural areas of the state. Co-Chair John Torgerson noted the M/V Malaspina was supposed to have been surplused with the launch of the M/V Kennicott. This expanded the service. It was his intent for the marine transportation system to break even. The system of separate accounting would help ensure that. Senator Loren Leman wanted to know about overhead costs such as administration and the reservation system and if those costs would be broken out of the program. Co-Chair John Torgerson said that if those costs were charged to the M/V Malaspina, the department could not afford to operate the ferry. Therefore, those costs would not be accounted for under the bill. The bill was reported from committee by a vote of 7-1-1. Senator Al Adams cast the nay vote and Senator Randy Phillips was absent. ADJOURNED Senator Torgerson recessed the meeting at 10:04 AM. The committee returned and addressed the FY00 Operating Budget. Minutes for that portion of the meeting are separate. SFC-99 (1) 4/19/99