MINUTES SENATE FINANCE COMMITTEE February 28, 2000 9:00 AM TAPES SFC-00 # 39, Side A & B CALL TO ORDER Co-Chair Sean Parnell convened the meeting at approximately 9:00 AM PRESENT Co-Chair Sean Parnell, Senator Al Adams, Senator Lyda Green, Senator Loren Leman, Senator Gary Wilken, Co- Chair Torgerson, Senator Phillips Also Attending: NICO BUS, Administrative Services Manager, Department of Military & Veterans Affairs; KENNETH BISCHOFF, Director, Division of Administrative Services, Department of Public Safety; LARRY PERSILY, Deputy Commissioner, Officer of the Commissioner, Department of Revenue; TAMAR DI FRANCO, Engineer Program Manager, Division of Statewide Design & Engineering Services, Department of Transportation & Public Facilities; NANCY SLAGLE, Director, Division of Administrative Services, Department of Transportation & Public Utilities; CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Community & Economic Development. Attending via Teleconference: JIM BUTCHART, Division of Emergency Services, Department of Military & Veterans Affairs, Anchorage; PAT PITNEY, Director, Budget Development and Institutional Planning, University of Alaska, Fairbanks; ANN RINGSTAD, Director, Government Relations, University of Alaska, Fairbanks; RANDY SIMMONS, Executive Director, Alaska Industrial Development & Export Authority (AIDEA), Anchorage. SUMMARY INFORMATION SB 250-APPROPRIATIONS: CAPITAL/SUPP/REAPPROP SENATE BILL NO. 250 "An Act making and amending capital, supplemental, and other appropriations and reappropriations; making a reappropriation under art. IX, sec. 17c, Constitution of the State of Alaska, from the constitutional budget reserve fund; making appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." DEPARTMENT OF MILITARY & VETERANS AFFAIRS JIM BUTCHART, Division of Emergency Services, Department of Military & Veterans Affairs testified via teleconference from Anchorage with an assessment of damage from the Central Gulf Coast storm. He noted that the division had conducted all of the preliminary damage assessment in order to quantify the size of this disaster. He mentioned project work sheets as reflecting the finer points of assessment. He pointed out that to date, public assistance, individual costs and business losses totaled about $30 million dollars, but added it is not certain how much of this amount can be presently verified. Co-Chair Parnell referred to business losses on the provided spreadsheet [handout included in file] at $560,000 as being verified. He asked what types of losses these were. Mr. Butchart responded that this amount included two businesses that were being shut down due to avalanches, along with, power outages, road closures, etceteras. Co-Chair Parnell asked if the division anticipated using economic loss statutes for these damages or would these be accounted for under the current, emergency disaster relief statutes. Mr. Butchart responded that many of these would be taken care of by the Small Business Administration (SBA) since the Administration issued a disaster declaration last week. Co-Chair Parnell asked how much of the $27 million, would the division anticipate being covered by the federal government. Mr. Butchart responded that this was a 75/25 percent split, if the entire $27 million was verified. He explained that it was uncertain whether the federal government would cover the Alaska Railroad Goldstreak spill. Co-Chair Torgerson asked if the division anticipates that the railroad might make their own match. Mr. Butchart responded that this was presently unknown. Co-Chair Torgerson noted that part of the declaration he wished included would cover the expected Spring flooding which will probably take place in many areas, especially in Seward. Mr. Butchart responded that the disaster is closed out as of the 23rd of February. He continued that if substantial spring flooding results, the division would have to consider this as an additional disaster. Co-Chair Torgerson referred to total of $568,000 due to business losses, and noted that he knew of at least three businesses that had caved in. He wondered if these businesses would only be allowed an SBA loan. Mr. Butchart responded that this might not be the only loan these businesses are eligible for, but also Federal Emergency Management Agency (FEMA) funds. Co-Chair Torgerson asked if there would be any general fund monies passed down to businesses. Mr. Butchart responded that the majority of the FEMA funds, reduced to a 25(non-federal)/75(federal) split might also be applied. Co-Chair Torgerson asked when the division would know from the federal government what costs out of the $27 million will be verified. Mr. Butchart responded that this process could take a couple of months. Co-Chair Torgerson asked if the homes lost to the slide in Cordova would be rebuilt in the same location. Mr. Butchart responded that this issue is presently being addressed and Cordova has a temporary zoning ordinance in place, which would prohibit residents from rebuilding in this area. He mentioned a program called Hazard Mitigation that might be made available to move these homes instead. National Missile Defense Project - $24,200 General Funds NICO BUS, Administrative Services Manager, Department of Military & Veterans Affairs and Department of Natural Resources noted that these monies would go toward the National Missile Defense Project in order to fund travel for the Commissioner and the General of the Army Guard to attend various meetings around the nation. He continued that this missile project could bring substantial construction revenue and federal jobs into the state. He pointed out that this request did not compromise a lot of money, and that the Commissioner's office previously did take a $87,000 reduction in unallocated funds. Air Guard Crash Rescue Firefighters - $212,400 Federal Receipts Mr. Bus continued that this program was totally federally funded and that this supplemental would essentially augment the vacancy rate and buy station supplies, clothing and equipment as authorized. Alaska Military Youth Academy - $582,100 Federal Receipts Mr. Bus outlined that the department received these funds in October for two classes with 80 graduates in each. He essentially outlined the information found in the backup that, the Alaska Military Youth Academy chose to take this one-time increase to enroll more students and reduce the waiting list. He additionally noted that, the decision to receive this money was due to the prospect of receiving Reimbursable Service Agreement (RSA) funds from Department of Education and Early Development, Alyeska Correspondence School, which could be used as a state match. He concluded that this funding was included in the Governor's State Fiscal Year 2001 budget request. Alaska Military Youth Academy - $110,5000 Statutory Designated Program Receipts Mr. Bus continued that these monies related to the Municipality of Anchorage's job-training program. He noted that Anchorage and the Department entered into a Memorandum of Understanding for the Alaska Military Youth Academy to help with this job-training program. He added that Anchorage will pay $110,500 for this collaboration. DEPARTMENT OF NATURAL RESOURCES Fire Suppression - $6,415,100 General Funds Mr. Bus outlined that this was the amount of money spent this last summer, not including funds for fire suppression in April, May and June, concluding that this supplemental would cover costs to date, plus fixed costs [inaudible.] Division of Parks and Outdoor Recreation - $200,000 Program Receipts Mr. Bus stated that these funds would enable this division to address upgrading of their outhouse facilities. He noted that the anticipated revenue for this division in the present fiscal year reflects an excess receipt total of $200,000. Fairbanks Facility Heating Oil - $2,506.40 [Fund Source Not Specified] Mr. Bus noted that the Fuel Company supplying oil to this facility went bankrupt and just recently submitted a bill from 1996. Ratification Fire Suppression Expenditures - $3,863,700 General Fund & Federal Receipts Mr. Miko concluded that this ratification consisted of fire suppression costs for May and June activities expended for last year. DEPARTMENT OF PUBLIC SAFETY Fish & Wildlife Protection Receipts - [Transfer Authorization from ADF&G KENNETH BISCHOFF, Director, Division of Administrative Services, Department of Public Safety noted that the department had two sections in SB 250, the first of these being Section 14. He noted that this first section involved a modification to front section language that allows the department, along with the Department of Law to access Department of Fish and Game funds. He added that these funds were transferred from Criminal Crimes and Forfeitures. He continued that the original language submitted to the legislature was too restrictive, since it only allowed for back section appropriations to tap the current year transfers. He continued that this year there is about a $300,000 shortfall and noted that the present modification would allow the department to access the Fish and Game funds as outlined. Fuel Bill $6,869.97 - General Fund Mr. Bischoff continued to note Section 21 of SB 250, which itemized the amount of $6,869.97 for a fuel bill. DEPARTMENT OF REVENUE Oil and Gas Audit - $150,000, And Child Support Enforcement, $150,000 General Funds LARRY PERSILY, Deputy Commissioner, Office of he Commissioner, Department of Revenue noted that the department had two supplemental requests before the Committee. He noted that one of these was for the tax division, to pay the state's cost in defending itself to a challenge a property tax assessment from the Kaparuk and Prudoe Bay operators in the amount of $150,000. He added that the other supplemental was for the Child Support and Enforcement Division for a one-year project for temporary workers to process an accounting backlog in the amount of $150,000 from program receipts. Senator Phillips inquired about this accounting backlog. Mr. Persily responded that the Child Support and Enforcement Division oversees several thousand cases that need accounting adjustments, such as visitation credits, medical insurance credits, etceteras. He felt as though the division could process 600 of these per month and within a year complete the backlog. Co-Chair Parnell referred to the backup related to the Oil and Gas Audit Division and specifically noted that the related dispute could cost the State of Alaska $12 million a year in lost property tax revenue. He asked if the North Slope Borough was financially participating in this challenge. Mr. Persily responded affirmatively and stated that each entity, the state and the borough have been in negotiations with Arco and British Petroleum. He added that the Department of Revenue thought it important to have their own experts and research conducted since the state ultimately sets the property tax assessment. DEPARTMENT OF TRANSPORTATION Central Region Design & Engineering - $80,000 Program Receipts TAMAR DI FRANCO, Engineer Program Manager, Division of Statewide Design and Engineering Services, Department of Transportation & Public Facilities stated that the division requests this money since the Central region offices has already spent their allocated receipts for the year. She declared that this money is used to cover sign, driveway or any type of fees that are used for maintenance of the state's right-of-way responsibilities. Senator Phillips asked if the fees cover expenses. Ms. Di Franco responded that she could not give a precise answer to this question. She added that the department is in the process of reviewing these fees in order to make sure that the cost of doing business does equal the fees that are charged. Alaska Marine Highway System - $500,000 General Funds NANCY SLAGLE, Director, Division of Administrative Services, Department of Transportation & Public Utilities noted that this past year has seen record increases for the price of oil. She commented that this has meant an increase in fuel prices for the Marine Highway System and noted that last year the department paid about $.39 per gallon for fuel. She added that the department currently pays about $.83 per gallon. She declared that even though the department tried to allow for fuel increases, these became more inflated than anticipated. She explained that as a result of this increase, the department has had to cut back on service, but they do not feel as though they can discontinue this service anymore. Co-Chair Parnell asked if there was a "carry forward" budget for the Marine Highway System Fund for FY99. Ms. Slagle responded that there was a balance in the Marine Highway Fund, but she did not have this figure in front of her. She thought that this amount was about $27 million. Senator Leman asked what the cost per gallon figure was used to develop the FY00 budget. Ms. Slagle responded that she was not sure exactly, but that she would provide this information to him. Northern Region Hwy & Aviation - $375,000 General Funds Northern Region Facilities - $25,000 General Funds Ms. Slagle continued to outline two additional requests from the department, the first for the Northern Region related to winter storm damage to highways and aviation work and the second, related to a storm-damaged facility. She noted that these costs were submitted when the Disaster Declaration was released, but the department does not know at this time whether these costs will be covered by this declaration. Co-Chair Parnell noted the estimated costs for disaster relief outlined in a spreadsheet showing the Department of Transportation & Public Facilities cost of $865,000. He wondered why there was a discrepancy in these numbers. Ms. Slagle responded that these were preliminary dollar amounts when the department submitted these to the Office of Management and Budget. She hoped that in the next week these estimates will be more firm, since at this time it is unclear what the federal government will cover. She stated that the department requires $900,000 for the Anchorage International Airport baggage handling system. She continued that this was an amendment to the original request and noted that this money would be used for traffic control while this baggage system is under construction as an operating expense. Co-Chair Parnell called an at ease at 9:25 AM and reconvened at 9:35 AM. UNIVERSITY OF ALASKA Planning & Design University Museum - $500,000 Federal Funds & $500,000 University Receipts PAT PITNEY, Director, Budget Development and Institutional Planning, University of Alaska testified via teleconference from Fairbanks. She stated that the University was asking for funds related to continued planning and design for the University of Alaska Museum. Co-Chair Parnell asked what the urgency was for getting this appropriation into the supplemental. Ms. Pitney responded that these funds come in through the foundation and the University would like to continue with the planning and design process. Co-Chair Parnell asked if planning and design would stop if this project did not get funded before June 30th. Ms. Pitney responded that this project needs to be funded this fiscal year for planning and design to continue. She noted that this project was presently at a standstill. Telecommunications Payments $100,000 - [No Fund Source Given] Ms. Pitney added that the University had two additional requests, the first for Claims and Judgments and another for $100,000. She specified that the University was presently working on a request from Office of Management and Budget to cover some telecommunications payments for Satellite Three-Interconnect Project for this $100,000. Claims & Judgments - [Dollar Amount not given] ANN RINGSTAD, Director, Government Relations, University of Alaska testified via teleconference from Fairbanks referred to backup submitted to the Committee that dealt with Judgment and Claims. She noted that these monies were over and above what the University and insurance has paid out of pocket for the [inaudible] Settlement. Co-Chair Torgerson responded that he had read an article that the University would cover these costs themselves. Ms. Ringstad responded that the University has come up with a certain portion of this, but as per an agreement with the legislature regarding insurance, this is why the University has submitted a supplemental request. Co-Chair Parnell called for an at ease at 10:50 AM and reconvened at 10:53 AM. DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT Power Cost Equalization - $8 million AIDEA Dividend RANDY SIMMONS, Executive Director, Alaska Industrial Development & Export Authority (AIDEA) testified by teleconference from Anchorage. He noted the supplemental request before the Committee regarding Power Cost Equalization (PCE) in the amount of $8 million. He noted that for FY00 funding, the department was expected to have around $7.9 million consisting of carryover funds from FY99. He continued that 60 percent of this was [indiscernible] revenues with some interest income, with the remaining FY00 [indiscernible] revenue which was suppose to come from SERA. He added that the department estimates about $7.8 million came from this same source and noted that any money coming from this source was highly questionable. He remarked that they propose to use an AIDEA dividend for FY00, as a supplemental of $8 million. Mr. Simmons continued that last year in Senate Finance, the department discussed AIDEA's FY00 dividend and this year a new accounting rule came into affect which makes this recognized income before it is realized. He continued that this meant about $7.7 million of unrealized income, but the department had not taken this into account when looking at this dividend because the department was being fairly conservative. Mr. Simmons went into specific detail about the department's policy decisions in light of this new money and basically summed up that available monies will run out in March. He noted that the request for a supplemental will carry the department through FY00 at the target amount set by the legislature last year, which is $15.7 million. Co-Chair Parnell asked if a larger dividend could be expected in the future. Mr. Simmons responded that for FY00 and FY01 the department went for the larger, maximum statutory amount at 50 percent. He noted that for the next few years, the department will probably make a recommendation to the board making this 50 percent of the department's net income. He then gave background as to this rational. Senator Adams commented that at the end of last session, he recommended that this $8 million should go toward to (PCE.) He noted that then, but the department said this would hurt their bond rating. He wished to know if this was still the case. Mr. Simmons responded that these were two different situations. He continued that another $8 million, as discussed, were revenues generated from Red-Dog, which go to PCE. He continued that this present proposal would make available dividends declared by the board and then the legislature can appropriate this money as they see fit. Senator Adams asked if the department would oppose an amendment to read that these revenues should go to PCE. Mr. Simmons responded that the department would oppose this and gave his reasoning as to why. Tape: SFC - 00 #39, Side B, 9:57 AM Senator Adams asked if AIDEA or its board of directors could ever sell a project such as Red-Dog to a local entity. Mr. Simmons noted that as long as they sold it to a governmental entity, then the bond could stay tax exempt. Occupational Licensing - $450,000 General Fund & Program Receipts CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Community & Economic Development stated that 100 percent of this supplemental would be funded by license fees, which her department has already collected. She noted that of this total, $50,000 would be used for prosecution of a [indiscernible] case involving a physician's license and 30 related complaints. She added that this amount would effectively cover any legal costs. She commented that the remaining $400,000 would allow the division to continue operating. Ms. Reardon declared that the division's supplemental, amends front section language of the bill, since the division's FY00 numbers section was removed from the budget except for interagency receipts. She stated that this front language section has become such a large part of the division's budget. She added that both the House and Senate version of this language would have not presented a problem to the division, but in Conference Committee a cap on the total amount of roll forward for excess collections that could be spent was established. She continued that this cap was to reduce by $400,000 what the division could spend over FY99. She noted that there was not enough time to discuss with the legislature what the impact of this action would be and it also was not 100 percent clear that this reduction was intended. She affirmed that if the division's present supplemental is not approved, or the amendment to front section language is not approved, the division will be in a grave situation which could mean that they would have to close down their offices for the month of June. She asked the Committee that if they had intended a $400,000 cut to the division's expenditures for FY99, she asked that the Committee fund the requested supplemental and make it very clear in the budget process for FY01. She would then make the necessary reductions, which would be a very substantial impact to the division. Co-Chair Torgerson commented that the Committee had not cut the division's budget and the Committee gave the division what was requested. He added that the division may have miscalculated and he understood the division had increased their fees, which accounts for the extra $400,000 that could be included in their budget. Ms. Reardon stated that it was true that the maximum figure allowed for FY00 was the figure in the Governor's budget request. She added that the Governor's budget had open roll forward language in the front section and for the last several years, since FY96, a good portion of the division's expenditure authority was included in this language. She went on to explain the specific details regarding the ramifications of the language and outlined the division's fee schedule for licensing. Co-Chair Torgerson commented that the legislature would like to be involved in the discussions regarding increases in fees. He added that the legislature would not give the division a blank check. Ms. Reardon reiterated her feelings on the front section language of the budget. Senator Leman asked about the increased fees of engineer licenses. He also asked why the division used a Seattle mailbox to receive these same fees. Ms. Reardon responded that she would research this situation. She explained that the renewal forms for business licenses came with an enclosed Seattle addressed envelope. She noted that a "lock box" is used for this procedure and the Department of Revenue has a contract with banks to process this paperwork. She continued that these banks will open the envelops, deposit the checks and run coupons through machines which generates an electronic transfer every day that highlights the collected fees. She noted that Key Bank has always had this contract, but sub- contracted to a Seattle firm to help with this outlined procedure. ADJOURNED Senator Parnell adjourned the meeting at 10:30 AM. SFC-00 (1) 02/28/00