MINUTES SENATE FINANCE COMMITTEE March 20, 2000 9:02 AM TAPES SFC-00 # 53, Side A and Side B CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:02 AM. PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Al Adams, Senator Lyda Green, Senator Pete Kelly, Senator Gary Wilken and Senator Leman were present when the meeting started. Senator Phillips arrived later. Also Attending: SENATOR ROBIN TAYLOR; SENATOR KIM ELTON; SUE MOSSGROVE, Aide, Senator Taylor; SHARON CLARK, Aide, Senator Miller; DON LOVATNY, Volunteer, American Diabetes Association, Board Member, Pacific Northwest Board of ADA; CHRIS HOLZWARTH; JULIE BURNS; MICHELLE CASSANO; GORDON EVANS, Lobbyist representing the Health Insurance Association of America; KEVIN RITCHIE, Executive Director, Alaska Municipal League Attending via Teleconference: From Anchorage: JANICE ADAIR, Director, Division of Environmental Health, Department of Environmental Conservation; STEVE VAN SANT, State Assessor, Division of Municipal and Regional Assistance, Department of Community and Economic Development; from Glennallen: DOUG RHODES; From Fairbanks: BONNIE WILLIAMS, Assembly Member, Fairbanks Northstar Borough and Chair, Finance Committee SUMMARY INFORMATION SB 271-FEES FOR FOOD ESTABLISHMENT INSPECTIONS The Committee heard from the sponsor, the Department of Environmental Conservation and a bar/restaurant owner. The bill was HELD in Committee. SB 276-REQUIRE HEALTH INS COVERAGE FOR DIABETES The Committee heard from the sponsor and various members of the public. The bill was HELD in Committee. SB 227-MUNICIPAL PROPERTY TAX LEVY LIMITATION The Committee heard from the sponsor, the Department of Community and Economic Development, the Municipal League and members of the public. The bill was HELD in Committee. SENATE BILL NO. 271 "An Act relating to fees charged for inspections by the Department of Environmental Conservation; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. SUE MOSSGROVE, Aide to Senator Taylor, testified the sponsor introduced SB 271 as a matter of fairness for all businesses providing food services, from restaurants to day care centers. Currently, she stated food inspection fees are included as a part of the permit process within the Department of Environmental Conservation Food Safety and Sanitation program. However, she noted some establishments were charged the fees but not receiving services. She said this legislation was introduced to separate the inspection fee from the permit process so establishments were not charged a fee unless they were actually inspected. Co-Chair Torgerson noted that the member's packets included information in response to requests made at the previous hearing by the Committee to the department. He relayed the Committee's intent at the last meeting was to follow the sponsor's intent to charge for actual inspections but also to identify the high risk health areas to possibly adopt statutes to exempt some facilities from inspections or require biannual inspections for others. JANICE ADAIR, Director, Division of Environmental Health, Department of Environmental Conservation testified via teleconference from Anchorage and reviewed the handout provided to the Committee by her division. [Copy on file]. Part 1: Risk Based Inspection Frequency Protocol, Risk Level = # of routine inspections per year - this showed how the division views food service facilities to determine the relative risk it may pose to public health. It also shows the process preparation or what was being done with the food, or what types of physical, microbial and chemical hazards might be generally present. Ms. Adair noted that the number of annual inspections shown on this chart was the ideal not the actual. Second page of Part 1 showed the considerations that may increase or decrease the optimal number of annual routine inspections. Ms. Adair told the Committee that the division was currently reviewing compliance history and targeted populations to see if a facility should be given a lessor or higher risk level ranking. Part 2: Inspection Risk Levels by Office - shows where division offices are located, the numbers of inspectors in those offices and how the overseen facilities are divided between each office by the risk level. This shows the total of risk levels two through four, what the division concentrates on and then the average number of facilities per inspector. Part 3: Food Safety and Sanitation Office Jurisdictions - a map showing the jurisdiction areas of each office. Ms. Adair pointed out that the Nome office was run by the Norton Sound Health Corporation and that the state has a designated grant to the corporation to operate the program in that area. Second page of Part 3 - listing of those communities shown on the map and which office oversees them. Part 4: 1999 Food Safety and Sanitation Facilities - this breaks down the different types of facilities, gives a count by facility type, whether or not they are permitted and whether or not they pay a fee. These are divided by their risk level. Ms. Adair noted that several of these facility types were not permitted and did not pay fees. She directed attention to exempted facilities. Part 5: Number of Inspections, Fee'd Facilities and Inspectors by Year - showing the percentages of fee's facilities that were inspected in the years 1997 through 1999. Ms. Adair corrected an error on this page changing the number of Fee'd Facilities in calendar year 1999 to 5022. She told of the inspectors who took advantage of the Retirement Incentive Program (RIP) and of other vacant positions. She also talked about the reduction of the program. She said the combination of these factors took a toll on the number of inspections that were performed. Co-Chair Torgerson asked about the increase of facilities during the time indicated on the handouts and if these were new facilities or if the department added existing facilities to their inspection list. Ms. Adair assured that this was a dynamic industry with many new businesses entering continually and that the department had not added any existing facilities to the program. She said seafood processors add to the fluctuation because they don't always operate every year. She explained permits are issued every year so if a processor does not open in a particular year, there would be no permit applied for and the facility would not be counted. Co-Chair Parnell asked of the number of facilities inspected each year, what percentages were in Anchorage, Fairbanks and Juneau. Ms. Adair responded to the facilities in Anchorage saying the only inspections done in the Municipality of Anchorage were processors involved in inter-state commerce and the railroad. She said she would provide information on Juneau and Fairbanks. Co-Chair Parnell wanted to know if the state was performing restaurant inspections in Anchorage, Chugiak or Girdwood. Ms. Adair replied that Anchorage is the only community that has adopted its own program and does its own restaurant inspections. All other restaurant inspections were performed by the state, she said. Co-Chair Parnell asked if it wasn't more common in the US that the local government do restaurant inspections. Ms. Adair said it was but there are so few facilities in communities to generate the fees to support a local program. She stressed that even Anchorage has to fund 50 percent of the inspection program from its general fund. She estimated that Juneau could only minimally fund a program and that other communities could not. She said state inspectors are sent to communities when needed and can cover several communities. Co-Chair Torgerson asked if any other communities had provided the services in the past but then turned the program back to the state. Ms. Adair responded that the City of Fairbanks had collected fees and paid $60,000 to contract with the state for the inspections. However, she said the program was dropped after the state fees were increased because the state could collect more revenue through increased fees than what could be collected from the city. Part 6: Revenue Lost from Exempt Food Facilities - this included Headstart programs in schools and other charitable food service organizations and the revenues lost to the program Co-Chair Torgerson asked if these facilities are exempt from paying the fee but not from being inspected. Ms. Adair said that was correct. Co-Chair Torgerson asked how this information tied into the information of Part 4, which showed the exempt facilities broken down by type of facility. Ms. Adair replied that the information on Part 6 was reflected on the Part 4 chart except for temporary food service facilities, which did not fit into any of the categories. Senator Adams asked if the Anchorage inspectors did inspections of seafood processors in Dutch Harbor and Unalaska. Ms. Adair said that was correct however she noted that currently, the inspector from Valdez was doing the Aleutian Peninsula inspections because his wife was currently living there. Senator Adams asked the frequency of the visits to this largest seafood processing area in the state. Ms. Adair explained that Dutch Harbor mostly produces fresh frozen seafood, which is a very low risk. The remainder of the processing, such as surimi imitation crab, requires an inspector to visit three times annually. Ms. Adair clarified that the retail restaurant fees had increased and are expected to cover more services that just the cost of inspections. She stated that the fees cover the entire cost of the program with the exception of recovery of travel costs, which is prohibited by statute. She detailed the other services such as training, response to an emergency, and resolving complaints. She noted that it is just as important to a facility to know it is not the cause of a food borne illness. Co-Chair Torgerson asked about putting exemptions into statute for facilities with a low risk level that may not require an inspection every year. Ms. Adair responded that there was currently no statutory requirement for an inspection and that the inspection is what the department performs to verify compliance to the food safety requirement. While she was aware that other states had laws that dictated the number and frequency of inspections based on the type of facility, she stressed the system needed to be flexible. She gave as an example, the E. coli outbreak that was traced to undercooked ground beef. Before this outbreak, she explained, ground beef was not considered a threat by the general public. Since the 1993 incidence at Jack-in-the-Box restaurants, those facilities that serve hamburgers were given a higher risk level, which requires more frequent inspections. Co-Chair Torgerson wanted to know why the fiscal note did not indicate a loss of revenue considering the provision of SB 271 to inspect only certain facilities. He noted that the division only performed half of the ideal number of inspections. Ms. Adair responded that when the vacant positions were filled, the division hoped to increase the number of inspections. She warned that if the fees were taken away, the number of positions would need to be reduced. She told the Committee that she had figured how to change the program so everyone pays a flat fee whether or not the facility was inspected. She added that those facilities that are inspected would then pay an additional cost. Therefore, she calculated if the number of inspections stayed the same, about half of the facilities would pay an inspection fee and the remaining facilities would pay a flat fee to support the entire program. Co-Chair Torgerson asked if the Committee were to consider the flat fee and also keep Senator Taylor's bill in mind, the Committee would need to know what the flat fee would pay for. Ms. Adair was concerned about charging an extra fee whenever an inspection was performed. She understood the complaints that caused the bill to be introduced, but thought it would only change the complaint. She explained the complaint would change from "I'm paying for inspections that I'm not getting" to "Every time they come in and do an inspection, they hand be a bill even if they don't find anything. They're in here to pad their budget." Co-Chair Torgerson agreed in part but did not think the witness was making the case as to what services the fees covered. He stated that many facilities do not know what functions the fee goes to pay for. He wanted to find a compromise for the department and the bill's sponsor. Senator Leman asked if it was reasonable to implement a flat fee or whether some facilities cause the department to exert more effort and if the fee system should be framed differently. Ms. Adair responded that was the reason the department used permitting time and inspection time to calculate the fee. She explained that some canneries took up to 18 hours to do an inspection as opposed to a convenience store that may only take 30 minutes. The theory, she said was that there are some kinds of services and some compliance issues that take more time for the department to process than others. She noted that is the purpose for the different risk levels. She added that some facilities that have a proven compliance record would not need inspections as frequently as others would. Co-Chair Torgerson did not think there would be that hard of time proving the need for different fees for the risk levels. He did not mind charging more of restaurants for re- inspections for restaurants with low scores. Ms. Adair noted there are re-inspection fees already in place for those facilities that score low and must be revisited to ensure compliance. Co-Chair Torgerson stated the reason behind the bill was a small espresso stand that is charged the same amount as a 200-seat restaurant. He surmised that the risk was undeniably different. Senator Green wanted to confirm the exemptions shown on Part 6 and whether the lost revenues represented by the $300,000 lost fees were then calculated into the for-profit fees. Ms. Adair noted there are general funds in the program but that most went to support seafood related activities. She said the lost revenues were off set by higher fees charged to the retail food service facilities. Co-Chair Torgerson tried to clarify the $279,920 was the current amount collected or the total of all costs. Ms. Adair responded that amount is what the department would collect if all the facilities were charged a fee, including the currently exempted facilities. Co-Chair Torgerson asked what would be the revenue loss if the additional exemptions were permitted. Ms. Adair answered $36,625. Co-Chair Torgerson requested exploring the flat fee for health services related to facilities by risk and also the intent of the bill to pay for inspections when they occur instead of across the board. He asked for another summary that incorporates these scenarios and includes the current amount of general fund support for the program. DOUG RHODES testified via teleconference from Glennallen about his concerns of the price of the inspections. He told of being charged for two inspections of his facility, one for the kitchen portion and the other for the bar portion, saying the two are located in the same building within ten feet of each other. He warned this expense would result in no more small roadside businesses. He thought there were too many Department of Environmental Conservation employees in his area and spoke of the frequent travel of inspectors. Co-Chair Torgerson assured the witness that Committee was trying to work through his concerns. Senator Green asked if the two places were inspected on the same day or different times. Mr. Rhodes said the inspections were done on the same day. SENATOR ROBIN TAYLOR did not oppose a flat rate for an annual permit that included the cost of inspections. He was concerned about the ability of the department to raise the fees to cover the costs of the department's program. He complained that the inspectors were driving new Ford Explorers to perform the inspections and he understood why the small operators questioned the amount of their fees. Senator Taylor continued that the legislature's intent is to downsize the department but that the department would not comply. Senator Leman clarified that the previous year the Department of Environmental Conservation budget was actually increased. Co-Chair Torgerson ordered the bill HELD in Committee. SENATE BILL NO. 276 "An Act requiring that health care insurers provide coverage for treatment of diabetes." This was the first hearing for this bill in the Senate Finance Committee. SHARON CLARK, Aide to Senator Miller read the sponsor statement into the record. SB 276 would require that health insurers in Alaska provide coverage for diabetes equipment, training and education as deemed necessary by state licensed health care providers. To date, 37 states have enacted legislation providing similar diabetes coverage. Over 30,000 Alaskans are affected by diabetes. Without education or proper treatment, diabetes can lead to kidney failure, amputation, nerve damage, blindness and other associated suffering; and the resulting costs are often avoidable through patient education on proper nutrition, exercise, blood sugar monitoring and medication. Education is the foundation of quality diabetes care. It is the process of providing the person with diabetes the knowledge and skills needed to perform self-care, prevent crisis and make important life style changes required to effectively avoid complications. Through proper education, the diabetic may assume his/her appropriate role as an active participant in the treatment plan. A number of published studies by the American Diabetes Association (ADA) show decreased in health care utilization for people with diabetes receiving appropriate education and access to supplies. A Milliman study for the ADA estimates annual savings of $917 per person with diabetes that translates into savings for the insurance industry as well. SB 276 promotes better health, and ultimately, lower health costs for the people of Alaska. I urge your support of SB 276. She told of Ms. Betsy Turner-Bogren and her son, Max Bogren's visit to Juneau and the Senate Labor and Commerce Committee to testify about Max's experiences with diabetes. She referred to a handout detailing the visit. [Copy on file.] She mentioned two concerns voiced in the previous committee. One dealt with whether the coverage should be mandated and the other was raised by Senator P. Kelly and related to the use of the word "nutrition". She stated the concerns were addressed in two proposed amendments before the Committee. Co-Chair Torgerson stated his intent was not to consider any amendments at this meeting to allow members an opportunity to review them. Senator Leman supported the bill in concept but was concerned that if the coverage is provided, the door is opened for reimbursement of all types of charges without review. Tape: SFC - 00 #53, Side B 9:49 AM Senator Leman mentioned a pump that cost $5,600, as an example. He was also concerned about the amount of time necessary to provide education. He had initially heard that an average of six hours of training per year at $250 would be average, but had since heard that training could go much longer and cost up to $1500. Ms. Clark remembered when the issue was raised in the Senate Labor and Commerce Committee but noted that different patients had different needs, different types of diabetes and therefore, different amounts of training. She agreed there would be situations where some patients would require more training than just six hours per year. She said that Senator Miller thought there would be justification for the additional training for some people. Co-Chair Torgerson thought this was an important bill but also thought the education provision was broad based. He suggested that a patient could go to college to learn about diabetes and the insurance company would have to pay the tuition. Ms. Clark said Senator Miller had stated in the previous committee that he hoped health care providers would be self- limiting and that statute would not impose a limit to the amount of money to reimburse training. She deferred to members in the audience waiting to testify who live with diabetes every day. Co-Chair Torgerson wanted to know how other states and other insurance carriers addressed this issue. DON LOVATNY, Volunteer, American Diabetes Association, Board Member, Pacific Northwest Board of ADA testified that he has had diabetes for 21 years and that diabetes takes a lot of time in one's life. He explained there are two types of diabetes: Type 2 affects about 80 percent of those with the disease and usually requires no insulin treatment and Type 1 does require insulin and also extends hospital stays by an average of one day per visit. He stated that hospitalization costs about $1620 per day in Alaska for a patient with diabetes. His organizations' goals are to keep those people out of the hospital. Mr. Lovatny told the Committee that diabetes is on the rise and is the seventh leading cause of death in Alaska, according to the Bureau of Vital Statistics. He listed percentages of those affected and the costs for treatment. Mr. Lovatny stressed that rationing of services was not the answer and urged the Committee to pass the legislation. CHRIS HOLZWARTH passed out buttons to the Committee members. He spoke of his history with diabetes and how his recently acquired insulin pump has improved his life. He stated that different people require different amounts of care and that the educational needs differ for different patients to learn what they need to know to survive the disease. He stated that Mr. Lovatny had given up much of his time to assist with learning how to use the pump and give general insight on living with the disease. Senator Leman clarified that he was not opposed to funding the education, but warned that without some constraint, the highest costing method of service would always be utilized. He praised Mr. Lovatny for donating his time to Mr. Hollsworth in helping educate Mr. Hollsworth. JULIE BURNS Mother of Chris Hollsworth, talked about Mr. Lovatny's assistance. However, she noted that it was only because of his employment with the provider of the pump that he was able to help them. She stressed that family members need training as well. As the family cook, she said it is important for her to know what to feed her son and the implications his diet has on his health. She then talked about the amount of time diabetics must spend on insurance matters to obtain coverage for daily needs. She went into detail about the supplies, such as syringes and test strips, that are not covered by insurance yet still necessary. MICHELLE CASSANO spoke of her appreciation that 37 other states adopted similar legislation to what was before the Committee. She noted that of these states, there have been no repeals of these statutes. Ms. Cassano stressed that a diabetic has diabetes every day and that there is no cure. She added there have been no reports of abuse of the new laws in other states. She told of studies showing that when a patient properly cares for diabetes, the incidence of related complications is greatly decreased. GORDON EVANS, Lobbyist representing the Health Insurance Association of America (HIAA) testified that his organization opposed any mandate but had since made some concessions. He told of how he proposed to his client, a cap of $250 per person per year. He said he then agreed to a $1000 cap with a sunset clause to review the appropriateness of the amount that but his client said he had spoken out of line and could only offer a maximum of $750. He stated that the average annual cost for these diabetes-related services is $1000 and that his client directed him to meet the amount halfway at $500. He had warned his client that the legislation would be adopted in some form, either with a reasonable cap or no cap at all and insurance would be required to pay the entire amount. Mr. Gordon relayed that the HIAA was in support of the proposed Amendment #2. Co-Chair Torgerson commented that it was not his intent to negotiate a cap amount. He stated that the Committee planned to research the matter, learn what other states allow and discuss the merits of the coverage. Co-Chair Torgerson ordered the bill HELD in Committee. SENATE BILL NO. 227 "An Act relating to the limitation of levy of municipal ad valorem taxes in home rule and general law municipalities; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Torgerson stated his intent for the Committee to learn about the upcoming ballot initiative, 99PTAR - An Act providing property tax and assessment relief, which this bill would amend if both measures were adopted into statute. STEVE VAN SANT, State Assessor, Division of Municipal and Regional Assistance, Department of Community and Economic Development testified via teleconference from Anchorage about what the initiative would accomplish. He said the initiative would provide that the assessors will assess property at its market value until 2002 when assessments could be increased but only by two percent annually. He stated that the only exceptions to this was when a property sells or in the case of new construction. He was uncertain whether a major remodel would constitute a change in assessment. Mr. Van Sant listed the second implication of the initiative as a provision that would require a reassessment for properties that decrease in value in order to "follow that decrease down." Mr. Van Sant stated the initiative also requires that municipalities may not levy an ad valorem tax for any purpose in excess of one-percent, which he explained was a change from the current three-percent provision. He detailed that a one-percent ad valorem equaled ten mils and three- percent ad valorem equaled thirty mils. Mr. Van Sant continued that the bonded indebtedness is included in the ten-mil cap under the provisions of the initiative. Currently, he said bonded indebtedness was outside of the thirty-mil ceiling. He elaborated that the average mil rate in the state in 1999 was about 15 1/2 mils. He noted that several municipalities were under the ten mils but that several others were over. Mr. Van Sant pointed out a typographical error in the initiative language made by the measure's sponsor that nonetheless would change the municipalities' ability to assess business inventory based on a monthly assessment as opposed to the current January 1 assessment date. He relayed a question by an Anchorage Assembly Member to a state assessor about changing the city's methodology to the average monthly basis because most retailers tried to reduce most of their inventory as of January 1 and pay less tax. Mr. Van Sant shared that currently, statute requires that "all taxes will be at the same rate." This initiative changes that language, he stated so theoretically, a city could charge a different rate to different property uses, such as commercial property versus personal property. He gave an example of the Kenai Peninsula Borough that might decide to charge commercial facilities at ten mils and residential property at five mils. He said the problem was the ten-mil cap remained. Mr. Van Sant told the Committee that statute does not require property sales to be reported to an assessor, which would make it difficult to track such transactions in order to reassess property values. He stated that he has heard the argument claiming that the passage of the initiative would reduce the amount of staff needed in the assessor's office. He disagreed, saying that tracking property ownership transactions would require a great deal of effort. He added that the initiative still required the assessor to assess property to determine the increased or decreased value every year with the restriction of only raising the assessed value by two-percent per year. Mr. Van Sant relayed another question he has been asked about how much money the state would realize out of oil and gas revenues if the measure passed. His answer was that for the first 5 years, there would not much new revenue from oil and gas. He explained that the North Slope and Valdez garnered the most revenues from "AS.43.56 properties," the oil and gas property. Most of that revenue from the North Slope goes to pay dept service, he noted and if the initiative passed, he predicted that Valdez would realize revenues that would have been received anyway. Co-Chair Torgerson noted the initiative allows a differential rate for commercial and personal property. He asked if the ten-mil provision applied to the total or to each category. He wondered if an average could be applied thus allowing a tax of 15 mils on commercial property and only five mils on personal property so long as the total of the jurisdiction was ten mils. Mr. Van Sant responded that no more than ten mils could be charged because the total amount any local government could charge was ten mils. He did point out that in certain areas of the state governed by both a city and a borough government, the mil rate could be as high as 20 with each governing unit allowed ten mills. He gave an example of the City of Kenai, which could levy ten mils and the Kenai Peninsula Borough, which could levy another ten mils on the same property that was within both jurisdictions. This was allowed under the current thirty mils statutes, but he stressed this has never been realized. He warned that with the other ramifications of the initiative, twenty mils could begin to be levied where possible. Co-Chair Torgerson did not know why different mil rates could not be charged by category if the provision allowed a differential rate. Mr. Van Sant conceded that Co-Chair Torgerson's comment was an argument that could be made. Mr. Van Sant also pointed out that the initiative read that many service areas could be lost because, under the total ten-mil cap, these areas would push the levy over the ten-mil cap. Something would have to give, he warned, either the service area or revenues for local government. Co-Chair Torgerson then asked about bonded to indebtedness and if the witness had a legal opinion on whether or not voter approved debt would fall under the cap of the jurisdiction. He was unsure if the mill rate cap was constitutional. Mr. Van Sant had not yet received a legal opinion specific to Co-Chair Torgerson's concerns but predicted there would be many legal questions to be resolved including this matter. He shared that the consensus was to wait and see what happened with the election and address the concerns if the measure were adopted. Senator Phillips asked under what authority could an unincorporated resident vote on a measure that would affect only incorporated residents. He relayed that he was receiving complaints from constituents saying that residents of unincorporated areas had no business voting on this initiative. Mr. Van Sant said there were legal questions about this as well, but that the ability to tax was a statewide ability and the proposed tax limit was a statewide limit rather than for a particular local government. Co-Chair Torgerson suggested the Legislature's legal council could give some advice on these concerns. Senator Phillips requested a written legal opinion from the Division of Legal Services. Senator Wilken questioned whether this initiative would actually be approved and placed on the ballot. Mr. Van Sant was unaware of any challenge to placing initiative on the ballot. SENATOR KIM ELTON testified that under the current system, local voters could vote whether to raise or lower their mil rate cap. Under the provisions of the initiative, he stressed the only local choice would be whether to lower the tax rate below ten mils. Senator Elton then addressed SB 227 before the Committee saying it would make two significant amendments to the initiative. First, he said it would allow local voters to set a higher mil rate for their community. Secondly, he continued the bill would remove from the initiative, a portion of the provision that states future bonded debt must be held under the ten-mil cap. He explained that the deleted portion would be debt for schools so that when a school bond is placed on the ballot, voters don't' have to chose between schools and other essential services, such as public safety. Senator Elton agreed with the Alaska Municipal League position that voters in other parts of the state have no right to set tax rates for communities they don't reside in without recourse by local voters. Senator Elton stated that the initiative creates a significant constitutional problem. He referred to Article 10 Section 1. Tape: SFC - 00 #54, Side A 10:36 AM Senator Elton warned that the initiative would discourage communities from consolidating. He used Ketchikan as an example, telling of discussions to merge the borough government and the city government. If the initiative passed and the two governments consolidated, he stated that local government would have lost its ability to tax at a higher than ten-mil rate. He detailed the backup information that included legal opinions from the Division of Legal Services. [Copy on file] One opinion addressed the legislature's ability to amend the language of an initiative. Co-Chair Torgerson asked if that opinion actually said the legislature could amend initiative language. Senator Elton affirmed. Senator Elton continued that the other opinion speaks of whether an effective date of a bill could be predicated upon the passage of an initiative. The Division of Legal Services gave the opinion that the legislature has that ability as well. Senator Elton noted this was not an unusual provision reminding the Committee of the Frank Initiative that was predicated upon voter approval of a capital move. Co-Chair Torgerson asked if the legislature has a history of amending the language of an initiative. Senator Elton was unsure. There was some discussion about previous campaign finance reform issues. Senator Elton continued detailing the backup material that showed different communities, their current tax rates and the effects of the mill rate cap. Co-Chair Torgerson asked if the sponsor's intent with this legislation was to amend the law if the initiative were adopted but not to change the initiative itself. Senator Elton affirmed. KEVIN RITCHIE, Executive Director, Alaska Municipal League testified about the negative affects the initiative would have on municipalities. He stressed that local taxation is a local issue. He added that most of the larger communities in the state already had established tax caps. He listed those boroughs and municipalities that have charter or voter established tax caps. Mr. Ritchie compared the initiative to Proposition 13 that was adopted several years before in the State of California. However, he pointed out that Alaska was not like California in many ways and also that voters in the State of Idaho had rejected a similar measure. Mr. Ritchie detailed the impacts this initiative would have on the State Of Alaska including that the loss in the first year would add $125 to $150 million to the fiscal gap. He shared that the reason the amount was not certain was because of the uncertainty of whether the cap would be a maximum of ten mils or a total of 20 mils depending on the location of the property. According to the Department of Law this matter would most likely be litigated because the premise of a ten-mil cap in some places and a 20-mil cap in others did not make sense, he said. Mr. Ritchie continued with the impacts noting the two- percent assessment increase restriction. He relayed that California has had a 500 percent increase in property values, which was the inspiration behind Proposition 13. However, he noted that while Alaska sometimes has changes in property values these are never increases, only decreases. He referred to the economic difficulties in 1986 when Anchorage property lost approximately 50 percent of the assessed value. Since the property values have recovered, he elaborated existing property owners would have essentially a large tax break while others building new facilities or just bought a new house would not. Therefore, he said the individual tax burdens would be unequal. Mr. Ritchie stated that the initiative's bond provision were radical in that it would require all new bond provisions to be included under the ten-mil property tax cap even if approved by the local voters. He explained that this would require communities to eliminate some teachers and education programs to fund new school construction. Mr. Ritchie described the impacts to each community, specifically Anchorage and the municipality's current mil rate of 17.9 that included a debt service of 3.25 mils and the remainder going to other services. He noted that previous debt service was exempt from the cap under the provisions of the initiative, but noted that the deletion of the remaining 4.9 mils over the cap would cost $73 million dollars the next year. He calculated how this would affect the school district funding. Co-Chair Torgerson clarified that the initiative does not prevent municipalities from imposing a different type of tax. Mr. Ritchie answered that was correct. Senator Phillips asked if the League planned to educate the public on the repercussions of the initiative before the election was held. Mr. Ritchie said it would. Senator Green knew there were many people who were discouraged by the cost of local government and their property taxes. She asked what the implications of the initiative would do to the real estate market saying she thought it was onerous. Mr. Ritchie responded that if the initiative passed, there would be a strong incentive to not sell and to not build new buildings. He doubted there would be much growth in the construction industry. Co-Chair Torgerson noted the bill's effective date is January 1, 2001 and asked if the severability clause in the legislation was standard with an initiative. Mr. Ritchie did not know. BONNIE WILLIAMS, Assembly Member, Fairbanks Northstar Borough, Chair, Finance Committee testified via teleconference from Fairbanks in support of the bill. She encouraged the legislature to take a leadership role after the session ended to get information regarding the initiative to the voters. Ms. Williams detailed the affect of the initiative on her borough. It was noted that a written description of the impacts was in the possession of the Committee. [Copy on file] She stressed that the community would have to come up with $16.9 million, lose road services, fire services and that generally, the ten-mil rate cap was a potential disaster for the borough. She noted that even if all nonessential services were eliminated, such as libraries and parks and recreation, only half of the needed money would be saved. She said the obvious loser would be the local school system because that was the only budget with adequate money to fill the gap. She added that the local voters have always supported funding for education and that the initiative would take away the ability for local support. Ms. Williams noted that the revenue tax had been in place, which has worked well. She stated that the borough attorney has advised the assembly that if the initiative passed both the tax cap and the revenue cap would be in place and the borough would not have an opportunity to obtain alternative revenue sources. Co-Chair Torgerson asked how many jurisdictions have revenue caps. Mr. Ritchie listed the Fairbanks Northstar Borough, the Municipality of Anchorage, the City and Borough of Juneau, the Ketchikan Gateway Borough, Wrangell, Sitka, Petersburg, the Kodiak Island Borough and possibly the Kenai Peninsula Borough. Co-Chair Torgerson stated that Ms. Williams' argument was that other revenues could not be implemented without a change to the local tax code, which would require local voter approval. Co-Chair Torgerson ordered the bill HELD in Committee. ADJOURNED Senator Torgerson adjourned the meeting at 10:56 AM. SFC-00 (18) 03/20/00