MINUTES SENATE FINANCE COMMITTEE February 22, 1999 9:00 AM TAPES SFC-99 # 33, Side A (000 - 588) Side B (588 - 000) CALL TO ORDER Co-Chair Sean Parnell convened the meeting at approximately 9:00 A.M. PRESENT In addition to Co-chair Parnell, Senators John Torgerson, Loren Leman, Gary Wilken, Pete Kelly and Lyda Green were present when the meeting was convened. Senators Phillips and Adams arrived shortly thereafter. Senator Donley was absent. Also Attending: ANNALEE MCCONNELL, Director, Office of Management and Budget; DAN SPENCER, Chief Budget Analyst, Office of Management and Budget; BOB POE, Commissioner, Department of Administration; ALISON ELGEE, Deputy Commissioner, Department of Administration; SHARON BARTON, Director, Division of Administrative Services, Department of Administration; MARGARET PUGH, Commissioner, Department of Corrections; REMOND HENDERSON,, Director, Division of Administrative Services, Department of Community and Regional Affairs; KAREN REHFELD, Director, Education Support Services, Department of Education; KEN BISCHOFF, Director, Division of Administrative Services, Department of Public Safety; ROSS KINNEY, Deputy Commissioner, Department of Revenue; CAROL CARROLL, Director, Division of Support Services, Department of Natural Resources; NICO BUS, Administrative Services Manager, Department of Natural Resources; JANET CLARKE, Department of Health and Social Services; BARBARA RITCHIE, Deputy Attorney General, Civil Division, Department of Law; KATHRYN DAUGHHETEE, Deputy Director, Division of Administrative Services, Department of Law; NANCY SLAGLE, Director, Division of Administrative Services, Department of Transportation and Public Facilities; DAVID TEAL, Director, Division of Legislative Finance; GINGER BLAISDELL, JIM HAUCK, PHIL OKESON, Fiscal Analysts, Division of Legislative Finance; aides to committee members and other members of the Legislature. Attending via Teleconference: BARBARA MIKLOS, Director, Child Support Enforcement Division, Department of Revenue; JOHN MALLONEE, Assistant Director, Child Support Enforcement Division, Department of Revenue; BRANT MCGEE, Public Advocate, Office of Public Advocacy, Department of Administration; BARBARA BRINK, Director, Public Defender Agency, Department of Administration were present via teleconference from Anchorage. SUMMARY INFORMATION Co-chair Parnell convened the meeting at approximately 9:05 a.m. He advised the committee they would take up SB 72 first. SENATE BILL NO. 72 "An Act making and amending appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." ANNALEE MCCONNELL, Director, Office of Management and Budget was invited to join the committee. She said that Commissioner Poe would conduct the explanation of the Office of Management and Budget handout. BOB POE, Commissioner, Department of Administration was invited to join the committee. He explained the Projected Daily Cash Sufficiency Balances handout sheet. (Handout attached to original file.) ROSS KINNEY, Deputy Commissioner, Department of Revenue was invited to join the committee. He explained royalty payments from the Department of Natural Resources, tax receipts, payroll and university payments. Commissioner Poe, with reference to the handout, continued explaining that by the end of March we were above zero. The first part of April we were still also above zero. However, when payments around the tenth of April become due they go up. By the end of April they go below zero and the end of May they are barely covering costs. The schedule shows that they never really recover above zero after that. This was referred to as "checkbook accounting". Therefore, after the 25th of March they should not be writing any more checks. Co-chair Parnell asked about a possible identity plan. Mr. Kinney said this was the only consideration of the general fund and it was a temporary situation. Monies could be borrowed from other sub funds pending commitment from this body. It would be like issuing a revenue anticipation note. However, he noted that they were concerned about what to pick and choose. Commissioner Poe explained the sub funds. He cited oil revenues for an example. Co-chair Parnell was not suggesting that they go below zero and then use sub accounts. This would just be used as a contingency plan. According to Commissioner Poe, however, this did not mean that the State was out of money. Co-chair Parnell asked if there were any other charts or graphs that Commissioner Poe might want to present to the committee. The Commissioner responded that he had concluded his testimony unless there were further questions by the committee members. Co-chair Parnell thanked Commissioner Poe and Mr. Kinney for their presentation. Co-chair Parnell then asked Ms. McConnell to remain at the table for any questions the members may have. Ms. McConnell explained that the language used was the same as in previous years. Mr. Kinney referred to $132 million dollars and how it was to be used. Ms. McConnell explained what was corrected with what funds from that amount. Senator P. Kelly asked about the availability of funds. Commissioner Poe responded. Co-chair Parnell asked the number necessary to meet the appropriations of FY 99. Ms. McConnell said approximately $1.2 CBR, total, was needed. Co-chair Parnell asked for an exact figure? Ms. McConnell said different numbers were being heard because of different oil returns on a daily or weekly basis. It was impossible to predict the requirement to meet the expenditures the Legislature set aside. Co-chair Parnell asked where we were presently. Mr. Kinney replied that oil had dropped below $10/barrel. The price had averaged $12.75/barrel up until now. He advised that the number is continuously subject to change, however, and at present it is not looking positive. Senator Torgerson asked Mr. Kinney to explain the contingency plan, which authorized them to borrow money. Mr. Kinney said by statute this authorization was granted to the Commissioner. The problem they were facing was that there was no money coming in at a later date to pay this money back. A substantial draw was expected to be taken from the CBR to meet the need. They will also need an appropriation for interest. Ms. McConnell further said that the reason for setting up the CBR the reason was due to this volatility. The closer we get to the end of the fiscal year, agencies need to adjust their monies. This tended to create an untenable situation. Mr. Kinney said it would take about ninety days to procure a packet to go to the market for a loan. In response to a query from Senator Parnell, he said that without the possibility of payback it would be useless to prepare this packet for the loan. Senator Torgerson asked if they would be required to come back if they borrowed money to get authorization from the Legislature? Mr. Kinney said the Commissioner could only borrow if he had the funds to repay the interest necessary plus the amount. Money would have to be paid back by the end of the year. Otherwise it would have to be paid back on a long-term basis. Senator P. Kelly asked if they structured how government could be financed differently would this be of help or an incursion of the situation. Mr. Kinney explained that there was plenty of money available, however blocks are drawn around them and they need a super-majority vote to get around this. For instance, he said the Department of Education did not really need to go out to borrow monies. Ms. McConnell referred to the State income tax issue. She explained the revenue anticipation. Sufficient money could be received within a few months. She said, however, that the present situation was different. They would not be facing the same issue as to what they need if this situation was structured correctly. Commissioner Poe also responded. There were other bonds the State had issued recently and they have gotten high ratings. It is known that the State does have money. Co-chair Parnell asked when the next forecast would come in from Dr. Logsdon. Mr. Kinney said possibly in March. Ms. McConnell also concurred saying that by approximately the first of April the forecast would be ready. Co-chair Parnell thanked Ms. McConnell, Commissioner Poe and Mr. Kinney. He HELD SB 72 in committee. He then called SB 83 and asked Ms. McConnell to remain at the table to assist the committee members. SENATE BILL NO. 83 "An Act making and amending capital, supplemental, and other appropriations, and appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." Ms. McConnell said the departments were present to answer any specific questions the committee may have. After a brief explanation, she requested the Pioneer Homes be treated the same as the University. This was suggested as a way of solving some of the problems the Pioneer Homes were having, such as an acute shortage of staff. She pointed out that this was highlighted in the bill on page ll, section 21 and described as "belt tightening" by the Governor. What is not seen is where the departments have worked to cover their costs. The amount needed is approximately $5 million over the supplemental request. Co-chair Parnell said he would ask the department heads to come up individually and explain. The first was economic disaster. CAROL CARROLL, Director, Division of Support Services, Department of Natural Resources was invited to join the committee. She briefly explained the western Alaska fisheries disaster. Senator Leman referred to list of vendors that were paid regarding this situation. He asked what this disaster relief money covered. She said it was for electric, fuel, food and basic emergency living expenses. Ms. McConnell also commented on the western Alaska fisheries disaster. She said that rather than provide cash assistance, which is normally done, i.e., Miller Reach Fire, they tried to provide assurance that the monies were going for basic emergency living expenses. In order to abide by strict requirements, an individual needed to provide either a commercial fisheries license or crew member license. Any aid provided was for food stamp approved items. This aid also allowed for the purchase of home heating fuels, water, sewer and electric. Assistance was limited to approximately $1,500/ person and $5,000/household. As a comparison, the average assistance for an individual family in the Miller Reach fire was $10,000. Co-chair Parnell commented on the economic disaster situation in western Alaska. FEMA turned down a request for these funds. He noted that they did not help the farmers in America, either. Who came and requested the economic disaster money? Ms. McConnell explained that it became clear the fish runs in the Bristol Bay area were extremely low. However, the cause was not known. It had a genesis in the higher ocean temperatures and problems with the fish not coming back to the area due to these warmer temperatures. Salmon are Alaska's biggest crop and are highly dependent on conditions beyond our control, i.e., water temperatures. They made the same argument as the farmers in Washington D.C. FEMA still refused aid, however they did bring together a package of assistance from other available funds. The Governor declared a disaster area and asked the Legislature to have a special session if necessary. Co-chair Parnell asked if the Administration was proceeding under Title 26? Ms. McConnell responded they were. Co- chair Parnell read the provision into the record. Did the Administration seek a legal opinion from the Department of Law regarding this kind of disaster qualifying under Title 26? Ms. McConnell said the Department of Military and Veterans Affairs worked very closely with them, because it was important to establish to Washington D.C. that this was a natural disaster. This disaster occurred with the help of Mother Nature. The Department of Agriculture and Department of Commerce did provide some aid and some emergency money came from the Department of Agriculture. Funds were also received under the Magnuson and Stevens Act. Co-chair Parnell asked how was it determined that this was not a cyclical event of the fish. Ms. McConnell said it would only have occurred if there was less than a fifty percent drop of the fish. This however, was catastrophic; more than fifty percent, indicating that it was not a cyclical event. Co-chair Parnell asked if Department of Fish and Game data was being used. Ms. McConnell said the department had provided the historical data. Co-chair Parnell asked if there were written legal opinions received regarding this matter? Ms. McConnell said she did not think there was any specific written legal opinion. He asked when did FEMA turn down the request. Ms. McConnell does not remember the exact date. She did note that regarding FEMA national and regional levels that they were aware we were suffering catastrophically. Some agents were sent and they were quite concerned about the situation in Alaska. They were aware of the assistance being provided by the U.S. Department of Agriculture. FEMA chose not to get involved because the U.S. Department of Agriculture and the U.S. Department of Commerce were already involved. She referred to aid sought under the Magnuson and Stevens Act. (Tape #33, side A, at log 588 switched to side B at approximately 9:55 a.m.) Co-chair Parnell requested a copy of the FEMA letter which turned down aid be provided to the committee. Ms. McConnell said she would provide the requested document. He asked when the assistance was provided under Magnuson and Stevens Act.? Ms. McConnell said it was approximately in October. Co-chair Parnell asked why they were turned down then and helped this year. Ms. McConnell said the disaster last summer was more catastrophic as compared to the prior year. This was by very substantial amounts. Many more communities were hit this year. There are not lots of alternatives in these communities as to what one can do. They tried, for instance, to hook individuals up to seafood processing plants. However, when there are no fish, it affects all phases. It was realized that if the appropriate action were not taken this winter, individuals would have no money for food and fuel. This would create more emergencies later on down the line. Also, the winter has been more severe than expected. Home aid, such as fuel, has also been received. Co-chair Parnell referred to $15 million for the disaster relief fund and asked if these funds were used in the western Alaska fisheries disaster. Ms. Carroll said all the funds for this disaster were from the disaster relief fund. In response to Co-chair Parnell she said she did not believe there was a cap on the disaster relief, however, there was a procedure through the Legislature they followed to request the funds from the general fund. Ms. McConnell said previously there was a substantial balance in the disaster fund. However, she was concerned that prior disasters had not been properly cleaned up. And therefore, the Legislature appropriated monies from this disaster fund to complete cleaning up all the old disasters. It had been their intention to return the monies to this fund. However, since that had not been done, they have been operating now without this pool of money. Everyone knows that there are disasters that occur every year. There is not even a place to go for small disasters. Co-chair Parnell voiced his concern for funding economic disasters on down the road through this fund. Hundreds of employees in his district were involved in the oil layoff. Also timber employees. He said we had not done ourselves any favors by using this mechanism to provide assistance. He will work to revisit this situation. Senator P. Kelly referred to the timber disaster in Southeast Alaska. He voiced the same concern as Co-chair Parnell. This situation would open an endless horizon of funding opportunities in tough times. "What if this same disaster occurs again this year?" Ms. McConnell assured the committee they would not declare disasters in the case of bad fish prices. She referred to healthy severance packages of the oil companies. The same was not done for State employees. On the other hand, the fishing industry not able to claim unemployment insurance as State workers and others could. She agreed that it was appropriate to revisit how to address these situations. She asked what about possible manmade disasters? How would these be dealt with? These are all good questions and she felt it appropriate to discuss what sort of precedent should be developed. However, it was not clear how the individuals in Western Alaska would get through the winter if they did not receive help. The problems with the lack of fish runs was very much caused by natural conditions. These are policy issues made to be resolved. Senator P. Kelly said the Legislature deserved some culpability. They were informed. However, he was concerned about what was going to be done next year. He said the Secretary of the Interior wanted to shut down Alaska. Manmade disasters, caused by environmentalists, can shut down entire Southeast Alaska. Logs must be imported into Alaska to build cabins because the environmentalists had shut down logging in Alaska. He felt they must be compassionate when individuals lose their jobs and way of living in Alaska. Opportunities should not be missed in the State to allow the forces of economics to play out. If a region cannot support the local economy we ca not keep holding these people up forever. Otherwise the communities will continue in perpetuity to be dependent on the State. He wondered what the strategy for next year would be if this was still the case? Ms. McConnell said she did not know what they would do if this were still the case next year. They do not want to see the economies collapse if the fish runs will improve later; the same went for oil. They are trying to find alternatives for the interim until things rebound. This was important for rural as well as urban Alaska. Senator Green referred to the general fund and Federal funds. Was this all directed to one place? How was this money distributed. Ms. Carroll said some was given to the Department of Military and Veterans' Affairs. About one hundred and six disaster centers were set up. These allowed a grant of $1,500/individual and/or $5,000/family. Other monies went to provide match for the Magnuson and Stevens Act. Mental health grants and social service grants were also provided. Fish were provided for three communities that survived on subsistence. Senator Green asked if there was a residency requirement? Ms. Carroll said one had to be a resident of one of the one hundred and six communities. The Small Business Administration also provided some loans for permit holders. The Federal government required that aid also be provided to out-of-state workers. The $50 million received under the Magnuson and Stevens act also required money be provided equally to all. Senator Green referred to missions and measures. She posed the following questions. Did we have any substantial measures to justify what has been done or the money that has been spent? How many individuals have been assisted in getting other jobs? What has happened to the money? How many lives have been impacted and what has really happened? She appreciated mental health assistance and counseling, but they should not be a priority. Ms. McConnell advised they knew exactly where the help went under the release situation they provided. They know that the funds were used exactly for basic emergency living situations. She went on to explain that mental health assistance and counseling was needed due to undue pressures. The Department of Health and Social Services knew they would need extra beds due to higher suicide rates in the villages because of the economic pressures. Many negative things become worse. She also cited assistance provided in foster care. Co-chair Parnell asked if this was paid from the department or the disaster funds. Ms. McConnell said that if the funds had been available within the department they would not have had to use the money from the disaster relief fund. Mental health services however, were provided under disaster relief. This was not the first time these services were provided in a disaster situation. Senator Green asked specifically about the provision for jobs. Would jobs be provided and would funds be used under an economic planning grant. She wanted to know the results of all these plans; how many were hired and how many remained self-sustaining? Ms. McConnell said they do have figures from this past summer. Most of the jobs provided, however, were not permanent, rather only seasonal. Many individuals had preferred cash grants rather than construction jobs. Co-chair Parnell explained for the benefit of the remaining department heads that they could go if they were not needed here. Senator Leman referred to a letter last August outlining the difference between the Legislature and the Administration about the handling of this matter. He said he made this statement in reference to Senator P. Kelly's previous culpability comment. Senator Leman asked for an explanation of the $1,500/individual and $5,000/family comparison. Was this money taxable? What amount of relief should actually been given? What was the mechanism used for those years above average for their repayment? It cannot be assumed every year for low repayment. Ms. McConnell explained the relationship between money provided and an individual's income. There was a tighter relationship for those having received assistance. All individuals were cross-checked that they held a permit, were a crew member, or were a cannery worker. The method required close restrictions on a need for funds. Most individuals were already way below the poverty level. These restrictions were even more stringent than the Miller's Reach fire. Folks in urban areas have an easier time finding replacement employment even though it may be something they do not really want to do. She also referred to left-outs. For example, those handling cargo to move fish from the village were not included to receive assistance. Senator Leman asked if there had been a concerted effort to correlate the amount of economic disaster with the disaster to the crewmembers, permittees and cannery workers? Ms. McConnell explained these three categories and how they were rated. $1,500 was way under what individuals were earning for a season's work. Senator Leman asked if there had been any analysis done on how individuals were impacted, i.e. the level of impact vs. actual relief? Ms. McConnell said that not a single person had received more aid than what their salary was. The disadvantage was on the individual in the Western Alaska Fisheries disaster. They had not abused this assistance. Senator Leman asked if there should be a mechanism for recovery? Ms. McConnell said nothing had been discussed regarding this. Are they going to provide assistance to an individual because they do not have fire insurance? Ms. McConnell said there was no aid if the individual could have provided for themselves through an insurance policy or savings. Co-chair Parnell advised the committee they would still have further opportunity to discuss this matter with the Office of Management and Budget. Senator Torgerson felt they were missing the point of the disaster. He referred to Senator Leman's suggestion on repayment. In addition, he requested the most detailed account as to how the monies were spent including the 1997 disaster. He asked if the $2.3 million dollar match was a general fund match or community match? Ms. McConnell said there were two parts to the match. $175,000 had been shifted by the Legislature to match the loan process. The second part of loan tried to get a match from the local communities. Some communities, in fact, did provide a match. Senator Torgerson referred to documents regarding flexibility in the programs. He had reviewed projects that involved individuals in the 1997 disaster. Ms. McConnell said they did make an effort under the Magnusson and Stevens Act. Cash type of assistance was preferred, however, the Feds preferred construction projects. These were Federally funded projects. And since the Feds were paying the lion's share for these projects they could place their own restrictions and requirements. In further explanation, a laundromat may not sound very important but in individual villages this may be the only way for the residents to have this facility. She also cited a road to the garbage dumps. (Tape # 34, side A, Log 000 at 10:40 a.m.) Senator Torgerson continued. Asked the balance of projects completed last year. Ms. McConnell said there were a number of projects that were completed last year, however, there were other projects that did not have a specific time line. Therefore, they will continue in April for the upcoming construction season. Senator Torgerson asked about any EDA funds. Ms. McConnell said these funds were included in the $50 million packet. Senator Torgerson asked about the redistribution of monies and asked for a copy and why it had been turned down by the Magnusson and Stevens Act. Ms. McConnell said they worked carefully with Senator Stevens regarding the monies. Senator Torgerson asked if EDA funds could be used? Ms. McConnell said she would look into this matter. Senator Torgerson said he was interested in the communities providing matching funds. Co-chair Parnell said would take up the balance of the bill on Wednesday or Friday. Senator P. Kelly EDA mean? Senator Torgerson responded. Ms. McConnell explained the procedure used to obtain disaster funds. Payback must be ratified in the Legislative process. They had been successful in getting the Federal government to reimburse some of the monies to the State. Technically, at this time, they have enough Federal authority. Co-chair Parnell.asked how much had been expended? Ms. McConnell indicated approximately $8.5 for social assistance. There still remained projects that would be done this construction season. Nico Bus, Department of Natural Resources was invited to join the committee. He said $10.2 million had been expended to the present time. This was from GF monies. Senator Wilken was concerned with the language on the first page of the bill. He reiterated Senator P. Kelly's question of what do we do next year. Mr. Bus responded to section 2 of the bill. This included Western Alaska and Southeast storm requests. Co-chair Parnell said he would take that matter up at the next meeting. Mr. Bus continued with section 3, fire suppression. He said monies have been expended. Fire expenses vary over the years. He noted the larger fires in Skagway and Tok. For 1999 this was average. This summer fire season of May and June looked more positive due to extreme snowfall over the winter. He said they were hoping for a later fire season this year. Senator P. Kelly asked when an area caught on fire what was priority rate? Mr. Bus said the State is rated for priority. There was also a rating to just let a fire burn itself out. Co-chair Parnell thanked everyone for their participation in the meeting. He briefly reviewed the agenda for tomorrow. ADJOURNMENT Co-chair Parnell adjourned the meeting at approximately 10:55 a.m. (Tape #34, side A, log #240.) SFC-99 (1) 2/22/99