Legislature(2003 - 2004)
03/02/2004 11:06 AM EDU
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 333-PUBLIC SCHOOL ENDOWMENT Number 1590 CHAIR GATTO announced that the next order of business would be HOUSE BILL NO. 333, "An Act relating to an endowment for public education; and providing for an effective date." Number 1583 REPRESENTATIVE OGG moved to adopt CS HB 333, 23-LS0991\U as the working document. CHAIR GATTO noted that Representatives Wilson and Coghill are co-sponsors of the bill. REPRESENTATIVE DAN OGG, Alaska State Legislature, testified as sponsor of CS HB 333. He told the members that he represents the Kodiak Island and north end of the Lake and Peninsula Borough and is a former regent of the University of Alaska for eight and one-half years. REPRESENTATIVE OGG explained that this bill really has to do with how education is funded and provided some historical perspective. In 1634 the Massachusetts colony granted the community of Dorchester, Thompson's Island. Four years later the rents, fees, and royalties from that island were dedicated to a free school. In 1670, the Plymouth colony followed suit and enacted the first ordinance in America which said that profits should annually accrue to the colony for fishing with nets in Cape Cod for mackerel, bass, or herring, and those funds would be dedicated for a free school. The following year a teacher came to the colony by the name of Thomas Hinkley and the colony provided those fishing profits [for education purposes]. At the same time, the colony dedicated the profits and benefits from two former-Indian tribal lands to run the school. Number 1384 REPRESENTATIVE OGG went on to say that in 1861 the Moral Act was passed which said that America felt higher education was so important that it authorized the giving of land in western states to setup land-grant colleges. REPRESENTATIVE OGG said when Alaska became a territory it came under this act, he said. In 1917 the University of Alaska Fairbanks became Alaska's land grant college. As such, the lands in Alaska were available to them. The one catch with the federal government was that the land had to be surveyed before the land could be obtained. During the territorial days and up until statehood the amount of lands that were surveyed and the sections in them that were dedicated to schools or colleges ended up being a total of 115,000 acres. During statehood discussions there was always the intent to get the land to the University of Alaska to fulfill the land grant. In 1959 when the statehood compact was signed, the land grant was left out. There was some discussion because Alaska was unique and the federal government gave the state 103 million acres with the thought that perhaps the [university land grant] should come out of this 103 million acres. REPRESENTATIVE OGG told the members that during Governor Egan's administration there was a bill that passed the legislature to give the University of Alaska a land grant, and it was vetoed. The land grant issue remained dormant for some time, until the 1990s when two regents for the University of Alaska, Lew Williams, Jr. and Joseph Henry, worked hard for a land grant. Representative Ogg commented that he worked with them. He told the members that three land grant bills made it through the legislature during that time, and each one was vetoed. Number 1128 REPRESENTATIVE OGG went on to say that in 2000, the last land grant bill, SB 7, was vetoed. It was a historic time because the legislature over-rode the governor's veto. However, the governor declared that the over-ride of his veto was not valid because the legislature did not have enough votes as he deemed the legislation to be an appropriation which requires a three- quarter vote to over-ride his veto. In January of this year, the Alaska Supreme Court ruled that was not the case. The bill was not an appropriation and the legislature was only required to have the two-thirds vote so the vote [in over riding the governor's veto] was upheld. However, what the judge said was that because there was a conservation group who had joined the law suit at the lower court and had put forth the question as to whether this bill was an unconstitutional dedication of state funds, the Alaska Supreme Court said it would not decide that issue because it had not been brought up to them; so that case went back to the superior court where it sits today to decide that issue. SB 7 gave an actual physical grant of land to the university of 250,000 acres. The bill lays out a schematic about how the university would work with the Department of Natural Resources to pick these lands. When the lands are selected it must then come back to the legislature for approval. REPRESENTATIVE OGG pointed out that the reason for this is that when a specific grant of land is selected then it will "gore someone's ox", he said. When the bills came through in the 1990s the miners were very upset that potential mining lands might end up in the hands of the university. At other times it would be the timber industry that would be upset, he said. Representative Ogg added that sometimes it would be supporters of the university that did not believe the university should be involved in developing land and it was their desire the land stay in a pristine state. Number 1046 REPRESENTATIVE OGG reiterated that the university does not have its full land grant because it is tied up in court. He explained that HB 333 is a little different from other legislation that has been brought forward. He explained that this bill creates a tenancy in common with the State of Alaska. He posed the following hypothetical example to demonstrate how a tenancy in common works. He said imagine that a grandfather decided that he wanted his grandchildren to have some land and willed it to all of his grandchildren equally. For example, if there were eight grandchildren, each grandchild owned one-eighth of that land, but there is no way for that grandchild to go out on the land and say, this piece of land is mine, because the land is owned in common. If the grandfather knew that he had a couple of grandchildren who were spendthrifts and did not want them to manage the land, he then arranged for one grandchild to manage the land and the other grandchildren would benefit equally from the land. Representative Ogg stated that is what this bill does. Number 0995 REPRESENTATIVE OGG told the members that this bill would provide for the land to stay under the management of the State of Alaska and the university would end up owning one percent of all state land as a tenancy in common. There is a caveat that when land is given in the example provided, that the non-managing party acquires the right over the managing tenant, the managing tenant has a fiduciary duty to be a good steward of the property. He explained that in this bill that fiduciary duties does not apply. The reason that language was inserted is to ensure that the University of Alaska is not looking over the shoulder of the Department of Natural Resources and trying to make decisions on the management of the land. The idea is to get the land to the university as a tenancy in common and have the monies flow to the university, he said. Number 0884 REPRESENTATIVE OGG pointed out that parts of the bill set out what funds would actually flow to the university, because some might think the university would get one percent of the oil and gas, mining, or land sales revenues. This language ensures that the university does not get revenues from the existing flow; it would only receive revenues from new leases or new sales. This would not impact the state from its current revenue sources. Number 0846 REPRESENTATIVE OGG said the language in Section 1 and 2 is just enabling language. Section 3 is a new section which establishes the fund. Section 4 sets out powers and duties for commissioners and how the fund will function. REPRESENTATIVE OGG told the members that Sec. 14.40.499, on page 4, says how the fund would be administered and establishes the board. REPRESENTATIVE OGG said that Sec. 14.40.501 sets out the duties and powers of the fund. He pointed out that on page 5 there is a new section [Sec. 14.40.505] that says how funding flows from state lands. REPRESENTATIVE OGG told the members that in Sec. 14.40.507 there is language which conveys the land to the university as a tenancy in common. Number 0704 REPRESENTATIVE OGG pointed to a change in wording between version U and the original bill which is on page 4, line 10. He explained that for many years there was a "President" of the board of regents and has since been changed to "Chair" of the board of regents. Version U changes that wording to "chair" of the board, he reiterated. REPRESENTATIVE OGG told the members that there was a suggestion from the University of Alaska to "use the percentage of market value" so that the money that comes out of the fund flows at a rate of 5 percent on an annual basis which is delineated in Sec. 14.40.503. REPRESENTATIVE OGG said Sec. 14.40.507, page 5, lines 16 through 19, provides language that removes the fiduciary responsibility so the state can manage the land unimpeded. REPRESENTATIVE OGG summarized that there may be some slight changes in language to ensure the bill reflects the intent he has described to the members. Number 0550 REPRESENTATIVE GARA asked to be directed to the language that provides for one percent of state land to be transferred as tenants in common. REPRESENTATIVE OGG directed Representative Gara to page 5, line 13. He commented that the language is inarticulate and will have to be redrafted. REPRESENTATIVE GARA asked how the one percent of state land compares to the 250,000 acres in the last land grant. Number 0462 REPRESENTATIVE OGG responded that one percent of state land would be about 1,004,000 acres. He reminded the members that the land cannot be divided because it is a tenancy in common. REPRESENTATIVE GARA asked how Representative Ogg came up with one million acres. REPRESENTATIVE OGG thanked Representative Gara for bringing that question before the committee because when providing a history of land grants, he did not mention an important point. He explained that this legislation is different from other land grant acts in that it is his desire to fund both the university and kindergarten through 12th grades. He said both of those two educational entities would benefit from the university's land grant. He explained that is the reason the number of acres is higher. One other reason the number is higher is that when starting with nothing this endowment is really a pass to the next generation. Representative Ogg said probably by 2013 there will be about $3 to $4 million a year. He commented that he does not have the exact figure, but said it takes a while for the funds to build up. Representative Ogg used a past example of state oil revenues that began in the 1960s through to the present where the state has received about $52 billion. That is the total amount of revenue, he said. If one percent of that $52 billion had gone into this fund there would be about $520 million in the fund. That figure covers a 35-year period, he added. If it had been managed as the permanent fund has, it would be a billion dollar account. Five percent of that billion dollars would provide $50 million for education. If using those figures into the future, 25 or 30 years down the road, $25 million would go to kindergarten through 12th grade and $25 million for the university system on an annual basis. Representative Ogg said it is not a lot, but it helps. Number 0196 REPRESENTATIVE GARA commented that there is land that he would not want to see conveyed away from public ownership. He said he believes it is amazing that a person can walk up and down a stream and fish or raft it. He said he believes that among the lands that are most precious to Alaskans are the stream bank lands and other recreational lands. The Department of Natural Resources has done a good job over the years in protecting stream bank lands, he commented. He asked if Representative Ogg would be willing to include language that would ensure that the state would not give away public access to the Kenai River or other cherished public lands. REPRESENTATIVE OGG commented that this kind of language could be included in the bill; however, in doing so it would change the legislation from a tenancy in common to that of an individual land grant to the university. He pointed out that SB 7 actually provided for specific land to be granted to the university. Representative Ogg reminded the members that there will be land that will gore your ox; a miner will have land that will gore his ox, and that is why this bill does not go in that direction. This bill leaves the authority to manage the lands with the State of Alaska in the Department of Natural Resources through the public hearing and public notice process to dispose of and develop land. He added that the point of the language which relieves the department of fiduciary responsibility would ensure that the university would not come to the state and argue that the department is not managing the land to benefit the university in the way it wishes. TAPE 04-13, SIDE A Number 0095 REPRESENTATIVE SEATON asked about the language in Section 2, page 2, lines 26 through 28, where it says: and any other land owned by the University of Alaska is not and may not be treated as state public domain land. REPRESENTATIVE SEATON asked Representative Ogg to explain the meaning of the designation "state public domain land." He asked if the lands cannot be treated as public domain lands, what restrictions are put upon them by that clause. REPRESENTATIVE OGG responded that the University of Alaska has some lands already. The university is not under the jurisdiction of the State of Alaska as to how those lands which it possesses are developed. He pointed out that is the purpose of land grants. It allows that the university have an independent source of income by managing the land to make some extra money, he said. Representative Ogg pointed to the following language in bold [on page 2, line 25 and 26]: land conveyed to the state and the University of Alaska under AS 14.40.507, REPRESENTATIVE OGG told the members that that language will most likely be deleted. REPRESENTATIVE SEATON referred to page 5 where there is language about a conveyance and selection process. He said he knows the members are aware of the difficulty that was experienced during the Native and state land selections process. Representative Seaton asked if it would be acceptable to change the tack to take one percent of revenues generated from state lands and in that way avoid the selection process which would be difficult and expensive. Number 0331 REPRESENTATIVE OGG replied that what Representative Seaton is suggesting is exactly what this bill would do. There is no selection process with this legislation, he said. The university ends up owning one percent of all the land, but it is an undivided one percent portion of the land. In other words, there is no actual physical land transferred, only a right that is transferred. REPRESENTATIVE SEATON referred to page 5, lines 11 through 12, which reads: The commissioner of natural resources shall convey to the University of Alaska... Number 0426 REPRESENTATIVE OGG added that it also says "the State of Alaska." He commented that this language needs to be clarified. Representative Ogg explained that the language should say that the land is conveyed, the university owns one percent, and the State of Alaska owns 99 percent. The land is owned together, he stated. The tenancy is common. He commented that he has been talking with Bob Loeffler about clarifying the language. Number 0542 JOSEPH BEEDLE, Vice President for Finance, University of Alaska Systems, testified in HB 333. He told the members that as a land grant university they are familiar with the mechanism and support this endowment to help fund education. Federal land grant efforts date back to 1915 and 1929 when the federal government attempted to transfer 360,000 acres to the university. Unfortunately, less than one-third was transferred because of survey delays and the fact that the Alaska Statehood Act did not complete the commitment. MR. BEEDLE said these facts place Alaska last in all land grant universities or college states. For example, New Mexico received 1.3 million acres, Oklahoma received 1 million acres, New York received 1 million acres, Arizona received 850,000 acres, Pennsylvania received 780,000 acres, and the University of Alaska received in the range of 115,000 acres. He told the members that Alaska is ranked 48th in amount of land grant volume received and has not received parity of other states. Mr. Beedle told the members that the one percent land grant is a minimal approach because of the shrinkage of revenues available to the university because much of the revenue is dedicated, such as the 25 percent mineral resources revenues going to the Alaska Permanent Fund. MR. BEEDLE went on to say: Referring briefly to the legislative research document projections for new resource revenue, we appreciate over a 25-year estimated time period that there could be $34 billion accumulated in nominal terms. One percent for education, $342 million over that life time for an average of $13.7 million or a split of $6.8 [million] with K-12. I would agree that that could average, in terms of the POMV approach, $15 to $20 million in the year 2030. So looking out 25 years from now, we could, in fact, have earnings off of those endowed proceeds of approximately between $15 and $20 million. I would note that the backup schedules provided by legislative research [Legislative Research Report Number 04.176, dated March 1, 2004] from the Department of Revenue shows that it is 2012 when you assume all four: ANWR, Beaufort Sea, Central North Slope, NPRA ... all four have to work. Then the gas line has to come on for us to reach $100 million (indisc.) if all those things work. Under the concept of $100 million, if I was asked to do a fiscal note for the university, I would be assuming then $100 million to the state. And again, that does not start to occur under this Department of Revenue forecast until 2012, $100 million, K-12 gets $500,000 and the university gets $500,000. So we assume the stream is static, a stream of $500,000 per year. Because of prudent investments and percentage of market draws, we only have $5,000 at the end of the second year to spend because you would assume 20 percent, so one-fifth, five years averaging of the $500,000 of the five percent earnings. So in year six we would have that first contribution where all the money was invested, $500,000 per year for five years, equals $2.5 million. At year six then that average for the five years would be $1.5 [million], so we would receive $75,000 in year six. In year ten, assuming again, the minimalistic, $100 million per year at one percent to K-12 and the university, we would enjoy $200,000 per year in year 11. So it certainly pales in comparison to our total needs for state general funds and it would beg the question: is one percent, in fact, enough. Should it be raised to say maybe four percent or so to roughly the equivalent of something meaningful. Number 1018 MR. BEEDLE told the members that the university currently administers its own land grant development and conversion process, but has no objection to having the Department of Natural Resources administer the universities tenancy in common ownership proposed under this bill. Currently the university has a land grant trust endowment which is in statute and it has used the percent of market value (POMV) process since 1996, so five percent of the average five year balance is paid out, he said. Mr. Beedle summarized his comments by saying the university supports HB 333 and offered to work with the sponsor to address some of the technical aspects of the bill. Number 1112 REPRESENTATIVE GARA asked if the state kindergarten through 12th grade and university budgets are approximately $1 billion. REPRESENTATIVE OGG responded that it is close to that. REPRESENTATIVE GARA asked what the benefit is in obtaining funds through revenue of state lands, as opposed to just requesting it from the general fund. REPRESENTATIVE OGG replied that the bill recognizes a historical trend in this country that supports land grant universities to provide an independent revenue source. This independent revenue provides some independence from the political process. Not a lot, he said, but a little bit. He said that another reason to pursue this is that this is a federal program that was established and it is fulfilling a promise made to the state, as the university lands were included in the 104 million acres [given to the state by the federal government]. Number 1269 REPRESENTATIVE OGG told the members that when the governor was a U.S. Senator he put in matching land grant bills, that if the state gave a grant to the university, then the federal government would "pony up." What happened then was that the same "oxen were being gored." If the state does this and fulfills the state land grant, then the U.S. Senators could look at this and say here is a way to fulfill the federal promise for the land grant. He added that the amount of money that would flow from the federal side far exceeds what the state monies would be. Number 1314 REPRESENTATIVE GARA asked Mr. Loeffler if the state lands managed by the Department of Natural Resources would be managed any differently than it is today if this legislation were to pass. Number 1325 BOB LOEFFLER, Director, Division of Mining, Land, and Water, Department of Natural Resources, testified on HB 333 and answered questions from the members. Mr. Loeffler responded that it would be fair to say that there would not be changes. He added that there have been some errors in drafting the bill which are being addressed. He explained that as long as those errors are corrected, it is transparent to the department as to where the revenue goes. The intention of the bill is for the department to maintain all of the management authority. Mr. Loeffler commented that this is really a policy decision for the committee. Number 1424 REPRESENTATIVE SEATON asked Mr. Loeffler if this land grant includes subsurface rights, because that is where the money is generated. He said his understanding is that the Alaska Statehood Bill provides that if the state transfers the subsurface rights [of state lands], then the federal government takes them back. MR. LOEFFLER pointed out that this bill would provide one percent of the revenue for everything. The land is still managed by the department and the revenue still goes to the state. He told Representative Seaton that he could contact the Attorney General's Office for verification, but said he does not believe that is a problem. REPRESENTATIVE SEATON replied that he would appreciate hearing back on this point. CHAIR GATTO announced that HB 333 would be held in committee.