Legislature(2003 - 2004)

05/08/2003 08:52 AM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 173(efd fld)                                                                                                  
     "An  Act repealing  statutes  pertaining  to the  Alaska                                                                   
     Science  and  Technology   Foundation  and  transferring                                                                   
     money in the foundation's  endowment; repealing statutes                                                                   
     relating  to  the BIDCO  assistance  program;  repealing                                                                   
     statutes  pertaining  to  the  international  trade  and                                                                   
     business  endowment   and  transferring  money   in  the                                                                   
     international    trade     and    business    endowment;                                                                   
     transferring  oversight  administration  of  outstanding                                                                   
     Alaska  Science  and  Technology  Foundation  loans  and                                                                   
     grants to  the Alaska Industrial Development  and Export                                                                   
     Authority;  establishing   an  Alaska  BIDCO  assistance                                                                   
     program  to   be  administered  by  the   Department  of                                                                   
     Community   and   Economic   Development;   and   making                                                                   
     conforming amendments."                                                                                                    
EDGAR BLATCHFORD,  COMMISSIONER, DEPARTMENT OF  COMMUNITY AND                                                                   
ECONOMIC DEVELOPMENT testified  via teleconference.  He noted                                                                   
that  the bill  repealed the  existing  statute creating  the                                                                   
Alaska  Science  and  Technology Foundation  (ASTF)  and  its                                                                   
programs, including  foundations grants and the  Business and                                                                   
Industrial Development  (BIDCO) assistance program.   He also                                                                   
noted that  the bill  also repeals  the statute creating  the                                                                   
International  Trade and  Business Endowment  in the  Science                                                                   
and  Technology Foundation.   Subject  to appropriation,  the                                                                   
bill provides for  the transfer to the General  Fund of funds                                                                   
remaining in  the ASTF Endowment  fund and the  International                                                                   
Trade and Business  Endowment.  Oversight  for administration                                                                   
of existing ASTF  grants and other financial  assistance will                                                                   
be   transferred  to   the  Alaska   Industrial  and   Export                                                                   
Authority.    He pointed  out  that  a new  BIDCO  assistance                                                                   
program was  established and  administered by the  Department                                                                   
of Community and Economic Development.                                                                                          
Mr. Blatchford stated that ASTF  had been established in 1988                                                                   
with  an endowment  of  more  than  $100 million  to  support                                                                   
grants  for technology  projects,  small business  innovation                                                                   
research and direct  grants to teachers.  He  noted that ASTF                                                                   
has generated  $126 million in  income for distribution.   He                                                                   
maintained  that  between 1988  and  2002,  one half  of  the                                                                   
endowment income ($63 million)  has been appropriated for non                                                                   
Alaska Science  and Technology  Foundation programs,  such as                                                                   
for  the University  of Alaska  operations, Alaska  Aerospace                                                                   
operations, and trade and development  operations.   He noted                                                                   
that  $17  million  had  been  appropriated  to  the  state's                                                                   
General Fund, and  $11 million in federal match  funding.  He                                                                   
stated  that the  remaining $63  million  was distributed  in                                                                   
technology and knowledge project  grants, schools and science                                                                   
museums,  science teacher  grants, and  ASTF operations.   In                                                                   
mid march the Governor approved  a supplemental appropriation                                                                   
to reduce funding to the amount  spent and obligated to date,                                                                   
and provided  intent  to wind  down operations  in May  15 of                                                                   
2003.   He  noted that  ASTF is  not  included in  the FY  04                                                                   
Co-Chair  Harris  observed  that the  BIDCO  systems  program                                                                   
would continue and asked how it  would be staffed and funded.                                                                   
TOM LAWSON, DIRECTOR, ADMINISTRATIVE  SERVICES, DEPARTMENT OF                                                                   
COMMUNITY AND  ECONOMIC DEVELOPMENT noted that  a new program                                                                   
would be set  up in the Department of Community  and Economic                                                                   
Development.  He noted that no  funding would be appropriated                                                                   
at this  point, which resulted  in a  zero fiscal note.   The                                                                   
program would be maintained if  at some point the legislature                                                                   
chose to fund it.                                                                                                               
Representative  Berkowitz referred  to a  letter provided  by                                                                   
the  Governor's  office  to  Alaska  Science  and  Technology                                                                   
Foundation. He raised concern  over the accusations contained                                                                   
in  the  letter,  and  suggested  that  someone  should  take                                                                   
responsibility for speaking to the accusations.                                                                                 
HANS  ROETERINK,  EXECUTIVE  DIRECTOR,   ALASKA  SCIENCE  AND                                                                   
TECHNOLOGY     FOUNDATION    provided     information     via                                                                   
teleconference.   He disagreed with the listed  viewpoints of                                                                   
the   letter,   which  questioned   the   effectiveness   and                                                                   
appropriateness of ASTF grants.                                                                                                 
Co-Chair Williams  noted the  list of questionable  projects,                                                                   
including a specific  reference to a $1.3 million  payment to                                                                   
UCLA to patent  a commercialized radioactive  waste treatment                                                                   
project  that  contained  the   actual  patent  number.    He                                                                   
maintained   that  the  Governor's   letter  was   adequately                                                                   
Representative Berkowitz stated  that he had questions on the                                                                   
follow-up on some of the examples,  such as radioactive waste                                                                   
disposal programs,  and wildlife  programs, $233  to convince                                                                   
Alaskans to stop smoking, transferring  technology to Alaska,                                                                   
etc.    He  suggested  that  these   projects  had  potential                                                                   
implications for our  state and stated that he  would like to                                                                   
have more  information on these  grants.  He  maintained that                                                                   
the list did  not appear to be objective, and  suggested that                                                                   
the  legislature should  investigate  more  fully and  review                                                                   
more solid information.                                                                                                         
Co-Chair Williams  emphasized  the poor performance  compared                                                                   
to the  return on  the amount  invested through ASTF  grants,                                                                   
and  stressed  that  under  the   State's  current  financial                                                                   
situation  it could  not afford  to  provide venture  capital                                                                   
that did not provide a return.   He reiterated that the state                                                                   
of Alaska had  taken $11 million from the Alaska  Science and                                                                   
Technology Foundation  for various projects.   He maintained,                                                                   
however,  that  of the  $63  million,  returns had  not  been                                                                   
received, although the Foundation  had been spending down the                                                                   
corpus of  the fund.   He  pointed out  that on February  12,                                                                   
2003,  the Alaska  Science  and Technology  Foundation  Board                                                                   
passed a resolution  authorizing a conversion  credit program                                                                   
that would forgive  two thirds of repayment of  the debt owed                                                                   
by its recipients.                                                                                                              
Mr.  Roeterink  explained  that BIDCO  grants  were  actually                                                                   
loans,  and stated  that the  logic was  to allow  successful                                                                   
companies to  repay part of  their loans through  other means                                                                   
than  simply  money,  for  example   through  jobs  or  other                                                                   
service.  He noted  that the program was to last  over a ten-                                                                   
year  period.    In  response   to  a  question  by  Co-Chair                                                                   
Williams, Mr.  Roeternink stated  that ASTF could  not afford                                                                   
to lose companies due to cash flow issues.                                                                                      
Co-Chair  Williams asked  why  the program  had  subsequently                                                                   
been placed on hold. Mr. Roeternink  stated that this was due                                                                   
to lack of support for the program by the legislature.                                                                          
Representative Berkowitz asked  why the legislature could not                                                                   
keep the  program in place while  stripping its assets.   Co-                                                                   
Chair Williams  maintained that the Administration  wished to                                                                   
do  so since  the  Foundation had  not  been successful,  and                                                                   
suggested  that  Alaska  Industrial  Development  and  Export                                                                   
Authority, (AIDEA) might be more successful.                                                                                    
Representative Berkowitz asked  if AIDEA would be required to                                                                   
continue  all functions.    Mr. Lawson  noted  that the  only                                                                   
function it would continue was  monitoring the maintenance of                                                                   
grants.   He noted other  programs were currently  offered by                                                                   
AIDEA.   He clarified that the  other functions would  not be                                                                   
Co-Chair  Harris observed  that  the Administration  did  not                                                                   
intend to  fund the program,  and wished  to have it  off the                                                                   
books, unless a future program  was initiated by statute.  He                                                                   
asked if  the Alaska  Science and  Technology Foundation  had                                                                   
outstanding obligations,  either moral or legal,  to continue                                                                   
operations for other organizations,  such as fish hatcheries,                                                                   
and  whether   there  was  a  mechanism  to   continue  these                                                                   
Mr. Lawson  responded that the  funding would end at  the end                                                                   
of FY  03, and the Alaska  Science and Technology  Foundation                                                                   
Board would  meet with current  grantees.  Grantees  had been                                                                   
notified  by  mail, and  had  to  submit information  to  the                                                                   
Board.    He  summarized  that  programs  that  had  expected                                                                   
funding in  FY 04,  would not receive  that funding  since it                                                                   
would not  be available.   He noted  that final decisions  on                                                                   
any  grantee  payments would  be  made  on  May 15  and  then                                                                   
operations would cease.                                                                                                         
Co-Chair  Harris asked  whether  any organizations  had  been                                                                   
promised  multi year payments,  upon which  they had  already                                                                   
acted.    He   asked  if  there  was  any   moral  obligation                                                                   
outstanding, and how it would be handled.                                                                                       
TAPE HFC 03 - 82, Side B                                                                                                      
Mr. Lawson stated  that grantees that were  expecting funding                                                                   
in FY 04 totaled approximately  $1.4 million.  He deferred to                                                                   
Mr. Roeternink to address moral  obligations to grantees.  He                                                                   
did observe  that some  grantees expecting  funding in  FY 04                                                                   
had  contacted legislators  to  seek specific  appropriations                                                                   
for their projects.                                                                                                             
Mr.   Roeternink  stated   that   there   were  14   grantees                                                                   
outstanding,  with one  project  extending to  FY  2006.   He                                                                   
noted that  many grantees  had invested heavily  anticipating                                                                   
continuing  funding.   He gave  the  example of  Americulture                                                                   
that was  halfway into  a six-year  research plan,  and would                                                                   
now how  to shut  down since  funding was  discontinued.   He                                                                   
maintained that many  grantees would now either  be forced to                                                                   
close or limit their work.  He  noted that there was no legal                                                                   
obligation to  continue funding, but maintained  that we were                                                                   
morally obligated to continue funding the grants.                                                                               
Co-Chair Williams asked how long  the 14 grantees had been in                                                                   
existence.   Mr. Roeternink noted  that there was a  range of                                                                   
project lengths, from two to three  years.  Co-Chair Williams                                                                   
asked if  the projects  had been in  business long  enough to                                                                   
borrow  money  from  other sources,  including  AIDEA.    Mr.                                                                   
Roeternink pointed  out that the programs were  attempting to                                                                   
address scientific  problems in  Alaska, but noted  that they                                                                   
may  not  be   able  to  be  successful  in   forming  equity                                                                   
partnerships.  He maintained that  AIDEA might not be able to                                                                   
take on  these projects  under the  current circumstances  of                                                                   
the grant.                                                                                                                      
Representative Moses MOVED Amendment #1 as follows:                                                                             
     Page 1, line 1:                                                                                                            
          Delete "repealing statutes pertaining"                                                                                
          Insert "relating"                                                                                                     
     Page 2, line 2:                                                                                                            
          Delete   "eliminate    the   Alaska   Science   and                                                                   
     Technology Foundation"                                                                                                     
          Insert "not  use the Alaska Science  and Technology                                                                   
     Foundation at this time"                                                                                                   
     Page 9, line 13:                                                                                                           
          Delete "former"                                                                                                       
     Page 9, lines 17 - 18:                                                                                                     
          Delete    "AS 37.17.010,   37.17.020,    37.17.030,                                                                   
     37.17.040, 37.17.050, 37.17.060, 37.17.070, 37.17.080,                                                                     
     37.17.090, 37.17.100, 37.17.110, 37.17.200"                                                                                
          Insert "AS 37.17.200"                                                                                                 
     Page 9, lines 20 - 21:                                                                                                     
          Delete     "37.17.400,    37.17.410,     37.17.420,                                                                   
     37.17.430,     37.17.440;      AS 39.25.110(25);     and                                                                   
     AS 44.99.030(a)(11)"                                                                                                       
          Insert "and 37.17.440"                                                                                                
     Page 9, line 23, following "appropriation,":                                                                               
          Insert   "and   notwithstanding    AS 37.17.010   -                                                                   
     37.17.110 and 37.17.400 - 37.17.430,"                                                                                      
     Page 9, line 24:                                                                                                           
          Delete "former"                                                                                                       
     Page 10, lines 7 - 8:                                                                                                      
          Delete  ", as  those statutes  appeared on  the day                                                                   
     before the effective date of this Act,"                                                                                    
     Page 10, line 8:                                                                                                           
          Delete "former"                                                                                                       
     Page 10, line 9:                                                                                                           
          Delete "former"                                                                                                       
     Page 10, line 11:                                                                                                          
          Delete "former"                                                                                                       
     Page 10, line 13:                                                                                                          
          Delete "former"                                                                                                       
     Page 10, line 16:                                                                                                          
          Delete "AS 37.17.090(g), 37.17.230 - 37.17.330"                                                                       
          Insert "AS 37.17.230 - 37.17.330"                                                                                     
     Page 10, line 17, following "Act,":                                                                                        
          Insert "and AS 37.17.090(g)"                                                                                          
     Page 10, line 19:                                                                                                          
          Delete "those former statutes"                                                                                        
          Insert  "AS 37.17.090(g)  and  former  37.17.230  -                                                                   
     37.17.330, 37.17.350, and 37.17.390"                                                                                       
     Page 10, line 21:                                                                                                          
          Delete "former AS 37.17.090(g)"                                                                                       
          Insert "AS 37.17.090(g)"                                                                                              
     Page 10, following line 25:                                                                                                
          Insert a new subsection to read:                                                                                      
          "(e)  Notwithstanding AS 37.17.010 - 37.17.110 and                                                                    
     37.17.400   -   37.17.430,   the  Alaska   Science   and                                                                   
     Technology Foundation is  not authorized to have members                                                                   
     on its  board, to  have meetings,  to have an  executive                                                                   
     director  or other  staff,  to receive  money unless  by                                                                   
     appropriation,  or  to  perform   any  other  functions,                                                                   
     except as otherwise expressly allowed under this Act."                                                                     
Co-Chair Williams OBJECTED.                                                                                                     
Representative  Kerttula explained  that the amendment  would                                                                   
ensure that the statute would  remain on the books to provide                                                                   
a structure  for the Foundation  if at a future  time funding                                                                   
was available.                                                                                                                  
Co-Chair  Williams  maintained  that  it  was  a  legislative                                                                   
policy to  eliminate statutes that  were not productive.   He                                                                   
suggested  that if funding  became available  in the  future,                                                                   
statutes could be enacted.                                                                                                      
Representative  Hawker suggested  that  the existing  statute                                                                   
impeded  the   success  of  Alaska  Science   and  Technology                                                                   
Foundation.  He proposed that  a future structure ought to be                                                                   
reconfigured, since  the organization's financial  burden was                                                                   
too  great to  bear.   He  proposed  that the  Foundation  be                                                                   
allowed to sunset.                                                                                                              
Representative  Berkowitz observed  that the  mission of  the                                                                   
Alaska  Science   and  Technology   Foundation  was   worthy,                                                                   
although it  may have  not risen to  the satisfaction  of the                                                                   
Administration.   He suggested that the legislature  ought to                                                                   
work   on  reforms,   converting  the   Alaska  Science   and                                                                   
Technology   Foundation   to    a   manner   that   satisfied                                                                   
expectations,   rather    than   simply   to    destroy   its                                                                   
infrastructure.  He contended  that the legislature would one                                                                   
day regret this decision.                                                                                                       
Co-Chair Harris  noted that the  amendment did away  with the                                                                   
reason for the  bill.  He suggested that the  bill should not                                                                   
pass if the amendment was supported.   Co-Chair Williams also                                                                   
noted the  risk involved  in venture  capital, and  suggested                                                                   
that the State was not in the  position to take on such risk.                                                                   
He pointed  out that  the poor in  our State were  undergoing                                                                   
cuts to social services.                                                                                                        
Representative  Berkowitz pointed  out the  risk involved  in                                                                   
drilling for  oil and gas, upon  which our state  economy was                                                                   
based.   He stated that  to avoid risk  was in opposition  to                                                                   
the  economic  history  of  the  State.    Co-Chair  Williams                                                                   
maintained that the  money used to take these  risks belonged                                                                   
to the oil companies and not to the state of Alaska.                                                                            
A roll call vote was taken on the motion.                                                                                       
IN FAVOR: Moses                                                                                                                 
OPPOSED:  Chenault;    Foster;   Hawker;   Meyer;    Stoltze;                                                                   
          Whitaker; Harris; Williams.                                                                                           
The Amendment FAILED on a vote of 1 to 8.                                                                                       
Representative  Foster   MOVED  to  report  SB   173  out  of                                                                   
Committee   with    individual   recommendations    and   the                                                                   
accompanying fiscal  note.  There being NO  OBJECTION, it was                                                                   
so ordered.                                                                                                                     
SB 173  (efd fld) was  REPORTED out of  Committee with  a "do                                                                   
pass" recommendation  and two fiscal  notes:  #1,  zero note,                                                                   
from  Department   of  Community  and  Economic   Development                                                                   
(Alaska  Science  and  Technology Foundation),  and  #2  from                                                                   
Department  of  Community and  Economic  Development  (Alaska                                                                   
Industrial Development and Export Authority), (AIDEA).                                                                          

Document Name Date/Time Subjects