Legislature(2003 - 2004)
04/07/2004 01:44 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 333 An Act relating to an endowment for public education; and providing for an effective date. Co-Chair Harris MOVED to ADOPT Work Draft 23-LS0991 Version O dated 4-2-04. There being NO OBJECTION, it was so ordered. REPRESENTATIVE DAN OGG explained that the bill recognizes the long-term desire of Alaskan residents through the Legislature to fulfill a land grant to the University of Alaska, and it creates the Public School Trust Fund. HB 333 creates a tenants in common with the state, whereby public education would receive a 3% undivided interest from state land and the University would receive a 2% undivided interest. The Department of Natural Resources (DNR) would retain the rights and management of the land, and the heightened fiduciary duty would not apply to either the University or the public schools. Representative Ogg described receipts. All receipts derived from development leases on the land would be calculated after deducting Constitutionally-mandated contributions to the Permanent Fund, the existing receipts of .5% of revenues for the Public Schools Trust, as well as administrative service fees, sales fees and lease fees assessed by the Department of Administration. He pointed out the difference between Version N and Version O of the bill is that receipts are limited. Representative Ogg noted that there had been discussions between the DNR and the University to define when the receipts would start. Receipts are addressed in the language on page 6, Sec.8, lines 25-27, "income received by the state under contracts for royalties, rents, sales, leases, and other disposals of state land entered into on or after the effective date of this Act." He clarified that a new contract with Bristol Bay would be included, while an existing contract at National Petroleum Reserve-Alaska would not. Representative Ogg pointed out that HB 333 rescinds SB 7 and its 250,000-acre land endowment to the University. He discussed the legal battle over SB 7. Former Governor Tony Knowles had vetoed SB 7 almost immediately after its passage, and the Legislature overrode his veto with a 2/3- majority vote. Governor Knowles released an attorney general's opinion stating that the bill was an appropriation requiring a three-fourths vote to override. The Alaska Legislative Council sued to question the constitutionality of the veto override. In January 2004 the Supreme Court showed that the Legislature's override was proper. The granting of land is not an appropriation, and therefore subject to the two-thirds vote. Representative Ogg referred to the copy of the Supreme Court Opinion in the packets (copy on file.) Representative Ogg explained that the Supreme Court was unable to decide whether the law granting the land was a dedicated fund because it was not brought up on appeal. It remanded the case to Superior Court, which may take a couple years to decide the issue. Representative Ogg concluded that HB 333 would grant land to the University in a different fashion than SB 7, by allowing the State to manage it. Over time, it may not ever fully fund the University, but he said that it would augment its funding. He referred to "Legislative Research Report, Number 04.176" (copy on file), noting that the projections on page 2 show $21 billion of revenues in 2030 from new oil exploration and gas line contracts. The K-12 trust fund would be about $600 million, with 5% totaling another $30 million for the K-12 school system. The University trust fund would be approximately $400 million, with an extra $20 million. Representative Ogg noted that the new fiscal notes total zero. There is a savings to the State and the University system to grant the land in the manner proposed in HB 333. He pointed out that if SB 7 were retained, the fiscal notes on the selection of land and its management would total many millions of dollars over a period of time. Representative Fate asked if an in-depth comparison had been done of the revenues that might have derived from the 250,000 acres in SB 7, and HB 333's provision for 3% of revenues from new land lease contracts. Representative Fate also questioned the bill's provisions allowing the DNR to manage the lands and removing the management prerogative of the Board of Regents. He recounted, from his sixteen years on the Board of Regents, that when DNR had management responsibility the profits from the land in the endowment weakened, with little if any profitability until the University took it over. He asked if the sponsor had concerns regarding the DNR's management. Third, Representative Fate asked if the bill inadvertently takes away the Board of Regents' management of its other lands in endeavoring to relinquish this management responsibility. Representative Ogg replied to Representative Fate's third question first, stating that there is a separation of lands, and HB 333 only addresses the lands granted under the percentage basis. The bill's intent is to not restrict in any way the existing lands that the University manages. Representative Fate questioned the deleted language at the bottom of page 2, [LAND CONVEYED TO THE UNIVERSITY OF ALASKA UNDER AS 14.40.365]. Representative Ogg clarified Sec. 2(a) adds "except for land transferred under AS 14.40.505," so the University land is not treated as State public domain land. It is not subject to the DNR, and the University can manage it however it wishes, except for this new portion of lands granted to them as tenants in common. Representative Fate thought that it is only specific to the new land grant, and again asked if it inadvertently takes away management of the other endowment land of the University. He felt that the Board of Regents' authority is unclear in the bill. Representative Ogg did not believe it takes away the clarity, because the intent of the language is that the University would continue managing its existing 112 acres. JOE BEEDLE, VICE PRESIDENT, UNIVERSITY OF ALASKA added that Representative Ogg was correct in stating that the University would retain its authority over its existing lands after passage of the bill. Regarding Representative Fate's second question, Mr. Beedle clarified that the DNR manages land in the public interest and holds the land in public domain. The University manages its land more as a fiduciary responsibility, to maximum revenue and educational opportunity consistent with all laws and regulations, but it is not designated as public domain. Representative Ogg responded to Representative Fate's first question of whether there is a cost analysis of revenues that would derive from this land and revenues from the 250,000 acres of land selected in SB 7. A cost analysis had not been done because the University has not selected lands under SB 7; however, under the fiscal note passed with SB 7, it would cost $2.1 million every year in the selection process and development, adding about $10 million in costs over five years, with no receipts coming in. He said that even if the land were obtained today, under SB 7 it would be 10 to 20 years before it would be developed. Under HB 333, a revenue stream would begin to flow as soon as new state land contracts are let. Representative Fate pointed out that fiscal notes often show the expense side and not the revenue side. Any derived revenues from oil or gas development would be long term, and he stated that Representative Ogg would be misled if he thought that the revenues would arrive in the short term. He argued that a cost comparison would be useful. He noted that Mr. Beedle had answered his second question. NICO BUS, ACTING DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF NATURAL RESOURCES, stated that the three fiscal notes for the Department were based on Version N of the bill, and would change for the new Version O. He pointed to the Fund Source section on the fiscal note Component No. 423, dated 4-6-04, explaining that after the Permanent Fund distribution has been made, 4% of the DNR's total revenue stream, or $36 million of revenue would go out of the General Fund and out of the Land Disposal Income Fund to the University endowment and the public school trust fund. It would change by about $9 million for the extra 1% in Version O. Mr. Bus stated that fiscal note Component No. 424 is basically a traditional note that explains the cost of administration would be $25 thousand for the first year. This would set up all the accounting, with ongoing costs for future years at 7% because it increases the size of the account structure and reconciliation requirements. Mr. Bus explained that fiscal note Component No. 435, Forest Management & Development, takes $18 thousand out of timber sale receipts from the timber program. Retaining the same program would require an $18 thousand General Fund replacement. It assumes all receipts, not new receipts. He said that fiscal note Component No. 2459, Title Acquisition, is no longer needed. Representative Ogg clarified that because the bill is written on all new receipts from new contracts in FY 05, the number on fiscal note Component #423 is zero because there aren't any new contracts yet. Representative Hawker requested clarification because the fiscal notes show a 2% conveyance to the University and 2% to the education trust, and he asked if Work Draft Version O changed it to 2% and 3% respectively. Mr. Bus replied that he is correct, and it would bring an extra $9 million. As Representative Ogg pointed out, if it is all new contracts, the DNR would have to completely start over, and assume the revenue of the new contracts. Co-Chair Harris asked how much land this legislation would give to the private sector. Representative Ogg replied that it would be the State's decision under this proposal of the tenancy in common. The DNR would manage the lands, and it would determine which lands to lease or sell to the private sector. The University would not actually receive any of the land. In response to a question by Co-Chair Harris, Representative Ogg noted that the University would receive a percentage of the revenue generated by the sale or lease of the land. CO-CHAIR HARRIS asked if this bill would make it easier for the public to get land. DICK MYLIUS, DEPUTY DIRECTOR, DIVISION OF MINING, LAND AND WATER, DEPARTMENT OF NATURAL RESOURCES, replied that it would, if SB 7 persists, because some of the lands that the University would pick would be the better land disposal parcels that DNR has identified for future land sales. The Department has held off on land sales in McCarthy because the University desired the land under SB 7. Co-Chair Williams asked how the 2% POMV would work. Mr. Beedle replied that Fiscal Note #4 contains assumptions based on DNR having eligible land and resource earnings of $100 million per year. If the Department were successful in getting 2% of $100 million, the $2 million would go into an endowment. Under the five-year averaging approach, 20% would total $400,000 and DNR would earn 5% of that, so the second year revenue to the University would be $20,000. By the year 2010, it would grow to $300 thousand a year, and about $700,000 by 2014. It would take years to build meaningful revenue for the University. Co-Chair Williams asked about the public school trust and any concerns the Attorney General's (AG's) office might have. EDDY JEANS, MANAGER, SCHOOL FINANCE AND FACILITIES SECTION, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, replied that he hadn't talked to the AG's office about Version O. He assumed that the separate account of the contributions to the trust is acceptable, but he would check with the AG's office. The current public school trust is a dedicated fund, and the Department receives one-half of 1% of the proceeds annually. Co-Chair Harris asked the University's position on the bill. PETE KELLY, DIRECTOR OF STATE RELATIONS, UNIVERSITY OF ALASKA, stated that the University is in favor of the bill, and it would benefit from receiving a steady flow of income even though it is long term. Co-Chair Harris asked if this bill would bring more revenue from lands allocated under the University's control. Mr. Kelly noted that the lands envisioned under SB 7 wouldn't produce for some time, with no guarantee that the land would be marketable, or of the exact revenues that would derive from the land. He noted the liabilities and costs involved with managing that land. Co-Chair Harris asked if it would all be State land. Mr. Kelly affirmed that it would be State land currently managed under Title 38. Co-Chair Williams asked the University's viewpoint after fighting for the 250,000 acres in SB 7. Mr. Kelly noted that SB 7 is still in the courts and a long way from producing revenue, while the provisions of HB 333 are simple. Co-Chair Williams asked the University's viewpoint if the Legislature does not repeal SB 7. Mr. Kelly responded that he couldn't speak for the Board of Regents, but it would be better to have income both from land and a trust account. Choosing between the two, he said that this legislation is simpler. Co-Chair Williams commented that he supported the University land bill. Representative Fate asked if there was federal legislation accompanying the land bill that passed last year. Co-Chair Harris answered that it was a federal match. Representative Ogg commented that Senator Murkowski was unable to get legislation through Congress that would match 250,000 acres of State land with 250,000 acres of federal land. Mr. Kelly added, one of the problems with the Federal land is that the unreserved, unrestricted land the University would receive from the Federal government is not that productive. Representative Croft commented that the bill would be more beneficial for K-12 than for the University. Co-Chair Williams replied that he was suggesting doing both, not one or the other. He thought that the University might need more money in the future. Representative Hawker asked about SB 7 and the issue before the court. Representative Ogg replied that the Superior Court must still decide whether it was an unconstitutional dedication. With some exceptions, under the Alaska Constitution, "the proceeds of any state tax or license shall not be dedicated to any special purpose." He said that if HB 333 passed and SB 7 is rescinded, the court case becomes moot. Representative Hawker asked if this bill is also subject to the same criticism of an unconstitutional dedication of funds. Representative Ogg replied that it is crafted the same way as SB 7 in passing a vested title in State lands, and both are subject to that issue. Representative Croft asked the timeframe in reaching the $36 million figure on fiscal note Component No. 423. Representative Ogg referred to the background information on page 2 of the Legislative Research Report (copy on file) showing new cumulative revenues of $21 billion from 2006 to 2030. The University portion would yield $400 million and the K-12 would be $600 million off the revenue. The University would receive $20 million annually. Representative Ogg thought that the revenues under SB 7 would not reach those levels. HB 333 was heard and HELD in Committee for further consideration.