Legislature(2015 - 2016)SENATE FINANCE 532

02/23/2015 09:00 AM Senate FINANCE

Audio Topic
09:01:26 AM Start
09:02:04 AM SB27
09:04:08 AM Overview: Fy 16 Department of Natural Resources
09:43:30 AM Overview: Fy 16 Department of Environmental Conservation
10:40:58 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 27 Presentation: Overview FY17 Operating Budget TELECONFERENCED
Departments: Environmental Conservation and
and Environmental Conservation
Department of Fish and Game
<Above Agenda Item Rescheduled to 02/25/14>
+ Bills Previously Heard/Scheduled TELECONFERENCED
SENATE BILL NO. 27                                                                                                            
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain    programs,    capitalizing   funds,    making                                                                    
     reappropriations, and making  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."                                                                                          
9:03:16 AM                                                                                                                    
^OVERVIEW: FY 16 DEPARTMENT OF NATURAL RESOURCES                                                                              
ED  FOGELS,  DEPUTY   COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES  (DNR), referred  to  the  presentation "State  of                                                                    
Alaska  Department  of  Natural Resources  Overview,  Senate                                                                    
Finance  Committee, February  23, 2015"  (copy on  file). He                                                                    
overviewed the  preliminary slides  in order to  refresh the                                                                    
committee  on  the organization  and  core  missions of  the                                                                    
department.  He   stated  that   he  would   transition  the                                                                    
presentation  to  his  colleague   for  an  in-depth  budget                                                                    
review. He specified that the  overview would include a list                                                                    
of specific reductions that could  be detailed to the extent                                                                    
that the committee desired.                                                                                                     
9:04:08 AM                                                                                                                    
Mr. Fogels  addressed slide 2,  and reviewed  a departmental                                                                    
organization  chart.  He  reminded   the  committee  of  the                                                                    
department's  new  Commissioner-designee,  Mark  Myers;  and                                                                    
related that  DNR had two deputy  commissioners, himself and                                                                    
Marty Rutherford.  He proceeded  to note that  the divisions                                                                    
were  organized under  each  deputy commissioner;  detailing                                                                    
that  Deputy  Commissioner  Rutherford  was  acting  as  the                                                                    
energy deputy,  to notably include  the Division of  Oil and                                                                    
Gas, the Division of Geologic  Survey, and the Mental Health                                                                    
Trust. He added  that she is also designated  as the state's                                                                    
Alaska Liquid  Natural Gas project (AKLNG)  commercial lead,                                                                    
and noted that  the role was consuming a fair  amount of her                                                                    
9:05:03 AM                                                                                                                    
Mr.   Fogels  continued   his  presentation   on  slide   3,                                                                    
"Department   of  Natural   Resources   -  Core   Services,"                                                                    
explaining that the department had four core services:                                                                          
   · Foster responsible commercial development and use of                                                                       
     state land and natural resources, consistent with the                                                                      
     public interest, for long-term wealth and employment.                                                                      
   · Mitigate threat to the public from natural hazards by                                                                      
     providing comprehensive fire protection services on                                                                        
     state, private and municipal lands, and through                                                                            
     identifying significant geologic hazards.                                                                                  
   · Provide access to state lands for public and private                                                                       
     use, settlement, and recreation.                                                                                           
   · Ensure sufficient data acquisition and assessment of                                                                       
     land and resources to foster responsible resource and                                                                      
     community development and public safety.                                                                                   
Mr.   Fogels  commented   that  the   first  core   function                                                                    
encapsulated   the  permitting,   leasing  and   stewardship                                                                    
functions  of  DNR.  The second  core  function  encompassed                                                                    
wildland firefighting, which was  the biggest budget segment                                                                    
and also  included the geologic survey  and geologic hazards                                                                    
evaluation  program. He  continued that  the third  function                                                                    
encompassed  the land  sale programs,  parks divisions,  and                                                                    
programs to ensure access to  public lands and Alaska's full                                                                    
state  land entitlement.  He concluded  that  the last  core                                                                    
function was  crucial to gain  greater understanding  of the                                                                    
state's vast  current land  holdings in  areas of  hard rock                                                                    
minerals,   oil   and   gas,  forestry,   and   agricultural                                                                    
resources.  He added  that the  department knew  very little                                                                    
about the state's current land holdings.                                                                                        
9:06:24 AM                                                                                                                    
JEAN   DAVIS,  DIRECTOR,   DIVISION  OF   SUPPORT  SERVICES,                                                                    
DEPARTMENT  OF NATURAL  RESOURCES,  related  that she  would                                                                    
present four slides  in order to portray a  different way to                                                                    
examine  the  overall  DNR budget;  separately  detailed  by                                                                    
employees,  division, core  service,  and  fund source.  She                                                                    
specified  that   two  slides   would  illustrate   how  DNR                                                                    
developed the FY 16 Governor's  Amended Budget starting with                                                                    
the FY 15 Management Plan.                                                                                                      
Ms. Davis presented  slide 4, "DNR FY  2016 Governor Amended                                                                    
Budget  - Employees,"  and pointed  out that  in FY  16, DNR                                                                    
would  employ approximately  1,060  full  time and  seasonal                                                                    
employees. She  detailed that  the employees  were dispersed                                                                    
through  29  locations  with   main  offices  in  Anchorage,                                                                    
Juneau,  Fairbanks, and  Palmer; and  that DNR  had regional                                                                    
offices  throughout the  state.  She drew  attention to  the                                                                    
employee totals and commented that  there had been a "fairly                                                                    
steady workforce" at  DNR until FY 16, when it  would take a                                                                    
net  reduction  of  47  positions.  She  detailed  that  the                                                                    
department would delete  48 positions and would  ask for one                                                                    
new position in the AKLNG group.                                                                                                
Ms. Davis  referred to a pie  chart on slide 5,  noting that                                                                    
it was reflective of the  FY 16 operating budget categorized                                                                    
by division,  and detailed the  totals of each.  She pointed                                                                    
out the  comparative numbers of  the FY 16  operating budget                                                                    
and  the FY  15  management plan,  which totaled  $175,145.6                                                                    
million  and  $178,330.4  million, respectively.  She  noted                                                                    
that  the  Division  of  Forestry  represented  the  largest                                                                    
segment  of the  pie chart,  of which  fire suppression  and                                                                    
preparedness accounted for 22 percent.                                                                                          
Ms. Davis  presented slide  6, which  divided the  budget by                                                                    
the  aforementioned core  services  of  the department.  She                                                                    
pointed out that  almost half the budget was  under the core                                                                    
service of "Foster Responsible  Development"; 10 percent was                                                                    
for  "Sufficient Data  Acquisition  and  Assessment, and  18                                                                    
percent for  providing access to  state lands.  She detailed                                                                    
that the  remaining 24 percent was  allocated for mitigating                                                                    
natural   hazard   threats   included   fire   preparedness,                                                                    
earthquakes, volcanoes, and erosion problems.                                                                                   
9:09:25 AM                                                                                                                    
Ms. Davis moved to slide  7, which delineated the DNR budget                                                                    
by funding  source type. She pointed  out that approximately                                                                    
50 percent of  the DNR budget was  Unrestricted General Fund                                                                    
(UGF).  [Ms.  Davis  clarified that  the  slide  incorrectly                                                                    
identified the  source as "Undesignated General  Fund."] She                                                                    
itemized the  remaining funding types as  12 percent Federal                                                                    
funds,  23  percent  "Other"  funds,   and  15  percent  was                                                                    
Designated  General Funds  (DGF). She  expanded that  the 23                                                                    
percent   "Other  Funds"   included  Reimbursable   Services                                                                    
Agreements   (RSAs),   Mental  Health   Receipts,   Industry                                                                    
Reimbursements, and  Permanent Fund Receipts.  She furthered                                                                    
that the  Industry Reimbursements  portion of  "Other Funds"                                                                    
were  statutorily  designated   program  receipts  comprised                                                                    
primarily   by  the   Office  of   Project  Management   and                                                                    
Permitting, funded  on industry agreement  reimbursements as                                                                    
well as  the State  Pipeline Coordinators Office.  She added                                                                    
that there were also Permanent Fund Receipts.                                                                                   
Co-Chair MacKinnon  asked why DNR  was receiving  funds from                                                                    
the vehicle  rental tax,  and inquired  how they  were using                                                                    
the funds. Ms.  Davis noted that the vehicle  rental tax was                                                                    
in the  DGF and was  appropriated to the Division  of Parks.                                                                    
She  was unable  to  recall whether  it was  a  result of  a                                                                    
governor's or legislative action, but  stated that it was in                                                                    
the  budget  for  several years.  She  elaborated  that  the                                                                    
vehicle  rental  tax  was  collected   on  a  percentage  of                                                                    
rentals,  and a  large portion  of the  money was  therefore                                                                    
utilized  toward  tourism  associated functions.  She  added                                                                    
that DNR was receiving about  $2.9 million in vehicle rental                                                                    
tax for the Division of Parks.                                                                                                  
Ms. Davis continued  to describe slide 7,  listing the other                                                                    
funds  that  made   up  the  DGF:  fees   (from  Parks,  the                                                                    
Recorder's  Office,  and  Permits  and  leases  through  the                                                                    
Division of  Mining, Land, and Water);  Land Disposal Income                                                                    
Fund;  Timber Receipts;  as well  as some  funding from  the                                                                    
Agricultural Revolving  Loan Fund  (ARLF) for  management of                                                                    
that fund. She added that  DNR had been comparing its yearly                                                                    
budgets to its FY 06 Management  Plan for a number of years,                                                                    
and  concluded  that  the  mix   of  funds  in  the  current                                                                    
allocation was almost identical.                                                                                                
9:12:28 AM                                                                                                                    
Vice-Chair  Micciche  inquired  about   the  22  percent  of                                                                    
Division of Forestry funds expended  on fire suppression and                                                                    
wondered  if it  included mostly  permanent positions  or if                                                                    
positions fluctuated according  to the extent of  fires in a                                                                    
given year. Ms.  Davis replied that DNR had a  core group of                                                                    
fire preparedness  employees, the majority of  which were in                                                                    
permanent seasonal positions. She  clarified that this group                                                                    
of employees  was engaged  in all  of the  fire preparedness                                                                    
activities:   the   initial  fire   attack   prepositioning,                                                                    
training, and  readiness. She continued  that the  hiring of                                                                    
emergency   fire   crews   and  additional   personnel   was                                                                    
contingent on  the type of  fire season; the  positions were                                                                    
hired through  the emergency  firefighting process  and were                                                                    
not reflected  on the budget.  Vice-Chair Micciche  asked if                                                                    
the  $38.8 million  was  a base  allocation  even though  it                                                                    
funded  primarily seasonal  employees.  Ms. Davis  explained                                                                    
that there  were two components that  comprised the funding:                                                                    
fire  preparedness, which  in FY  16 was  $18.7 million  and                                                                    
included 31  permanent full-time positions and  167 seasonal                                                                    
positions;  and fire  activity,  which in  FY  16 had  $20.1                                                                    
million in  authorization (with $6.6 million  UGF), with the                                                                    
majority from  federal receipts. She clarified  that DNR did                                                                    
not  budget for  employees in  fire activity,  but had  base                                                                    
funding  in General  Funds  as  well as  a  large amount  of                                                                    
federal  funding  that   was  reimbursable  after  expending                                                                    
resources on fires on federal land.                                                                                             
9:15:22 AM                                                                                                                    
Ms.  Davis moved  to  slide 8,  and noted  that  it and  the                                                                    
following  slide   reflected  how  DNR  had   assembled  the                                                                    
governor's budget. She explained  that the governor's budget                                                                    
began with the  FY 15 Management Plan as the  base, and then                                                                    
pointed  out  the adjustments  that  were  reflected in  the                                                                    
slide.  She related  that the  Legislative Finance  Division                                                                    
reviewed  the transactions  that the  governor submitted  to                                                                    
arrive at  the FY 16  Adjusted Base Scenario,  through which                                                                    
they  could remove  one-time  and multi-year  appropriations                                                                    
which did  not need to be  appropriated again. Additionally,                                                                    
Legislative Finance  could add in funding  for contractually                                                                    
negotiated  salary increases,  at which  point there  was an                                                                    
adjusted FY  16 budget that the  legislature would typically                                                                    
view as the base.                                                                                                               
Ms. Davis detailed adjustments to  the FY 15 Management Plan                                                                    
as follows: negotiated salaries  were added, an $8.9 million                                                                    
one-time  appropriation   fiscal  note  for  SB   138  [2014                                                                    
legislation  relating  to  the  Alaska  Gasline  Development                                                                    
Corporation  (AGDC)] was  reversed,  and a  couple of  other                                                                    
reversals  of one-time  items. She  pointed  out the  almost                                                                    
$4.1 billion  Mental Health  Trust administrative  budget as                                                                    
another decrement  to the FY 15  Management Plan, explaining                                                                    
how  the  Mental  Health Trust  had  traditionally  employed                                                                    
zero-based budgeting.  She noted  that the funding  would be                                                                    
placed back within the FY  16 budget as full increments. She                                                                    
directed attention to the funding  category totals of the FY                                                                    
16 Adjusted Base.                                                                                                               
Ms. Davis highlighted  to the second half of  the slide, and                                                                    
stated that  she would be  detailing increments in  DNR's FY                                                                    
16  budget,  followed  by  a   list  of  decrements  on  the                                                                    
following slide,  the sum of which  would lead to the  FY 16                                                                    
Governor's Amended Budget.  She discussed restoring one-year                                                                    
funding  for the  AKLNG fiscal  note in  the amount  of $8.9                                                                    
million as well as a $4.2  million request for AKLNG in UGF,                                                                    
to total  an approximately  $13.2 million budget  for AKLNG.                                                                    
She added that  the only other increases in  the budget were                                                                    
added  under "Other"  funding source  types, pointing  out a                                                                    
small  $585,000 spending  authority of  statutory designated                                                                    
program  receipts  for   the  State  Pipeline  Coordinator's                                                                    
Office, based  on an estimate  to manage  increased pipeline                                                                    
agreements. She added that the  funding was all reimbursable                                                                    
from  the  companies. She  pointed  out  two increments  for                                                                    
Mental  Health, noting  that they  restored the  same amount                                                                    
from the previous  year, as well as a  $255,600 increment of                                                                    
additional funding.                                                                                                             
9:19:32 AM                                                                                                                    
Vice-Chair   Micciche  asked   why  the   $4.2  million   of                                                                    
additional  funding  for  AKLNG  was  necessary.  Ms.  Davis                                                                    
explained that the $4.2 million  request, in addition to the                                                                    
restoration of  $8.9 million, would cover  the participation                                                                    
of  all state  agencies in  AKLNG. She  elaborated that  the                                                                    
departments  associated  were  DNR, the  Department  of  Law                                                                    
(DOL), and  the Department  of Revenue (DOR);  and continued                                                                    
that  DOL  had  approximately  $4.8  million  of  work  when                                                                    
associated with  AKLNG, whereas  DOR had  approximately $1.6                                                                    
million.  She  clarified that  all  the  work was  primarily                                                                    
related to contracts and was  what drove the increase for FY                                                                    
16. Vice-Chair Micciche  asked if the committee  would see a                                                                    
corresponding cut in the other  departments after moving the                                                                    
funding to DNR. Ms. Davis  responded that it was new funding                                                                    
and was  not replacing anything that  was currently budgeted                                                                    
to  the departments.  She  specified that  the  some of  the                                                                    
requested funding  was related  to a specific  contract, and                                                                    
offered  to  provide   additional  detailed  information  as                                                                    
Senator Kelly  asked Senator Bishop  to address  the subject                                                                    
in subcommittee.                                                                                                                
Senator  Bishop asked  for more  detail regarding  the AKLNG                                                                    
increment, and  asked that one  of the  deputy commissioners                                                                    
attend  the  Finance  Subcommittee   on  the  Department  of                                                                    
Natural   Resources   in   order   to   provide   additional                                                                    
Co-Chair  MacKinnon mentioned  a recent  op-ed piece  by the                                                                    
governor  and   supposed  the  committee  as   a  whole  was                                                                    
interested in  additional information.  She wondered  if the                                                                    
request was related  to going to market in  the Middle East,                                                                    
and mentioned that  funding for which it was  included in SB
Ms. Davis moved to slide  9, explaining that the top portion                                                                    
listed  all of  the  decrements that  were  proposed in  the                                                                    
governor's budget  for FY 16.  She noted that they  added up                                                                    
to almost  $6 million of  UGF, and included the  48 position                                                                    
deletions  that were  mentioned earlier.  She pointed  out a                                                                    
number  of  specific  items  listed,  and  inquired  if  the                                                                    
committee would like to hear of them in greater detail.                                                                         
9:23:27 AM                                                                                                                    
AT EASE                                                                                                                         
9:26:37 AM                                                                                                                    
Senator  Bishop commented  that it  was a  pleasure to  work                                                                    
with  Ms. Davis  and her  staff. He  furthered that  the DNR                                                                    
subcommittee had  a number of detailed  questions, and asked                                                                    
her to be prepared to answer them at its first meeting.                                                                         
Senator   Hoffman  asked   for  more   detailed  information                                                                    
concerning the  16 deleted  positions and  reorganization of                                                                    
the  McGrath  Fire  Suppression   Protection  Area  and  the                                                                    
discontinuation of  the Wildlife  Fire Academy.  He wondered                                                                    
how  the total  reorganization  would affect  the work  that                                                                    
needed  to  be done  in  the  Interior.  He opined  that  16                                                                    
positions  seemed  high  for   the  $1.1  million  decrement                                                                    
represented on the slide.                                                                                                       
Co-Chair  Kelly asked  Mr. Fogels  if he  would discuss  the                                                                    
fire academy  restructuring and the $1.1  million decrement.                                                                    
Mr.  Fogels  explained  that   the  funding  decrease  would                                                                    
accomplish  two  things,   including  restructuring  of  the                                                                    
McGrath  Fire  Office  to  reduce  staffing  from  22  to  6                                                                    
positions.  He explicated  that DNR  observed fire  activity                                                                    
shifting to  other parts of  the Interior, and  therefore it                                                                    
would focus efforts closer to  the areas of Fairbanks, Delta                                                                    
Junction, and  Tok. He relayed  that DNR would be  keeping a                                                                    
"warm base" in  McGrath that would be staffed,  and if there                                                                    
was  fire  activity  in  the  area,  it  would  be  able  to                                                                    
effectively  fight the  fires.  He clarified  that if  there                                                                    
were to be a bad fire  season in the McGrath area, the costs                                                                    
were likely to  be higher in the long term  if DNR proceeded                                                                    
with the reorganization. He noted  that the bulk of the $1.1                                                                    
million  decrement would  be from  the McGrath  Fire Office,                                                                    
with  only $250,000  cut from  the  Firefighting Academy  in                                                                    
McGrath. He referred to the  general need for budget cuts as                                                                    
reasoning for the academy closure.                                                                                              
9:29:42 AM                                                                                                                    
Co-Chair Kelly asked Senator Bishop  if the academy had been                                                                    
funded   through   Department   of   Labor   and   Workforce                                                                    
Development (DLWD) in the past.  Senator Bishop related that                                                                    
he and a former DLWD  commissioner had worked on funding for                                                                    
the McGrath  Fire Academy, and  characterized it as  "a jobs                                                                    
issue for rural Alaska."  He furthered that firefighting was                                                                    
a great way  for rural Alaskans to make a  living. He echoed                                                                    
the concerns of Senator Hoffman  and stated that he would be                                                                    
asking questions  related to  the decrement  in subcommittee                                                                    
meetings.  Co-Chair  Kelly  expressed  similar  concern  and                                                                    
mused  that perhaps  there was  a  way to  fund the  academy                                                                    
through another department.                                                                                                     
Senator  Dunleavy asked  about  the out  of state  employees                                                                    
brought in during heavy fire  seasons and wondered if it was                                                                    
at state or  federal expense; and if  federally funded, were                                                                    
the funds contingent  upon fires being on  federal land. Mr.                                                                    
Fogels responded that it was  dependent upon the location of                                                                    
the  firefighting.  He  discussed  the  greater  expense  of                                                                    
limited  fire resources  on  state  land, necessitating  the                                                                    
hire of fire  crews from the Lower 48 at  additional cost to                                                                    
the  state.  Senator  Dunleavy asked  about  the  nature  of                                                                    
firefighting  expense on  federal land.  Mr. Fogels  related                                                                    
that  typically federal  agencies would  be responsible  for                                                                    
the cost  of fires on federal  land; if the State  of Alaska                                                                    
assists, it  would be  eligible for  reimbursement including                                                                    
the cost of out of state fire crews.                                                                                            
9:31:28 AM                                                                                                                    
Vice-Chair  Micciche asked  about  the  remaining funds  for                                                                    
fire  management and  related that  he had  spent time  with                                                                    
fire  crews in  Funny  River, Alaska.  He  praised the  fire                                                                    
crews from  all over  the state,  and characterized  them as                                                                    
"amazing  people" who  did an  incredible job.  He discussed                                                                    
the   need  for   re-organization   and   wondered  if   the                                                                    
subcommittee  could  look  at reorganization  to  result  in                                                                    
greater efficiency  with limited  resources. He  referred to                                                                    
the  remaining   $21.1  million  in  the   budget  for  fire                                                                    
suppression and  inferred that  it was  a sizable  amount of                                                                    
money  to work  with. Mr.  Fogels noted  that it  has always                                                                    
been  an  issue  to  balance   fire  preparedness  and  fire                                                                    
activity; more money spent on  preparedness resulted in cost                                                                    
savings when fighting fires.   He discussed the cost savings                                                                    
when  funds  are directed  to  prevention,  and assured  the                                                                    
committee  that DNR  was doing  everything in  its power  to                                                                    
assure it was adequately  staffed to effectively fight fires                                                                    
over the summer.                                                                                                                
Ms. Davis referred  back to slide 9,  and directed attention                                                                    
to the  change in funding from  the Adjusted Base to  the FY                                                                    
16  Governor's Amended  Budget, divided  by fund  types. She                                                                    
remarked that  it showed  DNR with  a 5.7  percent increase,                                                                    
which included  an additional $13.2  million for  AKLNG. She                                                                    
noted  that  if  the  budget  was  compared  to  the  FY  15                                                                    
Management  Plan,  it  would  reflect  a  reduction  of  1.8                                                                    
percent. She  furthered that for  DNR's core  services there                                                                    
would be a reduction of 2.3 percent overall.                                                                                    
9:34:35 AM                                                                                                                    
Ms.  Davis  moved  to  the   final  slide  (slide  10),  and                                                                    
illustrated DNR  revenue generation. She explained  that DNR                                                                    
had examined  average annual revenue  collection from  FY 06                                                                    
to  FY 14.  She pointed  out that  the bulk  of the  funding                                                                    
displayed on the  pie chart was UGF that  they had collected                                                                    
primarily  from  royalties  from oil,  gas,  mining,  timber                                                                    
sales, and  lease and permit  revenues for the use  of state                                                                    
land  and  water. She  added  that  a  good portion  of  the                                                                    
revenue  DNR  collected  went to  the  Permanent  Fund,  and                                                                    
reminded  the  committee  that   the  numbers  reflected  an                                                                    
average  annual amount.  She  clarified  that the  Permanent                                                                    
Fund monies  were royalties on  oil, gas and  mining leases;                                                                    
50 percent  on leases issued  after 1979, and 25  percent on                                                                    
leases issued prior  to that time. She stated  that DNR also                                                                    
deposited money  into the  CBR, based  primarily on  oil and                                                                    
gas litigation settlements. She  explained the "Other Funds"                                                                    
on  the  pie chart  as  revenue  deposited into  the  Mental                                                                    
Health  Trust, or  excess revenues  that had  been collected                                                                    
above  and beyond  what  they were  authorized  to spend  in                                                                    
offices such as  the Recorders Office or  the State Pipeline                                                                    
Coordinators  Office  pipeline  leases. She  commented  that                                                                    
DNR's UGF  Budget was  reflected on the  side of  the slide,                                                                    
and  $72,880,400 had  been its  average amount  of UGF.  She                                                                    
suggested  that   for  every  dollar  that   DNR  spent,  it                                                                    
deposited  approximately $36  into  one of  the state  funds                                                                    
reflected on  the chart. She  summarized that  DNR generated                                                                    
an average of $2.6 billion in revenue annually.                                                                                 
Co-Chair Kelly asked to refer  back to slide 9, and inquired                                                                    
if the total reduction between  the Adjusted Base and the FY                                                                    
16  Governor's  Amended  budget   was  indeed  2.3  percent,                                                                    
excluding the AKLNG expenditures.  Ms. Davis pointed out the                                                                    
reduction of  7.6 percent from  the Adjusted  Base reflected                                                                    
in the UGF column.                                                                                                              
9:37:37 AM                                                                                                                    
AT EASE                                                                                                                         
9:37:43 AM                                                                                                                    
Co-Chair MacKinnon  asked if  there was  any reappropriation                                                                    
of  capital expenditures  or any  switching between  capital                                                                    
and operating funds.  Ms. Davis responded that  there was no                                                                    
capital money  being reappropriated  for expenditure  in the                                                                    
operating  budget.   She  noted  that  DNR   did  propose  a                                                                    
reappropriation in  the capital  budget of funding  from one                                                                    
project to another.                                                                                                             
9:38:31 AM                                                                                                                    
AT EASE                                                                                                                         
9:41:13 AM                                                                                                                    
^OVERVIEW: FY 16 DEPARTMENT OF ENVIRONMENTAL CONSERVATION                                                                     
Co-Chair Kelly stated  that he had one or  two questions for                                                                    
the  Department  of  Environmental  Conservation  (DEC)  and                                                                    
thought perhaps  the other committee members  had additional                                                                    
LARRY  HARTIG,  COMMISSIONER,  DEPARTMENT  OF  ENVIRONMENTAL                                                                    
CONSERVATION, introduced  himself and his team.  He noted in                                                                    
the  gallery was  Ruth Kostik,  Budget  Manager; Alida  Bus,                                                                    
Legislative  Liaison; and  Nathan Teal.  He referred  to his                                                                    
presentation  "Department   of  Environmental  Conservation,                                                                    
Senate  Finance  Committee,  February  23,  2015"  (copy  on                                                                    
file),  stating   that  he   would  review   DEC  department                                                                    
objectives before  going into budget specifics.  He moved to                                                                    
slide 2, and  stated that the mission of DEC  was to protect                                                                    
human health and the environment,  adding that he considered                                                                    
the two things to be  inextricably linked. He furthered that                                                                    
human health and  the health of Alaskans  was dependent upon                                                                    
having clean  air to  breathe, safe food  to eat,  and clean                                                                    
water to drink  and support aquatic life.  He continued that                                                                    
it  was part  of  the  mission to  ensure  that Alaska  food                                                                    
products enjoyed a  good reputation and could  get to market                                                                    
around the  world. He  added that  DEC tried  to keep  a low                                                                    
incidence  of  (oil)  spills  in the  state,  and  tried  to                                                                    
mitigate  effects  in  order  to   not  leave  a  legacy  of                                                                    
contaminated sites for  future generations. Additionally, he                                                                    
continued,  DEC  supported  wise  resource  development  and                                                                    
community  growth.   He  explained  that  the   permits  and                                                                    
authorizations DEC  gave were often  the social  license for                                                                    
many of  the activities recently  discussed by DNR,  such as                                                                    
oil and gas, timber, mining, etc.                                                                                               
9:43:30 AM                                                                                                                    
Commissioner Hartig moved  to side 3, noting  that while DEC                                                                    
could not  claim to generate funds  such as DNR had,  it did                                                                    
add to  the quality of  life and  support the work  of other                                                                    
agencies such as  DNR. He reflected on  conditions of budget                                                                    
tightening  necessary  in  recent years,  referring  to  the                                                                    
federal sequestration,  and a 5  percent decline  in federal                                                                    
funds  for some  DEC  programs such  as  the drinking  water                                                                    
program. He  described cuts  to the  state budget,  citing a                                                                    
loss of  $1.4 million  when the  404 Permitting  Program was                                                                    
deleted  the previous  year.  He pointed  out  a 60  percent                                                                    
decline  in  Village Safe  Water  funding  from the  capital                                                                    
budget;  clarifying that  it was  over the  last decade.  He                                                                    
remarked that  DEC had tried to  manage the cuts in  part by                                                                    
holding  vacant  positions,  cutting back  on  non-essential                                                                    
expenditures such  as travel, and  looking at other  ways of                                                                    
generating revenue  through reviewing  fees. He  referred to                                                                    
what he  termed as "stress  points" in the DEC  budget, that                                                                    
were  all   related  to  the  tightening   budget  over  the                                                                    
preceding years. He discussed  the departmental vacancy rate                                                                    
of around  12 percent,  and mentioned  that the  Division of                                                                    
Spill  Prevention  and Response  (SPAR)  was  at 15  percent                                                                    
vacancy prior to the proposed  cuts. He remarked that the 12                                                                    
percent  vacancy rate  was several  percentage points  above                                                                    
the historical average, and was  reflective of the direction                                                                    
the budget was heading.                                                                                                         
Commissioner  Hartig moved  to  slide  4, "Budget  Reduction                                                                    
Criteria," and  explained that DEC  tried to use  wisdom and                                                                    
deliberation  in   considering  budget  cuts.   He  directed                                                                    
attention to the budget cut  criteria DEC had developed; and                                                                    
welcomed input  of the finance committees,  the legislators,                                                                    
and the public as to what  the foci should be for evaluating                                                                    
potential cuts.                                                                                                                 
   · Services that are mandated by statute                                                                                      
   · Services that are necessary to implement DEC's mission                                                                     
     and core responsibilities                                                                                                  
   · Services that can't be performed by local government,                                                                      
     federal government, or others                                                                                              
   · Services that will be difficult to restore                                                                                 
   · Services that are a foundation for economic growth and                                                                     
   · Services that enjoy strong public support                                                                                  
   · Services that leverage other resources                                                                                     
9:46:00 AM                                                                                                                    
Commissioner  Hartig moved  to  slide 5,  "FY 2016  Endorsed                                                                    
Budget  Request,"  and  highlighted  the  approximately  $86                                                                    
million operating  budget request.  He pointed out  that the                                                                    
UGF portion  was a little  over $20 million, and  noted that                                                                    
DEC  had the  second smallest  UGF budget  of all  the state                                                                    
agencies,  just  behind  the   Department  of  Military  and                                                                    
Veterans Affairs,  which was primarily federally  funded. He                                                                    
noted  that the  General  Fund that  DEC received  leveraged                                                                    
other  funds  on  the operating  and  capital  budgets,  and                                                                    
discussed the  necessity of having  a base of  operations in                                                                    
order  to  receive  federal  funds.  He  attested  that  the                                                                    
General  Funds  that DEC  did  have  were stretched  tightly                                                                    
among different  programs to generate  fees. He  pointed out                                                                    
that the  capital request  also leveraged  a fair  amount of                                                                    
federal receipts.  In summary he estimated  that the average                                                                    
Alaskan  paid  18 cents  per  day  in  UGF  for all  of  the                                                                    
services that DEC provided.                                                                                                     
Commissioner  Hartig moved  to slide  6, which  outlined the                                                                    
DEC operating  budget by fund  source. He pointed out  a pie                                                                    
chart  that  delineated  Federal  funds,  permit  fees,  the                                                                    
Oil/Hazardous  Release Prevention  and  Response Fund,  UGF,                                                                    
and DGF. He  directed attention to the  depiction of funding                                                                    
sources  broken  down  by   division,  commenting  that  the                                                                    
"Other"  funding category  was  significant  within the  Air                                                                    
Quality  Division.   He  explained   that  the   funds  were                                                                    
primarily  permitting fees,  and  explained that  permitting                                                                    
fees for the  Clean Air Act were required by  federal law to                                                                    
support  the   program.  He  added   that  the   funds  were                                                                    
designated  as "Other"  due  to the  fact  that federal  law                                                                    
requires  that  the funds  only  be  used in  certain  ways,                                                                    
rather than  appropriated for  other uses.  He made  note of                                                                    
the SPAR  budget, in  which a  large component  was Response                                                                    
Fund and  a small  component was UGF;  and relayed  that the                                                                    
Response  Fund  was  in  a   crisis  due  to  declining  oil                                                                    
production.  He noted  the  ongoing discussions  surrounding                                                                    
how to  make up for  the loss in  funding with UGF  or other                                                                    
9:49:18 AM                                                                                                                    
Commissioner  Hartig moved  to slide  7, showing  the budget                                                                    
changes  between the  2015  Management Plan  and  the FY  16                                                                    
Adjusted  Base.  He  pointed   out  a  9.5  percent  overall                                                                    
reduction for  DEC in  UGF from the  Management Plan  to the                                                                    
Governor's Proposed Budget. He  explained that this resulted                                                                    
in a total loss of 25  positions, equating to net loss of 24                                                                    
positions after considering their  request for an additional                                                                    
request for the Air Quality  program. He discussed a funding                                                                    
switch  between "Other"  and Federal  funds, and  said there                                                                    
was no net gain.                                                                                                                
Co-Chair  Kelly   asked  for  clarification   regarding  the                                                                    
funding switch between Federal and "Other".                                                                                     
THOMAS   CHERIAN,  DIRECTOR,   DIVISION  OF   ADMINISTRATIVE                                                                    
SERVICES,   DEPARTMENT    OF   ENVIRONMENTAL   CONSERVATION,                                                                    
explained that there  was a fund source  change from Federal                                                                    
to  "Other." Co-Chair  Kelly asked  where the  "Other" funds                                                                    
were originated.  Mr. Cherian explained that  they came from                                                                    
the Alaska Clean Water and  Drinking Water funds, which were                                                                    
managed by  federal capitalization grants. He  referred to a                                                                    
point at which programs  generate sufficient fees to support                                                                    
the management  of the program, and  suggested that scenario                                                                    
was reflective of the funding switch.                                                                                           
Co-Chair Kelly  asked how "Other"  funds differed  from DGF.                                                                    
Mr. Cherian stated that "Other"  funds were specifically for                                                                    
the management  of the loan  funds. Co-Chair  Kelly wondered                                                                    
if  it  was  appropriate  to call  "Other"  funds  DGF.  Mr.                                                                    
Cherian  reiterated   that  the   "Other"  funds   were  not                                                                    
designated as  DGF because  they had  been designated  for a                                                                    
specific  purpose.  Mr.  Cherian characterized  the  "Other"                                                                    
funds  as a  "fees generator"  issued from  clean water  and                                                                    
drinking  water laws.  He recounted  that when  the programs                                                                    
were  originally   set  up,  the  intention   was  that  the                                                                    
administration would be  supported by federal capitalization                                                                    
grants  until  which time  the  fees  would generate  enough                                                                    
funds to do  so. He clarified that the programs  were now at                                                                    
the  point where  the  fees  could do  so,  and the  funding                                                                    
source reflected the switch.                                                                                                    
9:53:21 AM                                                                                                                    
Commissioner  Hartig added  that  they  were revolving  loan                                                                    
programs   that  had   been  seeded   with  federal   money;                                                                    
subsequently  the generation  of loan  fees had  enabled the                                                                    
programs  to become  self-supporting.  The monies,  however,                                                                    
could only be  used as required under the  federal grant and                                                                    
federal law; thereby they went into the "Other" category.                                                                       
Commissioner Hartig  moved to slide 8,  "FY 2016 Significant                                                                    
Budget Changes," and described that  they would be cutting a                                                                    
position  in the  Commissioner's Office;  after the  current                                                                    
employee  retired they  would not  be  replaced. He  further                                                                    
discussed budget changes  and efficiencies in Administrative                                                                    
   · CO-Efficiencies     due     to    Reorganization     of                                                                    
     Administrative Functions: -$114.1; -1 PCN(-$43.1 UGF/                                                                      
     -$71.0 I/A)                                                                                                                
   · AS-Efficiencies     due     to    Reorganization     of                                                                    
     Administrative Functions: -$25.0 UGF                                                                                       
   · AS-Replace Federal Receipts with Existing Clean Water                                                                      
    Administrative Fees: $0.0($84.0 Other / -$84.0 Fed)                                                                         
   · AS-Rebalance Funding of Core Service Lease Costs:                                                                          
     $0.0($400.0 CAPF/$110.0 CPVEC/-$510.0 FED)                                                                                 
Commissioner  Hartig  pointed  out  that two  of  the  items                                                                    
listed were relatively minor and without budget impacts.                                                                        
Commissioner Hartig  moved to  slide 9,  "FY2016 Significant                                                                    
Budget  Changes  -  Environmental Health,"  which  listed  a                                                                    
continuation   of  significant   budget   changes  that   he                                                                    
described as  having more impact  both on the public  and on                                                                    
the department:                                                                                                                 
   · FSS-Reduce   Inspections   of   Retail   Food,   Public                                                                    
     Accommodations, and Non-Food Facilities: $869.3 UGF; -                                                                     
     8 PCNs                                                                                                                     
   · EHL-Delete two Microbiologists Positions: $170.0 UGF;                                                                      
     -2 PCNs                                                                                                                    
   · EHL-Maintain Fish Tissue Monitoring Program: $0.0                                                                          
     ($250.0 OR/-$250.0 UGF)                                                                                                    
   · DW-Reduced Capacity in Drinking Water Program: $507.3                                                                      
     UGF; -4 PCNs                                                                                                               
   · SWM-Efficiencies   due   to   Implementation   of   New                                                                    
     Regulations: $85.6 UGF; -1 PCN                                                                                             
Commissioner  Hartig  explained   that  the  department  was                                                                    
examining  looking  at  reducing  by  eight  PCNs  [Position                                                                    
Control  Numbers] in  the Retail  Food Inspection  Division,                                                                    
and  explained   that  it  would  include   restaurants  and                                                                    
individuals who  provide food directly  to the  consumer. He                                                                    
clarified  that  it  would not  include  seafood  processing                                                                    
plant inspections,  but would signify  an increased  risk to                                                                    
the public due to a  reduction in inspections of restaurants                                                                    
and other  retail facilities. He discussed  the reduction of                                                                    
two  microbiologist positions  in  the Environmental  Health                                                                    
Lab; and stated that  through greater efficiencies DEC hoped                                                                    
to  not  have  a  reduction  in  services  of  the  lab.  He                                                                    
discussed  the   Fish  Tissue  Monitoring   Program  (FTMP),                                                                    
mentioning the  statewide dependence on fish,  and contended                                                                    
that  the  health of  fish  being  exposed to  transboundary                                                                    
contamination was a legitimate  concern. He referred to data                                                                    
that  demonstrated increased  levels of  mercury in  Alaskan                                                                    
waters,    and   mentioned    public   concern,    including                                                                    
international  questions regarding  the health  of our  wild                                                                    
fish. He opined that funding  the FTMP would allow the state                                                                    
to  use data  to  take  action in  the  case  that our  fish                                                                    
reached  unhealthy  levels  of contamination.  He  explained                                                                    
that there  would be  a fund switch,  utilizing some  of the                                                                    
ocean ranger  fees that were  generated to help  support the                                                                    
FTMP. He justified  the fund switch by  elaborating that the                                                                    
work of  the FTMP would reveal  monitoring information about                                                                    
the  efficacy  of  permits  [in  protecting  water  quality]                                                                    
issued  to cruise  ships  for  treated wastewater  discharge                                                                    
that was required to meet  water quality standards set forth                                                                    
by a  citizen's initiative sometime in  the preceding years.                                                                    
He noted that the fund switch  was examined by the Office of                                                                    
Management  and Budget  as well  as the  Legislative Finance                                                                    
Division, both  of which  considered it  to be  a legitimate                                                                    
use of the ocean ranger funds.                                                                                                  
Commissioner Hartig  spoke to a  reduction of 4 PCNs  in the                                                                    
Drinking  Water Program,  explaining that  it concerned  any                                                                    
public drinking water systems that  served 25 or more people                                                                    
through   the   year.    He   discussed   numerous   federal                                                                    
requirements that  applied to  the program,  as well  as new                                                                    
national  requirements which,  he explained,  DEC had  spent                                                                    
much   time   helping  communities   (particularly   smaller                                                                    
communities) around  the state  comply with.  He articulated                                                                    
that  the  change  would  entail   a  reduction  in  aid  to                                                                    
communities, with  the expectation  that they would  look to                                                                    
the private  sector for drinking water  engineers to provide                                                                    
the  assistance formerly  provided  by the  state. He  noted                                                                    
that there would still be a  core group in the program, that                                                                    
could assist communities that could  not otherwise get help,                                                                    
but there could be a delay  in receiving the services due to                                                                    
a smaller team.                                                                                                                 
9:57:58 AM                                                                                                                    
Commissioner Hartig  continued to describe slide  9, stating                                                                    
that  DEC had  looked  at efficiencies  in  its Solid  Waste                                                                    
Program, which  dealt with landfills  it oversaw  around the                                                                    
state, noting that it would be taking a reduction of 1 PCN.                                                                     
Commissioner Hartig  summarized that DEC was  looking at the                                                                    
deletion of 16 positions in  Anchorage, 2 in Fairbanks, 2 in                                                                    
Wasilla, 1 in Valez,  and 4 in Juneau for a  total of 25. He                                                                    
referenced 1  Air Permitting  Program position  in Anchorage                                                                    
that would be added back in.                                                                                                    
Co-Chair MacKinnon  asked how many FTE  positions were being                                                                    
cut, and wondered  if the positions being  cut had incumbent                                                                    
employees, or were they a  part of an ongoing vacancy factor                                                                    
in  the  budget.  Mr.  Cherian  responded  that  of  the  24                                                                    
positions  that   were  being  deleted,  4   were  currently                                                                    
staffed. He  clarified that DEC  had been  holding positions                                                                    
vacant in the expectation  of position changes. He furthered                                                                    
that there  was funding  associated with the  positions. Co-                                                                    
Chair  MacKinnon  asked if  funds  for  the 4  positions  in                                                                    
question would  be backfilled with the  Ocean Ranger dollars                                                                    
or another  change in  funds. Mr.  Cherian responded  in the                                                                    
negative, and  clarified that the  positions would  go away,                                                                    
as well as the funding for the positions.                                                                                       
Co-Chair  MacKinnon  referred  to the  commissioner's  early                                                                    
comment regarding  increased food safety risk  due to budget                                                                    
cuts and asked  how many people were  remaining in positions                                                                    
to ensure  food safety. Commissioner Hartig  stated that DEC                                                                    
would  be  reducing  food  inspections  by  50  percent.  He                                                                    
remarked that  even before taking the  50 percent reduction,                                                                    
DEC  was  well  below  the federal  level  for  food  safety                                                                    
inspections. He  related that DEC was  taking a "risk-based"                                                                    
approach, under  which they were prioritizing  facilities to                                                                    
inspect based upon  level of risk when  considering the food                                                                    
product and consumers. Mr. Cherian  added that there were 41                                                                    
positions left in the Food  Services and Sanitation Program.                                                                    
Co-Chair MacKinnon  asked to clarify  if this was  before or                                                                    
after reduction  in positions.  Mr. Cherian  elucidated that                                                                    
after the  proposed position reductions,  there would  be 33                                                                    
positions left  in the program. Co-Chair  MacKinnon asked if                                                                    
Anchorage was included  in this number, and  wondered if the                                                                    
city  had its  own health  inspections. Commissioner  Hartig                                                                    
replied that  Anchorage had its own  inspection program that                                                                    
was operated  with state oversight  and delegation,  and was                                                                    
the only community  in the state that operated  that way. He                                                                    
spoke  to   the  challenges  of  implementing   food  safety                                                                    
programs throughout a large state.                                                                                              
10:02:16 AM                                                                                                                   
Co-Chair  MacKinnon noted  that the  marijuana bill  [SB 30]                                                                    
would soon be in the  Senate Finance Committee, and wondered                                                                    
how DEC would be involved with  regard to the food safety of                                                                    
edible  marijuana products  containing oils  or leaf  of the                                                                    
plant. Commissioner  Hartig related  that DEC  was concerned                                                                    
with such  food products  and confirmed that  the department                                                                    
had a  responsibility for processed  food in the  state, and                                                                    
to  the  extent that  individuals  would  produce food  with                                                                    
marijuana   components    they   would    statutorily   have                                                                    
repsonsibility to  make sure  it was  safe. He  relayed that                                                                    
the   Food   Safety   Program   within   the   Division   of                                                                    
Environmental   Health  had   been  "heavily   involved"  in                                                                    
discussions  with other  state  agencies on  what role  they                                                                    
might  have.  He mused  that  while  DEC  might not  have  a                                                                    
leadership role,  it may have  a role with food  safety. Co-                                                                    
Chair MacKinnon  stated that  she expected  to see  a fiscal                                                                    
note  to   reflect  any  fees  associated   with  trying  to                                                                    
ascertain  that  the food  products  were  healthy. She  was                                                                    
unsure if such a  fiscal note would be a part  of SB 30, but                                                                    
hoped that  there would be  an "adequate" fiscal  note along                                                                    
with  an associated  fee to  aid  in the  management of  the                                                                    
products for the general health of the public.                                                                                  
10:04:07 AM                                                                                                                   
Co-Chair Kelly  asked about the processing  of marijuana oil                                                                    
extraction, which  he characterized  as very  dangerous, and                                                                    
wondered if  facilities that engage in  the processing would                                                                    
fall  under   the  purview   of  DEC.   Commissioner  Hartig                                                                    
discussed food safety protocols,  and surmised that the food                                                                    
safety concerns and risks  regarding marijuana products were                                                                    
not known. He stressed the  need for development of the food                                                                    
safety standards  before being able  to regulate the  use of                                                                    
such  a  new  food  product; and  relayed  that  DEC  needed                                                                    
statutes  and  regulations in  place,  which  would need  to                                                                    
happen  in  steps.  He  added  that  there  was  no  federal                                                                    
guidance  for the  process. Co-Chair  Kelly asked  about any                                                                    
forthcoming  fiscal notes  attached to  SB 30.  Commissioner                                                                    
Hartig specified  that any fiscal  notes would be  a product                                                                    
of different  state agencies working together,  developed as                                                                    
they   received    more   clarity   about    the   statutory                                                                    
10:06:10 AM                                                                                                                   
Senator Bishop asked about  the two microbiologist positions                                                                    
proposed to be cut, and  asked how many microbiologists were                                                                    
employed by  DEC. Mr. Cherian  did not have  the information                                                                    
but  agreed  to provide  the  number  at  a later  date.  He                                                                    
reiterated  that DEC  would be  deleting two  microbiologist                                                                    
positions. Senator  Bishop referred to the  governor's State                                                                    
of the  Budget speech, in which  he discussed public-private                                                                    
partnerships,  and working  with the  University of  Alaska.                                                                    
Senator  Bishop  praised  UAF's  Life  Science  Building  in                                                                    
Fairbanks   and  urged   Commissioner  Hartig   to  consider                                                                    
utilizing  the building  and scientists  there. Commissioner                                                                    
Hartig   relayed   that   DEC   always   looked   for   such                                                                    
partnerships, and furthered  that DEC's Environmental Health                                                                    
Lab served the needs of the  state that the private labs and                                                                    
the University  generally could not.  He stressed  that they                                                                    
were  not trying  to  be in  competition  with anybody,  but                                                                    
rather to  fill a gap.  He used shellfish  Paralytic Seafood                                                                    
Poisoning (PSP)  testing (federally  required to  take place                                                                    
in a government lab) as  an example to illustrate the unique                                                                    
work  done by  the  Environmental Health  Lab. He  explained                                                                    
that the  PSP testing was  not economical for a  private lab                                                                    
to do; DEC  had spent over $400 per sample  in doing the PSP                                                                    
tests.  Further, the  fees didn't  even begin  to cover  the                                                                    
costs. He noted that the  shellfish testing was a service to                                                                    
the state;  however it  and other general  work done  by the                                                                    
DEC lab were  not services that could be  easily turned over                                                                    
to the private sector.                                                                                                          
Senator  Bishop  followed  up   to  say  that  Holland  [the                                                                    
Netherlands] had  done a lot  of work in the  edibles safety                                                                    
area,  and there  was likely  a  large body  of research  to                                                                    
10:08:50 AM                                                                                                                   
Senator Hoffman discussed when Alaska  took over primacy for                                                                    
the National Pollutant  Discharge Elimination System (NDPES)                                                                    
wastewater discharge  permitting and compliance  program. He                                                                    
relayed  that  the  change  had  an  associated  expense  of                                                                    
greater than  $4 million annually,  and wondered if  DEC had                                                                    
reviewed the  benefits the state had  received from managing                                                                    
the primacy.  He further  inquired as  to what  other states                                                                    
were  doing in  the same  field and  whether NDPES  had even                                                                    
been considered  for budget reductions.  Commissioner Hartig                                                                    
responded that it was critical for  the state to have a good                                                                    
wastewater discharge  permitting program. He  recounted that                                                                    
the Environmental Protection Agency  (EPA) had delegated the                                                                    
program  to the  state in  2008.  He noted  that during  the                                                                    
discussions  regarding  the  state  taking  primacy  of  the                                                                    
program, there  was significant public concern  that the EPA                                                                    
was far  behind in  issuing permits.  He specified  that the                                                                    
EPA  had only  one  permit rider  in Alaska,  and  a few  in                                                                    
Seattle. He discussed differing  conditions in the state and                                                                    
how   that  affected   efficacy  of   the  permit   process.                                                                    
Additionally,   he  noted,   the   EPA   was  only   issuing                                                                    
approximately six  permits per year; the  seafood processers                                                                    
were  using out-of-date  permits, and  new processors  could                                                                    
not  get  a  permit.  He  continued  that  when  Alaska  got                                                                    
delegation of the  program, we inherited a  large backlog of                                                                    
permit  requests. He  reported  that  currently, DEC  issued                                                                    
more than  19 permits per  year and over  700 authorizations                                                                    
or general  permits per year.  He contended that  holding at                                                                    
the current budget,  DEC could keep up with  the permit load                                                                    
for the  next two years  while working with the  backlog. He                                                                    
characterized NDPES  as a "growing program"  and judged that                                                                    
it  was a  ten-year  endeavor to  acheive optimization,  and                                                                    
concluded  that it  was positively  serving  the public  and                                                                    
industry around the state.                                                                                                      
10:11:40 AM                                                                                                                   
Commissioner Hartig  referred to  slide 10,  explaining that                                                                    
the  Air  Quality program  was  the  only  area to  which  a                                                                    
position would  be added. He  explained that the  Air Permit                                                                    
program   was   a   delegated   program,   much   like   the                                                                    
aforementioned NDPES.  He specified  that the state  had had                                                                    
the  delegated air  program  from the  EPA  for decades.  He                                                                    
explained that one  of the critical permits  that DEC issued                                                                    
under  the program  was  called a  Construction  or Title  1                                                                    
Permit;   a  permit   which  must   be  obtained   prior  to                                                                    
construction  of  a  facility.   He  described  a  modelling                                                                    
process  under which  air  quality  standards were  measured                                                                    
based on hypothetical iterations  of the building project to                                                                    
quantify emissions  and effects  that were required  to meet                                                                    
health-based  standards.   He  listed  Point   Thomson,  LNG                                                                    
facilities,  gas facilities,  gasification  plants, and  new                                                                    
power  plants  as examples  of  facilities  needing the  air                                                                    
program  permit.  He referred  to  them  as "very  expensive                                                                    
projects that can't be delayed,"  and expressed that DEC was                                                                    
experiencing a  bottleneck in the modeling  process that was                                                                    
causing them  to get behind.  The addition of  the position,                                                                    
he explained,  was an attempt  to relive the  bottleneck. He                                                                    
discussed the  Point Thomson liquid  natural gas  project as                                                                    
an example;  and relayed that  DEC had been through  four or                                                                    
five  iterations of  the permit,  a process  necessitated by                                                                    
changes  in design  that required  repeated re-modeling  and                                                                    
analysis  of  over  200  independent  emission  sources.  He                                                                    
described  the  reduction  in  the  SPAR  fund,  citing  the                                                                    
decline  in oil  production  resulting in  less money  going                                                                    
into  the fund.  He noted  that DEC  was looking  at cutting                                                                    
four   positions,   largely   being   accomplished   through                                                                    
reorganization that would combine  several programs and gain                                                                    
10:14:27 AM                                                                                                                   
Commissioner   Hartig  moved   to  slide   11,  illustrating                                                                    
reorganizations that reflected budget changes:                                                                                  
   · WQ-Efficiencies     due     to    Reorganization     of                                                                    
     Administrative Functions-$95.0 UGF; -1 PCN                                                                                 
   · WQ-Offset Ocean Ranger Fees for Fish Tissue Monitoring                                                                     
     Program-$250.0 OR                                                                                                          
   · WQ-Delete Environmental Program Manager-$103.4 UGF; -1                                                                     
   · FC -Replace Federal Receipts with Existing Clean Water                                                                     
     Administrative Fees$0.0($700.0 Other/-$700.0 Fed)                                                                          
   · FC-Maintain Operator Certification Program$0.0($101.1                                                                      
     DGF/-$101.1 Fed)                                                                                                           
Commissioner     Hartig    pointed     out    administrative                                                                    
reorganization  in Water  Quality,  the fund  switch in  the                                                                    
FTMP  program, and  a fee  increase in  the water  treatment                                                                    
Operator  Certification Program.  He additionally  mentioned                                                                    
possible fee increases in Air Quality and Water programs.                                                                       
Senator  Olson   asked  about  the   Operator  Certification                                                                    
Program,  and wondered  how many  operators were  in smaller                                                                    
communities  to  aid  in  providing   water  and  sewer  the                                                                    
villages.  Commissioner Hartig  responded that  the majority                                                                    
of the  operators were in  small communities.  Senator Olson                                                                    
noted the  importance of potable  water in the  rural areas,                                                                    
discussed revenue  sharing, and asked what  the back-up plan                                                                    
was to ensure  that the water and  sewer facilities remained                                                                    
open.  Commissioner  Hartig  relayed  that  DEC  planned  on                                                                    
having a  single point of  contact for small  communities to                                                                    
reach  the  department  for  water   and  other  issues.  He                                                                    
expressed that  it was  the intention  of the  department to                                                                    
rethink  and  readjust  in the  eventuality  of  a  systemic                                                                    
problem  being  identified.  Senator   Olson  asked  if  the                                                                    
department had the regulatory authority  to impose fines and                                                                    
penalties  in  the  case  of  individuals  being  unable  to                                                                    
maintain  certification.  Commissioner Hartig  relayed  that                                                                    
DEC  did  have  the  authority,   however  it  was  not  the                                                                    
department's intention to  penalize individuals; rather, its                                                                    
goal was to make sure  the systems were operating to provide                                                                    
the health benefits to the people in the communities.                                                                           
10:19:01 AM                                                                                                                   
Co-Chair Kelly  asked about the  SPAR program,  and wondered                                                                    
if  DEC  had  a  contingency  plan in  the  event  that  the                                                                    
legislature did  not approve the  supplemental appropriation                                                                    
of  $3.1   million  from   the  lapsing   municipal  grants.                                                                    
Commissioner Hartig explained that  there were three sources                                                                    
of  funds  for the  Response  Fund:  the  4 cents  a  barrel                                                                    
surcharge  on  crude  oil  production   in  the  state,  the                                                                    
interest   income  on   the   response   account,  and   and                                                                    
statutorily  required  cost   recovery  against  responsible                                                                    
parties  that is  appropriated by  the legislature  into the                                                                    
response  fund.  He remarked  that  all  three of  the  fund                                                                    
sources were variables, and the  DOR estimated the amount of                                                                    
income  based  upon  oil  production.  In  turn,  DEC  (with                                                                    
assistance from the Department of  Law) estimated the amount                                                                    
of cost  recovery for DEC.  He pointed  out that DEC  had no                                                                    
ultimate control  over the variables, and  basing funding on                                                                    
projected revenues  that do  not meet  expectations resulted                                                                    
in a budget short fall.  He recounted that budget shortfalls                                                                    
had not been a  problem in the past due to  a surplus in the                                                                    
fund that could  be drawn upon if needed. He  referred to an                                                                    
FY 15 settlement that did not  come in, as well as projected                                                                    
interest income that did not  materialize; which resulted in                                                                    
an  approximately  $2.1  million  shortfall  in  FY  15.  He                                                                    
relayed that DEC had  immediately started implementing cost-                                                                    
saving measures, and referenced  the 15 percent SPAR vacancy                                                                    
rate as  evidence. He clarified  that the  entire department                                                                    
had also engaged  in cost saving measures.  He revealed that                                                                    
of the original  $2.1 million from FY 15, DEC  was left with                                                                    
a remaining shortfall of approximately  $800,000 on top of a                                                                    
projected $1.9  million shortfall for  FY 16. He  added that                                                                    
the  total  projected  shortfall   for  FY  16  included  an                                                                    
assumption that  they would receive a  $5 million settlement                                                                    
from the federal government that  was largely negotiated but                                                                    
not  yet finalized.  He  clarified that  if  the $5  million                                                                    
settlement was  received before June  30, 2015, it  would be                                                                    
subject to appropriation for the FY 16 budget.                                                                                  
Commissioner  Hartig discussed  impacts to  the budget,  and                                                                    
related  that   if  DEC  did   not  receive   the  requested                                                                    
appropriation, they would be immediately  impacted in FY 15,                                                                    
considering the $800,000  gap. He continued that  DEC was so                                                                    
far in  to the  fiscal year, that  the layoffs  necessary to                                                                    
balance   the   budget   would  be   significant,   equaling                                                                    
approximately  35  full-time  positions. He  continued  that                                                                    
under  the labor  agreements, departments  were required  to                                                                    
give layoff  notices a  minimum of 12  weeks in  advance for                                                                    
budgetary reasons.  He reiterated  the short  time remaining                                                                    
in  the fiscal  year  to  make up  for  the $800,000  budget                                                                    
shortfall.  He described  the  appropriation  to be  capital                                                                    
funds on projects  that were completed. He  asserted that by                                                                    
doing  the reappropriation  directly  in  to the  prevention                                                                    
account, it would  allow DEC to be able to  deal with the FY                                                                    
15 problem. He  clarified that if the  department was forced                                                                    
to  wait for  the funds  in the  supplemental budget,  there                                                                    
would be timing issue.                                                                                                          
Commissioner Hartig  continued to describe a  shortfall that                                                                    
would  extend into  FY 16,  and noted  that the  expected $5                                                                    
million "Aniak  School Settlement"  would affect  the budget                                                                    
differently  depending  on  when  in  the  budget  cycle  it                                                                    
10:25:31 AM                                                                                                                   
Co-Chair  Kelly asked  if the  use  of SPAR  funds went  far                                                                    
beyond spills.  Commissioner Hartig mentioned  the statutory                                                                    
language that created  the response fund and  noted that the                                                                    
fund comprised  of the prevention  account and  the response                                                                    
account.  He clarified  that the  response  account was  for                                                                    
"eminent  and substantial"  spills,  and  spills alone.  The                                                                    
prevention account, he explained,  ran the operating side of                                                                    
SPAR, totaling  $15 million of  the $20 million  budget, and                                                                    
included  a  fair amount  of  federal  and other  funds.  He                                                                    
furthered  that the  prevention  fund  paid for  prevention,                                                                    
preparedness, and  response. He further likened  it to DNR's                                                                    
description  of  the  importance of  fire  preparedness  and                                                                    
explained that prevention was crucial  in the mitigation and                                                                    
treatment of  toxics spills,  and was a  key element  of the                                                                    
program.  He furthered  that  the  prevention component  was                                                                    
funded from the  4 cents per barrel surcharge  on crude oil,                                                                    
and included  activities such  as detailed  contingency plan                                                                    
preparation,  drills and  inspections, as  well as  response                                                                    
and clean-up.  He listed contingency plan  details for large                                                                    
tank  farms,   vessels,  exploratory  drilling,   and  large                                                                    
pipelines;   such  as   prevention  plans,   spill  response                                                                    
resource planning, and localized  areas to protect. He added                                                                    
that  there   was  some  cost  recovery   from  clean-up  of                                                                    
contaminated sites,  and some  of the  cost was  funded back                                                                    
through responsible  parties and reappropriated back  by the                                                                    
legislature.  He  concluded that  prevention,  preparedness,                                                                    
and response  were all partially  funded by the 4  cents per                                                                    
barrel surcharge.                                                                                                               
10:28:17 AM                                                                                                                   
Co-Chair  Kelly asked  how many  of  the contaminated  sites                                                                    
were not pipeline or oil  field related. Commissioner Hartig                                                                    
relayed  that there  were about  2,000  reported spills  per                                                                    
year,  the majority  of which  were  small refined  products                                                                    
from  fishing  vessels,  home fuel  tanks,  and  trucks.  He                                                                    
mentioned  the  importance  of considerations  such  as  the                                                                    
spill content,  location, and volume. He  estimated there to                                                                    
be 10 to 20 spills of a  size that required a fair amount of                                                                    
state  resources on  the response,  and 6  or so  that might                                                                    
make front  page news for  their magnitude. He  relayed that                                                                    
he  would provide  data to  reflect the  number, types,  and                                                                    
sources of  spills to the  committee. He qualified  that the                                                                    
bulk of the  spills were refined products  such as gasoline,                                                                    
aviation fuel,  diesel-type fuels, home heating  fuels, etc.                                                                    
He  noted   that  the  larger   spills  were   often  marine                                                                    
transportation spills and  spills related to oil  and gas or                                                                    
mining industry.                                                                                                                
Co-Chair  Kelly stated  that it  was his  understanding that                                                                    
the fund was set up for  oil spills related to the pipeline,                                                                    
and associated to  the transport of oil. He  wondered if the                                                                    
money collected  from oil  generation was  used to  clean up                                                                    
numerous things other  than oil-related spills. Commissioner                                                                    
Hartig replied  in the  affirmative and  noted that  DEC was                                                                    
examining the  question of fairness  of requiring  the crude                                                                    
oil  industry to  fund all  of the  prevention and  response                                                                    
without   some   contribution   from   the   companies   and                                                                    
individuals who store, transport,  and use refined products.                                                                    
He added  that DEC was looking  at ways (with the  help of a                                                                    
number of legislators) to get  income into the response fund                                                                    
prevention account and more fairly  spread the costs amongst                                                                    
those  who  benefit  from  those  services.  Co-Chair  Kelly                                                                    
related  that his  understanding of  the original  intent of                                                                    
the  fund  was  for  response  to a  crude  oil  spill,  and                                                                    
wondered  if companies  that produce  oil  were required  to                                                                    
have   spill   response  mechanisms.   Commissioner   Hartig                                                                    
affirmed  that   companies  were   required  to   have  such                                                                    
mechanisms, and related  that after the oil  spill in Valdez                                                                    
in  1989,  there  were  changes in  federal  and  state  law                                                                    
relating to  drilling and transport  of crude  oil. Co-Chair                                                                    
Kelly asked what volume was  required to constitute a spill.                                                                    
Commissioner  Hartig stated  that  it varied,  and that  DEC                                                                    
evaluated the appropriate response  based on initial contact                                                                    
made to DEC. In the case  of impact on human health, safety,                                                                    
or environment; DEC would have  a heavier role. He explained                                                                    
that crude  oil by  its nature was  more problematic  in the                                                                    
environment and  received more  attention, whereas  a diesel                                                                    
fuel spill  could volatize and dissipate  without having the                                                                    
same level of  toxicity. He shared that  crude oil companies                                                                    
often had relationships with co-ops  in the state that would                                                                    
help  them respond,  and  DEC worked  with  industry on  the                                                                    
response. Co-Chair Kelly stated  that they could discuss the                                                                    
particulars further in subcommittee.                                                                                            
10:34:38 AM                                                                                                                   
Vice-Chair  Micciche expressed  that  he  was interested  to                                                                    
have  an  additional  meeting   to  include  Senate  Finance                                                                    
Committee members; DEC and SPAR  staff; DOR; and Pat Pitney,                                                                    
Director,  Office of  Management and  Budget, Office  of the                                                                    
Governor.  He mentioned  topics  of  immediate budget  gaps,                                                                    
statutory language issues, longer-term  funding, and caps on                                                                    
the funds.  He relayed  that the other  body was  looking at                                                                    
"some complicated methods of solving  the problem" and mused                                                                    
that potentially  they [the Senate Finance  Committee] might                                                                    
have a simpler solution.                                                                                                        
Co-Chair  MacKinnon  asked  what  volume  was  required  for                                                                    
reporting of an oil  spill. Commissioner Hartig replied that                                                                    
under  state law  there were  triggers based  on volume  and                                                                    
area  for spills  on land;  whereas any  amount of  spill on                                                                    
water must be reported. He  qualified that not all spills on                                                                    
land were required to be reported to DEC.                                                                                       
Co-Chair MacKinnon referred to  DEC's projected $1.9 million                                                                    
shortfall for FY 16, and wondered if it took into account                                                                       
the 35 employee layoffs  that Commissioner Hartig had spoken                                                                    
of when  referring to  the $800,000  budget shortfall  in FY                                                                    
15.  Commissioner Hartig  replied that  he had  calculated a                                                                    
necessitated 15  full-time employee  layoffs as a  result of                                                                    
the  projected $1.9  million shortfall  in  FY 16.  Co-Chair                                                                    
MacKinnon   suggested  that   Commissioner  Hartig   provide                                                                    
information  at  a  later  date   to  clarify  matters,  and                                                                    
wondered if the  35 positions would be  temporary layoffs or                                                                    
position eliminations. Commissioner  Hartig discussed the FY                                                                    
15 approved budget, and suggested  that the problem was that                                                                    
the funds were not available  when needed; and the shortfall                                                                    
necessitated   layoff   notices,    although   perhaps   not                                                                    
eliminations.  He   clarified  that  when   considering  the                                                                    
projected  $1.9 shortfall  for  FY  16, notwithstanding  the                                                                    
aforementioned 35  positions, it would equate  to the layoff                                                                    
of approximately 15 positions.                                                                                                  
10:38:49 AM                                                                                                                   
Mr. Cherian explained  that in light of  the short remaining                                                                    
time  in  FY  15  (exacerbated  by  contractually  obligated                                                                    
timeframes  for  layoffs),  to   make  up  for  an  $800,000                                                                    
shortfall, it was necessary to  cut as many as 35 positions.                                                                    
Conversely,  in  FY 16  it  was  only  necessary to  cut  15                                                                    
positions to  make up  for a $1.9  million shortfall  over a                                                                    
fiscal year.                                                                                                                    

Document Name Date/Time Subjects
022315 SFC DEC Overview.pdf SFIN 2/23/2015 9:00:00 AM
SB 27
022315 SFC DNR Budget Overview.pdf SFIN 2/23/2015 9:00:00 AM
SB 27