ARIZONA HOUSE OF REPRESENTATIVES
Forty-ninth Legislature – First Regular Session
Minutes of Meeting
House Hearing Room 1 -- 2:00 p.m.
Chairman Kavanagh called the meeting to order at 2:13 p.m. and attendance was noted by the secretary.
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Ms. Cajero Bedford |
Mr. Jones |
Ms. Sinema |
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Mr. Campbell CL |
Mrs. McLain |
Mr. Williams |
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Mr. Court |
Mr. Murphy |
Mr. Biggs, Vice-Chairman |
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Mr. Heinz |
Mr. Schapira |
Mr. Kavanagh, Chairman |
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Mr. Crandall |
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HB2129 – DP (11-0-0-2) |
HB2425 – DP (10-0-0-3) |
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HB2308 – DP (10-0-0-3) |
HB2448 – DP (10-0-0-3) |
CONSIDERATION OF BILLS
HB2425 – state treasurer; management fees – DO PASS
Vice-Chairman Biggs moved that HB2425 do pass.
Mike Huckins, Majority Research Analyst, explained that HB2425 decreases management fees and changes the manner in which the State Treasurer receives the appropriated operating budget (Attachment 1).
Dean Martin, State Treasurer,
said a few years ago he requested permission to lower the management fees from
eight basis points to six basis points which, in addition to making other
improvements in the office, attracted more investment dollars to local
governments (about
$1 billion). This bill brings the cap down to what the fees are now to give
local governments assurance that the fees will not increase later. The bill
also allows for a monthly amount to be taken from the management fees instead
of an appropriation up front, which provides about
$2.5 million of one-time cash flow relief to the state.
Vice-Chairman Biggs announced the names of those who signed up in support of HB2425 but did not speak:
Bryan Ginter, representing self
Jen Sweeney, Government Affairs Director, Arizona Association of Counties
Jeffrey Kros, Legislative Director, League of Cities & Towns
Question was called on the motion that HB 2425 do pass. The motion carried by a roll call vote of 10-0-0-3 (Attachment 2).
HB2129 – state aviation fund; grants – DO PASS
Vice-Chairman Biggs moved that HB2129 do pass.
Daniel Plumhoff, Majority Assistant Research Analyst, explained that HB2129 changes the formula for determining the maximum amount of grants available from the State Aviation Fund by specifying that the total amount of grant monies available for award in any fiscal year shall be based on the average annual revenue the fund received for the past three years (Attachment 3).
Vice-Chairman Biggs announced the names of those who signed up as neutral on HB2129 but did not speak:
Al Preciado, Senior Vice President/Broker, representing self
Michael Racy, Lobbyist, Arizona Airports Association, spoke in support of HB2129. He stated that this is a bookkeeping change to calculate the maximum grant an airport can receive. Current statute requires that no airport may receive a grant in excess of 10 percent of the fund balance, but because of fund sweeps there is no fund balance, so this changes the base of that calculation to 10 percent of the three-year rolling average of revenues in the fund.
Vice-Chairman Biggs announced the names of those who signed up in support of HB2129 but did not speak:
Joseph Husband, Past President, Arizona Airports Association
Bryan Ginter, representing self
Rob Dalager, City of Phoenix Sky Harbor Airport
Connie Tucker, Management Analyst, City of Prescott
Mike Gardner, Arizona Airports Association
Bruce Coomer, Executive Director, Arizona Association for Economic Development
Paul Jepson, Assistant to the City Manager, City of Maricopa
Stacy Howard, Regional Representative, Aircraft Owners and Pilots Association
Question was called on the motion that HB2129 do pass. The motion carried by a roll call vote of 11-0-0-2 (Attachment 4).
HB2308 – residential contractors’ recovery fund – DO PASS
Vice-Chairman Biggs moved that HB2308 do pass.
Daniel Plumhoff, Majority Assistant Research Analyst, explained that HB2308 allows the Registrar of Contractors to allocate 14 percent of prior fiscal year revenues deposited into the Residential Contractor’s Recovery Fund for operational and administrative purposes (Attachment 5).
Tyler Palmer, Budget Analyst/Legislative Liaison, Registrar of Contractors, spoke in support of HB2308. He said the bill deals with the Recovery Fund and will be helpful in mitigating fund sweeps.
Vice-Chairman Biggs announced the names of those who signed up in opposition to HB2308 but did not speak:
Bryan Ginter, representing self
Al Sengstock, Community Services Manager, Town of Prescott Valley
Vice-Chairman Biggs announced the names of those who signed up in support of HB2308 but did not speak:
Farrell Quinlan, Arizona Contractors Association
Debra Margraf, Executive Director, Arizona Chapter, National Electrical Contractors
Question was called on the motion that HB2308 do pass. The motion carried by a roll call vote of 10-0-0-3 (Attachment 6).
HB2448 – national guard; morale, welfare fund – DO PASS
Vice-Chairman Biggs moved that HB2448 do pass.
Calvin Bovee, Majority Intern, explained that HB2448 redacts the mandate that the support personnel of the Morale, Welfare and Recreational Fund be employees of the fund and not of the state (Attachment 7).
Edward Flinn, Director, Department of Emergency and Military Affairs, spoke in support of HB2448. He said the fund is used to pay for an employee and unit activities, specifically when units return from deployment overseas. The bill will facilitate Title 10 funding. In response to a question, he explained that an employee arranges trips at discounted rates for service members and their families, but the trips are not paid for from the fund.
In response to questions, Mr.
Flinn clarified that it is not the intent that the employee be an employee of
the state and agreed to work on the language on Page 1, line 8, of the bill.
He advised that the average balance of the fund fluctuates depending on how
many unit activities occur and the salary of the person coordinating activities
for the soldiers.
Vice-Chairman Biggs announced the names of those who signed up in opposition to HB2448 but did not speak:
Bryan Ginter, representing self
Vice-Chairman Biggs announced the names of those who signed up in support of HB2448 but did not speak:
Andrew Carlson, Government Affairs Representative, Department of Emergency & Military Affairs
Chairman Kavanagh stated that Vice-Chairman Biggs will work with the National Guard on the language to change who the employee works for so federal funds can be acquired for this program.
Question was called on the motion that HB2448 do pass. The motion carried by a roll call vote of 10-0-0-3 (Attachment 8).
FY 2009 – 2010 AGENCY BUDGET HEARINGS
Attorney General
Marge Zilla, Joint Legislative
Budget Committee, reviewed Pages 2 through 5 of the handout relating to the
Attorney General (AG) (Attachment 9). She advised that the Detailed Lists of
Budget Options by Agency, at the Chairman’s request, has a new format that
incorporates
the FY 2009 changes from the recently enacted Special Session in the FY 2009 column,
and the FY 2010 Options are reflective of that FY 2009 column. A brief discussion
occurred about the change in format. Ms. Zilla reviewed Page 6 of the handout
regarding Proposed Budget Reconciliation Bill Changes for the AG (Attachment
9).
Terry Goddard, Attorney General, provided a handout showing the major areas of responsibility of the AG’s Office (Attachment 10). He related that the AG’s office handles felony appeals from all 15 counties and conducts prosecution investigations of complex financial crimes and organized crime efforts, such as incursions on the border, i.e., human smuggling, drug smuggling, arms smuggling into Mexico and the illegal transportation of large amounts of cash. He noted that the AG’s office took the Baptist Foundation forward to conviction, indicating that $550 million was lost by investors.
He reviewed some of the anti-smuggling cases investigated and/or prosecuted by the AG’s Office: Operation River Walker 2008 (one of the largest human smuggling take-downs in Arizona history); Operation En Fuego 2008 (35 indicted, 12 arrested on felony smuggling and money laundering charges); and Operation Tumbleweed 2008 (one of the largest drug trafficking take-downs in Arizona history) (Attachment 11).
Mr. Goddard related that because of the actions the Appropriations Committee and Legislature have had to take in terms of the budget, additional legal claims have come forward, such as lawsuits by the Farm Bureau, Arizona Power Authority and others, challenging the last round of sweeps. Claims have been filed against the State Land Department about state trust land that was sold to individuals who were not able to develop it, as anticipated, and now want their money back. Also, some contracts were cancelled by state agencies and the AG’s Office has been called upon to give advice, and if necessary, defend the state’s action. Difficult economic times have led to child abuse; dependency cases are increasing and consumer fraud is increasing. He stated that in the last year, $2.5 billion of claims were made against the state and were settled in trial or negotiation, for a total of $7.6 million. He said it is far cheaper to use the resources of the AG’s Office as opposed to outside counsel under contract.
Mr. Goddard reviewed a handout showing the revenue generated by the AG’s office last year amounting to $208.6 million (Attachment 12). He added that the AG’s Office also defends laws passed by the Legislature, such as five cases against the tax credit program passed five years ago and the recent Superior Court decision in the case against Maricopa County to protect Luke Air Force Base.
Referring to the budget reconciliation items on Page 6 (Attachment 9), Mr. Goddard expressed appreciation for the footnote relating to the Legal Services Cost Allocation Fund. He pointed out that much of the agency funding is from Interservice Agreements (ISAs) that will also be reduced as agency budgets decrease, so he appreciates recognition of that fact.
In closing, he said the AG’s Office has been extremely fiscally conservative and stringent, with only 2.4 more positions from when he took office six years ago. The AG’s Office improves public safety in Arizona. Over half of the General Fund appropriation goes to criminal appeals and criminal prosecutions, so any reductions in addition to what was taken in the last cycle will significantly reduce the security and safety of Arizonans. He is concerned about the ability of the State Legislature to protect funds against outside litigation, which he anticipates will increase in the months ahead.
Mr. Goddard responded to questions concerning the impact and ramifications if not enough resources are provided to go after human smugglers, ID thieves, etc., the possibility of county attorneys taking over appeals at the county level, the possibility of charging agencies more for services, ISAs, reasons for litigation against the state, the impact further cuts could have on criminal appeals, and Racketeer Influenced and Corrupt Organizations (RICO) funds.
Arizona Corporation Commission
Juan Beltran, Joint Legislative Budget Committee, reviewed Pages 7 through 9 of the handout relating to the Arizona Corporation Commission (ACC) (Attachment 9).
Kris Mayes, Arizona Corporation Commissioner, Arizona Corporation Commission (ACC), stated that she recognizes the very difficult task of the Legislature. The ACC budget was deeply cut over the last few years, and Page 8 demonstrates that at least with regard to General Fund monies, which took a cut of about 25 percent between 2008 and 2009. She noted that the ACC actually uncovered the fraud by the Baptist Foundation mentioned by Mr. Goddard, and did most of the investigation before handing it over to the AG’s Office, so she is very proud of the ACC’s Securities Division.
She indicated that she understands the Chairman’s Options are options, but if all were to be implemented, the ACC’s duties as commissioners and elected officials would be difficult to carry out. In particular, it would be difficult to set just and reasonable rates for utility customers, the ability to facilitate incorporation of businesses in Arizona would be hamstrung, and it would be difficult to carry out duties in the Securities Division. For the last few years, the ACC has been extremely conservative in hiring and has a 14 percent vacancy rate. A few years ago she thought more people needed to be hired and the Commission was accused of regulatory lag, but she lost that battle and now she is glad. With that 14 percent vacancy rate, the ACC was able to survive 2009. She pointed out that the General Fund allocation is only 15 percent of the total budget as 85 percent is derived from other funds; in fact, the ACC contributed $26 million to the General Fund in 2008.
Chairman Kavanagh said that while the General Fund appropriation took a reduction, the overall agency budget is up by about $500,000. He asked to what extent the increases in non-General Fund revenues lessen the effect of General Fund reductions. Ms. Mayes said one other statistic she failed to mention is that 50 percent of the overall budget is from the Utility Revolving Fund, which is a small assessment that appears on everyone’s monthly utility bill. This fund was swept in the last few years, so the ACC ended up raising the fee. One of the options listed is an actual expenditure reduction, which makes it even more difficult; some very difficult decisions would have to be made as the result of that. She said the Utility Revolving Fund fee or the Securities Fund Fee can be raised, and there is a bill before the Legislature to do that, but there are some difficulties about passing the rulemaking prohibition.
Chairman Kavanagh asked what percentage of the overall budget is spent establishing renewable energy mandates for utilities. Ms. Mayes indicated that one employee works on those issues, in addition to the commissioners, but a minimal amount of time is required compared to all of the cases.
Vice-Chairman Biggs remarked that it looks like the State of Arizona Public Access System (STARPAS) took a hit and asked the progress of the program.
Michael Kearns, Interim Executive Director, Arizona Corporation Commission (ACC), advised that at the end of this fiscal year, there should be enough money in FY 2010 to finish what needs to be done that year. A lot of programming needed to be done this year and it is on track. He explained that the ACC currently has a system called STARPAS, which will have the new name STARPLUS. It is the database constituents see on the Internet with information on corporations. The code will be updated and many forms will be automated to be more electronically friendly and bring the system into the 21st Century.
Gary Pierce, Commissioner, Arizona Corporation Commission (ACC), remarked that it is important to have flexibility within the budget. Regarding the Utility Revolving Fund, he said when there is a regulatory lag because of understaffing, which is already beginning to happen because of intentional hiring freezes in these areas, bonding costs increase and interest rates are higher. These increases are passed on to ratepayers; therefore, sweeping too much of that fund could result in a rate increase to ratepayers because of how the bonding ability of the company is judged.
Department of Commerce
Eric Billings, Joint Legislative Budget Committee, reviewed Pages 10 through 13 of the handout relating to the Arizona Department of Commerce (DOC) (Attachment 9) and responded to questions concerning the State Energy Program, Weatherization Program, the Energy Efficiency and Conservation Block Grant Program and fund transfers.
Kent Ennis, Interim Director, Arizona Department of Commerce (DOC), related that the DOC is associated with business and community development attraction and retention and development of high wage jobs in the state. Last year, DOC became the state’s statistical center for federal labor market data and the population estimates and forecasting center. That is why the partnership with the Census Bureau that will come up in 2010 is so important to federal funding, which is based on programmatic levels as well as all state revenue sharing. He said the last two years have been very difficult because of significant cuts. An official layoff or furlough policy has not been adopted yet, but over the past year, DOC lost 19 staff almost all on the General Fund due to attrition. Currently, there are 113 staff with only 37 on the General Fund.
He stated that in the last three years, DOC worked with 131 companies statewide on attraction to or expansion in Arizona, 30 of which were in rural areas where the impact is larger. In FY 2008, before the downturn, DOC documented 7,000 jobs, payroll was at $286 million annually, with capital budgets of those companies at $521 million. He said he is very excited that the Energy Office, which is federally funded, is about to be one of the recipients of federal energy programs. He is working with the Governor’s staff to determine the uses of the money. He noted that every state has a DOC with varying levels of success. There are no private examples in the country. Michigan and Florida have public-private partnerships by which the states continue to provide millions upon millions of dollars, and they also have much larger corporations.
Mr. Ennis responded to questions concerning the federal stimulus package, the International Trade Offices, the National Law Center/Free Trade, rural economic development, the Job Training Fund and allocation of funds for weatherization.
Arizona Department of Administration (ADOA)
Dan Hunting, Joint Legislative Budget Committee, reviewed Pages 14 through 17 of the handout relating to the Arizona Department of Administration (ADOA) (Attachment 9) and responded to questions.
Bill Bell, Director, Arizona Department of Administration (ADOA), said ADOA has a unique funding arrangement that he would like Paul Shannon to explain.
Paul Shannon, Assistant Director for Budget and Resources Planning, Arizona Department of Administration (ADOA), reviewed a handout relating to ADOA’s budget (Attachment 13). In response to a question, he advised that ENSCO is a financial obligation the state assumed in the early 1990s involving land near Mobile, Arizona in southwestern Maricopa County. ENSCO wanted to build a hazardous waste facility on the land, but there was opposition by residents in the area, so the state bought the land and compensated ENSCO for future revenues that would have been generated for disposal of hazardous waste. It was funded with a 20-year certificate of participation out of ADOA’s budget. ADOA does not receive any benefit, but does manage the land.
Mr. Bell indicated that the land has discarded tires and other rubbish that ADOA spent the last year trying to control so a major catastrophe does not occur that could cause problems for residents in the area. Mr. Shannon advised that the ENSCO contract will end in 2010.
In response to a question, Mr. Bell indicated that he does not anticipate any funding for the African American Commission and other programs presently.
Alan Ecker, Legislative Liaison, Arizona Department of Administration (ADOA), related that legislation required ADOA to conduct an analysis to determine what it would cost if the Arizona State School for the Deaf and Blind (ASDB) was under the umbrella of the ADOA personnel system. The analysis determined it would cost just over $5 million, mainly because annual leave and holiday time is calculated differently for a teacher than a traditional state employee due to the 10-month schedule versus a year-round salary. ADOA proposed that a simple solution to avoid the $5 million impact would be to change the probationary periods within the ASDB system to mirror the ADOA system and have grievance procedures go to the State Personnel Board rather than the ASDB Board, which can be done for free. This solution was conveyed to Representative Steve Farley and proponents are in support, as well as ASDB administrators. As far as raises for teachers, some would make more and some would make less because the salary ranges are different; however, when ADOA met with Representative Farley, a person present from the union representing employees was also in favor of the solution.
In response to a question, Mr. Bell said he believes ADOA is up-to-date on review of agency plans for layoffs. With the reduction in the Human Resource Division, there may have been some delays, but everything has been done to expedite the process. When Ms. Sinema stated that employees received short notice of layoffs, Mr. Bell said that happened in ADOA. Information was received on target cuts and it was determined that in order to meet the cuts, layoffs had to begin immediately, so layoffs began on Thursday and the next payroll cycle began on Friday.
Ms. Sinema commented that it is unfortunate that the fiscal situation is such that people are being laid off who provided good service to the state at pay levels that are much below the prevailing wage in the private sector. Chairman Kavanagh surmised that she is speaking for the entire Committee.
Department of Housing
Eric Billings, Joint Legislative Budget Committee, reviewed Pages 18 through 21 of the handout relating to the Department of Housing (Attachment 9). He responded to questions concerning the HOME Investment Partnerships Program and the Housing Trust Fund.
Carol Ditmore, Assistant Deputy Director of Operations, Department of Housing, indicated that as of Monday, March 2, 2009, she will be the Interim Director for the Department. She related that the housing program originated about 20 years ago in the DOC, and during the Hull administration the Department of Housing was established. The agency was designed to be self-supporting and receives no General Funds, although a very small appropriation is made to the Housing Trust Fund, which is less than one percent of the budget, and provides 12 FTEs for administration of the fund. She stated that the Department has 74 budgeted positions, but with the hiring freeze, currently has 63 staff, which is a 15 percent vacancy rate. Between 2008 and 2009 the agency lost $65 million out of the budget, which is a significant contribution for such a small agency. Due to the current housing crisis, the agency is providing assistance in areas never before contemplated. She advised of federal funds the agency receives. She stated that two of the most important federal resources the Department has are fees that are charged and go into the Housing Program Fund, which is one of the funds that is up for sweeps. If the funds are swept, the agency will probably have to lay off staff, which will make it very difficult to operate. The second fund that has been very hard hit is the Housing Trust Fund, which receives proceeds from the Department of Revenue’s (DOR) Unclaimed Property Fund. There is a permanent cut hidden in DOR’s budget to revert all of the unclaimed funds to the General Fund, which completely eliminates the Housing Trust Fund, and it is probably one of the most important housing resources for Arizona (Attachment 14).
Ms. Ditmore answered questions concerning the Arizonans Downpayment Assistance Program, elimination of the Unclaimed Property Fund distribution to the Housing Trust Fund, federal stimulus funds, impact of sweeping the Housing Trust Fund on the state’s foreclosure problem and the difference between the Housing Program Fund and the Housing Trust Fund.
Radiation Regulatory Agency
Eric Billings, Joint Legislative Budget Committee, reviewed Pages 22 through 24 of the handout relating to the Radiation Regulatory Agency (AZRRA) (Attachment 9).
Aubrey Godwin, Director, Arizona Radiation Regulatory Agency, reviewed handouts regarding Expenditures vs Revenue of the agency (Attachment 15) and #X-ray Tubes, which is representative of the AZRRAs workload (Attachment 16). He stated that agency staff is able to speak with authority and address questions to the business community, which is very important. Due to the various reductions that have been made, the agency has eight slots that have not been filled, one of which was a layoff situation. He said a budget reduction of $400,000 may cause the agency to lose agreements with the Nuclear Regulatory Commission so all actions would have to take place in Texas or Washington, which could take six months or longer. Secondly, the agency would be unable to collect fees for licenses and would lose about $600,000 in revenue to the General Fund. Thirdly, upon losing the agreement, fees to licensees would change from collecting about $600,000 to about $2 million. He added that some travel money will probably be needed for inspections.
After a brief discussion, Chairman Kavanagh commented that the $77,000 lump sum salary payment could be absorbed by a few furlough days for employees, which is probably much less than what some other agencies are doing right now.
Department of Mines and Mineral Resources
Jack Brown, Joint Legislative Budget Committee, reviewed Pages 25 through 27 of the handout relating to the Department of Mines and Mineral Resources (Attachment 9).
Mr. Jones commented that the Department has mining records and archives that are used to respond to inquiries from mining interests or individuals considering investments in mines, which takes up a lot of staff time. Mr. Brown agreed and added that the agency receives revenues from the sale of publications, which is placed in the Mining and Mineral Resources Fund.
State Board of Psychologist Examiners
Steve Grunig, Joint Legislative Budget Committee, reviewed Pages 28 through 30 of the handout relating to the State Board of Psychologist Examiners (Attachment 9).
Meghan Hinckley, Deputy
Director, State Board of Psychologist Examiners, asked the Committee to
consider the impact that the proposed fund sweep would have on the agency. She
related that the Board is small and self-sustaining with about 1,800 active
licensees. License renewal fees are collected on a biennual basis. If the FY
2009 fund sweep amount is not addressed, the sweep will render the Board insolvent
with a negative fund balance as of
August 1, 2009, and the Board would have to close its doors leaving qualified
paying applicants unlicensed and the public subject to potential harm from
unregulated practitioners who would be tempted to practice without a license.
Discussion ensued about the amount of funds that would be needed to get the
Board through FY 2010 and the potential impact on licensees of not providing
funding through FY 2011.
Without objection, the meeting adjourned at 6:17 p.m.
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Linda Taylor, Committee Secretary
March 18, 2009
(Original minutes, attachments and audio on file in the Chief Clerk’s Office; video archives available at http://www.azleg.gov)
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COMMITTEE ON APPROPRIATIONS
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February 25, 2009
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