Legislature(2019 - 2020)ADAMS ROOM 519
03/01/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB39 || HB40 | |
| Fy 20 Budget Overview: Department of Labor and Workforce Development | |
| Fy 20 Budget Overview: Department of Revenue | |
| Presentation: Investment Funds Update and Cash Flow Deficiency Plan Presentation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 39 | TELECONFERENCED | |
| += | HB 40 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
HOUSE BILL NO. 39
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; 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."
HOUSE BILL NO. 40
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program, including
supplemental appropriations; and providing for an
effective date."
1:33:39 PM
^FY 20 BUDGET OVERVIEW: DEPARTMENT OF LABOR and WORKFORCE
DEVELOPMENT
1:34:00 PM
LACEY SANDERS, BUDGET DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, introduced herself and relayed intent to address a
presentation.
PALOMA HARBOUR, ADMINISTRATIVE SERVICES DIRECTOR,
DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, OFFICE OF
MANAGEMENT AND BUDGET, provided a PowerPoint presentation
titled ""FY2020 Governor's Amended Budget" dated March 1,
2019 (copy on file).
Co-Chair Foster acknowledged Representative Merrick online.
Ms. Harbour began on slide 6 of the presentation. She
reported on the department's budget. The overall position
count would go from 734 to 725 - the majority of the change
was due to statewide consolidation initiatives.
Co-Chair Wilson noted the shift in positions.
Ms. Harbour replied there were two full time positions that
would be deleted. She shared that the changes w3ere mental
health agreement and one as a result of a bill that passed
the previous session (HB 79).
Co-Chair Wilson noted that there was $294,000 in UGF, which
was not included, but was offset by $269,000 in DGF. She
wondered whether those two items were in the same area.
Ms. Harbour replied that the information was on the
upcoming slide.
Ms. Harbour moved to slide 7 and addressed the proposed
changes to the budget:
?Discontinued Alaska Mental Health Trust Agreement (-
$125.5 GF and -1 FT)
?Decrease UGF to Offset Technical Vocational
Educational Program (TVEP) funding for the Alaska
Vocational Technical Center (+/-$261.7 Net Zero
Change)
?Statewide Support Executive Branch 50 percent
Travel Reduction (-$146.7 GF)
Co-Chair Wilson asked if it was a one-time or ongoing cost
related to TVEP.
Ms. Harbour replied that the figure changed annually. She
stated that the amount distributed was the available
projection. She noted that in FY 20, the overall amount was
$1.5 million higher than FY 19. She anticipated that the
balance moving forward would be at least that amount, based
on the current revenue projections and healthy level of
state wages.
Co-Chair Wilson asked for verification that the item would
not impact other.
Ms. Harbour replied that all of the members were receiving
an increase, and offset by a UGF decrease of the same
amount.
Co-Chair Wilson wanted to ensure that the intent was clear,
and that the schools were doing a good job training the
youth.
Co-Chair Foster requested an allocation list.
1:41:36 PM
Vice-Chair Ortiz asked about the reduction to statewide
travel. He asked what would not occur due to the reduction.
Ms. Harbour replied that the department would do more with
telecommunications. She remarked on the ability to set the
travel budget to accomplish the mission, it would still be
allowable but would have to make reductions in other areas.
^FY 20 BUDGET OVERVIEW: DEPARTMENT OF REVENUE
1:43:04 PM
BRAD EWING, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF
REVENUE, OFFICE OF MANAGEMENT AND BUDGET, continued with
the PowerPoint presentation titled "FY2020 Governor's
Amended Budget" dated March 1, 2019 (copy on file). He
began on slide 3 of the presentation and addressed the
department's budget.
1:46:09 PM
Mr. Ewing continued with the chart on slide 3.
Vice-Chair Ortiz asked about the increase from $291 million
to $619 million. He thought much of the change had to do
with a change in accounting and that previously the fees
had been taken out of investment totals. He asked for the
accuracy of his statement.
Mr. Ewing agreed with the statements.
Vice-Chair Ortiz surmised that earnings figures would be
up, wondered whether they would be a part of the earnings
total.
Mr. Ewing would follow up.
Vice-Chair Ortiz thought it would mean the earnings total
would be greater; therefore, when a PFD calculation or draw
was made, it would be from a larger total.
Ms. Sanders clarified the point of the increment reflected
in the chart was to show the actual cost for managing the
funds.
Vice-Chair Ortiz asked for Ms. Sanders to repeat her last
sentence.
Ms. Sanders answered it was not changing the amount being
earned, it was changing the management fees.
Vice-Chair Ortiz replied that was his understanding. He
pointed out that it would increase by that calculation, and
wondered whether it would now be part of the earnings
total.
Ms. Sanders would follow up on the question.
Co-Chair Wilson stated they were trying to find out how the
$291 million was used, and whether it was true that revenue
was eating cost.
Ms. Sanders replied that the amount in the reports did not
include the amount for management fees.
Co-Chair Wilson asked for verification that they had been
charging the right amount, but it was not reflected in the
budget.
Ms. Sanders agreed.
Co-Chair Wilson surmised that change and value of the
funds, because it was being paid, was not shown in the
represented fashion of the presentation.
Ms. Sanders replied in the affirmative and stated it was
her understanding.
1:51:18 PM
Representative Josephson recalled a meeting with Angela
Rodell, Executive Director, Alaska Permanent Fund
Corporation, discussing the fees associated with the
investments. He wanted to ensure that the statutory
definition of what constitutes "earnings" did not somehow
get impacted by a declaration by the legislature that the
money was considered "earnings." He stressed that he only
wanted clarification.
Ms. Sanders agreed.
Co-Chair Foster noted other individuals were available
online.
Mr. Ewing continued to address the chart on slide 3.
1:53:20 PM
Mr. Ewing moved to slide 4:
?Align Management Fees with Actuals:
? Alaska Permanent Fund Corporation (+$269,501.3
Other)
? Alaska Retirement Management Board (+$60,000.0
Other)
? Treasury Division (+$117.2 GF and +$70.4 Other)
?Deregulate Small Charitable Gaming (-$212.2
Other and -2 PFT)
?Statewide Support Executive Branch 50 percent
Travel Reduction (-$53.3 GF)
Co-Chair Wilson queried the deregulation of small
charitable gaming, and its intent.
Mr. Ewing replied that there were two associated proposed
bills addressed reducing the regulations. There were also
two positions that would be impacted in the gaming section
of the tax division. The proposal was that a permit or
annual fee would no longer be required, if gross receipts
for that organization or municipality were less than
$20,000 per year.
^PRESENTATION: INVESTMENT FUNDS UPDATE and CASH FLOW
DEFICIENCY PLAN PRESENTATION
1:55:13 PM
BRUCE TANGEMAN, COMMISSIONER, DEPARTMENT OF REVENUE,
introduced a PowerPoint presentation titled "Discussion of
State Cash Flows" dated March 1, 2019 (copy on file).
MICHELLE PREBULA, STATE INVESTMENT OFFICER, TREASURY
DIVISION, DEPARTMENT OF REVENUE, relayed she had been the
cash manager until the previous July. She provided
information about her career background. She began on slide
2, "Treasury Division":
The Treasury provides cash management, investment and
portfolio management, debt management, unclaimed
property management and accounting services for the
state's general fund, constitutional budget reserve
fund, retirement funds, and numerous other funds and
trusts. The Division provides staff to the Alaska
Retirement Management Board and Alaska Municipal Bond
Bank Authority and oversees the Alaska ABLE plan.
Ms. Prebula looked at slide 3, "Treasury Facts and
Figures":
? 45 current Treasury Division staff.
? At 12/31/18, managed $38.8B in assets in 45 separate
accounts in a pooled environment:
? 14 defined benefit funds under the direction of
ARMB ($24.8B).
? 4 participant directed funds under the
direction of ARMB ($6B).
? 25 funds under the direction of the
Commissioner of Revenue ($7.7B).
? 2 funds under the direction of other state
fiduciaries ($225M).
? Debt Management issues state debt and lease/purchase
financings for the State.
? Cash Management collects all revenues, pays all
expenditures and determines the amount of cash
available for investment daily. Cash flows are
forecasted to determine future cash needs.
2:00:43 PM
Ms. Prebula continued to discuss slide 4, "Treasury Facts
and Figures":
? Annually, or as needed, the Chief Investment Officer
and staff perform research and analysis to develop
asset allocations recommendations for discussion with
the fiduciary of each fund.
? Consideration is given to the type and use of the
fund, how long the fund is expected to be invested and
what type of risk the fund can take.
? Callan and Associates provides 10 year Capital
Market Assumptions that are used to build models to
determine potential assets allocations that are
discussed.
Ms. Prebula looked at slide 6, "GeFONSI I and II":
? GeFONSI includes the General Fund and Other Non-
segregated funds invested in a pooled environment (GF
proper= $400 million).
? Department of Administration separately accounts for
each fund within State Accounting system.
? Department of Revenue is responsible for investing
the GeFONSI and calculating and allocating daily
investment earnings to each fund.
? 180 funds, assigned as Types 1, 2, or 3. Type 1
funds receive their earnings, the others do not.
? GeFONSI II was created in 2018 to target a higher
risk return profile and includes funds that are type 2
or 3.
Ms. Prebula advanced to a chart showing a daily projection
model for the General Fund on slide 6. The slide showed 6
months at a time. She briefly looked at slide 7.
2:04:25 PM
Ms. Prebula moved to slide 8 and addressed takeaways. She
noted that cash flow forecasting was an estimate. She
remarked that estimates were wrong. The actual cash flows
would be different, and the magnitude of the difference was
unknown. She remarked that, even with a balanced budget,
borrowing for cash flow deficits may occur. She remarked
that, even in balanced budget years, there was often a
requirement of a source for funding for cash purposes.
Commissioner Tangeman noted that the slide represented the
expectation of the balance in the CBR. He remarked that
aggregating the slide would show that a $1.4 billion would
be minimum amount. He felt that that the current balance of
$1.7 billion was a comfortable balance. He felt that
Vice-Chair Ortiz asked wondered whether the CBR was
currently at $1.7 billion.
Commissioner Tangeman answered in the affirmative.
Vice-Chair Ortiz recalled that the last figure he recalled
was $2.1 billion. He wondered whether the reduction was a
result of one of the recent borrowings.
Commissioner Tangeman replied that the first draw on July 9
was the entire $700 million in the CBR that was estimated
based on the passed budget. He explained that the reason
the CBR was drawn first was because it earned less. He
stated that there was a desire to leave the Earnings
Reserve untouched for as long as possible. The first
Earnings Reserve draw was on September 11 for the Permanent
Fund Dividend. He stressed that the first SB 26 draw for
the government purpose was October 1.
2:09:13 PM
Vice-Chair Ortiz stated that the $2.1 billion he thought
was in the CBR was now $1.7 billion.
Commissioner Tangeman answered it was due to the first $700
million draw. A $200 million draw had been taken on
February 14 as well. He explained that it was more like a
$250 million deficit, and the difference would remain in
the GF.
Representative Josephson asked if the difference would be
swept back around the 30th of June.
Ms. Prebula replied that the Division of Finance would
provide that information.
Commissioner Tangeman added it would be drawn down
initially on the two dates into GF.
Representative Josephson stated that if they drew more from
the CBR than was needed, the CBR would be restored to the
required extent.
Commissioner Tangeman answered that the sweep would take
place.
Representative Josephson asked about the time prior to 1990
and what had been done for cashflow. He noted that there
was a smaller government at the time.
Ms. Prebula replied that she had begun as cash flow manager
in 1998, so she had limited knowledge before then. She
assumed that he was referring to 1999 when oil revenues
were approximately $9 per barrel.
Representative Josephson agreed.
Ms. Prebula responded that GF sufficiency at that time
reached $43 million. The legislature had passed a cap on
the CBR, and how much could be borrowed. She noted that the
budget was balanced at that time, at $700 million. She
explained that once that legislature adjourned, oil prices
reduced to roughly $9 per barrel. She noted that the $700
was used rapidly, and the legislature reconvened in order
to increase the cap. She stated that the minimum was
currently $400 million, and at that former time it was $100
million.
Representative LeBon asked for verification that the
working cash position was the CBR.
Ms. Prebula replied that the working cash was in the
General Fund and the CBR and/or the ERA was the savings
account.
Representative LeBon asked for verification that daily use
of money from the CBR did not take place.
Ms. Prebula replied in the affirmative.
Representative LeBon asked if the CBR was available if
needed.
Ms. Prebula answered in the affirmative.
Representative LeBon asked for verification that moving
money from Alaska Industrial Development and Export
Authority (AIDEA) and the SBR did not impact the working
capital position of the state in any way.
Ms. Prebula responded in the negative.
2:15:12 PM
Representative Merrick asked about slide 2 and wondered the
procedure for clearing the cash receipts in suspense, and
whether there were departments that could clear money more
quickly to have cash on hand.
Ms. Prebula replied that the procedure varied by
department. She elaborated that in 1999 when there was only
$43 million in GF, many people were contacted to clear the
receipts. She stressed that agencies were monitored for
their clearing. There was an aging schedule, and agencies
were notified of anything older than thirty days.
2:16:41 PM
Representative Josephson asked about the minimum amount to
keep a healthy cash cushion. He referenced the amounts
provided by Ms. Prebula, which was $100 million 20 years
prior and was currently $400 million. He noted that there
was a belief that it was the "minimum", but there was a
healthier more responsible minimum of $1.4 billion or
higher.
Ms. Prebula agreed. She stated that $400 million was the
bare bones minimum for daily working capital. The number
was composed of two days of expenditures. She shared that
she had recently found that 10 days in the recent 3 years,
there were out flows of over $200 million. She shared that
the $1.4 billion was considered help keep the $400 million
above water throughout the entire year.
Commissioner Tangeman elaborated that it got to the heart
of what was considered a "balanced budget." He remarked
that a balanced budget did not necessarily mean there were
no cash flow issues.
2:20:40 PM
Representative Josephson thought of the draw on the CBR
like a straw connecting the GF to the CBR to provide
capital in the event of fires or state emergencies. He
asked if there were requests in the current budget.
Commissioner Tangeman deferred to OMB.
Vice-Chair Ortiz asked about the minimum balance that
should be maintained in the CBR.
Commissioner Tangeman answered that the amount was about
$1.4 billion, and he thought it was about $1.7 or $1.8
billion - $2 billion would be a more comfortable minimum
for the CBR.
Vice-Chair Ortiz was looking for the department's
recommendation. He clarified that he was not an advocate of
taking more from the CBR, but some may be.
Commissioner Tangeman answered in the affirmative, and felt
that they were currently at the comfortable minimum.
2:23:07 PM
Representative LeBon stated that when he had worked in
banking there would be an analysis of a business's
efficiency by days accounts receivable and days accounts
payable. He wondered whether Alaska had a good reputation
in being timely payers of its obligations.
Ms. Prebula replied that the Treasury Division was not
responsible for paying all of the bills of the state, but
it's using its working capital to the best of its ability.
2:24:13 PM
BOB MITCHELL, CHIEF INVESTMENT OFFICER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, provided information on his
education and career. He introduced a PowerPoint
presentation titled "Performance Comparison," dated March
1, 2019 (copy on file). He moved to slide 2 and spoke to
investment performance. He pointed to another document in
members' files for information only.
2:29:41 PM
Mr. Mitchell noted that the information was his personal
assessment of the portfolio. He stressed that the
information had not been endorsed by the Permanent Fund
Corporation, but they may have a different perspective. He
noted that there was an equity target of the various
portfolios. He shared that considering the riskiness of a
portfolio was a proportion of that portfolio that was held
in equities. He stated that in some cases, on the state
side, there were portfolios whose equity allocation had
changed over the previous five years. He provided an
example. He shared that in FY 14 the allocation to equities
in that portfolio was 42 percent, then increased to 50
percent, then to 55 percent. It stayed at 55 percent for a
few years until the asset allocation was changed in
November 2018. It was currently in the high 60 percentage
range.
2:35:12 PM
Representative Sullivan-Leonard asked about the investment
performance for the past couple of years in the format on
slide 2.
Mr. Mitchell agreed to provide that information.
Representative Sullivan-Leonard wanted the information to
appear like slide 2.
Mr. Mitchell replied in the affirmative.
Co-Chair Wilson asked for clarification about the benefit
of moving the PCE endowment.
Mr. Mitchell replied that the CBR asset allocation was more
conservative than the Power Cost Equalization (PCE).
Co-Chair Wilson asked if Mr. Mitchell would recommend
moving the PCE into the CBR.
Mr. Mitchell answered it depended on the use of the fund.
He stated it was a policy call.
Co-Chair Wilson countered that she believed it was a
numbers call. She thought they would be hurting themselves
by moving the money that was making more than it would be
if moved.
Commissioner Tangeman answered that it was a policy call.
He stated it was a liquidity issue - if the purpose was to
make funds more liquid, since seeing greatly reduced
available revenues.
Co-Chair Wilson understood the policy call about what the
money would be used for, and she thought it may be a
question for the governor. She thought they were long
overdue if they were waiting for oil to save the state. She
thought it was important to save the money.
2:40:08 PM
Commissioner Tangeman felt that was an accurate statement,
because the discussion was regarding a very finite amount
of revenue.
Vice-Chair Johnston referenced asset allocations for ARMB
and APFC. She asked how the asset allocation was
determined.
Mr. Mitchell replied there was a board of trustees for APFC
and ARMB responsible for determining an asset allocation.
For other state managed funds the CIO worked with the DOR
commissioner to determine the allocations.
Vice-Chair Johnston asked whether the department did a
stress analysis to determine the allocation.
Mr. Mitchell characterized the process of revisiting the
funds, addressing needed changes, and set a portfolio to
maximize income. He noted the need to build a portfolio
that sought to deliver the objective with the least amount
of risk.
Vice-Chair Johnston asked if they had some flexibility.
Mr. Mitchell replied that once an allocation had been
established, they worked to adhere to the allocation.
Representative LeBon asked about the first two funds listed
under DOR Funds on slide 2 and asked for detail.
Mr. Mitchell answered that General Fund and Other Non-
Segregated Investments (GeFONSI) funds were in one pool
managed from the investment perspective. He explained that
there were approximately 180 funds total, and the
motivation for doing so was to take a subset of the funds.
Representative LeBon asked about the Public School Trust
fund and how the earnings were utilized.
Mr. Mitchell answered that the fund was managed like an
endowment and was paid out based on 5 percent of the past
five year average. He stated that it was a moving average
based on market values, which was a fairly aggressive
target. He noted that there were a number of factors that
were taken into consideration when thinking about an
appropriate asset allocation. He explained that it had a
risk profile with equities that were almost 70 percent.
2:49:02 PM
Co-Chair Wilson asked about the CBR prior to taking money
out of it. She asked if he remembered how much the money
they had made on the investment.
Mr. Mitchell did not recall the specifics. He would follow
up.
Co-Chair Wilson thought it would be helpful to Alaskans to
know that was an effort not only trying to keep $2 billion
but to allow the account to begin growing again. She noted
it had only been making 1 percent, which was too low.
Mr. Mitchell noted Co-Chair Wilson's point. He elaborated
that the intent of the legislature at the time had been to
create a vehicle for DOR to earn a higher rate of return.
Mr. Mitchell moved to slide 3 and provided an investment
fund snapshot.
Co-Chair Wilson appreciated the list of funds, but
understood that many could not be touched. She used the
airport fund as an example. She asked the department to
provide a list.
Co-Chair Foster thanked the presenters for their
presentation.
Co-Chair Wilson noted that the committee was still waiting
for the priority list from OMB. She asked commissioners to
provide a priority. She wanted to understand how the budget
had been compiled. She noted they had been waiting.
HB 39 was HEARD and HELD in committee for further
consideration.
HB 40 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster addressed the schedule for the following
week.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Performance Comparison_House Finance_20190301Final.pdf |
HFIN 3/1/2019 1:30:00 PM |
DOR-HFIN Presentation |
| Investment Presentation_House Finance_20190301Final.pdf |
HFIN 3/1/2019 1:30:00 PM |
DOR-HFIN Presentation |
| Cash Flow presentation_House Finance_20190301.Final (004).pdf |
HFIN 3/1/2019 1:30:00 PM |
DOR-HFIN Presentation |
| FY2020 Gov Amend Budget to HFC 3.1.19 DOR DLWD.pdf |
HFIN 3/1/2019 1:30:00 PM |
DOR/DOL HFIN Budget Overview |
| DLWD TVEP Distribution HFIN Budget Overview.pdf |
HFIN 3/1/2019 1:30:00 PM |
HFIN DOL Overview |