Legislature(2019 - 2020)ADAMS ROOM 519
01/30/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB205 || HB206 | |
| Fy 21 Budget Overview: Department of Revenue | |
| Presentation: Savings Funds Update and Cash Flow Deficiency Plan | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 205 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HOUSE BILL NO. 205
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; 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. 206
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:35:18 PM
^FY 21 BUDGET OVERVIEW: DEPARTMENT OF REVENUE
1:35:30 PM
MIKE BARNHILL, ACTING COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself and was available for any questions
throughout the presentation.
BRAD EWING, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF
REVENUE, OFFICE OF MANAGEMENT AND BUDGET, provided a
PowerPoint presentation titled "FY21 Operating Budget
Overview Department of Revenue: Core Divisions:
Presentation to the House Finance Committee," dated January
30, 2020 (copy on file). He shared that the presentation
would focus primarily on divisions within the Department of
Revenue (DOR). He began on slide 2, "Mission and Core
Programs":
Mission: To collect, distribute, and invest funds for
public purposes
? Core Divisions
? Tax Division: Collect
? Treasury Division: Invest
? Permanent Fund Dividend Division: Distribute
? Child Support Services Division: Collect and
Distribute
? Support and Oversight Functions
? Commissioner's Office
? Administrative Services Division
? IT sections in divisions
? Criminal Investigations Unit
Mr. Ewing advanced to slide 3, "Department Overview":
-$25.1M (-6 percent) from FY19 to FY21
-18 positions (-2 percent) from FY19 to FY21
Significant Changes
? Tax: +$1.65M to fund TRMS in operating budget
? Tax: $571.6 fund source change (CIP to UGF)
? ARMB: -$5M for management fees
? APFC: -$21.1M for management fees
1:41:26 PM
Mr. Ewing reviewed slide 4, "Funding Sources":
? UGF and DGF represent 8 percent of DOR's non-
duplicated budget authority
? AHFC, AMHTA, and APFC represent 68 percent of DOR's
non-duplicated budget authority
Mr. Ewing moved to slide 5, "Tax Division":
? +$1,351.9 (+9 percent) and -3 positions (-3 percent)
from FY20 to FY21
? Key budget items: +$1.65M to fund TRMS in operating
budget, $571.6 fund source change (CIP to UGF)
Mr. Ewing advanced to slide 6, "Treasury Division":
? +$5.8 (+0 percent) and no change in position counts
from FY20 to FY21
? Org. restructure to create middle office function
1:45:35 PM
Mr. Ewing moved to slide 7, "Unclaimed Property":
? +$1.0 (+0 percent) and no change in position counts
from FY20 to FY21
Acting Commissioner Barnhill elaborated on slide 9. The
slide was showing the trend for total investment costs to
total assets. He explained that 1 percentage of an
investment fund was equal to 100 basis points. The slide
showed a fee comparison between ARMB, the Alaska Permanent
Fund Corporation (APFC), and Treasury.
Representative Wool recalled from subcommittee meetings in
years past that the ARMB and APFC invested differently, but
had similar performance. He wondered whether that was an
accurate assessment.
Acting Commissioner Barnhill answered that the comparisons
in terms of investment returns changed, and noted the 3, 5,
and 10-year periods since inception of the funds. He stated
that 2019 had been an incredible year for investment in
capital and fixed income. The department reported
investment returns on a fiscal year basis, but for a
calendar year he felt confident saying that most funds
returned 20 percent in 2019.
Representative Wool remarked that they were managed
differently. He noted that the management fees in FY 19
were about the same, but were slightly different in FY 21.
He stated that "you get what you pay for."
Acting Commissioner Barnhill answered that the pension
system had recently gone through a fairly major shift, and
the changing methodologies would occur to get the change in
performance over long periods of time.
Co-Chair Johnston noted that the governor's proposed budget
took $21.1 million decrement for the management fees. She
asked whether it was a policy statement.
Acting Commissioner Barnhill stressed that slide 9 showed
the total picture of the investment management fees.
Co-Chair Johnston clarified her question. She asked if it
was a result of the board's decision.
Acting Commissioner Barnhill replied that the department
had no involvement in the decision.
Co-Chair Johnston asked about the policy impact on the
board's decision.
Acting Commissioner Barnhill answered that the only policy
involvement in the board's budget was a request for a
certain type of salary.
Co-Chair Johnston stated it was an incentive salary.
1:56:03 PM
Representative Josephson understood the difference in fees
borne by and fees appropriated by. He asked about the
recent $5 million veto.
Acting Commissioner Barnhill did not have a sufficient
granular concept of what the $5 million veto encompassed.
All of the fees were based on a basis point when
appropriating a dollar figure it was not specific to what
was actually paid. It was possible to be using the
governor's veto authority to drive investment management
policy, but he did not believe it had ever been exercised.
Co-Chair Johnston stated they would want the investment
management fees to rise in order to increase investment
returns.
Acting Commissioner Barnhill agreed.
Co-Chair Johnston hope that the management of the fund was
cognizant of the basis points, and in a good bartering
position. She noted that APFC would present [at a later
date].
1:59:01 PM
Mr. Ewing turned to slide 10, "Permanent Fund Dividend
Division":
-$498.8 (-6 percent) and -6 positions from FY20 to
FY21
? Continue to reduce services costs and shift towards
online applications
Mr. Ewing advanced to slide 11, "Child Support Services
Division":
-$218.0 (-1 percent) and no change in position count
from FY20 to FY21
? Continue to reduce services costs
Representative Knopp noted Mr. Ewing's statement that the
Child Support Services Division was the largest in terms of
staff, and he queried the budget for that division.
Mr. Ewing answered that in FY 21, the governor's proposed
budget was $25.7 million
Representative Knopp asked whether 70 percent of that
number was federally funding.
Mr. Ewing replied in the affirmative.
Representative Knopp asked if they only distributed what
they collected.
Acting Commissioner Barnhill answered the division
collected federal money, and did not collect the money to
distribute. He noted the director was available online for
questions.
Representative Knopp asked about the number in the previous
year.
CAROL BEECHER, DIRECTOR, CHILD SUPPORT SERVICES DIVISION,
DEPARTMENT OF REVENUE (via teleconference), replied the
division had collected $105 million in the past year.
2:03:22 PM
Representative Wool noted the one position in Fairbanks,
and a facility he assumed was closed in Wasilla. He asked
about the facility, and whether it was a place like a
storefront where people went into.
Acting Commissioner Barnhill replied that the offices in
Anchorage were located in the Atwood Building.
Ms. Beecher added that the division did an extensive look
at what was causing people to need to visit the offices,
but there was no real need for individuals to physically
visit the offices. The services were available online. The
goal was to improve services so that no one needed to walk
through the doors. There were online appointments people
could make, most of which took place on the phone.
Representative Wool wondered whether it was possible for
people to visit the building.
Ms. Beecher replied in the affirmative.
2:05:59 PM
Representative Josephson noted that the use CSSD to help
with accounting was in order to prevent any contention
about what was paid.
Mr. Ewing reviewed the administration and support budget on
slide 12.
Mr. Ewing turned to slides 13 and 14 showing changes from
the FY 21 adjusted base.
Vice-Chair Ortiz looked at line 3 on slide 13 related to
the consolidation of the Fish Tax Group into the Excise Tax
Group.
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE (via teleconference), looked at line item 3. She
shared that there had been open positions for quite some
time and there had been difficulty with recruiting. The
person in the Juneau position had left.
2:11:10 PM
Vice-Chair Ortiz asked how the change benefitted taxpayers.
Ms. Glover answered that the benefit from her perspective
was that two of the three employees were filled by existing
tax money, which already were familiar with the system.
Vice-Chair Ortiz recalled the previous year there had been
discussion about removing the local share of landing and
fish taxes from communities. He wondered whether the
landing taxes were a part of the fish taxes
Ms. Glover answered that the Fish Tax Group would process
the fish landing tax returns, and the Accounting Group in
Juneau handled the revenue sharing.
Acting Commissioner Barnhill added that there were two tax
types: the fisheries landing tax and the fisheries business
tax. He remarked that there was a recent administration
proposal to end the 50 percent revenue sharing. He stated
that the proposal was not pursued in the current year.
Vice-Chair Ortiz wondered whether the accounting was
conducted in Juneau.
Ms. Glover answered in the affirmative. The accounting team
was all located in Juneau.
Representative Wool looked at line 5 on slide 13, and
wondered whether it related to the reduction in authority
to reflect management fee savings.
Acting Commissioner Barnhill replied in the affirmative.
2:15:05 PM
Representative Wool looked at line 12 on slide 14 related
to staff retention. He asked if it was related to the bonus
structure.
Acting Commissioner Barnhill replied in the negative. The
bonus retention program was not included in the budget.
2:16:43 PM
Vice-Chair Ortiz wondered if the fish taxes were going
under excise taxes, whether there would be clear
delineation between the times. He was concerned the money
would go into excise taxes.
Acting Commissioner Barnhill replied in the affirmative
Ms. Glover added the proposal was an organizational change,
and the information would continue to be available in the
system.
Mr. Ewing summarized the presentation on slide 15:
Efficiency gains in Tax, PFD, and Child Support
Services Divisions results in reductions of -$1,174.2
| -3 PFT, -6 PPT
Tax -$346.6 UGF | -3 PFT
PFD Division -$527.6 Other | -6 PPT
Child Support Services -$102.0 GF Match, -$198.0 Fed
ARMB Custody and Management Fees reduction of -
$5,000.0 Other
Reducing uncollectable authority in Admin and Support
results in reductions of -$631.5
Tax Revenue Management System (TRMS) maintenance and
support $2,221.6 UGF, -$571.6 CIP
Representative Josephson asked if ARMB had taken a position
on the reduction of management fees.
Acting Commissioner Barnhill replied that decisions on
management fees were made entirely by ARMB. The change was
not and had never been driven by the executive branch.
Representative Carpenter noted there were a number of
positions that had been eliminated. He asked if the
department still had the staff needed to do the work.
Acting Commissioner Barnhill replied in the affirmative.
^PRESENTATION: SAVINGS FUNDS UPDATE and CASH FLOW
DEFICIENCY PLAN
2:20:55 PM
Acting Commissioner Barnhill noted that his colleague would
provide the presentation and he would interject
occasionally. He provided an introduction prior to the
presentation. He spoke to the volatility in revenue tied to
oil prices. He highlighted two types of volatility. The
state had historically used the Constitutional Budget
Reserve (CBR) as a way to address revenue shortage. He
believed there was a great degree in interest to identify
the minimum cushion needed in the CBR to maintain the fund.
The state had a several year practice as using the CBR as a
source of recurring revenue and not a rainy day fund. As
long as the CBR was drained, it would not be available as a
rainy day fund. He noted the need to address the structural
deficit; there was no minimum cushion if the fund was
continually used to fund the deficit.
2:26:06 PM
Representative Josephson asked about a specific proposal.
Acting Commissioner Barnhill stated that the administration
did not have a specific proposal, but it had also stated
that everything was on the table - including a change to
the PFD formula, new revenues - particularly in the form of
a sales tax with a change to the constitution, and spending
reductions.
2:29:25 PM
Co-Chair Johnston took Acting Commissioner Barnhill's
comments seriously. She spoke about formula driven programs
- the largest was for the dividend. She discussed that the
outcome of the current year could limit what the
legislature did the following year.
Acting Commissioner Barnhill answered that if nothing was
done to address the structural deficit, there would be
major issues and the balance of the CBR would be $500
million. Regardless of the discussion, the number was
likely too low.
Co-Chair Johnston stated that the proposals to address the
situation would likely not come into effect for several
years.
Acting Commissioner Barnhill noted they would begin the
presentation to address the questions.
2:32:29 PM
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE, provided a PowerPoint presentation titled "Update
on the State's Rainy Day Funds and Discussion of State Cash
Flows," dated January 30, 2020 (copy on file). She began on
slide 3 titled "FY21 Days that Alaska could run on Total
Balances (Rainy Day and Other Funds)." She remarked that
the slide did not include the Permanent Fund Dividend (PFD)
amount. She remarked that the CBR would include about six
months of coverage of the operating budget. She remarked
that there were many ways to determine the appropriate size
of a rainy day fund.
Co-Chair Johnston wondered whether there was an inclusion
of the full draw on the headroom, or only what was budgeted
in the year prior.
Ms. Leary answered that they were expected cash balances at
the beginning of FY 21.
Co-Chair Johnston remarked that the number was after earned
income and court settlements.
Acting Commissioner Barnhill furthered that the CBR was
historically used as a structural backdrop.
Co-Chair Foster queried the reason for the difference in
the $100 million between the forecasts.
Ms. Leary stated it was only an estimate.
Representative Wool asked if the exercise was a standard
metric done by other states [slide 4].
Acting Commissioner Barnhill referenced reports done by the
Pew Trust on rainy day funds. The reports came up with a
suggestion that states should base the size of their rainy
day funds on revenue volatility. Alaska had the highest
revenue volatility, consequently it needed a high rainy day
fund balance.
Representative Wool reasoned that the pipeline could stop
flowing.
Acting Commissioner Barnhill discussed that five years
earlier they were on a countdown clock. He stressed had not
taken a shutdown of the pipeline, but a decrease in revenue
to start to examine the rainy day fund structure.
2:38:59 PM
Vice-Chair Ortiz asked if the calculation of volatility
factored into the tax regime established under SB 21.
Acting Commissioner Barnhill answered in the affirmative.
Co-Chair Foster asked the committee whether it preferred to
hold questions.
Representative Josephson suggested holding questions until
after the presentation.
Acting Commissioner Barnhill suggested that they would
introduce the concept of volatility management.
2:40:25 PM
Ms. Leary moved to slide 5 and reviewed the CBR fund:
Constitutional Budget Reserve Fund
In 1990, voters of Alaska adopted an amendment to the
constitution creating the CBRF. The fund was
established as a savings fund to enhance budget
stability. Consists of deposits resulting from
resolutions of disputes about the amount of mineral
lease bonuses, royalties, or taxes.
Legislature may appropriate from the CBRF to fund
operations under certain conditions:
Simple majority vote if available funds from
other sources are less than amount appropriated
to fund state government for the previous fiscal
year.
Otherwise 3/4s vote.
Borrowings are allowed to fund temporary cash
deficiencies and budget shortfalls as appropriated by
the legislature.
Borrowings must be repaid to the CBRF when there is a
surplus in the general fund at the end of the year.
As of FY10, the CBRF was repaid and no borrowing
occurred FY 11-FY14.
A Sub-fund of the CBRF was established in 2000. In
2008, $4.1 B was deposited (1.5 CBRF Main + $2.6B from
GF). Sub Fund was liquidated in 2015 as required by
statute as funds were deemed to be needed with 5
years.
Ms. Leary moved to a graph showing the CBR historical
invested assets.
Ms. Leary highlighted slide 8, "Power Cost Equalization":
The purpose of the PCE Endowment fund is to provide
for a long-term stable financing source that provides
affordable levels of electric utility costs in
otherwise high-cost service areas of the state.
5 percent of the monthly average market value of the
fund for the previous 3 fiscal years may be
appropriated. If prior year's earnings exceed this
amount, 70 percent (not to exceed $55M) of the
difference can be spent on related identified
programs. Commerce is the agency that oversees the
spending of the fund. SB196, effective 6/30/2016,
changed the spending target from 7 percent to 5
percent.
Fund History:
2000-Power Cost Equalization Endowment Fund
established from Constitutional Budget Reserve
Appropriation of $100 million
2002-PCE receives $89.6 million from proceeds of
the sale of the four dam pool hydroelectric
project.
2007-Additional appropriation of $182.7 million
2012-Additional appropriation of $400 million
Ms. Leary moved to slide 9 showing how the PCE fund had
grown. Slide 10 showed how the fund was invested and
balances.
Ms. Leary turned to slides 11 related to the Alaska Higher
Education Investment Fund. She noted that slides 12 showed
the balances of the fund and the targeted investment
allocation. The balance reference the amount at the end of
December.
Ms. Leary moved to slide 14, "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.
? 185 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.
2:46:39 PM
Ms. Leary turned to slide 16 showing the GeFONSI I and II
target asset allocations. She total fund balance was $2.6
billion.
Representative Merrick asked if the administration was
planning to eliminate any of the funds.
Acting Commissioner Barnhill asked if she was speaking to
PCE.
Representative Merrick replied she was speaking about the
GeFONSI.
Acting Commissioner Barnhill replied that the answer was no
to both questions.
Representative Wool surmised that the GeFONSI referred to
the investments in the general fund.
2:48:34 PM
Ms. Leary answered that the $2.6 billion consisted of
general fund, but was a subset as a working capital.
Representative Wool surmised it was the funds that were
dispersed and not dedicated, and the rest was an
investment.
Ms. Leary answered in the affirmative.
Acting Commissioner Barnhill noted there was a list of all
of the funds the department could provide.
Co-Chair Foster requested the information.
Representative Merrick asked if all of the funds in GeFONSI
were subject to the reverse sweep.
Ms. Leary answered in the negative.
2:50:50 PM
Representative Merrick asked if the list of funds that
would be provided by DOR indicated whether the funds were
subject to the reverse sweep.
Ms. Leary answered they could provide the information.
Acting Commissioner Barnhill addressed slide 18 titled
"Alaska has the highest Tax Revenue Volatility." According
to Pew, Alaska had the highest tax revenue volatility. He
stressed that the composition of the state's volatility had
changed. The general fund revenues were no longer 80
percent of volatile commodity.
2:56:04 PM
Representative Carpenter asked if there was any way to show
what volatility may be with different revenue options such
as sales tax or other.
Acting Commissioner Barnhill answered in the affirmative.
The department could model different scenarios. He remarked
that if they were not going to make any structural changes
there was no minimum cushion - the CBR would just be used
for the fund.
Vice-Chair Ortiz asked if a strategy were built to allow
the Permanent Fund to reach $100 billion, the volatility
would decline, based on the 5 percent POMV draw.
Acting Commissioner Barnhill answered that in the POMV
formula there was a lagging formula using the first five of
the past six years.
3:00:23 PM
Representative LeBon spoke to the need for money in the
ERA.
Acting Commissioner Barnhill answered that the obvious
solution was to convert the account to an endowment. He
remarked that a similar discussion had occurred several
years earlier.
Acting Commissioner Barnhill looked at various revenue
techniques available to manage volatility on slide 20.
3:04:24 PM
Acting Commissioner Barnhill moved to cash flow volatility
on slide 22.
Ms. Leary reviewed a pictorial of the treasury's incoming
cash flow including tax revenues, federal dollars, earnings
reserve funds, and agency receipts. She moved to the cash
management objectives on slide 23 including maintaining
adequate liquidity ($400 million), optimize cash resources,
safeguard state assets, and record financial activity
affecting cash.
Co-Chair Johnston asked when the greatest cash need took
place throughout the year.
Ms. Leary answered that the beginning of the year required
significant cash. She remarked that the department had made
changes in the past couple of years including a move to
quarterly payments.
Ms. Leary advanced to slide 24, "Cash vs. Accrual
balances":
? Cash balance is what you have in the bank at a given
point in time.
? Accrual balance takes into account what you have
earned and when a liability is incurred at a
particular point in time. It is what you should have
at a particular point in time after all expected
receipts and expenditures come in and out.
? Simple example: Your bank balance shows you have
$1,000 in cash on July 31. However, you know that you
wrote checks for utilities on July 25 for $400 that
are for July utilities that have not yet cleared. You
may have also earned a paycheck of $1,200 for work
performed in July. Your accrual balance on July 31
would be $1,800.
Ms. Leary turned to slide 25, "Cash Flow Deficiencies":
? Prior to 1985, most unrestricted revenues flowed
into and stayed in the General Fund for expenditure.
? Over time, the legislature has established many
subfunds to segregate cash for budgeting purposes,
resulting in less cash available to pay day-to-day
operating costs.
? Expenditures can occur prior to receipt of revenue,
resulting in a cash flow deficit:
? Federal programs require expenditures before
reimbursement.
? i.e. Medicaid, Transportation, etc
? Beginning of year appropriation transfers do
not match incoming revenue.
Ms. Leary looked at slide 26, "Cash Flow Deficiencies":
? Borrowing from budget reserve funds has been the
solution of both cash shortages (cash flow deficits)
and revenue shortfalls (budget deficits).
? During FY93-FY05, the legislature included language
in the appropriation act permitting borrowings from
budget reserve funds.
? The CBRF was fully repaid by FY10.
? Borrowing from the CBRF recommenced in FY14
? Per FY18 CAFR $9.9B is owed to CBR
Ms. Leary turned to slide 27, "Cash Deficiency Memorandum
of Understanding":
? Original MOU signed 1994 by DOR, DOA, OMB and LAW.
? Updated December 1, 2017.
? Targets $400m dollar minimum threshold.
? Outlines procedures for addressing cash
deficiencies:
? Develop monthly cash projections.
? Monitor daily general fund cash balances.
? Transfer from SBR, CBR and ERA as appropriated.
? Perform temporary interfund borrowing.
? Borrow from general fund sub funds, if
temporary
? If all appropriations/borrowing are exhausted:
? Seek legislative action through the
Governor to access additional funds through
appropriation from other Rainy Day Funds
discussed above.
? Prioritize disbursements, restrict
expenditures.
3:12:24 PM
Ms. Leary advanced to slide 29 and reviewed a bar chart
showing historic actual cash inflows and outflows from FY
17 to FY 19. She pointed to the blue portion of the bar in
FY 19 showing the ERA draw.
Ms. Leary turned to slide 32 and addressed the daily
General Fund sufficiency balance calculation. The
calculation started with the GF cash balance minus the
payments outstanding and cash receipts in suspense to equal
the available GF cash. She turned to a graph on slide 34
showing the General Fund sufficiency from July 1, 2019 to
December 31, 2019.
Co-Chair Johnston knew two years did not provide a frame.
She asked if the information was available for the previous
year as well.
Ms. Leary answered they could provide the information.
Co-Chair Johnston understood and noted Ms. Leary had done a
good job explaining the need for cash draws at the
beginning of a year. She asked about the specific stress
factors to the CBR.
Ms. Leary agreed to provide the information. She moved to
slide 35 showing GF sufficiency from January 1, 2020 to
June 30, 2020. The remainder of the chart showed
projections - the information changed daily. Much of the
trends were based on the prior year 6-month snapshot based
on what was paid out.
3:19:28 PM
Co-Chair Johnston asked if the projection factored in a
sizeable supplemental budget.
Ms. Leary described the information as money coming in and
coming out.
Acting Commissioner Barnhill stated that his understanding
was the charts included the supplemental.
Co-Chair Johnston asked for verification that the charts
included the headroom.
Acting Commissioner Barnhill replied in the affirmative.
Co-Chair Johnston spoke about fast tracking the
supplemental.
Acting Commissioner Barnhill replied that the differential
would draw the starting balance down.
Co-Chair Johnston felt that there should be a consideration
of the departments potential snapshot the following day.
3:21:19 PM
Co-Chair Foster asked how the department dealt with
situations where the actual was not as simple. He asked
what would happen if the governor added $1,400 for a PFD
supplemental.
Ms. Leary answered that the department paid close attention
to what was happening. She remarked that the $400 million
floor allowed for flexibility to situations that would
result in a larger than anticipated payout.
Acting Commissioner Barnhill stated that the purpose of the
chart on slide 35 was to time cash flows.
Representative Josephson noted that there was a veto the
previous summer of about $450 million. He remarked that
there only about $222 million had been restored, so the
remaining funds remained in the GeFONSI.
Acting Commissioner Barnhill answered that he needed to see
the exact composition of the veto dollars.
Representative Josephson asked whether the administration
would welcome further statutory reform.
Acting Commissioner Barnhill answered that similar
questions had come up when DOR made the presentation to
SFC.
3:25:42 PM
Representative Josephson asked about the draws and the
headroom issue. He wondered if headroom was included.
Acting Commissioner Barnhill responded that he had used the
term, "back stop." Headroom had a specific amount attached
to it.
Co-Chair Johnston suggested that all of the factors
discussed in the previous 10 minutes are factored in the
volatility of the cash flow.
Acting Commissioner Barnhill agreed with Co-Chair
Johnston's comment.
Representative Carpenter was hesitant to ask his question.
He wondered about two lines that tracked similarly. He
wondered why the two lines did not track and wondered why
that was the case.
Ms. Leary responded that she though the representative was
slightly in the weeds. However, she noted that it may have
been that spending was higher in that specific timeframe.
Representative Carpenter pointed to where the lines came
close together in the first 3 months and were separated in
the last three months. He wondered whether that was an area
of concern.
Ms. Leary responded that it was not an area of concern.
Representative Carpenter felt that the separation was
volatility, and queried the causation for that issue.
Co-Chair Foster hoped the answer was a simple one having to
do with a difference in oil prices, however it was more
complicated.
Ms. Leary turned to slide 37. She explained the slide had
taken a look at where they may need to take funds from the
ERA. She remarked that in FY 21, the majority was $1.086
billion in the operating reserve for operating purposes
UGF. She turned to slide 38, which was closer to the
deficit anticipated in the governor's budget.
Ms. Leary advanced to slide 39, "Take Aways":
• Cash flow forecasting is always wrong.
• Even if the State budget is balanced, borrowing for
cash flow deficits will occur.
• Budget deficit borrowing may occur if forecasted
assumptions are wrong.
• How much is borrowed depends on the actual amounts and
timing of revenues and expenses.
• Higher Revenue Volatility requires greater Rainy Day
fund reserves.
• Volatility management techniques are available.
3:34:05 PM
Representative Wool looked at slide 20 and asked about
lagging the Permanent Fund.
Acting Commissioner Barnhill answered that was already
underway, and was the POMV.
Representative Wool wondered whether the distribution
formula alternatives looked back longer to "smooth it out."
Acting Commissioner Barnhill answered they had a different
smoothing methodology than the state's current lagging
method.
Representative Wool surmised that the formula changed how
the fund was earning.
Acting Commissioner Barnhill stressed that the formula
changed the distribution system of the fund.
3:35:42 PM
Representative Carpenter looked at historic actual inflows
and outflows. He asked whether the slide represented the
state expenses and revenues.
Ms. Leary answered that slide 29 did not represent state
expenses and revenues. Rather, it was a check for DOR on
what was borrowed.
Acting Commissioner Barnhill remarked on an answer he had
given to Representative Josephson earlier.
Representative Carpenter asked how long revenue not
transferred into the Permanent Fund.
Acting Commissioner Barnhill answered two years.
Representative Carpenter continued with his question.
Acting Commissioner Barnhill answered that the constitution
required 25 percent of royalties to be transferred to the
Permanent Fund .
HB 205 was HEARD and HELD in committee for further
consideration.
HB 206 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the schedule for the following
day.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Savings Accounts and Cash Flow presentation House Finance January 30, 2020.pdf |
HFIN 1/30/2020 1:30:00 PM |
DOR-HFIN |
| HFIN DOR 2020 01 30.pdf |
HFIN 1/30/2020 1:30:00 PM |
DOR Budget Overview HFIN |