Legislature(2021 - 2022)ADAMS 519
03/02/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB69 || HB71 | |
| Presentation: Fy 22 Governor's Budget and Amendments by the Office of Management and Budget | |
| Presentation: Overview of the Governor's Fy 22 Budget by the Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 69 | TELECONFERENCED | |
| += | HB 71 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE BILL NO. 69
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental 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. 71
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; making
supplemental appropriations; and providing for an
effective date."
Co-Chair Foster reviewed the agenda for the meeting. He
indicated the presentation was a continuation of the Office
of Budget and Management overview of the governor's FY 22
budget and the governor's 10-year plan as well as
amendments. The committee would also hear an overview of
the FY 22 budget by the director of the Legislative Finance
Division (LFD), Mr. Alexi Painter. He asked members to hold
questions until the end of each presentation.
9:06:04 AM
^PRESENTATION: FY 22 GOVERNOR'S BUDGET AND AMENDMENTS BY
THE OFFICE OF MANAGEMENT AND BUDGET
9:06:09 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced himself and referred to
the question posed in the previous day regarding the
schedule for opening the Palmer Correctional Facility. He
reported that the Department of Transportation and
Facilities Maintenance (DOT) was scheduled to complete
their work in July 2021 with the Department of Corrections
(DOC) taking over the facility in August 2021.
Mr. Steininger resumed the PowerPoint Presentation: "FY 22
Governor's Budget Overview and Amendments by the Office of
Management and Budget," dated February 24, 2021 (copy on ns
file). He began with the budget for the Department of
Military and Veterans Affairs (DMVA) on slide 22. He
highlighted an increase in FY 21 in the general fund (GF)
line and the comparison between FY 19 and FY 22. There was
a significant increase in unrestricted general funds (UGF)
in DMVA. He explained that the reason was not due to a
budget increment. Rather, it reflected the transfer of the
State of Alaska Telecommunications System (SATS) and the
Alaska Land Mobile Radio (ALMR) programs into DMVA from the
Department of Administration (DOA).
Mr. Steininger continued that in moving the programs over
to DMVA, the department looked at the services delivered
and the management of the programs. The department would be
combining them under one name, Alaska Public Communication
Services. The name better aligned the services provided and
the beneficiaries of those services. The primary users of
the systems were the Alaska State Troopers, state police,
and other emergency responders.
Mr. Steininger noted that the department had also
eliminated some vacant positions including a budget
analyst, a deputy director, a communications engineer, and
a maintenance journeyman. The savings amounted to about
$280,000 UGF and a reduction in federal receipts associated
with the positions. The department also made some
reductions by looking at trends of prior years' spending,
particularly on maintenance costs within the department,
and finding other ways to achieve its goals while aligning
the budget to historical spending.
9:08:43 AM
Mr. Steininger reviewed the budget for the Department of
Natural Resources (DNR) on slide 23. He highlighted the
steady decline in the budget since FY 15. Over the prior 3
years the department had seen a reduction of 17.4 percent
or just over $10 million UGF. He noted that in prior slides
for DNR, the Office of Management and Budget (OMB) had
shown the numbers net of supplemental requests to give a
true picture of the size of the department budgets. The
Department of Natural Resources was slightly different
because fire suppression costs were included in the budget.
Fire suppression costs could be wildly different from
year-to-year and were removed from the numbers for a
clearer picture. In the current year, very little had been
spent on fire suppression. The department believed it would
have some excess fire suppression money at the end of the
year in the normal baseline cost of fire suppression. The
department would like to use some of the excess funding to
support fuel mitigation and cut fire breaks for prevention
purposes in the following year. Ideally, overtime it would
reduce the need for fire suppression activity.
Mr. Steininger reported that the department also added
$250,000 in support of park ranger law enforcement. There
had not been adequate funding to provide the necessary
equipment for park rangers. The increment was necessary to
support the activities they performed.
Mr. Steininger mentioned that in the Division of Oil and
Gas and the Division of Mining and Water they had collected
receipts greater than the amount they had spent over the
previous several years. It appeared the same trend would
continue into the future. It allowed the department to
offset some UGF costs by utilizing those receipts. The
amount OMB was projecting that should be sustainable over
the long term, based on trends over the previous several
years, was slightly over $2.5 million in offset of GF fund
costs. He reported there was also an adjustment to an
increment from the prior year for plan review. As the
department had been implementing the increment it found it
had overestimated the costs needed. The department was able
to reduce the prior year addition by $100,000.
9:12:00 AM
Mr. Steininger advanced to slide 24 which showed the budget
for the Department of Public Safety (DPS). The department
had seen a steady increase in its budget over the previous
several years, as the state had made strategic investments
in public protection-related fields. An increase in the
number of Alaska State Troopers had been a priority. In the
current year the administration was not adding any new
troopers. However, it was fully funding troopers added in
the prior year. In FY 21 several new troopers were added,
but added at 75 percent funding as an acknowledgement of
the department's lag in recruitment. At the time, the
department knew it would not be able to recruit all of the
troopers the first day of the fiscal year. Therefore, they
had not needed the full funding. The increment brought
levels to full funding of salaries and benefits since the
recruitment phase.
Mr. Steininger relayed that there were a handful of
adjustments in the department's budget in non-law
enforcement areas having to do with support and back-office
areas. The adjustments were related to positions that had
been vacant for a significant amount of time, travel and
commodity items that could be reduced, or other contractual
savings. The savings was spread out through 6 or 7 budget
components but added up to a savings of almost $1 million
UGF. The department was also eliminating 2 vacant building
plan review positions that had been added in the recent
year. The positions had not been filled, and DPS was
looking at ways to satisfy the activity through other
means.
Representative LeBon queried about the building plan
positions. He had been in charge of the department's
subcommittee budget over the previous 2 years. One of the
concerns had been the delays in building plan approvals
around the state through the Fire Marshall's office. Mr.
Steininger had mentioned there was an effort to outsource
the building plan reviews and approvals. He wondered if he
was aware of whether the response times for building plan
approvals had improved. He had heard of building plan
approvals through the Fire Marshall's office taking 6
months. He asked for an update.
Mr. Steininger was aware of the issue of timeliness around
building plan approvals. He did not have a statistical
update but would follow-up with the department and the
committee.
Representative LeBon would be asking the question of DPS
when they presented to the subcommittee.
Vice-Chair Ortiz asked if someone from DPS was available
online. Co-Chair Foster responded in the negative.
Representative Ortiz asked Mr. Steininger whether the
numbers reflected the plan to consolidate trooper dispatch.
Mr. Steininger did not believe the amount was reflected in
the numbers, but he could get back to the committee.
9:16:23 AM
Mr. Steininger continued to the Department of Revenue
(DOR)'s budget on slide 25. He pointed to the grey section
of the graph which showed other funds, the overwhelming
majority of spending for the department. It reflected
management of state assets in the Treasury and the Alaska
Permanent Fund Corporation (APFC). Most of the significant
budget changes could be seen in other funds as well. While
they were not a direct impact to state UGF, they had an
impact to state finances in terms of reducing costs in
managing the funds he had mentioned. For example, a
$10 million reduction to the Retirement Management Board
investment management costs, although not reflected as a
UGF savings, reduced costs in managing the retirement
system. In turn it reduced the need for deposits into the
retirement system over time.
Mr. Steininger continued that the department was also
looking at restructuring how to pay for other investment
management of smaller funds which had been paid with UGF.
The department was proposing to move to the policy of
charging the fund which was being managed for the cost of
managing the fund. There was a $1.4 million reduction in
UGF costs with additions of that cost pointing to those
funds being managed.
Mr. Steininger reported that the Child Support Division was
looking to move its antiquated case management system on
the state's mainframe to a web-based platform which would
reduce the cost of system support and maintenance. The
change would also provide the division with a measure as
they worked towards a more robust, modern system that would
tie in with other information technology (IT) systems used
by DOR. There was a reduction in general fund costs and a
corresponding request in the capital budget related to the
new system.
Mr. Steininger continued that there were also 3 vacant
positions within the department that had been vacant for a
significant time and were being eliminated without any real
impact to the workload.
Mr. Steininger indicated that APFC had moved to an
incentive compensation plan for fund managers. He reported
that the amount of $890,000 was the maximum the corporation
might need, but might not be the actual amount paid in
incentive compensation.
Representative LeBon remarked that he had tried to put the
incentive compensation plan in the budget in the prior
year, but it was cut. He was happy to see it in the budget
in the current year. The payment of a performance bonus was
standard in the industry. The Alaska Permanent Fund
Corporation Board of Trustees had been recommending the
bonus incentive for some time. He explained that a bonus
would only be paid for above average performance. Exceeding
expectations created a cashflow to APFC that would
self-fund the incentive compensation plan.
Representative Thompson concurred with comments made by the
previous speaker.
9:20:42 AM
Representative Josephson asked about the capital request
for the Child Support Division's case management system.
Mr. Steininger believed the total project cost was between
$12 million and $15 million. The cost of the system
included a federal share along with the state's portion.
The division also received certain garnishments through
child support that would help to fund the state's portion
of the project. By federal law these funds were due to the
child support agency and not to individuals. He indicated
DOR could provide a better explanation of the mechanics.
The general fund costs for the new system were relatively
low compared to the overall cost of the system. In the long
run, it would help to achieve some budget savings in terms
of the management system. One of the key components of the
project was intertying the system with other areas of DOR.
Representative Josephson expressed concerned about
foregoing $864,000 in federal revenue. However, he thought
Mr. Steininger had provided an understanding of both the
efficiency and the need to achieve it in the outyears.
Representative Wool mentioned a presentation by DOR the
previous day in the finance subcommittee that had a slide
showing the returns on investment on the Alaska Retirement
Management Board (ARMB) comparing it to the Permanent Fund
(PF). The slide showed that the ARMB slightly out-performed
the PF in the 5-year average return. The Power Cost
Equalization (PCE) Fund, which out-performed both the ARMB
and the PF on the 5-year average return, had passive
management.
9:23:27 AM
Mr. Steininger moved to the budget for the Department of
Transportation and Public Facilities (DOT) on slide 26. He
highlighted a significant change to the budget: the
transfer of the remaining facilities management activities
from the Department of Administration (DOA) to DOT. In the
FY 22 budget and going forward all management of state
facilities and leasing of facilities would be housed under
DOT. The new level of workload required an additional
division within the department. He indicated that the work
of the new division, the Division of Facilities Services,
used to be spread throughout the Maintenance and Operation
Section within DOT. Having all of the activities under one
roof would allow the state to have a better look at space
utilization and space management.
Mr. Steininger continued that another large change made to
the FY 22 budget for DOT was utilizing Coronavirus Aid,
Relief, and Economic Security (CARES) Act funding to
displace UGF. The CARES Act funding was related to the
Federal Aviation Administration funding he discussed in his
presentation in the preceding day. He reported that about
$14.6 million of the funding was available to offset UGF
costs in FY 22 and to allow for the department to maintain
activities. He noted that the Cares Act Funding was a
temporary fix, and it was unlikely the funding would be
available in the following year.
Mr. Steininger moved to the budget for the Alaska Marine
Highway System (AMHS) which reflected baseline funding as
proposed in the prior fiscal year. It represented a
reduction of about $3.6 million UGF. The department was
still reviewing the AMHS reshaping study that was done in
the prior summer to get a better idea of the future of the
system and how to provide the best service to Southeast
Alaska. He noted that the department had been impacted over
the previous several years by shortfalls in motor fuel tax
revenues. The budget reflected a shift of about $500,000 in
unrealized motor fuel tax to UGF in order for maintenance
activities to continue. He indicated DOT had been
conducting maintenance on roads that were not state-owned
and did not have any maintenance agreements in place. The
administration was proposing to cease those maintenance
activities until agreements were established.
Representative Thompson asked if the change in motor fuel
tax revenues had to do with more electric cars on the road.
He also wondered if a road fee for electric cars was being
considered. Mr. Steininger responded that he did not know
how much of the change in collections was a result of
electric cars being on the road. The Department of Revenue
or DOT might be able to address the representative's
question. He was unsure of any potential legislation to
address the issue.
9:28:12 AM
Representative Josephson mentioned HB 104 [Legislation
introduced in 2021 regarding motor fuel tax and vehicle
registration fees]. He pointed to the $14.6 million UGF
reduction. He asked whether, in the absence of Covid, the
FY 19 to FY 22 change would be closer to a $30 million UGF
reduction. Mr. Steininger responded affirmatively.
Representative Josephson was confused by the use of the
term, "The funding of essential service levels for the
marine highway system." Many thought that AMHS' essential
services level was not currently being met. He wondered how
it could be met with less funding.
Mr. Steininger suggested a more robust conversation with
DOT about providing the service. The Office of Management
and Budget could help facilitate the discussion. There were
many complexities in providing the service. He mentioned
aging vessels, the impacts of Covid-19, and many other
factors impacting current service. He noted the schedule
was something that was looked at closely in the reshaping
study. The hope was that by adjusting the schedule, it
would increase ridership while meeting the basic needs of
different communities. Ridership drove costs for the ferry
system.
Representative Josephson noted that for the last several
years the Legislature had taken an opposite approach
supplementing the system as much as possible.
Co-Chair Foster indicated the finance subcommittee would be
looking at the AMHS budget closely.
9:31:56 AM
Co-Chair Merrick referenced the elimination of maintenance
of non-state-owned roads. She asked where the
non-state-owned roads were located. Mr. Steininger
responded that he would provide an answer in writing.
Representative Wool suggested that the total motor fuel tax
was approximately $40 million annually. He suggested that
$500,000 was one-eightieth or 1.5 percent of $40 million.
He asked about the $50 million in the budget change summary
listed under "Other." He wondered where the increase came
from.
Mr. Steininger replied that the money represented the
transfer of the facilities activities. The Public Building
Fund, which managed most of the state's office buildings,
was transferred into DOT and listed under "other." The
funding came from lease payments by state agencies to pay
for the maintenance of their buildings. The money appeared
in the budget as a duplicated other fund.
Representative Wool suggested that DOT was increasing to
include all public facilities. He asked if there might be a
bifurcation of the department similar to what was being
done with the Department of Health and Social Services
(DHSS).
Mr. Steininger responded that the department's approach was
to create another division within DOT that handled the
responsibilities. Previously, the associated activities
were baked into the regional budgets and was at a time when
DOT managed its own facilities. Now that the department was
managing facilities on behalf of others, it made more sense
to have a separate division to carry out the related
responsibilities. He did not believe the activity was
enough to justify another department.
Vice-Chair Ortiz clarified that AMHS served Coastal Alaska,
not just Southeast Alaska. He asked Mr. Steininger about
any specific recommendations from the reshaping study group
that were now being implemented. Mr. Steininger deferred to
DOT. He could get a written response about what had been
implemented since the study was conducted. The December
budget proposal came out shortly after the reshaping study.
He supposed there had not been enough time to incorporate
any recommended changes into the December budget.
9:37:03 AM
Representative Carpenter did not see any decrements of
position control numbers (PCNs) in DOA's budget on
slide 10. He thought a reduction should be listed. Mr.
Steininger indicated that the positive number in DOA's
budget was net of the amount going to DOT. The Department
of Administration was also in the process of a procurement
consolidation in which many positions were coming from
other departments into DOA skewing the numbers.
Representative Johnson asked if road maintenance only
applied to all state-owned roads or to just some of them.
If the answer was only some of the roads, she wondered what
process was used to select them. She also asked when the
transfer of maintenance would take place. She thought there
might be a significant impact on municipality budgets. She
suggested providing notice.
Mr. Steininger replied that the intention was to capture
any areas where a non-state-owned road was being maintained
by DOT without an agreement in place. At the time when he
put the list together in December, he believed it to be
comprehensive. There might be some other roads that should
be on the list. The lack of an agreement with the state was
what he was trying to identify.
Representative Johnson asked Mr. Steininger what kind of
timeline he was looking at. Mr. Steininger replied that the
decrement would be effective on July 1, 2021 when the
responsibility would shift. Until then, maintenance would
continue through the winter.
9:41:15 AM
Mr. Steininger addressed the budget for the University of
Alaska on slide 27. He noted the compact between the
University and the administration to phase in reductions to
the university system over time. Fiscal year 22 was the
final year of the compact. The University would be moving
to a non-profit entity and would no longer appear in the
state budget.
Representative Josephson asked if the transition Mr.
Steininger described was at the discretion of the
University. Mr. Steininger confirmed that the
recommendations came from the Board of Regents.
Mr. Steininger reported on the state's debt service on
slide 28. Debt service was the payment of debt obligations
primarily from prior General Obligation (GO) Bond issuances
and also the School Bond Debt Program. The state had funded
50 percent of the statutory calculation for the School Bond
Debt Program in FY 22 which was the same amount
appropriated in FY 20. He relayed that in FY 21 the entire
amount was vetoed. It was an increase from the prior year
but flat funded from FY 20. The increase was offset by
other reductions in debt service costs to the state. Some
of the prior debt obligations were winding down. He pointed
out the change from FY 21 to FY 22 reflecting a $4 million
increase, and the state had added $12.5 million for school
bond debt reimbursement.
Representative Josephson was confused by the combination of
previous bond debt of a general nature with school bond
debt which was an annual item. Mr. Steininger responded
that the slide mirrored the structure in the budget report
including all debt obligations of the state. Representative
Josephson was correct that there were distinctly different
flavors of state debt in the state budget. General
Obligation (GO) Bond Debt was a constitutional form of
debt, whereas, school bond debt was a statutory program.
The state debt was co-mingled in the numbers.
9:45:28 AM
Representative Josephson noted that the people of Anchorage
took on $50 million in debt, and the state paid 70 percent
in 2013 on their behalf. In the current year the state
might pay 35 percent. He wondered if the other 35 percent
was gone permanently. Mr. Steininger thought Representative
Josephson was asking if in a future year the state could
compensate a community for differences between the
statutory obligation and what the state had paid in the
past. He responded that nothing would restrict a community
assistance distribution. However, the debt service payment
was due from the community, the debtor, as it was their
obligation. Although the assistance would not come in the
form of a debt payment, another form of community
assistance arrangement could be made.
Vice-Chair Ortiz mentioned the governor's bond package
proposal to fund the capital budget. If the proposal was
approved, he asked what the amount would be and when the
state would see an impact to the debt service for FY 23.
Mr. Steininger suggested that once the bonds were issued,
the service cost would be about $22.8 million. There would
be some staggering of bond issuance. In the first year the
service cost could be less than $22.8 million. The state
debt manager had an estimate of the first year of debt
service.
Vice-Chair Ortiz asked how long the state would be paying
$22.8 million per year. Mr. Steininger replied that it was
a 20-year debt.
Representative LeBon mentioned the University of Alaska
bond debt. He asked for the amount of annual debt service
the University carried and the total amount of bond debt
they were responsible for. Mr. Steininger would have to
consult with the University and get back to the committee.
Representative LeBon offered that the debt service was
around $25 million annually. Normally, the University asked
for assistance for debt service in the capital budget. He
was unsure of the University's total bond debt.
9:49:29 AM
Mr. Steininger continued to slide 29: "State Assistance to
Retirement." He pointed to the striking spike in 2015 when
the state made a large deposit into the retirement systems.
He noted there had been a rising trend in the actuarial
costs of retirement. The state made a one-time payment to
offset it which significantly reduced the state assistance
payments in the following years. He added that the state
assistance payments had risen since then. However, in FY 22
the actuarial projection came down slightly from FY 21 to
about $342 million. There was separate legislation in play
to change the way the state financed its portion of the
retirement system payments. It would allow the state to
access other fund sources to pay the state's portion that
was currently paid with UGF.
Mr. Steininger highlighted a couple of other statewide
items in the FY 22 operating budget. He noted that the
community assistance program was funded based on a
statutory calculation of PCE earnings - about $12.4 million
was available for the program. It equated to a slightly
reduced payment to communities of $20 million. Oil and gas
tax credits were funded at the statutory minimum of
$60 million, and the governor proposed to pay the amount
with Alaska Industrial Development and Export Authority
(AIDEA) receipts.
Representative Josephson asked how the amount of
$12.3 million became $20 million for community assistance.
Mr. Steininger replied that the community assistance
program was paid for out of the capitalized fund. One-third
of the fund's balance went out in community payments at the
start of each fiscal year. The amount in the fund for the
start of FY 22 would be about $60 million of which
$20 million would spin off, and the amount of $20 million
would be deposited. He corrected himself that it would be
at the start of FY 23 that there would be a spin-off of
about $20 million after the payments at the beginning of
FY 22. He offered to provide a table.
Representative Josephson suggested that the money was down
because the governor vetoed the legislature's effort to
recapitalize. He asked if he was correct. Mr. Steininger
responded that in the budget for the previous year there
were two deposits into the fund, one of which the governor
vetoed. The rationale behind the governor's veto was that
the administration knew there would be significant CARES
Act Funding distributed to communities. The allowability of
costs from the Community Assistance Fund was much broader
than the CARES Act Funding. However, the administration
knew that the money would offset many of the costs borne by
communities. The Cares Act funding should make communities
whole for the reduction in the community assistance
payments in FY 20 and FY 21.
9:53:42 AM
Representative Josephson suggested that it created a
planning problem in the future for FY 23 and FY 24. He
suggested the fiscal cliff was coming. He thought it was
another example of burdening local government.
Representative LeBon asked if OMB had made any fund source
changes for retirement away from general funds. Mr.
Steininger answered that the numbers reflected the
calculation prior to the legislation. The impact of the
legislation would come through a fiscal note. It was not
reflected in the budget numbers.
Mr. Steininger concluded the presentation. He could delve
into the budget amendments subsequent to the governor's
release of the budget in December. There was a spreadsheet
in members' packets.
Co-Chair Foster spoke of the limited amount of time left
for Mr. Steininger's presentation. He asked if Mr.
Steininger was going to touch on the 10-year plan. Mr.
Steininger responded that there were some slides that were
covered on the first day of the overview that addressed the
first 5 years of the 10-year plan.
Co-Chair Foster suggested reviewing the governor's
amendments. He asked members to hold their questions.
9:56:46 AM
Mr. Steininger directed attention to the 6-page spreadsheet
in member's packets. He would run through high points on
each page. On page 1 there was a small adjustment to the
Office of Information Technology adding a position that
would serve the new Department of Family and Community
Services. There was also a technical adjustment in DOC. He
explained that when the bill came out in December, some of
the budgetary allocations were listed out of order. The
adjustment corrected the order. There was also an increase
of $10,000 in federal receipts for DOC to allow the
department to receive a federal grant. He also noted a
small adjustment in the budget for the Department of
Education and Early Childhood Development (DEED). The
department determined that it did not require as much of a
UGF match for a federal program and was removing it from
its budget.
Mr. Steininger continued that there was a technical
adjustment on line 5 of page 1 to align the Alaska
Postsecondary Education budget with a separate proposal
made in December that needed to be made in 2 places and had
been omitted in one. In the Department of Environmental
Conservation there was a technical adjustment to a change
record that was labeled incorrectly when it was first
transmitted. Another change for DEC on line 7 was an
increase in spill prevention and response. He had discussed
a reduction to bring the fund in line with its
over-appropriation and its declining balance. The
department had overestimated the cost and needed to add
back funding. The amount would still bring the department
into a sustainable spend from the fund based on current
revenue collections. Mr. Steininger noted a $50,000 item in
the budget for the Department of Fish and Game (DFG) for
the Exxon Valdez Oil Spill to adjust the funding level for
projects done by the Commercial Fisheries Division.
9:59:02 AM
Mr. Steininger moved to page 2 of the budget amendments
spreadsheet. Item 9 was a fix for a technical drafting
error in the budget where there was some erroneous language
in the numbers section of the bill. He pointed to line 10
which had $900,000 in federal receipts and on line 11 the
amount was $2.1 million. The change moved a portion of the
Dingle-Johnson and Pittman-Robertson programs into the
operating budget. He had discussed the change when he
reviewed the DFG slide. He continued to line 12 in the
budget for OMB. There was an addition of an administrative
services director for the new Department of Family and
Community services. On line 13 there was an amendment for
the Division of Elections, as it required some funding
related to translating ballots to different languages which
had been funded previously by the federal government.
Federal appropriations were currently focused on election
security rather than ballot accessibility and language
accessibility. In order to continue the language
translation activities, UGF support was required.
Mr. Steininger continued to line 14 where there was a
slight change to the elimination of the 2 building plan
review positions. The department had overestimated the
amount of money that could be removed for the positions. An
adjustment of $16,000 was needed. Line 15 was a replacement
of authority associated with a plan to have local police
departments pay for the training academy. They were not
able to receive the funds from local police departments.
Line 16 was also associated with the Department of Public
Safety's budget having to do with a new federal grant for
the Sexual Assault Forensic Evidence Inventory, Tracking,
and Reporting (SAFE-ITR) Program.
Mr. Steininger continued to line 17, an adjustment within
DOR for a department-wide risk management activity
associated with physical and digital security risks. Line
18 was a technical correction to a drafting error in the
bill. Line 19 was a DOT amendment having to do with
authority for highways and aviation because of the revenue
shortfalls associated with the motor fuel tax and aviation
fuel taxes. Line 20 was an addition of maintenance
stations. Line 21 was for rural airport paint striping.
Line 25 was also an additional maintenance station. He
explained that there were a couple of maintenance stations
previously funded with CARES Act Funding. The funding was
available for a couple of years, but the state would have
to address the funding once the Coronavirus Response and
Relief Supplemental Appropriations Act (CRRSAA) monies
expired.
Mr. Steininger continued to line 22 which was a technical
adjustment to address a description. Line 23 was related to
fuel tax shortfalls. Line 24 was a result of DOT changing
the way it structured shifts on the Dalton Highway due to
Covid. The shifts were organized to reduce the amount of
travel needed. Line 25 had to do with another maintenance
station, and line 26 had to do with airport paint striping.
10:03:33 AM
Mr. Steininger advanced to page 4 of the amendment
spreadsheet. Line 27 was another item related to the tax
shortfalls within DOT. Items on lines 29 and 30 were
technical adjustments for Cost-of-Living Adjustments (COLA)
in one of the bargaining units. Line 31 was a result of a
request from the Judicial branch to implement
recommendations from the state legislature's task force in
the amount of $480,000. From line 34 on the items were
related to the language section of the bill. Line 34 was an
update to a description related to the ability to collect
federal receipts for the construction of a natural gas
pipeline. Line 35 was language that would extend the
community grants through the CARES Act as a result of CRRSA
extending the deadline for expenditures. The state needed
language allowing for the appropriation to extend through
the available time period. Line 36 was an adjustment to the
dividend from AIDEA. Their dividend amount was not known at
the time of the publication of the budget in December.
Mr. Steininger turned to page 5 of the amendments. Line 37
was $950,000 associated with redistricting for the Division
of Elections. He elaborated that the division did not do
the redistricting work. However, once the redistricting
process was completed, they would have to print new voter
I.D. cards and produce materials reflecting the new
boundaries. Line 38 would allow the Alaska Housing Finance
Corporation to carry funds granted through the Revised
Program Legislative (RPL) process related to housing
assistance from CRRSAA and to allow them to carry it into
FY 22 and FY 23, the allowable time period for the grant.
Line 39 was erroneous and was associated with line 38. It
should not be printed in the spreadsheet but was associated
with extending the $168.5 million.
Mr. Steininger relayed that line 40 was associated with the
Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI)
program requiring repayment for those medical students that
did not return to Alaska to serve as practitioners. They
had to repay the scholarships. Currently the repayment went
into the general fund, but the scholarships were paid out
of the Higher Education Investment Fund. The amendment
would allow the repayment to go back into the fund it was
paid from. Line 41 and line 42 were requests from the
legislature related to redistricting. Line 45 and on were
technical in nature from a budget perspective but reflected
some policy considerations as well. The Department of
Administration was consolidating human resources activities
and procurement activities. He reported that the
procurement activities and the PCNs associated with
procurement were reflected in the December budget. The
human resources PCNs had not been fully identified or
understood at the time. The changes reflected the transfer
of human resources staff into DOA as part of central
services.
10:07:41 AM
Mr. Steininger continued to page 6. He relayed that line 47
completed the transfer of the procurement consolidation for
positions that had not been identified in December. Line 48
was a transaction within a department to adjust for the
shift in PCNs. Line 49 aligned maintenance activities
conducted by DOT on behalf of other tenants. For example,
DOA was in a building that DOT had been the paying rent and
utilities. There was a list of other agencies that had been
in the same type of arrangement. There had not been a
connection between the utility costs and rent and the
tenant. The cost was being realigned with the demand.
Co-Chair Foster indicated the committee was running into
time set aside for LFD's presentation. He suggested the
committee could continue in the evening.
10:09:53 AM
AT EASE
10:11:51 AM
RECONVENED
^PRESENTATION: OVERVIEW OF THE GOVERNOR'S FY 22 BUDGET BY
THE LEGISLATIVE FINANCE DIVISION
10:11:55 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
introduced the PowerPoint presentation: "Overview of the
Governor's FY 22 Budget." He began with a presentation
outline on slide 2. First, he would be presenting the
history of Alaska's budget deficit. He would then discuss
Legislative Finance Division's (LFD) budget baselines for
FY 22 and how the governor's FY 22 proposal lined up with
those baselines. He would move on to talk about the big
picture of the governor's budget, the governor's 10-year
plan, and the fiscal outlook.
Mr. Painter started with Alaska's structural budget deficit
on slide 3. The current year, FY 21, was the ninth straight
year of fiscal deficits. The governor's FY 22 proposal
would bring the state to a full decade. Through that
period, the state had reduced the budget from $7.8 million
in FY 13, the peak budget year, to $4.5 billion in FY 21, a
43 percent decrease to the unrestricted general fund (UGF)
budget. However, during that time, the state's budget
reserve balances had dropped from over $16 billion in FY 13
to under $1 billion in the present day. He noted that it
looked like the state spent $15 billion in savings,
however, some of the funds had regenerated. During the
period the state had drawn down its reserves by about
$20 billion. The general fund (GF) was projected to owe the
Constitutional Budget Reserve (CBR) nearly $13 billion at
the end of FY 21 because all of the withdraws from that
account were a constitutional debt from the GF back to the
CBR.
Mr. Painter indicated the next few slides were graphic
illustrations of Alaska's structural budget deficit. He
continued to the bar chart on slide 4 which showed the
petroleum revenue versus non-petroleum revenue picture over
the last decade. He pointed out that in FY 12, the last
year the state had a balanced budget, petroleum revenue was
nearly $9 billion. It dropped year-over-year to under $1
billion in FY 17. Petroleum revenue rose slightly in FY 18
and FY 19 and was back at the comparable level in FY 21 and
FY 22 in the forecast. Prices had been somewhat higher
since the forecast. The state could receive approximately
$200 million in additional revenues, but it would still
represent a much lower level than seen over the previous
decade. The dramatic decline in petroleum revenue was the
cause of the state's budget problems.
Mr. Painter moved to slide 5 which showed the budget over
the same 10-year period. He highlighted the budget moving
downward like the revenue did from the peak year in FY 13.
He thought it was interesting that not all of the items
listed at the bottom of the slide moved together. The
state's peak budget year was FY 13. However, the peak for
the operating budget alone was FY 14. In that year, facing
a deficit, the legislature reduced the capital budget
substantially. In FY 15 statewide items were reduced, but
it was the peak for agency operations only. Fiscal year 16,
FY 17, and FY 18 showed lower levels of funding reflecting
budget cuts. The chart showed Alaska's structural deficit
and the UGF Budget from FY 12 through FY 22. He noted the
budget moving down from the peak year of FY 13. The peak
for the operating budget was in FY 14. In FY 15 statewide
items were reduced. The lower levels with budget cuts were
in FY 16 and FY 17.
Mr. Painter continued to slide 6 which placed the two
previous illustrations together showing the state's fiscal
picture over the prior decade. The revenue was reflected in
the background and the bars showed the budget. He
highlighted the surplus in FY 12 followed by deficits. He
reported that the percent of market value (POMV) draw,
which began in FY 19, significantly reduced the deficit.
However, the state had experienced a deficit every year
despite the draw. The percent of market value draw was
presently the state's largest source of revenue, but it was
not enough alone to balance the budget. The state was
currently looking at 10 straight years of fiscal deficits.
10:15:53 AM
Mr. Painter turned to slide 7: "Alaska's Structural Budget
Deficit (Con't): CBR and SBR Balances, FY 12-22." The
budget deficit had eaten away at the state's reserves. He
highlighted the trend from FY 13 at the peak of over $16
billion. In FY 20 the state spent the last of the Statutory
Budget Reserve (SBR). The fund currently had no balance.
The Constitutional Budget Reserve had gone from over
$12 billion in FY 14 to $1 billion presently.
Mr. Painter reviewed the UGF agency budget changes from
FY 15 to FY 21 on slide 8. He noted that as the state made
the reductions over the past decade, the cuts had not
fallen equally on agencies just as they hand not fallen
equally on all areas of the budget. Since FY 15 agency
operations were down over $500 million. However, not every
agency was down. The state's public protection agencies
including DOC, DPS, the Department of Law, and the Alaska
Court System were up 6 percent during the same 10-year
period. The Department of Education and Early Development
(DEED) was relatively flat. It was down about 2 percent
primarily because there was funding outside of formula
funding in FY 15 that was no longer in the budget in the
current year. The reduction was relatively flat.
Mr. Painter continued that the Department of Health and
Social Services was down 6 percent. He thought the
percentage was understating the reduction the department
had experienced. He explained that in FY 21 there was one-
time money for Covid-19 spending about $95 million in the
FY 21 management plan. If the amount was removed, DHSS's
budget would be down about 11 percent. All of the smaller
agencies from the Department of Administration (DOA), the
Department of Commerce, Community and economic Development
(DCCED), to the legislature's budget went down
significantly. Collectively, the amount was about $441
million or 35.6 percent. There were significant reductions
to the smaller agencies while the larger agencies had seen
smaller reductions. In the case of public protection, some
of the agencies had seen increases. Mr. Painter offered to
take questions.
Co-Chair Foster wanted to make sure the information was
presented rather than interrupting the presentation with
questions.
10:18:45 AM
Mr. Painter continued to slide 9: "Alaska's Structural
Budget Deficit (Con't): UGF Agency Budget Changes,
FY 15-22." The slide showed agency operations over the same
period similar to the previous slide. However, the current
slide broke out the University of Alaska and
transportation. He thought the trend was interesting to
observe. He highlighted that from the state's peak in FY 15
there were steady reductions down to FY 18. The governor's
amended budget for the current year was almost the same
amount as the FY 18 budget. The state had made steady
reductions down to FY 18. The budget rose slightly the
following couple of years due to Covid expenses. There were
some increases in FY 19 that the governor's vetoes in FY 20
wiped out. The supplemental for Covid-19 and fire
suppression in FY 20 brought the amount back up.
Mr. Painter continued that in FY 22 the budget was
essentially flat with where the state was at 4 years prior.
The state had not been able to make large reductions since
then. There were some agencies that had seen significant
reductions over the period, most notably the University of
Alaska. Those reductions had essentially offset increases
elsewhere, particularly in the public protection agencies.
After HB 49 [Legislation passed in 2019 regarding criminal
justice reform]. He highlighted that the cuts that had been
taken over the current administration and the previous few
years had returned the state to its same total level as the
state was at 4 years prior.
Mr. Painter turned to slide 10 which listed LFD's budget
baselines and the budget for the current year. He reported
hearing that it was confusing to compare the budget from
the previous year to the current year because there were
several distortions that occurred in each given year's
budget. In FY 21 the largest example was the Covid relief
and expenses. It caused FY 21 not to be a very clean point
of comparison for the current year. Comparing it
year-to-year it looked like there were large reductions.
However, they were really the expiration of one-time items.
In order to provide a clearer comparison, LFD created 2
baselines for members policy and law. They were intended
to provide a clean starting point.
Mr. Painter continued that when people looked at the
governor's budget, it would not be distorted as it was in
previous years as a point of comparison. For agency
operations he was using the adjusted base, which members
were likely all familiar with in subcommittee. It was
essentially the current year's budget with all of the
automatic changes such as the expiration of one-time items
and contractual changes. The one difference between LFD's
budget baselines and the adjusted base was in DEED. He
indicated that any changes due to projections and student
counts were rolled into LFD's baselines, as they were not
policy changes but projection changes.
Mr. Painter continued that the difference between the two
scenarios came in statewide items and the Permanent Fund
Dividend (PFD). The current policy scenario assumed that
the state would continue as it had in the current year. The
Permanent Fund Dividend was approximately $1,000. There
were no unrestricted funds going to school bond debt
reimbursement, the Regional Educational Attendance Area
(REAA) fund, community assistance, or oil and gas tax
credits. None of the items received UGF in the current
year. Current law assumed that instead the legislature
followed the items on the books. Therefore, it assumed a
statutory PFD, full funding of school debt, the REAA fund,
community assistance, and oil and gas tax credits. The
difference for a statutory PFD was about $2 billion versus
$680 million appropriated by the legislature in the current
year. He noted that for statewide items, which he would
provide details on in the following slide, the difference
was about $168.5 million between the two baselines.
10:23:08 AM
Mr. Painter continued to review LFD's budget baselines
focusing on statewide item details on slide 11. He noted in
the debt service the difference between the baselines was
the municipal project reimbursement debt. The governor
vetoed $2.4 million in the current budget for that amount.
It reflected a difference in the state's current policy and
current law.
Mr. Painter moved to the next item, breaking out school
debt reimbursement, of which the governor vetoed all of the
funding for the current year. In current law LFD assumed it
was fully funded. He continued that with state retirement
there was no difference because they were fully funded in
the current budget. All funding for the REAA Fund was
vetoed. In FY 21 the governor vetoed the use of UGF for
community assistance but used PCE funds. He explained that
in LFD's baseline, current policy assumed there was no UGF.
Current law stated that UGF needed to get to the statutory
$30 million deposit. He noted a white paper accessible on
LFD's website explaining the community assistance program,
how the mechanics worked, and the projected amounts going
forward. There were 2 versions of the paper the short
version showing only the funding and an extended version
which included a background of the program from the
Legislative Research Division. It provided a historical
overview of the program along with current funding
information.
Mr. Painter continued that there were zero dollars for oil
and gas tax credits in the current budget, and $60 million
was the statutory deposit in FY 22.
Mr. Painter looked at FY 22 current policy and law
scenarios on slide 12. Putting all of the items together,
using a $150 million capital budget for both years, the
current policy budget would have a deficit of about
$900 million similar to what the state faced in the current
year in FY 21. In the current law scenario, the deficit
would be about $2.4 billion. There was a difference in the
statewide items and in the dividend which led to a
significantly larger deficit in the baseline.
10:25:43 AM
Mr. Painter advanced to the comparison of the governor's
budget versus LFD's baselines on slide 13. The governor's
budget in agency operations was about $69 million below
LFD's baseline. He noted that it was not nearly the
reduction that could be seen when comparing agency
operations in the current year to FY 22, as many of the
items were one-time items for Covid relief. There were
really only $69.3 million of reductions in the governor's
budget, not the larger numbers that could be seen in the
straight-line comparison.
Mr. Painter reported that in statewide items the governor
was above current policy because of the 50 percent funding
for school debt and the REAA fund. However, it was still
significantly below the current law assumption by about
$138.9 million, because only 50 percent was funded and for
other reasons which he would discuss later.
Mr. Painter continued that the governor's capital budget
was below LFD's baseline because of the use of Alaska
Housing Finance Corporation's (AFHC) bonding. It added
about $104 million to the capital budget and showed up as
"other" because of being a bond proceed. If it was counted
as UGF, the typical fund source, the governor's capital
budget would be over $160 million, above LFD's baseline. It
was because in FY 21 the state had a partially funded
capital budget. The legislature did not appropriate the
entire capital budget in the year. Much of it was showing
up in the supplemental request or in increased projects in
the current year.
Mr. Painter continued that the governor's PFD reflected the
statutory amount which was higher than the current policy
baseline but matched current law. The governor's budget
ended up with a deficit of about $2.1 billion. It was
larger than the current policy deficit but smaller than
current law because of the reductions made by the governor
in agency operations and in the capital budget.
10:27:46 AM
Mr. Painter continued to slide 14 to discuss the agency
operation differences. The governor's budget was
$69.3 million below LFD's baseline. The largest decrement
of $35.1 million was to Medicaid. However, funding
available to the program was flat in the governor's budget.
The governor was proposing language that would take
$35 million of potentially lapsing funds in the current
year and rolling them into the following year. It would
result in taking money that was counted in the current
year's budget, pushing it forward to the following year's
budget, and making it look like there was a reduction to
the program. However, the same amount of funding would be
available to Medicaid.
Mr. Painter explained that one of the provisions of the
CARES Act was a higher federal medical assistance
percentage (FMAP) rate. The state's normal rate for the
non-expansion population was 50 percent. It had been
temporarily increased to 56.2 percent creating a
significant savings of approximately $15 million to $17
million per quarter in the state's budget. The rate
increase had been extended through the current fiscal year
and could potentially extend to the end of the calendar
year.
Mr. Painter continued that in the current year, the state
would lapse money in Medicaid because of the FMAP rate
increase. In the following year, if the rate was extended,
the state might be able to take a funding reduction without
impacting services. However, if the budget was reduced, in
the following year the state would have to increase the
budget to avoid a service reduction. He suggested the
administration saw it as a way to establish a lower
baseline and to provide the basis for future cuts. It
looked like a large reduction but was not a reduction in
service. If the state needed to find future reductions,
there would be built-in Medicaid cuts. Just to stay even,
the state would have to make additional reductions in the
following year.
Mr. Painter continued that the one large service reduction
in the governor's budget was made to the University of
Alaska. It was the last year of the compact which would
result in a reduction of $20 million. The Department of
Transportation and Facilities Maintenance was also down
primarily due to one-time fund changes to utilize CARES Act
money. The other reduction within DOT was to AMHS.
Mr. Painter noted a reduction of 100 positions within the
Public Assistance Program. He mentioned the reduction
because it was a good illustration of the difficulty of
making reductions. A reduction of 100 positions was
one-quarter of the total positions in the program. However,
it only added up to about $3 million. He commented that
when the total deficit was $2 billion, $3 million did not
make a significant difference. All of the minor cuts were
needed to balance out some of the natural increases to the
budget. Reductions similar to the example did not move the
needle very much relevant to the whole budget.
Mr. Painter indicated that the K-12 formula was fully
funded in the governor's budget. However, the projected
student count changes resulted in a reduction of funding.
It was included in LFD's baseline and was not included in
the $69.3 million. The governor introduced a bill that
would amend the formula that would increase funding by
$35 million but was not included in the governor's fiscal
summary or LFD's summary. He indicated the reductions did
not include the potential increase. Other changes across
agencies netted to an increase of about $6 million. Much of
the increases had to do with DPS and DOC and the splitting
of DHSS into 2 agencies.
10:32:16 AM
Mr. Painter moved to slide 15 to review statewide items. He
pointed out that the governor had $464 million for school
debt and the REAA Fund which were funded at 50 percent of
the statutory level. The governor had $12.4 million of PCE
funds for Community Assistance but no UGF. It would lead to
a $19.5 million payout in FY 23. For comparison in
Community Assistance, the base payment to municipalities in
the current year was $19.7 million. He suggested that the
$19.5 distribution was just shy of the amount to pay the
bases and would lead to those being prorated and no capital
funding would be provided. All cities would receive the
same funding and all boroughs would receive the same
funding because there would be no room for per-capita
funding based on the request.
Mr. Painter relayed that the governor proposed paying
$60 million in oil and gas tax credits using AIDEA receipts
which was not a designated use of the funds. There was no
real link between the programs. The traditional funding
source for the item was UGF. Essentially, it was an
artificial budget-lowering tactic. The governor also had a
Public Employees' Retirement System (PERS) bill that was
not included in the governor's budget. It was a separate
bill that would reduce the budget by $31 million.
Mr. Painter continued to the capital budget on slide 16.
The capital budget amounted to $62.2 million UGF but
included an Alaska Housing Finance Corporation (AHFC) bond
package totaling $104 million. The repayment of the bonds
would not hit the state on the budget side. Rather it would
affect the state on the revenue side, as they would be paid
out of AFHC's revenue. He explained that AHFC sent an
annual dividend to the state which would be reduced by the
debt service payment amounts. Although it would not be seen
on the budget side, there would still be an increase to the
state's future deficit.
Mr. Painter reported that the governor's GO Bond proposal
would have a debt service cost of about $22 million to
$23 million annually. However, not all of it would come out
the first year, as the bonds were issued over time. The
governor also had a fast track supplemental that funded
some of the unfunded FY 21 projects. Some of them were
moved to the FY 22 budget and others were funded with the
August 2020 RPL process. In LFD's overview of the
governor's budget, the big red book, in the capital budget
section there was a detailed breakdown of what happened to
the unfunded projects. He highlighted that between the
various funding vehicles (the supplemental, the RPLs, and
increased amounts in the FY 22 budget) most of the projects
were getting funded in some way in the governor's proposal.
However, they were not all funded in a straight line where
spending could be tracked from one budget to the next
because of the many ways they were being funded.
Mr. Painter reviewed a short fiscal summary of the
governor's budget on slide 17. He pointed to agency
operations. There was a reduction of $190 million rather
than a reduction of $69.3 million. The Legislative Finance
Division's baselines eliminated the one-time items. Without
eliminating the one-time items, it would appear there were
much larger reductions than in actuality. The total budget
was down $230.6 million before the dividend. However, much
of it was due to the one-time effect. If the dividend was
added back in and before supplementals, there would be an
increase. However, one of the supplementals the governor
proposed was an increased PFD in FY 21. If the increased
PFD was added back in, the budget would be lower in FY 22
than in FY 21. In the end, the deficit for both years was
about $1.2 billion.
Mr. Painter continued that the governor proposed meeting
the deficit through 2 different fund sources. In FY 21 he
proposed for the supplemental dividend to come directly out
of the Earnings Reserve Account (ERA) in the amount of
$1.2 billion. The previously approved amount would come out
of the CBR. In FY 22 he proposed for the entire dividend to
come out of the ERA. The remaining deficit estimated at $93
million would come out of the CBR.
10:37:06 AM
Mr. Painter turned to slide 18, a continued review of the
governor's FY 21/22 budget. In the big picture, the
governor's budget built in several UGF reductions that
could be difficult to repeat. He had touched on them
already. They included using lapsing balances for Medicaid,
using one-time federal money in fund changes in DOT, using
AIDEA receipts for oil and gas tax credits, and using AHFC
bonds in the capital budget. The items all artificially
lowered the size of the budget. The governor was trying to
minimize the use of the general fund. Without the items,
the governor's budget would be relatively flat at
$4.5 billion.
Mr. Painter presented the governor's 10-year plan on
slide 19. The governor proposed overdraws of the ERA in
FY 21 and FY 22. However, he theoretically balanced the
budget beginning in FY 23 by generating $900 million to
$1.2 billion in new revenues without specifying a source.
The governor also proposed to change the formula from
50 percent of statutory net income to 50 percent of the
POMV draw, a reduction of about $400 million per year
compared to the statutory dividend. That dividend would
still be significantly higher than the payout in FY 21 but
lower than the statute.
Mr. Painter reported that the governor also built-in agency
operations reductions of about $100 million per year for
FY 23 and FY 24 and sub-inflation growth beyond that time.
Essentially, it would take the state from $3.8 billion for
agency operations in the governor's current budget to
$3.7 billion and $3.6 billion. Given that some of the items
were one-time in nature, it would require finding future
reductions to meet the governor's plan.
10:39:20 AM
Mr. Painter continued to discuss the governor's 10-year
plan on slide 20. He indicated that the governor's proposed
overdraws to the ERA came at a cost to future deficits. He
explained that because the POMV draw was the state's
largest source of revenue, the extra draws would reduce
future POMV draws causing future deficits to increase by
about $160 million in inflation-adjusted terms.
Mr. Painter advised that the legislature needed to weigh
the economic benefits of a potential stimulus package
against the long-term cost. The governor's proposal was
essentially a stimulus package of the supplemental PFD, a
larger PFD in the fall, and the GO Bond proposal. The
legislature could also consider other potential stimulus or
relief packages that could be more narrowly targeted with
reduced spending.
Mr. Painter continued that the policy choices the
legislature made would have different effects on the
economy and different distributional impacts. Over the
previous several years the state had not added new revenue
but had reduced the dividend below the statutory level.
Comparing the different options, the state could reach the
same numbers by either reducing the dividend or generating
new revenue. However, they had different impacts on
different areas of the state and on people in different
income brackets, something to keep in mind in making policy
choices. If the legislature wanted to add new revenue in
FY 23, it would have to be authorized in the current year,
as it took time to implement. Even then, it would be
difficult to set up a new tax beginning on July 1, 2022. He
suggested that hitting the target would be very
challenging.
Mr. Painter suggested that if the legislature agreed to the
overdraws to the ERA in the current and following years,
without deficit filling measures, it could quickly result
in depleting the ERA similar to what happened to the CBR
and the SBR. He reminded members that every time the state
overdrew from the ERA, it increased future deficits leading
to reductions in services and increases in taxes. The
overdraws were costly in the long-term.
Mr. Painter turned to the final slide that showed the
impact of the governor's proposed FY 21 and FY 22 overdraws
on the ERA balance and the POMV draw. The difference in the
ERA balance could be seen immediately going from
$14 billion if the state followed the POMV to about
$10.5 billion if the legislature decided to do the
overdraws. He noted LFD assumed no inflation-proofing for
FY 21 through FY 24 based on a line of legislative intent
that accompanied a $4 billion transfer. In both scenarios
the ERA grew but declined in the future because of a lack
of inflation-proofing in combination with the overdraws of
the ERA. The lines on the chart showed the POMV draws.
There was no immediate change, but there was a significant
difference by FY 30 looking at the 5-year average. The
deficit would be about $200 million larger ($160 million in
real terms) in the future. He was available for questions.
10:43:26 AM
Co-Chair Foster indicated Representative Edgmon had joined
the meeting. He also thanked Mr. Painter for his
presentation and thought it was powerful.
Representative Wool thought there was a scarcity of
suggestions on how to resolve the deficit of $1.2 billion.
Angela Rodell of AFPC did not recommend overdraws. He
indicated that the oil production forecast was not great,
nor was the forecast of earnings of the Permanent Fund over
the following 10 years. He thought testifiers needed to
make suggestions. He referred to slide 14 and educational
funding due to a lack of enrollment. He asked if federal
funding in the amount of $135 million could be used to help
districts.
Mr. Painter thought the situation differed by district.
Some of the districts that were running their own
correspondence programs received increased funding in the
current year because of the way the hold harmless provision
only applied to brick-and-mortar students. Students could
switch from brick-and-mortar to correspondence, getting
counted for hold harmless, and getting counted again.
Mr. Painter reported that about half of the districts had
more funding in the current year than they had in the
previous year. The other half of districts, primarily
districts without a correspondence program, were down
significantly. For example, one district saw a 4.9 percent
decrease in their student count and did not trigger the
hold harmless provision which kicked in at 5 percent. Some
districts were down significantly and had access to federal
funding that could be used for certain purposes. However,
the funding was not as flexible as UGF. Districts had
reported different situations. Some had very tight budgets
and some were doing better because of the interaction of
the student count formula and the hold harmless provision.
He could not provide one answer as to whether districts
were okay. The answer would vary across the state.
10:47:42 AM
Representative Wool referred to slide 9. Mr. Painter had
pointed out that FY 19 and FY 22 reflected flat funding. He
asked if the bar graph included COVID money.
Mr. Painter replied that the federal number was not
reflected in the UGF only slide. There was UGF specific for
Covid relief in the FY 20 and FY 21 budgets. It was not in
the FY 22 budget, and a reduction could be seen. Other
reductions included Medicaid and DOT, the 2 largest
examples. About $50 million of the decrease was due to
using federal Covid monies instead of UGF. If the items
were pulled out, the state would be slightly above FY 18
levels.
Representative Josephson referred to slide 9. He asked how
the state had reduced the overall budget by 44 percent, yet
the FY 22 budget looked like FY 18.
Mr. Painter replied that if the chart was extended to
FY 13, the bulk of the reductions occurred in the capital
budget. Agency operations were down 11 percent from FY 15,
not the dramatic 43 percent. He commented that the years of
reductions occurred in FY 16, FY 17, and FY 18. Since then,
the state had been treading water. Looking at the
information agency-by-agency, every agency experienced UGF
reductions between FY 15 and FY 18. Since FY 18, the
reductions were mixed and had offset increases elsewhere.
Whereas, reductions occurred across the board from FY 15 to
FY 18.
Representative Josephson referred to slide 12. He noted
that when looking at the current policy, there was an
assumption of a $600 million PFD. Without the pre-transfer,
the deficit would be about $200 million. He asked if he was
correct. Mr. Painter responded, "Yes."
Representative Josephson referred to slide 14 and SB 58
which would amend the K-12 formula. He mentioned that at
the beginning of the administration's term it wanted to cut
funding to education by $250 million. Currently, the
administration was looking to increase education by $35.5
million. He asked if he was accurate. Mr. Painter replied
in the affirmative. The bill would increase the
correspondence multiplier from 90 percent to 100 percent.
It would also move correspondence students into the formula
which would increase funding in the governor's proposal.
10:52:14 AM
Representative Josephson referred to slide 16. He noted
that the committee had learned that the state had
$120 million for surface transportation projects. He
wondered if it should change the legislature's disposition
towards a GO Bond. He suggested that $150 million plus $120
million for capital projects was a substantial amount. He
heard the co-chairman of the other body express reluctance
on the issue including the timing. He asked Mr. Painter to
comment.
Mr. Painter responded that the representative was asking a
policy question. He could not provide a definitive answer.
He offered that transportation projects were one portion of
the GO Bond. There were other projects where there was
significant need. The school construction and major
maintenance list combined had $400 million of projects.
There was significantly more need that appeared on the
lists. The state could fund an entire $350 million GO Bond
on school construction and major maintenance projects
alone.
Mr. Painter continued that there were needs in deferred
maintenance as well. Not all deferred maintenance projects
would qualify as a GO Bond project because they had to be
capital improvements per the constitution. There were some
deferred maintenance projects that qualified. The state had
a $2 billion backlog of deferred maintenance projects.
There was no shortage of need. While the presence of the
federal money might make it less urgent to fund
transportation projects specifically, there was no shortage
of projects that could vie for a $350 million bond package.
Representative Josephson referred to slide 18. Mr. Painter
had talked about the unsustainability of the governor's
proposal to draw from other sources to pay for government.
He thought it came down to additional revenues to get the
state's budget balanced. Otherwise, the governor's proposal
was creative as anything else to get a balanced budget.
Mr. Painter replied that if the legislature did not attempt
to solve the fiscal problem in the current year, then doing
everything within its power to increase the life of the CBR
was probably a sensible policy. If the legislature sought
to solve the fiscal problem in the current year, then
perhaps all of the governor's proposals were unnecessary.
Representative Josephson remained on slide 18. He wondered
about the $35.0 million of lapsing balances. He asked if
the governor's proposal for FY 22 would result in flat
funding for Medicaid because of federal funding. He asked
if he was right. Mr. Painter responded that he was correct.
He suggested that even without the lapsing balances, if the
FMAP increase was extended until the end of the fiscal
year, the state would be able to meet a reduction of such
magnitude.
10:57:14 AM
Representative LeBon returned to slide 12. He wondered
about UGF revenue. He suggested certain assumptions had
been made at the time the slide was created. He asked if
any revenue assumptions had changed.
Mr. Painter indicated the assumptions were based on the
Fall DOR forecast which assumed an oil price of $48 per
barrel in FY 22. Actual prices were about $10 higher. The
state received approximately $28 million to $30 million
more in revenue for every dollar the price increased. The
state anticipated about $300 million more in revenues in
FY 22 if current oil prices held. The Spring Revenue
Forecast would be released in the following few weeks
reflecting an updated price.
Representative LeBon pointed to the PFD line and the higher
revenue number. He suggested that potentially the state
would not have a higher deficit. Mr. Painter responded that
the state would not have a deficit if no dividend was paid.
He referred to slide 15 for an additional question. There
was a reference made to using AIDEA receipts. He clarified
that the money would be used to pay oil and gas tax
credits. He wondered if the $60 million was over and above
the AIDEA dividend amount. Mr. Painter responded
affirmatively. It would be an additional draw from AIDEA
beyond their dividend which was $17 million.
Representative LeBon aske Mr. Painter if he had an opinion
regarding such a sizable draw against AIDEA's capital
amount. Mr. Painter thought it was a policy call. He
reported AIDEA had a $1.4 billion net position including
ownership stakes. They had cash on hand in their latest
statements that could support the draw. However, it would
reduce the amount they had for future projects. In the eyes
of credit raters, regardless of the size of the draw, any
draw from AIDEA for a state obligation would likely be
viewed negatively. In terms of AIDEA's cash flow, they had
sufficient cash on hand. However, it would be a significant
portion of their cash.
Representative LeBon commented that overdrawing the AIDEA
capital account would hamstring its ability to bond
projects at competitive interest rates. Also, AIDEA's
rating might be impacted by an overdraw of their capital
account. He wondered if it would be a one-time draw on
AIDEA receipts or whether it would be the future program.
He asked about the total level of oil and gas tax credits
to be repaid. It was just a 1-year event.
Mr. Painter reported that the amount of outstanding tax
credits was approximately $700 million. In the governor's
10-year plan there was no UGF for tax credits in any year.
He was uncertain if the governor's plan was to continue
AIDEA draws or find another source.
Co-Chair Foster reiterated the significance of the
presentation. He reviewed the agenda for the following
meeting later in the day.
HB 69 was HEARD and HELD in committee for further
consideration.
HB 71 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 3-2-21HFINOverview.pdf |
HFIN 3/2/2021 9:00:00 AM |
|
| Fund balances with inactive programs.pdf |
HFIN 3/2/2021 9:00:00 AM |
DOR Response HFIN |
| Gefonsi fund balances $25K+ at June 30 2020.pdf |
HFIN 3/2/2021 9:00:00 AM |
DOR Response HFIN |
| DOR Response to HFIN Fall 2020 RSB Presentation 2021.03.22.pdf |
HFIN 3/2/2021 9:00:00 AM |