Legislature(2013 - 2014)HOUSE FINANCE 519

01/31/2013 01:30 PM FINANCE

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01:30:26 PM Start
01:31:39 PM HB30
02:09:57 PM HB65 || HB66
02:10:31 PM Department Overview: Department of Labor and Workforce Development
02:49:55 PM Department Overview: Department of Law
03:23:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Governor's FY14 Budget Overview: TELECONFERENCED
- Dept. of Labor & Workforce Development
- Dept. of Law
Heard & Held; Assigned to Subcommittee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 30                                                                                                             
     "An Act  relating to  performance reviews,  audits, and                                                                    
     termination   of  executive   and  legislative   branch                                                                    
     agencies,  the University  of  Alaska,  and the  Alaska                                                                    
    Court System; and providing for an effective date."                                                                         
1:31:39 PM                                                                                                                    
REPRESENTATIVE MIKE CHENAULT, introduced  HB 30. He declared                                                                    
that HB 30  was an investment in Alaska's  future. He stated                                                                    
that the performance audits had  been in statute since 1977,                                                                    
but the  statute did not  allow the program to  continue. He                                                                    
stated that  a bill was  introduced in 2009 that  would have                                                                    
reinstated the program. That bill  passed the House, but did                                                                    
not get  taken up in  the Senate.  If that bill  had passed,                                                                    
the  first  department  on  the   list  of  audits  was  the                                                                    
Department of  Corrections (DOC).  He felt  that performance                                                                    
audits  were necessary,  in order  to accurately  review and                                                                    
approve  a  budget.  He  felt   that  HB  30  would  provide                                                                    
effective  changes to  the  budgeting  process. He  stressed                                                                    
that the job  of legislators was to ensure  that funding was                                                                    
accurate for the right service  or project. He added that it                                                                    
was  not   the  legislature's   job  to  micro   manage  the                                                                    
departments. He declared that HB  30 would cause a review of                                                                    
current  department administrations;  and  compare those  to                                                                    
the best  practices from other  states and experts  in order                                                                    
to   effectively   and   efficiently   meet   constitutional                                                                    
mandates. He  remarked that revenue projections  had changed                                                                    
significantly;  oil production  had dropped;  and the  state                                                                    
was at  the mercy of oil  price changes. The State  loses an                                                                    
equivalent to  $1 billion,  when the price  of oil  drops by                                                                    
$10  a  barrel. He  stressed  that  HB  30 would  start  the                                                                    
process  that would  significantly  enhance  the ability  to                                                                    
handle the responsibility of the finances of Alaska.                                                                            
Co-Chair Stoltze pointed out that HB 30 would be referred                                                                       
to a subcommittee, before it would be considered for                                                                            
passage from the House Finance Committee (HFIN).                                                                                
1:36:48 PM                                                                                                                    
SHARON KELLY, STAFF, REPRESENTATIVE CHENAULT, explained HB                                                                      
30. She referred to the Sponsor Statement (copy on file).                                                                       
     In 1977 the Alaska State  Legislature found there was a                                                                    
     need   for  an   effective   and   regular  system   of                                                                    
     scrutinizing the  programs and activities of  all State                                                                    
     agencies,  boards  and   commissions.  The  legislature                                                                    
     further found  that the establishment  of a  system for                                                                    
     periodic  review  by  the  public,  the  executive  and                                                                    
     legislative branches of  certain state agencies, boards                                                                    
     and  commissions  would  help   the  governor  and  the                                                                    
     legislature  determine  the   need  for  the  continued                                                                    
     existence  of each.  Under AS  44.66,  this review  has                                                                    
     continued since  1977 for  boards and  commissions. The                                                                    
     dates  to review  programs and  agencies  of the  state                                                                    
     ended in 1983 and were never reenacted.                                                                                    
     Low  oil  revenues  contained budget  growth  from  the                                                                    
     early   Eighties  to   2004.     State  revenues   grew                                                                    
     dramatically when  the price of  oil rose in  2004, and                                                                    
     the  budget grew  accordingly. The  current legislative                                                                    
     budget process  mainly looks at increments  and without                                                                    
     a regular  system of scrutiny, annual  budgets continue                                                                    
     to  grow. Other  states  have incorporated  performance                                                                    
     reviews  that have  resulted  in significant  budgetary                                                                    
     This legislation  will renew the effective  and regular                                                                    
     system of  scrutiny of  our departments  by authorizing                                                                    
     performance reviews.  The  legislation has been crafted                                                                    
     to  model  some of  the  aspects  of the  Texas  Sunset                                                                    
     Commission  reviews,  but  utilizes minimal  staff  and                                                                    
     outsourced  independent contract  work to  complete the                                                                    
     process  under the  auspices of  the Legislative  Audit                                                                    
     The information provided by  these reviews will include                                                                    
     authority,  accountability,  effectiveness,  efficiency                                                                    
     and necessity  of departments  and their  programs. The                                                                    
     report,  along with  draft legislation  to fix  issues,                                                                    
     will provide  the House  and Senate  Finance Committees                                                                    
     with in-depth information needed  to fund state budgets                                                                    
     Alaskans  will be  the  ultimate  beneficiary of  these                                                                    
     reviews.     This   process   will   ensure  that   our                                                                    
     governmental agencies  are working  for Alaskans  in an                                                                    
     efficient manner.                                                                                                          
1:38:23 PM                                                                                                                    
Ms. Kelly explained the difference  HB 30, and the bill that                                                                    
was introduced to  the legislature two years  prior: HB 166.                                                                    
She   stated  that   two  changes   were  proposed   by  the                                                                    
legislative auditor,  and one was  a technical  date change.                                                                    
The  first  change in  Section  1  stated that  the  savings                                                                    
calculations   that   resulted    from   implemented   audit                                                                    
recommendations  would  be   completed  by  the  Legislative                                                                    
Finance Division (LFD). The second  change was in Section 6,                                                                    
page 6, line 30, which changed  the word, "will" to "may" of                                                                    
items that  would appear  in the  final report.  That change                                                                    
would give LFD the flexibility  to adopt the report elements                                                                    
for   each  department,   as  determined   necessary  and/or                                                                    
appropriate. She restated  that the last change  was to move                                                                    
the  dates  two  dates  forward.  The  order  of  department                                                                    
reviews was  agreed upon  in the  subcommittee work  of HFIN                                                                    
two years prior.                                                                                                                
Vice-Chair  Neuman  wondered  Legislative Budget  and  Audit                                                                    
(LB&A) had  the authority  to review  the audits  for budget                                                                    
analysis.  Ms.  Kelly  replied   that  HB  30  provided  the                                                                    
opportunity for  LB&A to  review the  department increments,                                                                    
so the subcommittees can analyze the information.                                                                               
Vice-Chair  Neuman   assumed  that  LB&A  already   had  the                                                                    
authority  to  effectuate   performance  audits  within  the                                                                    
departments. Ms.  Kelly replied that LB&A  had the authority                                                                    
to  have an  audit request  presented  to them.  In 1977,  a                                                                    
periodic  review was  set in  statute. The  statute did  not                                                                    
continue, because the statute  did not carry forward. Unless                                                                    
the  performance  audits  were   written  in  statute,  some                                                                    
departments' audits may be overlooked.                                                                                          
Vice-Chair   Neuman  felt   that  performance   audits  were                                                                    
necessary, but he expressed  concern regarding the authority                                                                    
power of LB&A.                                                                                                                  
Co-Chair Stoltze declared  that he would not  have signed on                                                                    
as  a cosigner  of the  bill,  if it  were a  constitutional                                                                    
amendment to  amend the legislature's  appropriation powers.                                                                    
He felt that HB 30 would  enable another agency to carry out                                                                    
the audits.                                                                                                                     
1:43:23 PM                                                                                                                    
Representative  Chenault  agreed,  and  reiterated  Co-Chair                                                                    
Stoltze's comments.                                                                                                             
Representative  Edgmon  looked  at  page 4  of  HB  30,  and                                                                    
wondered if  there was  any consideration  towards advancing                                                                    
the  auditing  schedule. Ms.  Kelly  responded  that it  was                                                                    
possible to  advance the auditing schedule.  She shared that                                                                    
the   departments  with   the  largest   budgets  were   the                                                                    
Department  of  Health  and   Social  Services  (DHSS),  the                                                                    
University of  Alaska (UA), the Department  of Education and                                                                    
Early   Development   (DEED),    and   the   Department   of                                                                    
Transportation and Public Facilities  (DOT). She stated that                                                                    
the first  on the list  was Department of  Natural Resources                                                                    
(DNR), because it had a  medium sized budget. The reason for                                                                    
this  decision   was  to  ensure  some   experience,  before                                                                    
auditing the larger departments.                                                                                                
Representative Munoz  noted that  the fiscal  note indicated                                                                    
three  full  time  staff  by   FY  15;  and  $1  million  in                                                                    
contractual fees.  She wondered why there  was an additional                                                                    
$1 million in contractual fees.  Ms. Kelly replied that LB&A                                                                    
prepared  the fiscal  note,  with the  intent  to have  some                                                                    
performance auditors  on staff. She furthered  that the bill                                                                    
gave the  ability to  use experts  in the  field to  get the                                                                    
experience of the best practices.                                                                                               
1:48:58 PM                                                                                                                    
Co-Chair  Austerman  looked  at  page 6  of  the  bill,  and                                                                    
queried the  changes from the previous  year's similar bill.                                                                    
Ms. Kelly replied  that page 6, line 36 stated  that "in the                                                                    
report, the review team may";  in the prior bill that phrase                                                                    
said  that  "in  the  report, the  review  team  will."  She                                                                    
explained that the  change was made at the  request of LB&A,                                                                    
so  the final  report  could only  highlight  the large  and                                                                    
important legislative items.                                                                                                    
Co-Chair   Austerman    mirrored   Representative   Edgmon's                                                                    
concerns related to the auditing schedule.                                                                                      
Representative Costello  wondered what the funds  for out of                                                                    
state travel  would specifically  be used toward.  Ms. Kelly                                                                    
replied that the legislative auditor  added the out of state                                                                    
travel funding to  the fiscal note in case there  was a need                                                                    
to examine another state's system.                                                                                              
Representative Gara expressed support  of HB 30. He surmised                                                                    
that the  bill would not  affect the governor's  budget. Ms.                                                                    
Kelly agreed.                                                                                                                   
Representative Gara looked at page  5, lines 7 through 14 of                                                                    
the bill.  He wondered what  programs would be  examined, if                                                                    
there was  not a  possible 10 percent  cut under  the bill's                                                                    
standards. Ms.  Kelly replied  that it  was a  guideline, in                                                                    
order  to  provide  a  possible  list  that  would  cut  the                                                                    
department  by 10  percent, and  then the  legislature would                                                                    
determine where the cuts could be made.                                                                                         
1:53:48 PM                                                                                                                    
Representative  Gara  wondered  what  would  happen  if  the                                                                    
agency could  not find 10  percent worth of cuts.  Ms. Kelly                                                                    
pointed   out  that   all  information   submitted  to   the                                                                    
legislature would  state that the  financial plans  would be                                                                    
prioritized. She  remarked that the manager  prioritizes the                                                                    
program, but  could argue  that the items  that were  low on                                                                    
the list were still constitutionally mandated.                                                                                  
Representative Gara  wondered if a provision  could be added                                                                    
that would  require the department  to explain why  it could                                                                    
not   find  10   percent   of   the  programs   unnecessary.                                                                    
Representative  Chenault  replied   that  the  criteria  was                                                                    
merely  a guideline,  so the  department would  be urged  to                                                                    
prioritize there programs.                                                                                                      
1:58:00 PM                                                                                                                    
Representative Gara  reiterated his  desire for  a provision                                                                    
that  allows the  department the  ability  to explain  their                                                                    
reasoning for  not making  specific cuts  to programs.   Ms.                                                                    
Kelly  responded that  the intent  of  the bill  was to  ask                                                                    
departments  to  objectively   examine  their  budgets,  and                                                                    
identify 10  percent. She understood that  there were larger                                                                    
items  that could  not be  cut, but  there was  nothing that                                                                    
mandated a requirement of the  legislature to decrease those                                                                    
Co-Chair  Stoltze stressed  that  there should  always be  a                                                                    
benchmark for the departments' budgets.                                                                                         
Representative   Kawasaki  wondered   where   and  how   the                                                                    
performance  metrics would  evolve. Ms.  Kelly replied  that                                                                    
the metrics would  evolve in the process  of the legislative                                                                    
auditor  looking  at  the way  that  other  states'  metrics                                                                    
evolve.  She pointed  out that  there  were various  metrics                                                                    
that  states  utilize,  and the  legislative  auditor  would                                                                    
determine if those metrics applied to Alaska.                                                                                   
Representative Kawasaki  wondered what  would happen  if the                                                                    
governor's  metric was  in  conflict  with the  legislature.                                                                    
Representative Chenault  responded that it was  the privy of                                                                    
the legislature to  construct a bill, and  furthered that he                                                                    
would like  to work with DOA  to come to an  agreement based                                                                    
on continuity.                                                                                                                  
2:03:38 PM                                                                                                                    
Co-Chair Stoltze remarked that  the governor could not "veto                                                                    
money   into  the   budget."  He   pointed   out  that   the                                                                    
legislature's primary role was  appropriation, and it should                                                                    
be a collaborative effort.                                                                                                      
Vice-Chair Neuman looked at page 4,  line 5 of the bill, and                                                                    
suggested the  words "have  to" instead  of the  words "may"                                                                    
and "shall." He  looked at the fiscal note,  and wondered if                                                                    
the  department would  be restricted  to the  personnel that                                                                    
were  already  in place,  while  the  performance audit  was                                                                    
conducted. Ms.  Kelly responded that  OMB agreed  that there                                                                    
may be  added work, but they  agreed to move forward  with a                                                                    
zero  fiscal note.  She remarked  that the  fiscal note  may                                                                    
Co-Chair Stoltze suggested  language about direction related                                                                    
to managing the performance audits.                                                                                             
Representative  Chenault thanked  the committee,  and looked                                                                    
forward  to   developing  a  proper   way  to   conduct  the                                                                    
performance audits.                                                                                                             
Co-Chair  Stedman appointed  Representative  Costello to  be                                                                    
the   subcommittee   Chair   for  the   Performance   Audits                                                                    
subcommittee;   with   members:  Representative   Austerman,                                                                    
Representative Wilson, and Representative Gara.                                                                                 
HB  30  was   HEARD  and  HELD  in   committee  for  further                                                                    
2:08:35 PM                                                                                                                    
AT EASE                                                                                                                         
2:09:21 PM                                                                                                                    
Co-Chair Stoltze handed the gavel to Co-Chair Austerman.                                                                        

Document Name Date/Time Subjects
LAW HFIN OVERVIEW(013113).pdf HFIN 1/31/2013 1:30:00 PM
LAW Overview
DOLWD HFIN Overview 1-31-13 (2).pdf HFIN 1/31/2013 1:30:00 PM
DOLWD Overview 1/31