Legislature(2017 - 2018)HOUSE FINANCE 519

01/23/2018 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
01:33:43 PM Start
01:34:46 PM HB285 || HB286
01:34:46 PM Fy 19 Budget Overview: Legislative Finance Division
03:03:11 PM Presentation: Personal Services Vacancy Factor
04:05:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 286 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
*+ HB 285 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Heard & Held
+ Overview: Governor's FY19 Budget by David Teal, TELECONFERENCED
Director, Leg. Finance Div.
+ Presentation: Personal Services Vacancy Factors TELECONFERENCED
by:
- David Teal, Director, Leg. Finance Div.
- Amanda Ryder, Fiscal Analyst, Leg. Finance Div.
HOUSE BILL NO. 285                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive mental health  program; and providing for                                                                    
     an effective date."                                                                                                        
                                                                                                                                
HOUSE BILL NO. 286                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain   programs;    capitalizing   funds;   amending                                                                    
     appropriations;  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."                                                                                                        
                                                                                                                                
1:34:46 PM                                                                                                                    
                                                                                                                                
^FY 19 BUDGET OVERVIEW: LEGISLATIVE FINANCE DIVISION                                                                          
                                                                                                                                
1:34:46 PM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
provided a  PowerPoint presentation titled "Overview  of the                                                                    
Governor's FY19 Budget Request and  Plans" dated January 23,                                                                    
2018  (copy  on  file).  He   preferred  to  hear  questions                                                                    
throughout the presentation.                                                                                                    
                                                                                                                                
Co-Chair Seaton recognized  Representatives Harriet Drummond                                                                    
and Chris Birch in the audience.                                                                                                
                                                                                                                                
Mr. Teal planned  to address the abbreviated  version of the                                                                    
fiscal  summary.  He noted  that  the  full version  of  the                                                                    
fiscal  summary  was available  and  was  on  page 8  of  an                                                                    
overview of  the governor's budget. He  explained the reason                                                                    
for  looking at  undesignated general  funds (UGF)  only. He                                                                    
detailed  that  federal   funds,  designated  general  funds                                                                    
(DGF),  and other  funds were  not used  because it  was not                                                                    
possible  to spend  more than  was available.  He elaborated                                                                    
that even  if there was  authorization to spend  $1 million,                                                                    
if  only  $700  million  [$700,000]  in  federal  funds  was                                                                    
received,  the lower  amount was  all that  could be  spent.                                                                    
There could  not be any  deficit on federal, other,  and DGF                                                                    
funds. The only place it was  possible to have a deficit was                                                                    
the UGF category.  He understood there were  others who were                                                                    
interested in  total spend, which  he was not trying  to say                                                                    
was unimportant. The presentation was  meant to focus on the                                                                    
deficit; therefore, it was limited to UGF.                                                                                      
                                                                                                                                
1:38:25 PM                                                                                                                    
                                                                                                                                
Mr. Teal  began on  slide 2, which  included a  table titled                                                                    
"FY19  Revenue and  Appropriations."  The  slide showed  UGF                                                                    
only on  a cash  flow basis.  Revenue of  approximately $2.1                                                                    
billion excluded transfers from  the Permanent Fund Earnings                                                                    
Reserve  Account (ERA)  -  there was  no  percent of  market                                                                    
value  (POMV) payout  included. He  elaborated that  revenue                                                                    
was primarily  from oil and  also included  interest, taxes,                                                                    
and  other.  He  pointed  to  appropriations  totaling  $4.6                                                                    
billion,  which  was  broken  out  into  agency  operations,                                                                    
statewide  items,   and  capital.   Appropriations  excluded                                                                    
Permanent  Fund Dividends  (PFD)  and transfers  to or  from                                                                    
reserves.  There  was  a small  $21  million  transfer  from                                                                    
reserves,  but it  was excluded  from the  table. The  table                                                                    
also excluded items that  required legislative action beyond                                                                    
a  simple  majority vote;  the  table  was limited  to  cash                                                                    
received  without  drawing  from the  Constitutional  Budget                                                                    
Reserve (CBR). The  goal was to present  an accurate picture                                                                    
of the fiscal situation based on  cash flow only and no draw                                                                    
from reserves.                                                                                                                  
                                                                                                                                
Mr. Teal continued  to address slide 2. Bills  had also been                                                                    
left out of  the equation and would continue to  be left out                                                                    
until   a  bill   passed.  The   table   also  excluded   an                                                                    
appropriation to purchase  oil and gas tax  credits. The aim                                                                    
was  to  get  a  clean  start  in  order  to  see  how  much                                                                    
corrective  action  was  necessary. The  difference  between                                                                    
revenue and  appropriations showed  a $2.5  billion deficit.                                                                    
He underscored  that the table  did not show  the governor's                                                                    
plan. He referenced a debt purchase  plan on oil and gas tax                                                                    
credits. He  detailed that  if a  person believed  the state                                                                    
owed the  minimum statutory amount  and had to  purchase the                                                                    
credits, the  budget was missing $206  million. The governor                                                                    
planned  to introduce  legislation for  the tax  credits and                                                                    
had excluded the  $206 million from the  budget. He detailed                                                                    
the  governor's legislation  would allow  the state  to sell                                                                    
bonds  with an  interest of  $27 million.  He stated  that a                                                                    
person could argue they wanted  a fiscal note for that plan.                                                                    
The governor did  not request money to purchase  oil and gas                                                                    
tax  credits in  the  version of  the  fiscal summary  under                                                                    
consideration. He  continued that even  if the bill  did not                                                                    
pass,  the  governor  did  not  have  to  request  funds  to                                                                    
purchase oil and  gas tax credits. He expounded  that if the                                                                    
legislature wanted to  add the funds that was  fine, but the                                                                    
governor  did  not  have to  follow  the  minimum  statutory                                                                    
requirement.                                                                                                                    
                                                                                                                                
1:42:41 PM                                                                                                                    
                                                                                                                                
Mr.  Teal stated  that it  was  possible to  argue that  the                                                                    
proposed  budget understated  the deficit  and it  should be                                                                    
$2.7 billion. One could argue  that a worse deficit had been                                                                    
seen, which  was correct;  however, the  current year  was a                                                                    
game changer. He  detailed that the reserve  balance of $2.1                                                                    
billion in the CBR and  $172 million in the Statutory Budget                                                                    
Reserve  (SBR)  totaled  $2.4   billion.  The  savings  were                                                                    
insufficient  to fill  the deficit  even  before the  amount                                                                    
owed for oil and gas tax credits.                                                                                               
                                                                                                                                
1:43:53 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara stated  the previous  year  there had  been                                                                    
discussion about  starting to include  the PFD  as spending.                                                                    
He noted that  based on LFD charts, spending  was down about                                                                    
$3.5 billion with capital and  operating. He asked if LFD or                                                                    
the governor planned to begin counting the PFD as spending.                                                                     
                                                                                                                                
Mr.  Teal replied  that  the cash  flow  slide excluded  the                                                                    
payout  from the  Permanent  Fund to  the  General Fund  and                                                                    
dividends. The  governor's budget  included a payout  to the                                                                    
GF  and dividends  from the  payout; dividends  became a  GF                                                                    
expense.                                                                                                                        
                                                                                                                                
Vice-Chair Gara  surmised that  LFD was  not planning  to do                                                                    
the same thing.  He stated that a constituent  had looked at                                                                    
the governor's budget  and thought it raised  spending by $1                                                                    
billion. He  explained that the  increase was the  result of                                                                    
including the PFD - the cost  had never been included in the                                                                    
past. He asked what LFD thought.                                                                                                
                                                                                                                                
Mr. Teal  replied that  the current  and previous  year, LFD                                                                    
had  included the  PFD as  a  GF expenditure  in the  fiscal                                                                    
summary.  He  had  not  included it  in  the  current  slide                                                                    
because it only reflected cash  flow. He intended to address                                                                    
two additional versions to arrive  at the governor's view of                                                                    
the  budget. He  explained  that the  governor had  proposed                                                                    
transferring  money  from  the  ERA to  the  GF  and  paying                                                                    
dividends from  that deposit. He  elaborated that  LFD would                                                                    
present the information  that way and had done so  up to the                                                                    
end of session the prior year  when there had been no payout                                                                    
to the GF  and an appropriation had been  made directly from                                                                    
the ERA to the dividend fund.  He stated that the payout had                                                                    
not gone through the GF the  prior year and that was how LFD                                                                    
would present it.                                                                                                               
                                                                                                                                
Mr.  Teal  explained  that  it was  the  reason  there  were                                                                    
comparisons that  were difficult  to make.  The way  to make                                                                    
the comparisons  equal was to  show dividends as  revenue to                                                                    
GF and an expenditure from GF  so the $1 billion increase in                                                                    
spending did not  occur. It was not  technically accurate to                                                                    
say  that dividends  had been  paid from  GF, but  they were                                                                    
treated that way in order to make the comparisons easier.                                                                       
                                                                                                                                
1:47:45 PM                                                                                                                    
                                                                                                                                
Representative Ortiz  asked if the $27  million the governor                                                                    
had set aside  to pay interest on bonds for  oil tax credits                                                                    
was  included   in  slide  2.   Mr.  Teal  replied   in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative Wilson  asked if retirement or  anything that                                                                    
may be DGF and everyday costs were included.                                                                                    
                                                                                                                                
Mr.  Teal preferred  to answer  the question  throughout the                                                                    
presentation in order for everyone to see how it worked.                                                                        
                                                                                                                                
Representative  Wilson  clarified   she  was  interested  in                                                                    
anything  qualifying   as  DGF  that  could   end  up  being                                                                    
something else at  a later time. She  remarked the committee                                                                    
had the discussion  that everyday operating had  been out of                                                                    
a different fund and qualified  under DGF; although, at some                                                                    
point the DGF funds could run  out and would mean the use of                                                                    
GF. She elaborated  that she was referring  to anything that                                                                    
may be  in the budget  as DGF, but  had only been  put there                                                                    
because higher  education money [or  other DGF  sources] may                                                                    
be available, but not necessarily  what it would be utilized                                                                    
for. She  believed there  were some  things funded  with DGF                                                                    
that should have probably been in UGF.                                                                                          
                                                                                                                                
Mr.  Teal replied  it was  an excellent  point. He  detailed                                                                    
that over  the past couple  of years higher  education funds                                                                    
had been used to pay  for retirement costs. He explained UGF                                                                    
expenditures were seen for that  purpose. The prior year the                                                                    
legislature   had  included   intent  language   asking  the                                                                    
governor  not   to  repeat  the  practice.   The  governor's                                                                    
proposed  budget funded  retirement from  the CBR.  He would                                                                    
address the issue later in the presentation.                                                                                    
                                                                                                                                
1:50:30 PM                                                                                                                    
                                                                                                                                
Mr. Teal  moved to  a bar chart  showing budget  reserves on                                                                    
slide  3.  He discussed  that  the  current situation  where                                                                    
reserves were not sufficient to  fill the deficit should not                                                                    
come as  a surprise.  The slide  was based  on an  LFD model                                                                    
from  2015,  which  showed  that  reserves  would  not  last                                                                    
through FY  19. Projections  were merely projections  and it                                                                    
was  easy to  ignore  them, especially  when  they were  not                                                                    
desirable.  However, they  were  no longer  looking four  or                                                                    
five years ahead.  He underscored that the  future was here,                                                                    
and reserves  were essentially gone  if the CBR was  used to                                                                    
balance  the   budget  in  the   current  year;   there  was                                                                    
insufficient money to do so.  Alternative options for fixing                                                                    
the deficit  included new revenue such  as taxes, additional                                                                    
expenditure reductions,  and money from the  Permanent Fund.                                                                    
He remarked  it was up to  the legislature to decide  on the                                                                    
combination  it  would  use,   but  a  balanced  budget  was                                                                    
constitutionally   required  prior   to  the   legislature's                                                                    
departure.                                                                                                                      
                                                                                                                                
1:52:19 PM                                                                                                                    
                                                                                                                                
Mr.  Teal  turned  to  slide 4  and  addressed  the  primary                                                                    
strategy  the governor  had proposed  to fix  the deficit  -                                                                    
Permanent Fund  earnings. The table included  UGF only, cash                                                                    
flow basis, and POMV and  transfers. The table included POMV                                                                    
payout of $2.7 million (5.25  percent); of the $2.7 million,                                                                    
$819 million went  to dividends, leaving a  net revenue gain                                                                    
of $1.9 billion.  The slide showed revenue  of $4.8 billion.                                                                    
He emphasized that the table  did not reflect the governor's                                                                    
plan; it was merely a step  in getting there. The first step                                                                    
used by  the governor was a  POMV payout, which went  a long                                                                    
way.  The table  added  transfers, which  was pulling  money                                                                    
from small  funds/accounts; in the  current case it  was the                                                                    
capital income fund.                                                                                                            
                                                                                                                                
Mr. Teal  explained that more  was being taken out  than put                                                                    
in  by $21  million  in  the current  budget.  The math  was                                                                    
simple: there  was a $2.5  billion deficit, reduced  by $1.9                                                                    
billion,  leaving  a  $600 million  deficit,  which  was  an                                                                    
improvement.   After  filling   the   deficit  from   budget                                                                    
reserves, the  reserves would  have $1.8  million remaining.                                                                    
Some  people may  say  there was  no need  to  panic -  $1.8                                                                    
billion spent  at $600  million per  year meant  three years                                                                    
before  the  state  was  out   of  reserves  if  the  budget                                                                    
continued to  be paid with  a POMV payout. Others  may argue                                                                    
that  it [the  deficit]  was not  $563  million because  the                                                                    
governor did  not include $200  million for tax  credits and                                                                    
retirement  may  be  underfunded.  He  explained  that  when                                                                    
factoring  in the  $200 million,  reserves  dropped to  $1.6                                                                    
billion  and the  deficit went  up closer  to $800  million,                                                                    
which  left two  years of  reserves. How  long the  reserves                                                                    
would last was tenuous.                                                                                                         
                                                                                                                                
Mr.  Teal believed  the committee  had  heard several  times                                                                    
that  the Office  of  Management and  Budget  (OMB) and  LFD                                                                    
would  prefer one  year's worth  of reserves  ($5 billion  -                                                                    
roughly one  year's worth  of spending) in  the CBR,  but $2                                                                    
billion was a goal now that  the fund was long past having a                                                                    
$5 billion balance.  He noted that OMB had  said the balance                                                                    
should not  drop below  $1 billion  for cash  flow purposes.                                                                    
One could glean from the table  that a POMV payout would get                                                                    
the state through FY 19, but  there would still be a deficit                                                                    
to fill in FY 20 and FY  21. He cautioned it would be harder                                                                    
and  harder to  fill the  deficit, leaving  lower and  lower                                                                    
reserves, unless  something else was done  (i.e. raise taxes                                                                    
or cut spending).                                                                                                               
                                                                                                                                
1:56:11 PM                                                                                                                    
                                                                                                                                
Mr.  Teal stated  that it  did not  get all  the way  to the                                                                    
governor's plan. He moved to  a table showing the governor's                                                                    
budget  on   slide  5,  which  included   a  column  showing                                                                    
additional  items. The  slide  included  an additional  $200                                                                    
million  in  revenue  from payroll  and  motor  fuel  taxes,                                                                    
bringing the total revenue to  slightly over $5 billion. The                                                                    
payroll tax  was projected to  bring in $160 million  in the                                                                    
first  year  and  motor  fuels   taxes  would  generate  $40                                                                    
million. However,  the plan would  spend $309  million more.                                                                    
He detailed that  $29 million came from fiscal  notes on the                                                                    
three  bills the  governor  had built  into  his budget.  He                                                                    
noted  the bills  had not  yet passed,  but LFD  had counted                                                                    
them.   Additionally,  the   governor's  plan   included  an                                                                    
economic  recovery  act.  He   referenced  $160  million  in                                                                    
revenue and  noted that the  bill [payroll  tax legislation]                                                                    
would spend $280 million in the first year.                                                                                     
                                                                                                                                
Mr.  Teal   believed  there  were  three   issues  of  small                                                                    
digression on  the economic recovery  act. The  bill allowed                                                                    
the legislature to appropriate the  balance of the fund (the                                                                    
fund balance came  from the tax revenue -  $160 million). He                                                                    
reasoned   the  bill   specifying  the   balance  could   be                                                                    
appropriated, was  not being followed  if the  balance could                                                                    
not exceed  $160 million and $280  million was appropriated.                                                                    
He  continued that  OMB did  not  believe it  was a  problem                                                                    
because it did  not intend to spend more  than $160 million.                                                                    
He  explained that  LFD questioned  why the  money would  be                                                                    
appropriated during the current budget  cycle if OMB did not                                                                    
plan to  spend it; LFD  thought the appropriation  should be                                                                    
held off until FY 20. It  was necessary to ask OMB about the                                                                    
reasoning because LFD did not count that way.                                                                                   
                                                                                                                                
Mr. Teal  continued that LFD  counted the money the  year it                                                                    
was  appropriated; it  did  not count  the  amount of  money                                                                    
spent  on  the project  each  year  -  it would  require  an                                                                    
incredible  amount of  work to  track all  of that.  If $280                                                                    
million was appropriated and there  was only $160 million in                                                                    
the fund, there  was not enough money to  spend. However, it                                                                    
was  not true  in  the current  situation  because the  bill                                                                    
would  create  a sub-fund  to  the  GF and  any  expenditure                                                                    
exceeding the  balance in the  sub-fund would come  from GF.                                                                    
It was not  what was intended to be done,  but what could be                                                                    
done that LFD worried about;  therefore, LFD counted it as a                                                                    
$280 million appropriation.                                                                                                     
                                                                                                                                
Mr. Teal spoke  to a third issue pertaining to  the bill. He                                                                    
explained that it  was a plan that  required tax legislation                                                                    
to pass. He  asked what would happen to  the regular capital                                                                    
bill if  the tax  legislation did not  pass. He  wondered if                                                                    
the capital  bill would increase because  perhaps several of                                                                    
the  things in  the economic  recovery act  were things  the                                                                    
legislature  wanted, but  the governor  had moved  them from                                                                    
the regular  capital budget into the  economic recovery act.                                                                    
He furthered that  if the legislature did not  pass the tax,                                                                    
it could choose to move  money back into the capital budget,                                                                    
thereby  increasing  the  deficit.  With  the  new  revenue,                                                                    
appropriations, and transfers,  the governor's deficit would                                                                    
be closer to $700 million                                                                                                       
                                                                                                                                
2:00:55 PM                                                                                                                    
                                                                                                                                
Mr. Teal  continued that the  governor proposed to  fill the                                                                    
deficit with  a firm  draw from the  CBR. He  explained that                                                                    
the governor's  fiscal summary showed  a $400  million draw,                                                                    
whereas the LFD summary  showed $425 million. The governor's                                                                    
bill also  included a reduction  of CBR spending  if savings                                                                    
in  retirement were  achieved related  to decreased  medical                                                                    
costs. He detailed that  when contingent appropriations were                                                                    
made,  meaning   they  were  dependent  on   something  else                                                                    
happening such as achieving savings,  LDF put in the maximum                                                                    
value, while  OMB put  in the  minimum value.  He elaborated                                                                    
that  LFD   used  maximum  value   because  it   wanted  the                                                                    
legislature to know what could happen  - LFD did not want to                                                                    
paint a rosier picture than what may occur.                                                                                     
                                                                                                                                
Mr.  Teal provided  a scenario  where  a supermajority  vote                                                                    
occurred on the  $400 million and it turned  out the savings                                                                    
were  not  achieved. He  considered  whether  it would  mean                                                                    
getting  another supermajority  vote for  an additional  $25                                                                    
million. He  stated that LFD  did not  want to go  there and                                                                    
showed the  item as withdrawing  $425 million.  He explained                                                                    
it  was better  to spend  less from  the CBR  than what  was                                                                    
appropriated  rather than  to be  stuck  spending more  than                                                                    
what  was appropriated.  He added  that supermajority  votes                                                                    
were  not easy  to get.  He pointed  out that  there was  an                                                                    
imbalance even using  all of the reserves  including the SBR                                                                    
resulted in a negative number.                                                                                                  
                                                                                                                                
Mr. Teal stated  that the governor was required  to submit a                                                                    
balanced  budget. He  did  not  characterize the  governor's                                                                    
proposed  budget as  a constitutional  crisis; the  governor                                                                    
had  backed into  the CBR  spending by  showing revenue  and                                                                    
appropriations  and specifying  the amount  needed from  the                                                                    
CBR. He  detailed that LFD  had found some  errors including                                                                    
double counting  of some revenue  and undercounting  of some                                                                    
appropriations.  Slide 5  showed a  deficit of  $74 million,                                                                    
which could be fixed in  the governor's amendment process if                                                                    
so desired.  He stated  that it was  merely a  math equation                                                                    
that  had  arrived at  the  $425  million. He  remarked  the                                                                    
figure could  just as well  be $500 million and  the deficit                                                                    
would go away.                                                                                                                  
                                                                                                                                
2:04:30 PM                                                                                                                    
Mr.  Teal  advanced to  slide  6  that showed  a  comparison                                                                    
between  FY 18  and  FY 19  (UGF) and  was  intended to  add                                                                    
perspective  to   the  discussion.  He  remarked   that  the                                                                    
comparison  was not  as  easy  as it  may  seem because  the                                                                    
governor had released a transparent  budget report showing a                                                                    
reduction of  $150 million from FY  18 to FY 19.  The fiscal                                                                    
summary did  not show  the same  $150 million  reduction; it                                                                    
showed a  reduction of  $257 million.  While the  LFD fiscal                                                                    
summary showed an increase of  $287 million. He relayed that                                                                    
LFD  had  provided OMB  with  the  16 points  of  difference                                                                    
between the OMB  and LFD fiscal summaries.  He addressed the                                                                    
two  primary differences.  First,  was the  $400 million  to                                                                    
$425 million spent from the  CBR. The governor said spending                                                                    
from the CBR was not UGF  spending, which was true - the CBR                                                                    
was  constitutionally  created  as  another  fund.  However,                                                                    
taking $400 million  from the CBR and saying  it reduced UGF                                                                    
spending was  unhelpful. He  stated that  LFD did  not count                                                                    
that way and he advised  against doing so. He continued that                                                                    
it implied another $700 million  could be taken from the CBR                                                                    
to  fill  the  deficit  and  reduce  UGF  spending  by  $700                                                                    
million.  He believed  the method  fooled the  budget makers                                                                    
and the public.                                                                                                                 
                                                                                                                                
Mr.  Teal  reported that  the  supplemental  items were  the                                                                    
second  difference.  He  discussed that  the  operating  and                                                                    
capital  bills  contained a  number  of  FY 18  supplemental                                                                    
requests  totaling about  $170 million.  The governor  added                                                                    
the supplementals to the FY  18 prior to making a comparison                                                                    
to FY 19. He advised against  counting that way (LFD did not                                                                    
use  that method).  He  continued that  it  was possible  to                                                                    
increase the budget  every year, but the  numbers would show                                                                    
it was declining  - it was a distortion that  LFD avoided by                                                                    
not counting supplementals. The other  way to do it would be                                                                    
to  count FY  18  and FY  19 supplementals,  but  the FY  19                                                                    
supplementals were  not yet known.  He added that the  FY 18                                                                    
supplementals  were not  even known;  the legislature  would                                                                    
not see  a full  supplemental bill for  another week  for FY                                                                    
18.  He  concluded that  LFD  believed  the legislature  was                                                                    
better  off leaving  supplementals  out  of the  calculation                                                                    
entirely.                                                                                                                       
                                                                                                                                
2:08:45 PM                                                                                                                    
                                                                                                                                
Representative Wilson asked if  the supplementals were added                                                                    
in the FY  17 actuals in order to see  what should have been                                                                    
spent in that year.                                                                                                             
                                                                                                                                
Mr. Teal replied in the  affirmative. The supplementals were                                                                    
shown in the FY 17  actuals. He explained that supplementals                                                                    
should  be  counted,  which  was  the  reason  looking  back                                                                    
historically   actuals  were   often   counted  instead   of                                                                    
management plan. He detailed that  if supplementals were not                                                                    
counted  somewhere, there  was  an  incredible incentive  to                                                                    
underfund  the budget.  For example,  the legislature  could                                                                    
underfund Medicaid to deal with  the current deficit of $600                                                                    
million. The  governor could come  back with  a supplemental                                                                    
and it  would appear the FY  19 budget had been  cut by $600                                                                    
million.  It was  a question  of  when the  money should  be                                                                    
counted, not whether it should be counted.                                                                                      
                                                                                                                                
Representative Wilson  asked how to stop  the supplementals.                                                                    
She understood that supplementals  were necessary for things                                                                    
like  earthquakes.   She  stated  that  Medicaid   had  been                                                                    
underfunded  by over  $100  million, which  was  now in  the                                                                    
current budget. She  asked whether the money  would come out                                                                    
of FY  19 if the legislature  chose not to fund  the [FY 18]                                                                    
supplemental.                                                                                                                   
                                                                                                                                
Mr.  Teal  answered that  only  the  legislature could  stop                                                                    
supplementals. He  explained that  in the case  of Medicaid,                                                                    
the legislature would fund to  the projections (assuming the                                                                    
projections could be  trusted). He stated it was  a big "if"                                                                    
having seen the number of  supplementals and how far off the                                                                    
projections  had  been  from   actuals.  He  mentioned  that                                                                    
because  of the  situation LFD  had met  with Department  of                                                                    
Health and  Social Services (DHSS) staff  during the interim                                                                    
to  talk  with the  department  about  participating in  its                                                                    
projection process.  Unless the legislature  was comfortable                                                                    
with the projections,  DHSS may not get the  money it needed                                                                    
to run its program.                                                                                                             
                                                                                                                                
Mr.  Teal  confirmed that  the  [FY  18] supplemental  would                                                                    
eventually get  funded anyway if  the legislature  chose not                                                                    
to fund  it, though  not in  FY 19. He  detailed that  in an                                                                    
entitlement program like Medicaid,  people who were eligible                                                                    
were  entitled  to  get  healthcare.  When  the  individuals                                                                    
received  care,  the  state owed  and  paid  the  healthcare                                                                    
provider.  The state  then  received federal  reimbursement;                                                                    
however, much more  had been spent on Medicaid in  FY 17 and                                                                    
FY 18  than anticipated. The supplemental  was $100 million,                                                                    
$92 million of  which was Medicaid. If  the supplemental was                                                                    
not passed,  the department  would say  that the  money left                                                                    
the treasury  and it could  not get  the money back,  but it                                                                    
had  to  give  the  money  back  to  the  legislature  as  a                                                                    
ratification.   He   explained   that   ratification   meant                                                                    
ratifying  expenditures that  left the  treasury without  an                                                                    
appropriation.  The [state]  constitution specified  that no                                                                    
money  could leave  the treasury  without an  appropriation.                                                                    
His  description showed  how money  did  leave the  treasury                                                                    
without   an   appropriation.   The   situation   left   the                                                                    
legislature with no choice but  to ratify the expenditure by                                                                    
approving the money  going out. He concluded it  was a long-                                                                    
delayed appropriation.                                                                                                          
                                                                                                                                
2:13:49 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  spoke  to  truth  in  budgeting.  He                                                                    
stated that  the amount spent  in a particular  year because                                                                    
of  supplementals was  larger than  the initial  budget that                                                                    
was  passed.  He  thought  adding  the  supplemental  in  at                                                                    
present  made it  look like  a reduction  was taking  place;                                                                    
however,  ultimately  there  may   be  a  supplemental  that                                                                    
increased the budget  over the last year's  budget. He asked                                                                    
how to ensure truth in budgeting.                                                                                               
                                                                                                                                
Mr. Teal responded  that the legislature could  work as hard                                                                    
as it wanted to reduce  supplemental budgets, but they would                                                                    
always  persist; however,  they could  be reduced.  He cited                                                                    
examples  of wildfire  costs and  other. He  added that  the                                                                    
Office  of Public  Advocacy and  the Public  Defender Agency                                                                    
routinely  came in  for supplementals.  He  reasoned it  was                                                                    
something that  should probably not  happen. He  stated that                                                                    
an agency, for operating costs,  should probably not come in                                                                    
for  20-something  consecutive   years  for  a  supplemental                                                                    
because  of constant  underfunding.  Medicaid  was the  same                                                                    
way. To  the extent  that the  legislature could  fully fund                                                                    
programs,   it  would   avoid  the   distortion  caused   by                                                                    
supplementals.  He continued  that  it  was not  necessarily                                                                    
possible;  projections were  just  projections. He  reminded                                                                    
the  committee  that Medicaid  cost  about  $15 million  per                                                                    
week. Consequently,  if the  budget was off  by two  days of                                                                    
checks, a $5  million supplemental would result.  He did not                                                                    
believe  supplementals could  ever be  eliminated, but  they                                                                    
could be  reduced. The other  distortions in  budgeting were                                                                    
crossing   fiscal  years,   using  DGF   for  non-designated                                                                    
purposes,  and using  one-time money  for ongoing  operating                                                                    
costs.  All of  the  things  would come  back  to haunt  the                                                                    
legislature  in  the  future and  distort  the  year-to-year                                                                    
comparisons, making it difficult to  compare one year to the                                                                    
next.                                                                                                                           
                                                                                                                                
2:17:47 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Gara    stated   that    the   administration's                                                                    
explanation  on  the  Medicaid  increase  was  that  it  had                                                                    
reduced  Medicaid   reimbursement  to  physicians,   but  an                                                                    
increased number  of people  had showed  up for  more claims                                                                    
and federal  law required paying  for them. He asked  if Mr.                                                                    
Teal disputed the administration's explanation.                                                                                 
                                                                                                                                
Mr. Teal  replied that there  were a number of  things going                                                                    
on with  Medicaid. Several people  blamed the  cost increase                                                                    
on Medicaid expansion, but that  was not the cause. Medicaid                                                                    
expansion had added more people,  mostly at federal expense;                                                                    
there  was some  GF, but  it was  not the  cost driver.  The                                                                    
driver on  the big supplemental  was that Medicaid  had been                                                                    
underfunded the  previous year. Some  people had  thought it                                                                    
had  been underfunded  by $30  million to  $40 million,  but                                                                    
they also had  hopes that Medicaid could  contain its costs.                                                                    
The hours of  a particular service had not been  cut the way                                                                    
they had been planned.                                                                                                          
                                                                                                                                
Mr. Teal did not believe DHSS  would have agreed it had been                                                                    
only underfunded by $30 million  to $40 million. He reported                                                                    
that  an  RPL  [revised  program legislative]  had  come  in                                                                    
during the  interim showing that  DHSS had  been underfunded                                                                    
somewhere between  $60 million  and $100 million.  He shared                                                                    
that it  had not been  a big  surprise when the  budget came                                                                    
out  in  December [2017].  The  department  would have  told                                                                    
legislators it was underfunded the  day the legislature left                                                                    
[in 2017]. It did not do  any good to underfund that way. He                                                                    
stated that  Medicaid could  not control  its costs,  once a                                                                    
person  was eligible,  the reimbursement  rate was  set, and                                                                    
service  was  provided,  the  money  was  spent.  It  was  a                                                                    
question   of  believing   their  projections   and  funding                                                                    
Medicaid at the projected amount.  He elaborated that it may                                                                    
leave  some  supplementals  or   may  leave  a  little  over                                                                    
appropriation.  Until   that  was   done,  there   would  be                                                                    
supplementals.                                                                                                                  
                                                                                                                                
2:21:10 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  reasoned that  some parts  of the                                                                    
discussion   about   supplementals  was   academic   because                                                                    
whatever happened with  Medicaid was one thing,  but the day                                                                    
after the  budget passed fuel  prices may rise  resulting in                                                                    
costs for Alaska Marine Highway  System (AMHS), there may be                                                                    
a bad fire season, and other.  He stated that $50 million in                                                                    
costs  for  wildfires  was not  unusual.  He  referenced  an                                                                    
earthquake that  occurred early that  day, which  could have                                                                    
resulted in  a coastal  disaster. He  was uncertain  how the                                                                    
state would  ever get  away from  supplementals. He  did not                                                                    
know how other  states dealt with it in a  different way. He                                                                    
believed   it   was   how  the   legislature   trusted   the                                                                    
supplementals and projections  and how it was  dealt with in                                                                    
charts. He  questioned whether there  was a superior  way of                                                                    
dealing with it  in the budget documents  that would provide                                                                    
more confidence.  He wondered if  the situation  had evolved                                                                    
to a place where it was the best it could be.                                                                                   
                                                                                                                                
Mr. Teal  answered that  the system had  not evolved  to the                                                                    
best  it  could  be.  He referenced  the  $170  million  the                                                                    
governor had  submitted. It was not  the governor's problem,                                                                    
most of the issue was  about things the legislature had done                                                                    
in 2017.  He elaborated that  $100 million of the  total was                                                                    
Medicaid, which  the legislature had known  was underfunded.                                                                    
He continued that  $24 million was AMHS,  which had resulted                                                                    
from  shuffling  between years  that  did  not work  out  as                                                                    
planned. There  had been  other uses  of one-time  money. He                                                                    
recalled  presenting  to  the committee  in  October  [2017]                                                                    
about  the holes  that had  been  left. He  stated that  the                                                                    
holes had  not been left by  the governor but were  a result                                                                    
of  legislative action.  Community assistance  and more  had                                                                    
not been funded. The bulk  of the $170 million resulted from                                                                    
holes left in the 2017 legislative process.                                                                                     
                                                                                                                                
2:23:56 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton shared  that  in 2017  the legislature  had                                                                    
received all  reports as UGF and  as GF to help  get at some                                                                    
of the one-time money or GF  used to supplement UGF in order                                                                    
to know  what was spent  in full. He  noted that it  did not                                                                    
compensate   for   inaccurate   projections  and   cuts   or                                                                    
underfunding statutorily  required services. He  stated that                                                                    
if a  cut was  made to a  statutorily required  service, the                                                                    
administration was  required to  follow statute  and provide                                                                    
the  service, meaning  it would  come back  for funding  the                                                                    
next year  [as a supplemental].  The issues were  things the                                                                    
legislature  needed   to  watch   out  for.  He   hoped  the                                                                    
legislature would look  at all GF again in  the current year                                                                    
and make sure it was not using  DGF to pay or make it appear                                                                    
they were lowering  the UGF deficit. He reasoned  it was all                                                                    
state  money. The  goal was  transparency on  what was  paid                                                                    
for. He was not claiming  anything was perfect. He stated it                                                                    
had been the  way the budget had been created  in 2017 - the                                                                    
same thing for  AMHS funds being used for Medicaid  - it had                                                                    
been  allowed in  the  budgetary process  but  had not  been                                                                    
anticipated. He  asked members to  understand the  impact of                                                                    
the legislature's actions.                                                                                                      
                                                                                                                                
Representative   Pruitt  was   fine   with   the  total   GF                                                                    
conversation.  He thought  it was  a challenge  the way  the                                                                    
governor had presented  the budget - he  anticipated a focus                                                                    
on  UGF.  He  stated  there   was  a  lack  of  ability  for                                                                    
comparison  -  there  were  different  numbers  provided  by                                                                    
different  individuals, which  was challenging  when talking                                                                    
to the  public about  the total budget.  He believed  it was                                                                    
important to decide what method to use as a baseline.                                                                           
                                                                                                                                
2:27:17 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton clarified  that  there  were categories  of                                                                    
funds  available  including   DGF.  When  considering  total                                                                    
spending  it  was  necessary  to talk  about  total  GF.  He                                                                    
explained that  a person could  focus on UGF, but  he wanted                                                                    
to avoid trying to lower  UGF by spending DGF for unapproved                                                                    
sources. The  legislature could  spend something  outside of                                                                    
its designated purpose,  but it was problematic  to use that                                                                    
method to make it appear  the legislature had spent less GF.                                                                    
He did not intend to  have a philosophical debate but wanted                                                                    
to  ensure that  moving forward  in the  budget process  the                                                                    
legislature identified any holes.                                                                                               
                                                                                                                                
Representative  Wilson  spoke  to  truth  in  budgeting  and                                                                    
transparency. She thought  it would make more  sense if they                                                                    
did  not  have numerous  designated  funds.  She thought  it                                                                    
would make  more sense to take  money from one pot  in order                                                                    
to  understand the  available revenue.  She  added it  would                                                                    
avoid the  battle of  funding things  that were  outside the                                                                    
intended purpose of a specific fund.                                                                                            
                                                                                                                                
Mr. Teal answered that Representative  Wilson would have fit                                                                    
in  at  the  constitutional  convention.  He  detailed  that                                                                    
constitutional drafters  had intended for all  revenue to go                                                                    
into the GF and all  appropriations to fight on equal ground                                                                    
for  funding. The  whole  purpose  of prohibiting  dedicated                                                                    
funds, which had been avoided  by the creation of designated                                                                    
funds, was to keep from  diverting funds to specific causes.                                                                    
He continued  that the thought  was that items  should fight                                                                    
for funding with other programs.  He agreed that it would be                                                                    
easier to  eliminate many of the  designated funds. However,                                                                    
every year, ideas for additional  designated funds arose. He                                                                    
stated there would not be  designated funds unless they were                                                                    
created by the legislature.  The legislature could choose to                                                                    
get rid  of the  designated funds, but  they worked  for the                                                                    
purpose of ensuring that some  programs were competing a bit                                                                    
more equally than others for funding.                                                                                           
                                                                                                                                
2:31:58 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  believed  it was  a  discussion  the                                                                    
committee  needed to  have. She  detailed that  some of  the                                                                    
funds had  been set  up with  specific parameters.  She used                                                                    
the Power  Cost Equalization  (PCE) fund  as an  example and                                                                    
explained  that  some money  was  supposed  to be  put  into                                                                    
energy projects  to help  lower costs so  at some  point the                                                                    
state would no longer need  something like PCE. The idea was                                                                    
to  put  communities on  a  more  level playing  field.  She                                                                    
stated  there   were  numerous  designated  funds   and  she                                                                    
believed it was  necessary to consider whether  they had met                                                                    
their goals  and whether they  were needed at  their current                                                                    
levels.  She  thought it  was  important  especially if  the                                                                    
legislature was  going to  consider a  payroll tax  or other                                                                    
taxes.  She stated  that communities  were not  on the  same                                                                    
level playing field.  She used the Higher  Education Fund as                                                                    
an example, where  funding had been used  for other purposes                                                                    
such as retirement.                                                                                                             
                                                                                                                                
Vice-Chair Gara  spoke to truth  in budgeting.  He discussed                                                                    
that it  was possible  to make it  appear that  UGF spending                                                                    
had decreased  by funding education  with a  designated fund                                                                    
(e.g. the Higher Education Fund).  He recalled that one year                                                                    
retirement  had  been  funded   partially  with  the  Higher                                                                    
Education Fund. He believed the  public only cared about how                                                                    
much  was  spent.  He  spoke  against  making  one  category                                                                    
smaller by  making another category  bigger. He  agreed that                                                                    
they should  look at GF  and CBR spending, otherwise  it was                                                                    
confusing to  the public. He  tended to agree  with Co-Chair                                                                    
Seaton  and  Representative  Wilson about  the  subject.  He                                                                    
added  that  without using  all  of  the  funds it  was  not                                                                    
possible to compare year-over-year spending.                                                                                    
                                                                                                                                
2:34:48 PM                                                                                                                    
                                                                                                                                
Mr. Teal referenced page 16  from the LFD Overview book that                                                                    
contained a  discussion of designated  funds being  used for                                                                    
non-designated  purposes. He  advised  that  a person  could                                                                    
begin there  to start  considering whether  designated funds                                                                    
were useful. He added that it  helped to know the history on                                                                    
some of the  things. He used PCE as an  example and detailed                                                                    
that many  urban communities received hydro  projects, which                                                                    
meant cheap  electricity for urban locations.  He considered                                                                    
how  rural residents  could also  benefit  from the  state's                                                                    
large investment in energy when  projects could not be built                                                                    
in  rural   locations  because   it  was   not  economically                                                                    
feasible. Instead, the rural population  shared in the hydro                                                                    
investments by  getting their  energy subsidized.  He stated                                                                    
that one  could argue  the rural communities  should receive                                                                    
subsidization  for as  long as  the  hydro projects  lasted,                                                                    
which could  be 100  years. An argument  could be  made that                                                                    
the PCE  had been a good  idea that allowed the  whole state                                                                    
to benefit  from investments that  seemed to focus  on urban                                                                    
areas only. He stated that  the legislature could go through                                                                    
every fund  to consider  whether they were  needed. However,                                                                    
every fund  had a  constituency; it was  not easy  to unwind                                                                    
history.                                                                                                                        
                                                                                                                                
Representative  Pruitt  agreed that  they  did  not want  to                                                                    
unwind history, but he did not  like trying to lower UGF. He                                                                    
recalled testimony  by legislative staffer Pete  Ecklund who                                                                    
had argued  the reason UGF was  used was because it  was the                                                                    
place the deficit came from. He  stated it was the driver to                                                                    
lower what the UGF looked  like because it changed where the                                                                    
deficit was.  He spoke  to being  truthful in  budgeting and                                                                    
the  point highlighted  by Mr.  Teal about  using designated                                                                    
funds for non-designated items.  The change would mean there                                                                    
would appear to be an  initial growth in the state's budget,                                                                    
but he believed it would  mean the legislature could finally                                                                    
get to the truth of what  was being spent. He referenced the                                                                    
use  of $40  million from  designated funds  to cover  AMHS,                                                                    
which now appeared  as $40 million in growth  in the current                                                                    
budget.  He  asked  if  the legislature  chose  not  to  use                                                                    
designated  funds to  pay for  undesignated items,  what the                                                                    
growth in the budget would be.  He wondered if it would be a                                                                    
good  position to  start in  the current  year to  reset the                                                                    
clock and have a truthful conversation with the public.                                                                         
                                                                                                                                
2:38:23 PM                                                                                                                    
                                                                                                                                
Mr. Teal  stated it was a  tough guess on the  number, which                                                                    
he  estimated   at  several  hundred  million   dollars.  He                                                                    
recalled  that last  year Co-Chair  Seaton  had stated  they                                                                    
needed to unwind  some of the things, but  he had determined                                                                    
that  it was  not possible  because then  it appeared  there                                                                    
were  huge  budget  increases.  It was  the  nature  of  the                                                                    
building  that everybody  was  looking  for reductions,  not                                                                    
increases. Trying to  straighten things out was  good in the                                                                    
long  run, great  in  concept,  but it  did  not change  the                                                                    
amount being  spent, just the  accounting. He asked  how the                                                                    
legislature would  figure out how  to make the  change while                                                                    
making the  public understand  there had  not been  a budget                                                                    
increase of a couple  hundred million dollars. He questioned                                                                    
how  the public  would understand  that the  budget had  not                                                                    
grown and  that the accounting had  merely been straightened                                                                    
out.                                                                                                                            
                                                                                                                                
Mr. Teal continued there were  a number of things that could                                                                    
be  done.  He  shared  that   LFD  had  been  talking  about                                                                    
designated  funds not  fulfilling  their intent.  Designated                                                                    
funds had  been intended to  be more like  program receipts,                                                                    
such as  AMHS money coming  in from ticket sales  that would                                                                    
be  used by  AMHS. Park  receipts designated  for parks  was                                                                    
another  example. He  stated that  those funding  situations                                                                    
were all fine;  it was when the  legislature began diverting                                                                    
GF  taxes  for things  like  reinsurance,  alcohol and  drug                                                                    
treatment,  and other,  that things  became  blurry. It  was                                                                    
possible to change  the way the accounting was  done, but it                                                                    
would take work by chairs and agreement.                                                                                        
                                                                                                                                
Mr. Teal referred  to supplementals and believed  one way to                                                                    
reduce  the distortion  was to  count  supplementals in  the                                                                    
current year. He explained that  in 2017 the legislature got                                                                    
credit  for   reducing  the  budget,   which  it   may  have                                                                    
intentionally or unintentionally  underfunded. He elaborated                                                                    
that  if the  legislature had  to come  back in  the current                                                                    
year and  say it was  not counting FY 18  appropriations and                                                                    
was  only  counting  by  legislative  session,  the  current                                                                    
legislative session would spend the  FY 19 budget and the FY                                                                    
18  supplementals. Under  the scenario,  there  would be  no                                                                    
advantage to  under funding the  budget. If  the legislature                                                                    
took credit for cutting the  budget the previous year and it                                                                    
had to  increase it in  the following year, what  good would                                                                    
it do the legislature to get the credit for cutting.                                                                            
                                                                                                                                
Mr.  Teal  relayed  that  the  idea was  not  new;  LFD  had                                                                    
produced reports  like that six  to eight years back  and at                                                                    
the time  no one  had really  looked at  them. At  the time,                                                                    
supplementals had been far less  confusing than they were at                                                                    
present. Supplementals  had been around $50  million and LFD                                                                    
thought  they  were  causing distortion  and  had  tried  to                                                                    
change the way it was reported, but it had not caught on.                                                                       
                                                                                                                                
2:42:45 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  stated that although  it did not  solve the                                                                    
supplemental dilemma, following all  GF fixed the distortion                                                                    
of DGF  spent to lower  UGF. The committee would  be looking                                                                    
at reports with both sets  of numbers so people could follow                                                                    
the total budgets and UGF.                                                                                                      
                                                                                                                                
Mr.  Teal  turned to  slide  7  titled "Looking  Ahead"  and                                                                    
discussed what the  deficit meant beyond FY  19. The revenue                                                                    
forecast  kept pace  with  inflation  and OMB's  expenditure                                                                    
plan  was   basically  inflation.  When  both   revenue  and                                                                    
expenditures were projected to grow  at about the same pace,                                                                    
projected deficits  would continue unless action  was taken.                                                                    
He  elaborated that  the  size of  the  deficit depended  on                                                                    
revenue:  increased   revenue  would  reduce   the  deficit,                                                                    
reduced  spending would  reduce the  deficit, and  increased                                                                    
spending  would increase  the deficit.  The larger  the POMV                                                                    
payout, the lower the deficit.  At the same time, the larger                                                                    
the share of  the funds that went to  dividends, the smaller                                                                    
the share that  went to government, and  larger the deficit.                                                                    
Unless some fairly  large action was taken,  the outlook was                                                                    
for continued  deficits -  after POMV -  of $600  million to                                                                    
$800 million per year.                                                                                                          
                                                                                                                                
2:44:57 PM                                                                                                                    
                                                                                                                                
Mr. Teal  turned to slide  8 and addressed what  was missing                                                                    
from the  governor's budget.  The item  he had  received the                                                                    
most calls  about was community assistance.  People had seen                                                                    
the  appropriation for  community assistance  and asked  for                                                                    
verification they  were covered. He answered,  "not really,"                                                                    
and elaborated that community assistance  was designed to be                                                                    
money  that   communities  could   count  on.   He  reminded                                                                    
committee members that boroughs  and other local governments                                                                    
were  currently  preparing  their  FY 19  budgets  as  well.                                                                    
Theoretically, the  communities knew the FY  19 distribution                                                                    
would be $30 million. He  recalled that the governor had not                                                                    
requested a  deposit the previous  year and  the legislature                                                                    
did not  add it. Unless  money was  added prior to  June 30,                                                                    
the payout would  be $20 million in FY 19.  The governor had                                                                    
requested  a supplemental,  which would  fund FY  19 at  $30                                                                    
million.  He questioned  how much  the increment  would help                                                                    
local government  at present.  He believed  communities were                                                                    
happy to see  the money included, but until  it passed, they                                                                    
could  not be  certain of  the funding.  He remarked  that a                                                                    
budget may not be passed  until June again. He stressed that                                                                    
communities could not plan unless  they knew in advance what                                                                    
was going into the community assistance program.                                                                                
                                                                                                                                
Mr. Teal  continued that it  was nice  to catch up  and know                                                                    
what  the  FY 19  funding  was,  but  it  was the  year  the                                                                    
governor had been expected to  include a $30 million deposit                                                                    
in FY  19, which meant  the FY  20 allocation would  also be                                                                    
$30 million.  He stated  it was a  question of  planning. He                                                                    
stated it  was certainly  nothing illegal, the  governor had                                                                    
used  money from  PCE earnings  as outlined  in statute.  He                                                                    
elaborated  that the  governor had  put the  money in  FY 18                                                                    
leaving no money for FY 19.  In the opinion of LFD, that was                                                                    
not how  the structure was  supposed to work.  He reiterated                                                                    
there was nothing illegal, just inefficient.                                                                                    
                                                                                                                                
Mr. Teal  addressed retirement contributions on  slide 8. He                                                                    
detailed  that June  2016 valuations  for retirement  called                                                                    
for  state assistance  payments of  $299 million  for Public                                                                    
Employees'   Retirement   System    (PERS)   and   Teachers'                                                                    
Retirement    System    (TRS).   The    governor    proposed                                                                    
appropriations of  $238 million, a shortage  of $61 million.                                                                    
He  referenced   Detroit,  New  Jersey,  and   Illinois  and                                                                    
explained that  underfunding retirement could put  states on                                                                    
the brink of  bankruptcy. He stated that it  was perhaps not                                                                    
quite  as  bad as  the  numbers  made  it look  because  the                                                                    
legislature had  included intent a  couple of years  back to                                                                    
try to  eliminate the  three-year lag  in setting  rates. He                                                                    
expounded  that  the   Alaska  Retirement  Management  Board                                                                    
(ARMB)  now  had  an  updated   projection  model  for  life                                                                    
expectancy  and other  variables  and ARMB  said the  future                                                                    
looked better and  that they could reduce  payments by about                                                                    
$35 million.  The other $25 million  reduction was something                                                                    
he  had  already  talked  about  -  anticipated  savings  in                                                                    
Medicare costs (retiree medical costs).                                                                                         
                                                                                                                                
Mr.  Teal  stated  it  was possible  to  argue  whether  the                                                                    
funding was $61  million short, $25 million  short, or short                                                                    
at all.  He looked  at the valuation  and explained  that if                                                                    
adequate  funding was  being  allocated,  the funding  ratio                                                                    
should  be  increasing.  However,   the  funding  ratio  was                                                                    
falling and  was anticipated  to fall for  the next  five to                                                                    
six   years   before   starting  to   increase.   Retirement                                                                    
contributions had been hanging in  the background for two or                                                                    
three years,  but due to  the overall fiscal  situation they                                                                    
had never risen  to the forefront. He  hoped the legislature                                                                    
solved the  fiscal situation in  general and could  turn its                                                                    
attention  to  retirement  systems.  He  discussed  that  $3                                                                    
billion had  been allocated to  the retirement system  in FY                                                                    
15,  which   had  reduced  state   assistance  dramatically.                                                                    
Projections for the current year  were $300 million and were                                                                    
increasing to $700  million or $800 million  per year, which                                                                    
was not something  he thought the legislature  would want to                                                                    
happen.  He  stated  that  it may  be  underfunded,  but  he                                                                    
believed more  importantly, the  legislature needed  to take                                                                    
time to really look at the retirement funding issue.                                                                            
                                                                                                                                
2:50:52 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara referenced  former Governor  Sean Parnell's                                                                    
proposal to  take $2 billion  to $3  billion out of  the CBR                                                                    
[for retirement]. He recalled at  one point there had been a                                                                    
promise that future retirement  contributions would be about                                                                    
$150 million per  year. He understood that  had changed, but                                                                    
he wondered what had changed  so drastically that the number                                                                    
could increase to $800 million per year.                                                                                        
                                                                                                                                
Mr. Teal  replied that  he believed  the topic  deserved the                                                                    
legislature's  attention  to find  out  why  the number  was                                                                    
increasing and what the legislature could do about it.                                                                          
                                                                                                                                
Mr. Teal  addressed "What is  New?" on slides 9  through 11.                                                                    
He  discussed  the  public safety  action  plan  that  would                                                                    
increase spending  by about $33  million, $18 million  was a                                                                    
proposed  supplemental. He  spoke to  the economic  recovery                                                                    
plan. A  payroll tax  would generate $160  million in  FY 19                                                                    
and over  its three-year lifespan  it was supposed  to bring                                                                    
in  about $800  million  and spend  about  $800 million.  He                                                                    
found the  change in the  governor's attitude about  the tax                                                                    
interesting.  He  reminded  the   committee  that  when  the                                                                    
governor had  proposed the  tax it  was because  he believed                                                                    
the deficit had  to be filled. Whereas, now there  was a tax                                                                    
proposed that did nothing to  fill the deficit. Every dollar                                                                    
generated from the  tax would be spent  on capital projects.                                                                    
He observed it  was a very different philosophy  than it had                                                                    
been  in the  past. He  added he  had already  mentioned the                                                                    
impact on the capital budget if the tax did not pass.                                                                           
                                                                                                                                
Mr.  Teal addressed  other new  things  and highlighted  the                                                                    
appropriation from the CBR. He  believed it was conceptually                                                                    
a  very interesting  move.  He elaborated  that  it was  not                                                                    
necessarily to use  the CBR, the intention was  to speed the                                                                    
budget process.  He explained  it was  done by  saying there                                                                    
was enough  money from  oil revenue and  the POMV  payout to                                                                    
fund core  services (i.e. schools  and state  agencies). The                                                                    
idea was to  fund those items on time or  early, which would                                                                    
avoid  layoffs  in  school districts,  state  agencies,  and                                                                    
perhaps municipalities  and accompanying  inefficiencies. At                                                                    
that  point the  minimally disruptive  items including  debt                                                                    
service  and retirement  contributions. He  did not  believe                                                                    
the governor was  claiming the items were  not important. He                                                                    
believed the  governor's philosophy  was if the  people were                                                                    
funded first, their  time would not be  wasted talking about                                                                    
the budget planning  they needed to do and  weather they had                                                                    
jobs. He explained that the  method would set items that did                                                                    
not involve people up for a majority vote.                                                                                      
                                                                                                                                
Mr. Teal  thought the approach  was interesting, but  he saw                                                                    
some dangers.  Once debt service and  retirement were funded                                                                    
with  the  CBR  supermajority  vote,  they  were  guaranteed                                                                    
funding; however, the core services  funded with GF would be                                                                    
vulnerable to revenue failure. For  example, the state had a                                                                    
balanced  budget, but  ended up  $200 million  short on  oil                                                                    
revenue; it  would mean the  budget would be short  on money                                                                    
without authority to draw additional  funds from the CBR. He                                                                    
elaborated it  may mean the  legislature would have  to come                                                                    
back  for a  second supermajority  vote, a  round of  budget                                                                    
cuts (as  occurred in most  states), or with money  from the                                                                    
ERA. He reasoned if the  legislature was going to pull money                                                                    
from the ERA  on a POMV basis, it should  be sustainable and                                                                    
not  on  an ad  hoc  basis.  He  believed the  approach  was                                                                    
interesting, but  that it  needed a little  help to  make it                                                                    
more workable.                                                                                                                  
                                                                                                                                
Mr.  Teal  discussed  the governor's  proposal  of  biennial                                                                    
budgeting (slide 10). He  stated that theoretically biennial                                                                    
budgeting was much more efficient  and meant the legislature                                                                    
would  spend  its  time  on the  budget  every  other  year,                                                                    
leaving a  year to  focus on non-budget  items. He  met with                                                                    
his  counterparts in  other states  with biennial  budgeting                                                                    
and he  did not see them  having any gains; the  states were                                                                    
back in  their off years  doing the  same thing they  did in                                                                    
their budget  year. They spent  their interims  holding full                                                                    
finance committee  meetings scrubbing the budget.  He opined                                                                    
that advantages may be more  theoretical than practical, but                                                                    
the  concept   was  worth  discussing.  He   speculated  the                                                                    
legislature  would receive  legislation because  the concept                                                                    
required it.                                                                                                                    
                                                                                                                                
2:58:00 PM                                                                                                                    
                                                                                                                                
Mr. Teal turned  to slide 11 and continued  to address "What                                                                    
is New?"  He mentioned debt  financing for purchases  of oil                                                                    
and gas  tax credits,  but he  did not  know any  detail. He                                                                    
moved  on   to  supplemental   appropriations.  Supplemental                                                                    
appropriations were  included in the bill.  He remarked that                                                                    
in  the past  people wanted  supplemental items  out of  the                                                                    
operating budget because  they wanted to start  with a clean                                                                    
bill.  He   stated  there  was   no  technical   reason  the                                                                    
appropriations  could  not  be included;  any  appropriation                                                                    
could go  in any bill -  all the action required  was a bill                                                                    
title change to incorporate it.                                                                                                 
                                                                                                                                
Vice-Chair  Gara  was   concerned  that  biennial  budgeting                                                                    
ignored  the   reality  of   inflation.  For   example,  the                                                                    
legislature had flat  funded education in seven  of the last                                                                    
nine years. He mentioned that one  year there had been a $40                                                                    
million   increase  that   had   ultimately  been   removed.                                                                    
Subsequently, $30 million had been  added back over the next                                                                    
two years.  He surmised  that [under biennial  budgeting] in                                                                    
the second year,  it would be necessary to  re-budget due to                                                                    
inflation.                                                                                                                      
                                                                                                                                
Co-Chair  Seaton did  not  want  to get  too  deep into  the                                                                    
subject until there a bill before the committee.                                                                                
                                                                                                                                
3:00:42 PM                                                                                                                    
                                                                                                                                
Mr.  Teal  agreed  that  the  issues  were  a  reality  with                                                                    
biennial  budgeting.   The  state's   incremental  budgeting                                                                    
process meant that 95 percent or  more of the budget was the                                                                    
same every year.  It would be possible to pass  a budget for                                                                    
several  to  five  years,  but   it  would  be  missing  the                                                                    
inflation component.  He explained it  was an easy  thing to                                                                    
take care of  in the process - the  legislature would simply                                                                    
appropriate more for  the second year. He  agreed that until                                                                    
the  committee had  a  bill and  the  legislature talked  to                                                                    
other  states  using  biennial budgeting,  it  was  hard  to                                                                    
determine what the changes would be.                                                                                            
                                                                                                                                
Mr.  Teal explained  that the  presentation was  an overview                                                                    
only and it was not possible  to talk about every detail. He                                                                    
recommended  reading  the  subcommittee  narratives  in  the                                                                    
written  overview. He  did not  bring  a model,  but it  was                                                                    
available. There were  some massive changes in  the model in                                                                    
terms of  the revenue forecast and  Permanent Fund earnings.                                                                    
He encouraged members  to meet with LFD to  review the model                                                                    
if they desired.                                                                                                                
                                                                                                                                
^PRESENTATION: PERSONAL SERVICES VACANCY FACTOR                                                                               
                                                                                                                                
3:03:11 PM                                                                                                                    
                                                                                                                                
AMANDA RYDER, FISCAL  ANALYST, LEGISLATIVE FINANCE DIVISION,                                                                    
provided a  PowerPoint presentation titled  "Vacancy Factors                                                                    
and Personal  Services Costs" dated  January 23,  2018 (copy                                                                    
on file).  She began on  slide 2  and addressed the  goal of                                                                    
the presentation. She stated the  committee had asked LFD to                                                                    
provide    information   on    personal   services    costs,                                                                    
particularly  the  practice  of  underfunding  positions  to                                                                    
account for  turnover. The  presentation would  also address                                                                    
how  to  find  information   on  vacant  positions,  how  to                                                                    
determine what funding was available  for positions, and how                                                                    
deleting the  wrong fund source  may impact  departments and                                                                    
their ability to perform their duties.                                                                                          
                                                                                                                                
3:05:44 PM                                                                                                                    
                                                                                                                                
Ms. Ryder moved  to slide 3 and defined  vacancy factor. She                                                                    
explained that  a vacancy factor was  the difference between                                                                    
the amount  needed to fully  fund all positions in  a budget                                                                    
and the amount of personal  services funding included in the                                                                    
budget.                                                                                                                         
                                                                                                                                
Mr. Teal  elaborated on slide  3. He pointed to  an equation                                                                    
showing budgeted funding, which  equaled the cost of filling                                                                    
all  positions  minus  the  vacancy  factor.  He  noted  the                                                                    
committee  was familiar  with  OMB  position detail  reports                                                                    
that  listed each  position  and the  cost  of filling  that                                                                    
position.  He  remarked that  Ms.  Ryder  would address  two                                                                    
factors that  cause an  agency to have  less money  than the                                                                    
budget  implied  -  the  vacancy  factor  and  another  more                                                                    
complicated source.  He continued that the  budgeted funding                                                                    
equaled the cost of filling  all positions minus the vacancy                                                                    
factor. He  believed the equation  made it clearer  that the                                                                    
amount  listed for  each position  in the  personal services                                                                    
detail was  not the amount  the agency received.  The amount                                                                    
the  agency actually  received was  listed  in the  personal                                                                    
services detail  minus the vacancy factor.  He believed many                                                                    
people  mistakenly saw  a dollar  amount  associated with  a                                                                    
position  and thought  that  it was  the  amount the  agency                                                                    
received.  Therefore,  he  believed   it  helped  others  to                                                                    
restate the  definition (the first  equation on  the slide).                                                                    
The second equation emphasized  that the budget purposefully                                                                    
underfunded positions.                                                                                                          
                                                                                                                                
Ms. Ryder addressed why  the budget purposefully underfunded                                                                    
positions. She detailed it was  based on the assumption that                                                                    
newer  vacated positions  took time  to fill.  She explained                                                                    
that  if   positions  were  fully  funded,   they  would  be                                                                    
overfunding  what  an  agency needed.  She  stated  that  it                                                                    
depended  on the  size  of  an agency.  For  example, if  an                                                                    
agency had  three employees, it probably  needed 100 percent                                                                    
of  its  funding,  whereas, an  agency  with  600  employees                                                                    
probably  did  not  -  it  was  unlikely  to  have  all  600                                                                    
positions filled at any one time.                                                                                               
                                                                                                                                
3:08:45 PM                                                                                                                    
                                                                                                                                
Ms. Ryder  addressed who determined the  appropriate vacancy                                                                    
factor  (slide  4).  She explained  that  OMB  provided  the                                                                    
minimum  and maximum  vacancy factor  guidelines. Generally,                                                                    
the  higher  number  of full-time  positions  equated  to  a                                                                    
higher  vacancy factor.  She underscored  that the  table on                                                                    
slide 4  showed guidelines only  - the figures were  not set                                                                    
in stone.                                                                                                                       
                                                                                                                                
Ms. Ryder turned  to slide 5 titled "FY  19 Executive Branch                                                                    
Personal  Services Line  Funding Summary  (All Funds)."  The                                                                    
slide  provided  a  graphical illustration  of  the  vacancy                                                                    
factor. She  elaborated that OMB  had sent  over information                                                                    
on  executive  branch  agencies   -  the  numbers  were  not                                                                    
statewide and excluded the  University, the legislature, and                                                                    
Judiciary. To  fully fund  all 16,228  positions represented                                                                    
in  the  graph  would   cost  $1.83  billion;  however,  the                                                                    
governor's  budget  request  included  $1.745  billion.  The                                                                    
positions  were  underfunded in  the  FY  19 budget  by  $90                                                                    
million,  which was  the equivalent  of  about 796  unfunded                                                                    
positions. She emphasized that of  the $1.745 billion, about                                                                    
half  came  from  non-UGF   funding  sources.  All  personal                                                                    
services funding was based on  the fact that it was possible                                                                    
to collect 100 percent  of everything budgeted. With non-UGF                                                                    
funding sources, it was rarely  the case that 100 percent of                                                                    
the budgeted funding was collected.                                                                                             
                                                                                                                                
3:10:40 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara  asked  Ms.   Ryder  to  repeat  her  prior                                                                    
statements.                                                                                                                     
                                                                                                                                
Ms.  Ryder   complied.  She  explained  that   the  personal                                                                    
services line  item was  based on  receiving 100  percent of                                                                    
the  funding  that  was  budgeted   for  the  position.  She                                                                    
detailed that about half of  the positions in the state were                                                                    
budgeted with non-UGF fund sources.  She elaborated that UGF                                                                    
was  counted as  available for  appropriation. She  added it                                                                    
had been  the case to  date and  should be into  the future.                                                                    
However,  non-UGF funding  sources  (i.e. program  receipts,                                                                    
other funds,  and federal  funds) and  many times  there was                                                                    
more authorization in the budget  than there was the ability                                                                    
to  collect 100  percent  of the  funding.  She intended  to                                                                    
provide an example in several  slides that would show issues                                                                    
that arose with the other fund sources.                                                                                         
                                                                                                                                
Ms.  Ryder  addressed  how  to   find  vacancy  factors  for                                                                    
individual divisions on  slide 6. She pointed to  a table at                                                                    
the  bottom of  the  chart showing  an  example of  personal                                                                    
services  expenditure detail  for the  Department of  Health                                                                    
and  Social  Services  (DHSS)  from  OMB.  She  intended  to                                                                    
highlight  two  things  on  the slide.  The  first  was  the                                                                    
vacancy factor - to determine  how much a division was short                                                                    
funded.  She directed  attention to  an arrow  to the  right                                                                    
[shown in  red] pointing  to a  total pre-vacancy  amount of                                                                    
$50,890,464, which  was the  amount needed  to fund  all 598                                                                    
positions in the  Division of Pioneer Homes  at 100 percent.                                                                    
The  table  indicated  the  division  was  short  funded  by                                                                    
$739,064,   equating  to   approximately   seven  to   eight                                                                    
positions the  division would  have to  keep vacant  to live                                                                    
within its  budget; it  was the  vacancy adjustment  of 1.45                                                                    
percent.                                                                                                                        
                                                                                                                                
Ms.  Ryder addressed  the total  post-vacancy -  the funding                                                                    
actually   included  in   the   division's   budget  -   was                                                                    
$50,151,400. Some other agencies  may have lump sum payments                                                                    
and  premium  pay  -  costs  not  associated  with  specific                                                                    
positions. The  bottom line in  the table (slide 6)  was the                                                                    
total amount allocated for personal  services costs within a                                                                    
given  allocation.  She  highlighted  funding  sources  used                                                                    
(shown on the left side  of the table), which were important                                                                    
when looking  at the amount available  for personal services                                                                    
costs. The  Division of Pioneer  Homes had  multiple funding                                                                    
sources. She pointed to the  pre-vacancy cost of funding 100                                                                    
percent of  positions and  the post-vacancy  of $50,151,400,                                                                    
which  was the  amount  appropriated  for personal  services                                                                    
costs  in  the division's  budget.  The  slide detailed  the                                                                    
percentage of  each of the  funding sources  appropriated or                                                                    
requested for personal services costs.                                                                                          
                                                                                                                                
3:14:51 PM                                                                                                                    
                                                                                                                                
Ms. Ryder  continued to  address the  lower left  portion of                                                                    
the table on  slide 6. The problem with  the funding sources                                                                    
was that many of them  were not 100 percent collectible. She                                                                    
detailed  that if  100 percent  of all  of the  fund sources                                                                    
were collected, the  division would have $50  million to pay                                                                    
its  positions,  but  even  then,   the  division  would  be                                                                    
underfunded by $739,064.                                                                                                        
                                                                                                                                
Ms.  Ryder discussed  that  LFD had  heard  rumors over  the                                                                    
years  there were  $300  million to  $400  million in  slush                                                                    
funds available in  the budget (slide 7). One  of the issues                                                                    
from uncollectible fund sources  was the perpetuation of the                                                                    
myth. She  furthered that  LFD did not  know how  the number                                                                    
had been  derived and could  not duplicate it, but  if true,                                                                    
it would  mean about 14  percent of total  personal services                                                                    
funding would be diverted for other purposes.                                                                                   
                                                                                                                                
Ms.  Ryder moved  to a  pie chart  illustrating the  Pioneer                                                                    
Homes  FY 17  total funding  cost on  slide 8.  She detailed                                                                    
that  54  percent  was  UGF,   which  was  collectible.  She                                                                    
explained that  GF program receipt authority  in the Pioneer                                                                    
Homes was received  from residents paying fees  for room and                                                                    
board  and  other  incidentals.  Interagency  receipts  were                                                                    
primarily from Medicaid billing  for Medicaid recipients who                                                                    
live  in the  Pioneer  Homes.  Statutory designated  program                                                                    
receipts  were received  from pharmaceutical  sales. Federal                                                                    
receipts  of  $694,600 were  for  the  Palmer Veterans  Home                                                                    
received  from  per  diem  payments   paid  by  the  federal                                                                    
Veterans Administration.  She addressed whether  the funding                                                                    
was  collectible. Based  on an  analysis between  the FY  17                                                                    
authorized budget and  the actuals, about 20  percent of the                                                                    
money was uncollectible.                                                                                                        
                                                                                                                                
3:17:26 PM                                                                                                                    
                                                                                                                                
Ms.  Ryder turned  to a  chart  on slide  9 titled  "Pioneer                                                                    
Homes FY 17 Authorized Budget  vs. Actual Expenditures - All                                                                    
Fund Sources."  She reported  that in  FY 17,  Pioneer Homes                                                                    
had  to  transfer $171,000  UGF  from  other allocations  in                                                                    
order to address the funding  shortfall. She elaborated that                                                                    
$1.6 million  (9.2 percent) of  the authorized  spending was                                                                    
not  collected or  expended. She  furthered  that there  had                                                                    
been $2.9 million in interagency  receipts, but the division                                                                    
had not been  able to bill for Medicaid like  it had wanted.                                                                    
Additionally,  28 percent  of the  $3  million comprised  of                                                                    
statutory   designated  program   receipts   had  not   been                                                                    
collected. In  total, $5.3 million  of non-UGF  fund sources                                                                    
were  not   collected  (approximately  19  percent   of  the                                                                    
division's budget).                                                                                                             
                                                                                                                                
Ms.  Ryder  advanced  to  slide 10  titled  "The  Impact  of                                                                    
Unrealized  Funding Sources  on Vacancy."  She explained  it                                                                    
was an  illustration of how  the uncollectible  fund sources                                                                    
could really impact a division's  ability to hire positions.                                                                    
She reported  that 81 percent  of the Pioneer  Home's budget                                                                    
was in  personal services. She  pointed to the  first column                                                                    
"Pre-Vacancy"  in  a  table  on   slide  10  totaling  $50.8                                                                    
million,  which  reflected the  total  cost  of filling  all                                                                    
positions.  The third  column  showed post-vacancy  funding,                                                                    
which was the  amount actually requested in  the budget. She                                                                    
noted  that  a  vacancy  factor of  1.45  percent  had  been                                                                    
applied  to the  pre-vacancy  number and  each  of the  fund                                                                    
sources  listed in  the table  were  reduced to  get to  the                                                                    
post-vacancy money.                                                                                                             
                                                                                                                                
Ms. Ryder  reported that Pioneer  Homes had raised  rates by                                                                    
15 percent  over the past  few years to increase  GF program                                                                    
receipts and  had a big  push to get all  residents eligible                                                                    
for Medicaid  on Medicaid.  She reasoned  it was  not likely                                                                    
the division  would receive  another couple  million dollars                                                                    
in  Medicaid  receipts. She  did  not  see many  changes  in                                                                    
Pioneer  Homes  to  make  her  believe  the  division  could                                                                    
significantly  increase  other revenue  sources.  Therefore,                                                                    
LFD had plugged the received  amount into the FY 19 request,                                                                    
which  it believed  was  a reasonable  amount.  At the  1.45                                                                    
percent vacancy  factor, it would  be necessary to  keep 102                                                                    
vacant months per year or eight positions.                                                                                      
                                                                                                                                
Ms. Ryder stated  that in reality, LFD  believed the vacancy                                                                    
factor was  closer to 8  percent per year, meaning  it would                                                                    
be  necessary to  keep 47  positions vacant  and 567  vacant                                                                    
months  to  live  within  the  budget  unless  the  division                                                                    
transferred  money from  other line  items. She  stated that                                                                    
this  is what  LFD would  consider  to be  a more  realistic                                                                    
vacancy  factor.  She  explained  that  if  the  legislature                                                                    
decided to  cut $4.1  million out  of the  division's budget                                                                    
because it  could not  collect the funds,  there would  be a                                                                    
much more significant  impact on Pioneer Home's  budget - it                                                                    
would have to reduce another  47 positions if the funds were                                                                    
cut from UGF instead of the appropriate funding sources.                                                                        
                                                                                                                                
3:21:39 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton asked  for verification  that reducing  the                                                                    
UGF  fund  source  increased  the  percentage  theoretically                                                                    
coming from other sources.                                                                                                      
                                                                                                                                
Ms.  Ryder replied  that the  federal government  would only                                                                    
pay the  per diem rate they  were going to pay  for veterans                                                                    
in the Pioneer Homes; it  was not possible to get additional                                                                    
federal receipts  unless additional veterans moved  into the                                                                    
home. If  UGF funds were  cut, it meant cutting  services to                                                                    
residents; it  was not possible  to merely  increase federal                                                                    
receipts.  The same  went for  other fund  sources -  unless                                                                    
revenue, the  number of paying  residents, and/or  the rates                                                                    
were increased,  or the  state somehow  was able  to collect                                                                    
more  Medicaid,   cuts  to  UGF  would   cut  services.  She                                                                    
explained that UGF was the  only real money the division was                                                                    
able  to  receive  because   there  was  significant  excess                                                                    
authorization in the division's budget at present.                                                                              
                                                                                                                                
Mr. Teal  returned to slide  9 and explained that  the total                                                                    
$5 million that was not collected  could not be a slush fund                                                                    
diverted to  other purposes. He  detailed it was  money that                                                                    
had not materialized;  therefore, it could not  be spent. He                                                                    
elaborated  that  it was  sometimes  referred  to as  hollow                                                                    
authority  or uncollectible  receipts; it  was not  real. He                                                                    
spoke  about  the uncollectible  amount  and  noted that  59                                                                    
percent of  interagency receipts  would be realized;  of the                                                                    
$4.8 million in the budget,  about $2 million was available.                                                                    
He  continued that  adding all  of  the unrealized  receipts                                                                    
resulted  in  another $3.4  million  (slide  10), which  was                                                                    
additional  forced  vacancy  (last  column  on  the  right),                                                                    
making  the total  vacancy  $4 million  in  the budget  that                                                                    
could not be spent.                                                                                                             
                                                                                                                                
Co-Chair Seaton  recognized Representative Justin  Parish in                                                                    
the audience.                                                                                                                   
                                                                                                                                
3:24:53 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara asked  about  slide 10.  He understood  the                                                                    
$739,000 vacancy factor.  He asked if the  $4.1 million that                                                                    
was unrealized  meant the agency  had to make  internal cuts                                                                    
it did not plan on making.                                                                                                      
                                                                                                                                
Ms. Ryder replied  that since FY 15 UGF had  been reduced by                                                                    
$3.4 million in Pioneer Homes,  DGF had been increased by $2                                                                    
million, and other funds had  increased by $1.6 million. She                                                                    
explained that looking at total  funds appeared that nothing                                                                    
had happened  in the  budget and  initiated the  question of                                                                    
why Pioneer  Homes would have  increased waiting  lists over                                                                    
the  past  few years,  and  why  they  were unable  to  hire                                                                    
positions.  She  explained  the budget  was  actually  about                                                                    
$400,000  higher  since  FY  15;  it was  due  to  the  fund                                                                    
sources. She elaborated it was  one of the difficult aspects                                                                    
of using GF. She furthered that  if she looked at GF she did                                                                    
not  see a  fund  source  change to  collect  more from  the                                                                    
residents and  provide less state  subsidy. She  stressed it                                                                    
was difficult to  see what was happening in  the budget when                                                                    
looking  at all  GF.  It was  much easier  to  see what  was                                                                    
happening when looking at UGF.  She added that in some other                                                                    
agencies it  was best to look  at all GF; therefore,  it was                                                                    
crucial  to know  what comparisons  to make.  She emphasized                                                                    
that all comparisons  were not equal. In  Pioneer Homes, the                                                                    
best comparison was UGF to  see what impacted its ability to                                                                    
hire positions.                                                                                                                 
                                                                                                                                
3:27:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton stated  there  was  $50,151,000 million  of                                                                    
funded positions, but  10 percent of the  funds were non-UGF                                                                    
and  non-collectible. He  surmised the  Division of  Pioneer                                                                    
Homes really only had $45 million  to operate on in order to                                                                    
run  a $50  million  budget. He  surmised  the division  was                                                                    
leaving positions vacant because it  was the only way to run                                                                    
the $50 million budget with $45 million.                                                                                        
                                                                                                                                
Ms. Ryder replied  "yes, for the most part, except  a lot of                                                                    
the  non-UGF fund  sources are  available, they're  just not                                                                    
available to  the degree  that is  included in  the budget."                                                                    
She explained it  was the reason LFD had  done the projected                                                                    
available funding based on FY 17.  She had not spoken to the                                                                    
department  about  the  situation   and  perhaps  they  were                                                                    
planning to  increase their  rates - she  did not  know. The                                                                    
legislature  would not  know until  it asked  departments if                                                                    
they were planning  to expand their ability  to collect non-                                                                    
UGF fund  sources. She believed  the example was  probably a                                                                    
fairly good estimate of what they could collect.                                                                                
                                                                                                                                
Ms. Ryder  believed the Division  of Pioneer  Homes probably                                                                    
needed to clean  up its budget because there  were some real                                                                    
disadvantages to  the division of presenting  its budget the                                                                    
way  they did.  One  of the  disadvantages  was when  salary                                                                    
adjustments and health insurance  increases occurred, it was                                                                    
calculated  on  the  fund  sources   used  to  pay  personal                                                                    
services. When  she had  calculated FY 18  and FY  19, there                                                                    
was  $582,000  of  health insurance  increases  incorporated                                                                    
into  the  division's  budget.  She  clarified  it  did  not                                                                    
include  additional services,  only additional  cost to  pay                                                                    
increased  health premiums  for  employees. She  underscored                                                                    
that $220,000  of the increased  cost was  not UGF -  it was                                                                    
hollow authorization,  meaning a  couple of  positions would                                                                    
need to  be cut because  it would  be necessary to  use UGF.                                                                    
She did not  believe the division would have  the ability to                                                                    
collect  enough from  the $4  million to  pay for  the extra                                                                    
$220,000 in  the division's budget  in FY  18 and FY  19 for                                                                    
health  insurance.  She  recommended cleaning  up  the  fund                                                                    
sources  to  get  more  UGF,   which  was  a  more  accurate                                                                    
representation of the funding  needed to fund the division's                                                                    
personal services.                                                                                                              
                                                                                                                                
3:30:35 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  pointed to the  fourth column in  the table                                                                    
on slide 10 titled  "Realized Revenue/Budgeted Funding Based                                                                    
on FY 17." He surmised  that to achieve accurate projections                                                                    
and avoid underfunding the  budget with uncollectible funds,                                                                    
the  percentages in  the column  should be  adjusted to  100                                                                    
percent and the projected  amount received should be reduced                                                                    
to true up  what a division could actually  collect from the                                                                    
total fund sources.                                                                                                             
                                                                                                                                
Ms. Ryder answered  that she recommended trying  to clean up                                                                    
some  of   the  excess   in  hollow  authorization   in  the                                                                    
division's  budget. She  highlighted the  takeaway from  the                                                                    
graph on  slide 10. She  explained that when a  division had                                                                    
non-UGF fund sources, the true  vacancy factor could be much                                                                    
higher than  what appeared  in the  budget and  funding that                                                                    
did not  exist could not  be spent.  She advised to  be very                                                                    
careful  when  decrementing   funding  in  allocations  with                                                                    
multiple  fund sources.  She  would  address another  report                                                                    
shortly   that  showed   when  looking   at  Pioneer   Homes                                                                    
positions, each  position was allocated to  about 60 percent                                                                    
UGF.  She  elaborated that  if  a  position was  being  cut,                                                                    
someone may  reason they could  cut UGF. She  countered that                                                                    
the division  had spent  all of  its UGF,  it was  the other                                                                    
funding  sources that  were the  problem; therefore,  if UGF                                                                    
was cut  with an associated  position, it would  require the                                                                    
division  to  cut  even   more  positions.  She  recommended                                                                    
looking at  positions as  a pot of  money and  to understand                                                                    
the impacts of cutting UGF or  any other fund source; it was                                                                    
also  important  to  understand that  when  the  legislature                                                                    
added $3  million in  DGF and other  funds and  reduced UGF,                                                                    
the division  had not  been able to  collect the  funds. She                                                                    
clarified that  if UGF was  cut and other fund  sources were                                                                    
added, it would  mean additional positions would  need to be                                                                    
cut.  She  advised the  legislature  to  look at  the  total                                                                    
funding  and funding  sources when  looking at  any position                                                                    
information.                                                                                                                    
                                                                                                                                
Representative  Wilson referenced  the governor's  executive                                                                    
office and vacancy.  She stated that in 2017  the office had                                                                    
a vacancy rate of 4.6 percent.                                                                                                  
                                                                                                                                
Co-Chair Seaton  asked if Representative Wilson  was looking                                                                    
at the presentation.                                                                                                            
                                                                                                                                
Representative Wilson  replied that  she was not  looking at                                                                    
the  presentation, she  was looking  at a  budget book  [the                                                                    
information was not included in  members' packets]. The data                                                                    
showed approximately  $433,000 as  the vacancy rate  for the                                                                    
last year.  For the current  year, the office had  69 people                                                                    
instead of 66  people and the vacancy rate  had been reduced                                                                    
to  0.74 percent  or  $68,073.  She asked  if  it meant  the                                                                    
office could spend  more money because the  vacancy rate had                                                                    
decreased.  She  stated the  funding  was  all UGF  and  all                                                                    
realized. She wondered if the  reduction in the vacancy rate                                                                    
would enable  the office to  spend more money, but  on paper                                                                    
it would look the same.                                                                                                         
                                                                                                                                
Ms. Ryder replied  that she would have to  look to determine                                                                    
if a vacant position had been deleted from the prior year.                                                                      
                                                                                                                                
Representative  Wilson  replied   that  positions  had  been                                                                    
increased from  66 to  69. She stated  it was  a substantial                                                                    
difference  between  $433,000  the   office  could  not  use                                                                    
because it  had to cover  the vacancy rate and  $68,000. She                                                                    
reiterated that  the funds  were all  UGF and  all realized.                                                                    
She wondered about the takeaway.                                                                                                
                                                                                                                                
Ms. Ryder answered that she  would first ask whether funding                                                                    
had increased. She did not know  - she was not familiar with                                                                    
the particular budget or  allocation. She recommended asking                                                                    
the  department  for an  explanation  of  the difference  in                                                                    
vacancy rate.                                                                                                                   
                                                                                                                                
3:35:52 PM                                                                                                                    
                                                                                                                                
Representative  Wilson spoke  to trying  to clean  up hollow                                                                    
receipts such  as federal authorization.  She asked  if they                                                                    
also looked  at GF  match attached  to the  hollow receipts.                                                                    
Alternatively,  she asked  if  the  federal receipt  funding                                                                    
would  be removed  but the  GF  would remain  the same.  She                                                                    
asked if  a department may not  ask for more GF  because the                                                                    
federal funds may not come.                                                                                                     
                                                                                                                                
Ms. Ryder  responded that she  would look at whether  the GF                                                                    
match was spent. She detailed that  if the GF match had been                                                                    
expended and  they had hollow authorization,  she would know                                                                    
the  division needed  the funding  in  the budget.  Removing                                                                    
hollow  authorization should  not  impact the  amount of  GF                                                                    
match needed.                                                                                                                   
                                                                                                                                
Co-Chair Seaton  asked members  to try  to keep  examples to                                                                    
the slides in the presentation.                                                                                                 
                                                                                                                                
Ms. Ryder  moved to slide  13 and addressed an  OMB personal                                                                    
services report  showing filled versus vacant  positions for                                                                    
Alaska  Pioneer Homes.  The report  showed how  many of  the                                                                    
prior 12 months the budgeted  positions had been vacant. She                                                                    
advised members to talk to  the department about the reasons                                                                    
the positions were vacant.                                                                                                      
                                                                                                                                
3:37:41 PM                                                                                                                    
                                                                                                                                
Mr.  Teal provided  background on  the report  referenced on                                                                    
slide  13. He  recognized that  vacancy position  counts and                                                                    
personal  services  funding   was  a  long-term,  widespread                                                                    
problem  that  had  frustrated LFD,  OMB,  legislators,  and                                                                    
staff. The  problem was particularly frustrating  to LFD and                                                                    
OMB because they  were unable to explain the  issue in terms                                                                    
that  the legislature  and the  public could  understand. He                                                                    
elaborated it  had been difficult to  come up with a  way to                                                                    
explain  it was  not just  vacancy factors  that mattered  -                                                                    
when a position was filled,  and fund sources also mattered.                                                                    
He  explained  that  when  a  division  had  eight  unfilled                                                                    
positions it did  not typically mean the  division had eight                                                                    
empty  positions.  He relayed  that  LFD  had met  with  OMB                                                                    
during the  interim to try to  find a better way  to present                                                                    
the  information. He  detailed  that OMB  had developed  the                                                                    
report shown  on slide  13, which LFD  was very  happy with.                                                                    
The report  included boxes specifying  whether a  person had                                                                    
received a paycheck (in other  words, whether a position was                                                                    
filled).                                                                                                                        
                                                                                                                                
Mr. Teal explained  that if a division's  vacancy factor was                                                                    
$739,000,  which equated  to eight  positions, the  division                                                                    
did  not have  eight positions  vacant, it  had a  couple of                                                                    
months  vacant for  various positions  here  and there  that                                                                    
when  added  up  was  the   equivalent  of  eight  full-time                                                                    
positions.  He  expounded it  was  difficult  to delete  one                                                                    
position, because it was not  one position that was vacant -                                                                    
it  involved numerous  positions with  turnover. The  report                                                                    
made  it  obvious  that  it was  important  to  think  about                                                                    
vacancy in  terms of months  of empty positions  rather than                                                                    
positions that were filled.                                                                                                     
                                                                                                                                
Mr.  Teal  continued  that the  report  also  showed  vacant                                                                    
positions,   which   provided   the  legislature   with   an                                                                    
opportunity  to  ask the  department  why  the position  was                                                                    
vacant and what the agency's  intentions were. He reasoned a                                                                    
vacant position  may be one  an agency intended  to transfer                                                                    
to  Shared  Services  or  perhaps   the  agency  was  having                                                                    
recruitment difficulties -  it could be a  number of things.                                                                    
The report  was helpful, but it  did not provide all  of the                                                                    
needed  information.   He  stressed   it  was   critical  to                                                                    
understand the fund  sources as well as  the vacancy factor.                                                                    
Information about what  kind of funding was used  to pay for                                                                    
positions was on the next slide.                                                                                                
                                                                                                                                
3:41:25 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara referenced  slide  10. He  stated that  the                                                                    
Pioneer  Home  had  received  $4.1   million  less  than  he                                                                    
thought. He observed  that many of the fund  sources had not                                                                    
come through (except for GF).  He asked if the situation had                                                                    
occurred in  the prior year as  well. He wondered if  it had                                                                    
been a static  $46.8 million the agency  had been receiving.                                                                    
Alternatively, he  wondered if  he should  assume it  was $4                                                                    
million worse than the prior year.                                                                                              
                                                                                                                                
Ms.  Ryder answered  that LFD  had looked  at FY  17 actuals                                                                    
compared to  the FY 17 budget  and had applied the  ratio of                                                                    
what an agency was able to  collect to the FY 19 budget. She                                                                    
explained that LFD  did not know if the amount  was what the                                                                    
agency would  actually receive  in FY 19,  but based  on her                                                                    
knowledge  of the  Pioneer Homes  budget,  she believed  the                                                                    
estimate was  reasonable. She furthered that  the division's                                                                    
budget looked  very different than it  had in FY 15  when it                                                                    
had $3 million  more in UGF and less in  other fund sources.                                                                    
There  had  been a  push  in  Pioneer  Homes to  find  other                                                                    
revenue  sources   like  there   had  been  in   many  other                                                                    
departments. The  impact had been  that the division  had to                                                                    
maintain a higher vacancy.                                                                                                      
                                                                                                                                
Mr. Teal referenced Vice-Chair  Gara's statement about there                                                                    
being  $4  million less  than  he  thought the  Division  of                                                                    
Pioneer  Homes  had. He  explained  the  division had  known                                                                    
about  $739,000 of  the amount.  The uncollectible  receipts                                                                    
had caused the division to  have an additional $3.4 million.                                                                    
The total  was $4.1 million,  it was not  new. Uncollectible                                                                    
receipts  added a  vacancy factor  that was  not necessarily                                                                    
visible until the  fund sources were reviewed.  He noted the                                                                    
information [on  slide 10]  was based on  FY 17  actuals. He                                                                    
reasoned that  FY 18  and FY  19 would  have about  the same                                                                    
fund sources  in about the  same amounts. He stated  if they                                                                    
were different, the  analysis would need to  be adjusted. He                                                                    
noted that as Ms. Ryder  had testified, the changes occurred                                                                    
in FY 15 and there had not been changes since FY 17.                                                                            
                                                                                                                                
3:44:46 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  stated there was a  tremendous disadvantage                                                                    
to  having a  budget with  uncollectible receipts.  He added                                                                    
there  had  been  requests  numerous  times  for  additional                                                                    
federal  receipt  authority.  He  asked  if  there  was  any                                                                    
advantage to an agency to have the hollow authority.                                                                            
                                                                                                                                
Ms.  Ryder  replied that  there  were  some advantages.  For                                                                    
example,  if pharmaceutical  sales  increased, the  division                                                                    
would have the  ability to spend the money it  had and would                                                                    
not  have  to go  to  Legislative  Budget  and Audit  for  a                                                                    
request. She explained that  it reduced administrative costs                                                                    
of trying to request additional  funding. She relayed it was                                                                    
not  a bad  thing  to have  some  additional authority,  the                                                                    
problem was  that too much  additional authority  skewed the                                                                    
budget.    Some   additional    authority   could    promote                                                                    
administrative  efficiencies because  the  division did  not                                                                    
have to ask for additional  funding if it had another paying                                                                    
resident, but the  division could not spend  any more money.                                                                    
She  continued there  could be  cases where  a resident  was                                                                    
willing  to  pay and  the  division  thought it  could  hire                                                                    
another person because  a bed was open and  the division had                                                                    
the  receipt  authority  There was  an  advantage,  but  the                                                                    
division  would still  have a  vacant  bed if  it could  not                                                                    
collect the  funds. Whereas, if  the division  could collect                                                                    
the funds,  it could fill  beds. She concluded there  was an                                                                    
advantage, but the large discrepancies were problematic.                                                                        
                                                                                                                                
Co-Chair  Seaton surmised  that a  differential between  the                                                                    
vacancy factor,  meaning a division  had to  leave positions                                                                    
open, may mean  it was not hiring nurses and  could not fill                                                                    
beds because it did not have personnel to service them.                                                                         
                                                                                                                                
Mr.  Teal  agreed,  but  wanted  to take  a  step  back.  He                                                                    
reminded  committee members  that with  federal receipts,  a                                                                    
division could  go to Legislative  Budget and  Audit (LB&A).                                                                    
However,  he  questioned why  an  agency  would cut  federal                                                                    
receipts  back  at  98  percent  [slide  10,  fourth  column                                                                    
pertaining to realized  revenue/budgeted funding]; he stated                                                                    
it would be inefficient for an  agency to have to go to LB&A                                                                    
annually  and it  did not  involve a  substantial amount  of                                                                    
money. He furthered  that an agency could go to  LB&A to get                                                                    
more  statutory designated  program receipts  if needed  and                                                                    
interagency  receipts could  be  unbudgeted  if needed.  The                                                                    
real problem was GF program receipts.                                                                                           
                                                                                                                                
Mr. Teal  explained it  was not necessary  for an  agency to                                                                    
have 98 or 100 percent in each  of the columns, but it was a                                                                    
problem  for  interagency  receipts  to be  budgeted  at  $2                                                                    
million more  than an agency  could collect. He  stated that                                                                    
even  program receipts  at $1  million more  than an  agency                                                                    
could collect  was distorting. He  did not know that  it was                                                                    
misleading the  legislature into thinking Pioneer  Homes had                                                                    
more than it  did. He thought most people would  look at the                                                                    
budget and think that it  was $50 million; most people would                                                                    
not understand it was really  $46 million. He continued that                                                                    
most people  would not understand  why a new  resident could                                                                    
not be admitted if the Pioneer Home had empty beds.                                                                             
                                                                                                                                
Mr. Teal  continued that a  person could not get  in because                                                                    
program receipts  did not  cover the full  cost of  the room                                                                    
and the division did not have  any GF; it could not fill the                                                                    
bed  even  though  the  division  had  the  program  receipt                                                                    
authority and  a person was  willing to pay to  be admitted.                                                                    
He  continued that  it still  may be  that if  a person  was                                                                    
paying $50,000  and it required  a GF subsidy of  $10,000 or                                                                    
$15,000,  the division  could not  admit the  person because                                                                    
they  did  not  have  the GF  match.  The  big  disadvantage                                                                    
involved the healthcare  cost. He explained that  if he were                                                                    
managing  the division  he would  significantly cut  program                                                                    
receipt  and interagency  receipt  authority because  having                                                                    
them on  the books  cost the division  one to  two positions                                                                    
just because  it was carrying hollow  receipts. The division                                                                    
was  hit  with  charges  to health  insurance  from  program                                                                    
receipts that  it was not  going to  collect and had  to pay                                                                    
with GF. He  concluded it was a bad thing  for the agency to                                                                    
do and misleading for the legislature and others.                                                                               
                                                                                                                                
3:50:30 PM                                                                                                                    
                                                                                                                                
Ms.  Ryder referred  back to  the  slush fund  myth of  $300                                                                    
million to $400  million [slide 7]. She  provided a scenario                                                                    
where a  budget subcommittee decided  it was going  to clean                                                                    
up the books in the current  year and removed 100 percent of                                                                    
the uncollectible  money with a  reduction to  Pioneer Homes                                                                    
of  $3.4 million.  She stated  that  the next  year, in  the                                                                    
management plan,  the department would probably  come in and                                                                    
determine it  would eliminate around  39 of the  47 unfunded                                                                    
positions  that  had  been  unfunded  due  to  uncollectible                                                                    
receipts. She  believed the following year  people would ask                                                                    
why the  UGF funding  associated with  the 39  positions had                                                                    
not been  cut. She  explained that the  UGF funding  had not                                                                    
been paying for  the 47 positions - nothing  had been paying                                                                    
for  the positions.  She furthered  that if  the legislature                                                                    
cut the  UGF associated  with the  39 vacant  positions that                                                                    
could not be funded because  currently the division had more                                                                    
than 500 vacant months, the  division would end up with many                                                                    
more vacant  positions. She elaborated  it was  necessary to                                                                    
look  at  the  money  as  a  pot  funding  the  full  myriad                                                                    
positions;  it  was  not possible  to  tie  each  individual                                                                    
position to position.                                                                                                           
                                                                                                                                
Ms.  Ryder  explained  that  to  find  how  much  money  was                                                                    
allocated, it was  necessary to go to  the personal services                                                                    
detail report [shown  on slide 13]. The  report was included                                                                    
in  members' subcommittee  books. She  turned to  a detailed                                                                    
report  showing the  governor's operating  budget allocation                                                                    
totals on  slide 15. She  pointed to column 5  and explained                                                                    
that  $50  million  of  the Pioneer  Homes'  budget  of  $61                                                                    
million was  spent on personal  services. She  observed that                                                                    
many people  were paid by  the division's budget.  The first                                                                    
column showed FY 17 actual  expenditures, which she compared                                                                    
to  the  governor's request.  The  FY  17 actuals  was  $5.6                                                                    
million higher  than the governor's  request. She  stated it                                                                    
was  not possible  to  cut  back to  FY  17  and not  impact                                                                    
Pioneer Homes.  She stated that  Pioneer Homes  was $699,200                                                                    
UGF  [$599,200  UGF  shown  on  slide  15]  below  what  was                                                                    
expended in  FY 17  (1.8 percent below  the FY  17 actuals).                                                                    
The other  numbers gave a  strong indication that  there may                                                                    
be hollow authorization.  In the case of  Pioneer Homes, she                                                                    
knew  there was  hollow authorization,  but when  looking at                                                                    
the information for other divisions  she would indicate "may                                                                    
be"  hollow  authorization.  She  would  then  look  at  the                                                                    
individual fund sources.                                                                                                        
                                                                                                                                
Ms. Ryder  reported that she  sometimes ignored  the vacancy                                                                    
factor and  considered the  pot of money  a division  had to                                                                    
spend  on operations.  She pointed  out that  the division's                                                                    
budget was  actually below FY 17  UGF and much of  the other                                                                    
money was  hollow. The division was  $600 million [thousand]                                                                    
below  and  had  almost $600,000  of  additional  healthcare                                                                    
costs in the  FY 19 budget. She explained  that when looking                                                                    
across the board, the division  had $1.2 million UGF less to                                                                    
spend in FY 19 compared to FY  17 - she believed it would be                                                                    
approximately 12 positions fewer.                                                                                               
                                                                                                                                
3:55:11 PM                                                                                                                    
                                                                                                                                
Mr. Teal  stated that the  $5.6 million increase over  FY 17                                                                    
actuals was  not UGF;  it was  money that  did not  exist or                                                                    
hollow  authorization  (slide  15). He  explained  that  the                                                                    
legislature and the department would  probably be better off                                                                    
if the hollow authorization was removed.                                                                                        
                                                                                                                                
Co-Chair  Seaton  remarked  that  subcommittees  would  have                                                                    
substantial work to do.                                                                                                         
                                                                                                                                
Vice-Chair  Gara  referenced  slide 10.  He  considered  the                                                                    
$51.151 million the Pioneer Homes  needed to produce a given                                                                    
level of services  after the vacancy factor.  He stated that                                                                    
the division hoped it would  receive numerous funds sources,                                                                    
which  it had  ultimately not  received -  equating to  $3.3                                                                    
million.  Ultimately, the  division  had only  been able  to                                                                    
provide  $46 million  in services.  He  thought the  $50.151                                                                    
million was the level of  services (for housing, food, care,                                                                    
and other) the  division wanted to provide.  He stated there                                                                    
would be  an argument over  actuals and that  the division's                                                                    
proposed  budget was  higher than  its actuals  (actuals had                                                                    
been lower  because the  division did  not collect  funds it                                                                    
had hoped  to collect). He  asked for verification  that the                                                                    
division  would  itemize  the level  of  services  it  could                                                                    
provide under the $50.151 million.                                                                                              
                                                                                                                                
3:58:09 PM                                                                                                                    
                                                                                                                                
Mr.  Teal pointed  to  slide  15 and  pointed  out that  $50                                                                    
million had not  been provided. He noted that  slide 10 only                                                                    
considered personal services. Slide  15 showed that personal                                                                    
services were  closer to the  $46 million. The  division may                                                                    
want  to provide  $50  million,  but it  was  funded at  $46                                                                    
million.  He  clarified the  division  was  budgeted at  $50                                                                    
million  but  funded  at $46  million.  If  the  legislature                                                                    
wanted  the agency  to provide  $50 million  in services  it                                                                    
could  allocate another  $3.5 million  GF or  make sure  the                                                                    
other uncollectible  fund sources (i.e. Medicaid  or program                                                                    
receipts) got collected, which was  more difficult to do. He                                                                    
concluded there  were always several  places in a  budget to                                                                    
get to reach the desired goal, which made budgeting tough.                                                                      
                                                                                                                                
Ms. Ryder addressed slide 14: "So  how am I supposed to find                                                                    
out what  kind of money is  used to pay for  positions?" She                                                                    
recommended  looking  at  allocation totals,  then  personal                                                                    
services detail  to consider whether  it was  reasonable the                                                                    
positions  were actually  collectible, and  then talking  to                                                                    
LFD   analysts   and   department  staff.   She   referenced                                                                    
Representative   Wilson's   earlier   question   about   the                                                                    
governor's office and relayed it was a good place to start.                                                                     
                                                                                                                                
4:00:21 PM                                                                                                                    
                                                                                                                                
Mr.  Teal acknowledged  the approach  under discussion  took                                                                    
significant time  and effort,  but it would  be a  much more                                                                    
productive effort  than merely  asking the department  for a                                                                    
list  of vacant  positions and  then deleting  the positions                                                                    
and associated  funding. He turned  it over to Ms.  Ryder to                                                                    
address words of caution on the simple approach.                                                                                
                                                                                                                                
Ms.  Ryder  addressed words  of  caution  on slide  16.  She                                                                    
relayed  that lists  of  vacant positions  were  a point  in                                                                    
time.  The legislature  did not  know whether  the executive                                                                    
branch planned to fill the  positions and if the legislature                                                                    
deleted the positions it may  be deleting services it wanted                                                                    
the  departments to  provide. Second,  it may  take time  to                                                                    
recruit the  right individuals for a  position. For example,                                                                    
she  had been  the director  of Administrative  Services for                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development  in  the  past.  She  recalled  that  after  the                                                                    
banking failure in 2009, Division  of Banking and Securities                                                                    
had  lost  about  50  percent   of  its  staff  because  the                                                                    
positions had  been federally funded.  She explained  it had                                                                    
taken time  to recruit additional banking  examiners, but if                                                                    
the legislature  had deleted  the positions,  the department                                                                    
had taken  the position funding  and had contracted  out for                                                                    
the services.  She continued that if  the funding associated                                                                    
with the positions  had been deleted, the  division would no                                                                    
longer have  been able to  contract out. She noted  that the                                                                    
Department of  Transportation and Public Facilities  did the                                                                    
same type  of thing  with engineers -  the field  was highly                                                                    
specialized  and  while recruiting  for  a  position it  may                                                                    
contract  out for  the services  with a  private engineering                                                                    
firm. She  cautioned against deleting funding  when seeing a                                                                    
vacant  position.  She  added that  there  was  insufficient                                                                    
funding  to  pay  for  all  of  the  vacant  positions.  She                                                                    
highlighted the  Pioneer Homes as  an example -  deleting GF                                                                    
would create  larger vacancies. She advised  members to look                                                                    
at the total pot of  funding when multiple fund sources were                                                                    
available to  determine whether a deletion  or addition made                                                                    
sense.  She reminded  the committee  that  positions may  be                                                                    
vacant  because they  were  funded  with uncollectible  fund                                                                    
sources.                                                                                                                        
                                                                                                                                
4:02:57 PM                                                                                                                    
                                                                                                                                
Mr. Teal provided wrap up on  slide 17. He was not intending                                                                    
to tell the committee to  stay away from addressing personal                                                                    
service costs, but to become  well versed in the subject. He                                                                    
believed  legislators could  do that  by keeping  the points                                                                    
listed on the slide in mind:                                                                                                    
                                                                                                                                
    Avoid assumptions                                                                                                        
    Use available resources                                                                                                  
    Understand impacts                                                                                                       
    Don't go down the position rabbit hole                                                                                   
    Available Funding = Cost of Filling All Positions -                                                                      
     Vacancy Factor - Non-Existent Funding                                                                                      
                                                                                                                                
4:04:00 PM                                                                                                                    
                                                                                                                                
Ms. Ryder  advised against making  assumptions, particularly                                                                    
that  cutting UGF  associated with  a vacant  position would                                                                    
not  have  any  impacts.  She  recommended  using  available                                                                    
resources (reports and people  including the departments and                                                                    
LFD) and  understanding the  impacts. She  cautioned against                                                                    
going down the  position rabbit hole; if the  agency did not                                                                    
have  the funding  to keep  a  position, keeping  it on  the                                                                    
books  did  not cost  anything,  but  deleting the  position                                                                    
actually may  cost. She explained that  recreating positions                                                                    
took  time and  could mean  spending more  money because  of                                                                    
paying  more  to contract  the  work  out. She  stated  that                                                                    
cutting  positions  to  the bone  may  increase  costs.  She                                                                    
reminded  the committee  that  money  appearing in  position                                                                    
detail reports was not necessarily real money.                                                                                  
                                                                                                                                
HB 285 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
HB 286 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Seaton thanked the presenters for the information.                                                                     
                                                                                                                                

Document Name Date/Time Subjects
1-23-18 HFC FY9 Overview.pdf HFIN 1/23/2018 1:30:00 PM
HFIN LFD Budget Overview
1-23-18 HFC Vacancy Factor Training.pdf HFIN 1/23/2018 1:30:00 PM
HFIN - LFD Vacancy Factor