Legislature(1995 - 1996)
01/17/1996 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 412
An Act making appropriations for the operating and
loan program expenses of state government, for
certain programs, and to capitalize funds; making
appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing
for an effective date.
FY 97 Statewide Operating Budget Overview
was presented by
Annalee McConnell, Director
Office of Management and Budget
Upon convening the meeting, Co-chairman Frank invited the
director of the Office of Management and Budget to join
members at the committee table and present an overview of
the FY 97 state operating budget. ANNALEE McCONNELL came
before committee. She explained that the administration
prepared the FY 97 budget in the concept of a multi-year
plan as outlined in the Governor's state of the budget
address. It is part of "the safe landing" toward a balanced
budget within six years. Highlights involve:
1. Control of areas that have experienced rapid
growth.
(Welfare reform and Medicaid were given as
examples.)
2. Streamlining efforts such as job training and
economic development services which often cross
departmental lines.
3. Technological improvements such as automation
within
the Office of Management and Budget.
4. Utilization of a "mix of tools," many of which
were recommended by the fiscal planning
commission.
Focusing on budget cuts, Ms. McConnell acknowledged concern
regarding whether significant fee increases or taxes should
be levied before budget cutting is accomplished. She
stressed that the Legislature and the previous Governor
enacted significant cost cutting efforts that were not
always visible to the public. She noted specifically that
the public does not often think of absorption of inflation
as cost control.
Tax proposals recommended by the administration to offset
need for constitutional budget reserve funds are included in
the budget at 3/4-year funding to provide time for
implementation. That is reflected in the difference between
the fiscal planning commission proposal of $107 million and
the administration's $80 million. Ms. McConnell stressed
that the six-cent fuel tax has not been increased since it
was established in 1961. Alaska's fuel tax is the lowest in
the United States. The national median is twenty-two cents.
Ms. McConnell next directed attention to a handout
(Attachment A) evidencing a breakdown of the $2,356.0
operating budget and noted that "less than half of it is
really going for directly provided state services." The
other half is dispersed through local assistance
(municipalities and school districts), grants to individuals
(welfare payments and longevity bonus payments), or services
provided through nonprofits.
The second page of the handout relates to factors
contributing to the budget gap between FY 96 and FY 97.
Factors increasing the gap consist of:
1. Reduced oil revenues.
2. A reduction in moneys realized in FY 96 (the $72
million from Executive Life was mentioned) that will
not be forthcoming in FY 97.
3. The dividend arrangement with AHFC calls for $70
million the first year and $50 million the second.
There is thus a $20 million difference here.
4. Small, individual adjustments that total
approximately $10 million.
Factors decreasing the gap:
1. Greater TAPS fund revenues.
2. Shift of general fund support to user fees.
Speaking to the process utilized in developing the FY 97
budget, Ms. McConnell explained that the administration did
not start with caps for individual departments since the
intent was to address the budget "from a policy standpoint"
and explore options. The departments were asked to provide
information on changes that could be made both in the coming
year and over a three-year period. Changes in state
operations often do not make it through the budget process
because they may require more than a year for
implementation. Ms. McConnell next spoke to need to capture
proposed changes and attested to minicabinet efforts
associated with changes that cut across departmental lines.
Need for an additional prosecutor at Bethel as well as
subsequent demand on the public defender and office of
public advocacy were given as examples of action that would
impact the entire criminal justice system.
Recommendations of the Long-Range Financial Planning
Commission were also considered in the budgeting process,
although not all of them were adopted. Ms. McConnell
specifically noted that the recommended cap on the permanent
fund dividend was not utilized by the administration while
recommended taxes and fees were pursued. The budget also
reflects review of services provided by local governments
versus the state.
The impact of cuts was viewed from both a regional
perspective and a balance between what state agencies,
programs, local governments, and individuals are expected to
do.
Ms. McConnell next acknowledged questions surrounding the
proposed $5 million shift from general funds to user fees.
She cited Alaska pioneer homes as an example. Most
residents and their families were not aware of the "huge
disparity" between the cost of providing care and payment
for care. While the average payment is $700, the average
cost is $4,000. The cost of beds providing extra assistance
is $6,400 a month. Instead of reducing the number of beds
or cutting back on services, the administration worked with
families to bring payments closer to the cost of care. A
seven-year plan is proposed to equalize costs and payments.
In instances where a family cannot afford the full cost of
care, a sliding fee scale will be provided.
Pointing to subsequent pages in the handout, Ms. McConnell
noted that they provide a fund-source comparison of FY 96
and 97 budgets as well as a historical breakdown of formula
programs. She noted that authorized figures used throughout
the budget are up to date, including Legislative Budget and
Audit Committee action, with the exception of that taken
since presentation of the budget.
Ms. McConnell next addressed process changes discussed
throughout the summer and fall and highlighted new
information set forth in the "Executive Budget Summary for
Fiscal Year 1997" (Attachment B).
Attention was next directed to a list (Attachment C) of
items transferred from the capital budget to the operating
budget. Although the items have long been funded in the
capital budget, they are operating expenses and do not meet
the statutory capital expenditure requirement and carryover
date. Mr. McConnell asked that members review the list and
advise if there is objection to the transfer. She stressed
specific need to "get a much better fix on maintenance" in
order to "get away from the deferred maintenance problem"
and adequately maintain state facilities.
A further area where agreement is needed between the
Legislature and the administration is "how we treat the
numbers in our budget." Mr. McConnell voiced need to avoid
situations where the administration attempts to explain to
the press or the public "adjustments between how you show
your numbers in the Legislative branch and how we show them
in the executive branch."
Changes in the front section of the budget include
aggregation of all items relating to AHFC. Department
budgets are in alphabetical order in the appropriation bill.
Separate mental health appropriation legislation (SB 214/HB
413) was also introduced for the first time. A summary
chart highlights differences between mental health trust
board recommendations and the Governor's proposed budget.
The "Executive Budget Summary" demonstrates how the
administration is using funding, why it is being used, and
goals and objectives. Performance measures have been of
concern to legislators for some time. Every department is
beginning to deal with that. The administration will check
with them at mid points during the year to evaluate progress
in meeting performance measures. Next year's summary will
report on that effort. The next summary will also contain
more information outlining budgetary differences from one
year to the next.
Ms. McConnell next flagged the following generic issues that
she indicated might arise:
1. Adjustments in risk management rates. In the
past, everyday claims were taken from catastrophic
reserves and the fund was not reserved for
major catastrophic occurrences. Departments
did not then see the result of lack of
efforts in worker safety, etc. More
effective management will make each
department responsible for risk management
rates and require departments to work hard to
bring rates down.
2. Health benefits. The administration will be
proposing changes here. AETNA reserves are
approximately "$2 million more than they
need to be." The monthly benefit rate
will thus be brought down in the '97
budget, and cost control efforts will
continue.
The debt service schedule includes current projections from
school districts regarding debt that will be sold.
Information does not assume sale of new bonds at this time.
It merely reflects what has already been authorized.
Ms. McConnell concluded her overview at this time and
welcomed questions and comments from members.
Senator Rieger referenced funding source information and
questioned the $16 or $17 million draw from the
constitutional budget reserve fund. Ms. McConnell noted
that amounts shown reflect Court System and Dept. of Law
expenditures "charged directly to the CBR" rather than the
amount needed to close the budget gap.
In response to further questions from Senator Rieger
regarding longevity bonus payments and whether the program
is drawing people to Alaska, Ms. McConnell explained that
while she could not say whether the program has acted as a
draw, the Dept. of Administration reconstructed its model
for calculating longevity bonus projections. Past
calculations included "wild swings" over "very short periods
of time." Reconstruction will attempt to produce more
accurate forecasting of future demand. The projection for
next year is $350.0 more than FY 96. Alaska and Hawaii have
the fastest growing rate of citizens over 65 years of age.
Further discussion regarding operation of the longevity
bonus program followed between Senator Rieger, Senator
Sharp, and Ms. McConnell. Ms. McConnell stressed that
although payments to new people joining the system are less,
the number of people obtaining bonus payments has exceeded
the degree of phase out. However, under current
projections, phase out should begin to evidence reductions
in FY 98.
Senator Rieger next asked if the TAPS settlement included a
fixed tariff for capital costs, regardless of throughput,
with adjustments for operating costs. Ms. McConnell advised
that she would obtain and return an answer to the Senator.
Senator Rieger next inquired concerning efforts by the
administration regarding tier III. [The following is a
transcript of that discussion.]
Senator Rieger - I'm aware that there has been some
continuing discussion on Tier III and the
administration's plan to do something. Where
is the administration on Tier III, and what
are you . . . . [Overlapping voices,
Senators Rieger and Phillips]
Senator Phillips - That was one of my questions.
Annalee McConnell - Count that as a two for one question.
Right. The administration has been working on some
adjustments to the proposed plan, and I think
we'll be prepared to come forward with those
relatively soon. I can ask Mark Boyer if he will
be prepared to address that in the overview. He
may not be quite there yet. They're doing a
number of things right now. They're running
actuarials on different proposals, different
adjustments that have been discussed, to see what
the exact impact would be before we come forward
with any proposal, so that we're not doing things
by the seat of the pants, but actually have some
good hard information behind it. So, if it's not
ready now, or say, within the next week or so . .
. I mean, it certainly has been our intention to
try to get that pulled together early in the
session.
Senator Phillips - Is that going to be in the form of
legislation or is that going to be internal?
Annalee McConnell - In the form of the proposal? I'm not
sure, logistically, how we'll suggest doing it.
Ultimately, of course, it would end up as a
legislative proposal. But whether or not . . . .
Just which vehicle, I can't say at this point.
[End of transcript.]
Senator Rieger referenced Mental Health Trust/General Funds
shown in funding source information and asked if the trust
had generated income. Ms. McConnell responded affirmatively
and advised that the trust authority is proposing
utilization of some of the income to augment services this
year. Funding will be used for "creative things" in terms
of transition for patients at Harborview. Ms. McConnell
referenced a chart presented December 15, and noted that it
summarized funding from the mental health trust income
versus what would flow from mental health general funds.
The chart also provides a track between recommendations of
the trust authority and the administration's proposal.
In response to a further question from Senator Rieger, Ms.
McConnell said that the initial proposal was to use a
portion, approximately $500.0. Some areas of service for
beneficiaries are now in limbo because of proposed federal
changes. It was the intention to have a subsequent meeting
to make a final determination, in light of federal changes.
Senator Rieger voiced his understanding that the mental
health trust was to produce income, and it was anticipated
that the state might supplement that with general funds. He
then referenced the $108 million in the Governor's budget,
acknowledged that not all of the total flowed from the
trust, and inquired regarding the general fund supplement.
Ms. McConnell explained that the Governor's budget flags all
general funds for beneficiaries. The first step of the
mental health trust budget process was review to determine
whether the trust agreed with the administration's
determination of what was money for beneficiaries. Some
areas, such as corrections and education, evidenced need for
adjustments. General fund/mental health is shown in the
budget as a category of spending in the separate mental
health bill (SB 214/HB 413). For information now before
committee, general funds and mental health moneys were
rolled together to produce totals so that the full picture
could be seen.
Senator Rieger voiced his understanding that approximately
$500.0 of the $108 million would flow from the trust. Ms.
McConnell concurred. She added that trust income for the
first year is expected to be approximately $1 million. That
amount will grow but will be limited in early years because
of start-up expenses. The annual report provides an outline
of trust income and what is estimated to be available in the
future.
Senator Randy Phillips voiced his understanding that the
Governor proposes a $40 million reduction. Ms. McConnell
acknowledged a $40 million reduction in total general fund
support ($35 million in expenditure cuts and $5 million in
user fees). Senator Phillips noted that approximately $15
million relates to debt reduction. He then asked what
portion of the remaining $20 million is dependent upon
passage of legislation. Ms. McConnell replied that the
administration identified $13 million requiring legislation.
A portion of that relates to the RIP program, approximately
$6 million is longevity bonus, and the remainder is
comprised of a "group of other things." Ms. McConnell
acknowledged that questions had been raised regarding a
budget that is dependent upon legislation. She then voiced
her opinion that "If we look to do budgets, in the future,
without legislation, we're just talking about the status
quo."
Senator Phillips next asked if the administration supports a
$100 million cut in the next three years. He further
inquired regarding the administration's philosophy and stand
on the long-range financial planning commission plan. Ms.
McConnell referenced comments in the state of the budget
address and stressed the importance of closing the fiscal
gap. The Governor has some disagreements with
recommendations presented by the commission in terms of how
the tools are used, which tools are used, and the sequence.
He is comfortable with the concept of a $100 million cut.
Ms. McConnell cautioned that it is difficult to determine,
in isolation, what is good or bad. She stressed need for
future planning and acknowledged that $40 million is not the
only number possible for this year's budget cut.
The Governor has expressed concern and is opposed to the
proposal to cap dividends. The commission recommends a
reduction of $50 million in the total for dividends. The
Governor believes that institution of an income tax should
be explored prior to placing a cap on the dividend. In
response to a question from Co-chairman Frank, Ms. McConnell
acknowledged that the administration has not discussed
introduction of an income tax this year. The administration
would prefer to work with the legislature and attempt to
develop consensus on how the budget gap can be closed. She
acknowledged that neither the executive nor legislative
branch could do so alone and stressed need for better
understanding and support from the public.
Co-chairman Frank observed that something else would have to
replace the $50 million if the dividend is not capped or
income tax legislation is not introduced. Ms. McConnell
agreed. She remarked that the commission report also
assumes a ballot issue this fall to take the endowment issue
to the public. Great public concern has been raised
regarding the endowment. Most people understand that
permanent fund earnings will have to play some role at some
time. It is unlikely that all will come together in time
for an election this year and flow of endowment earnings
next year.
END: SFC-96, #2, Side 1
BEGIN: SFC-96, #2, Side 2
Co-chairman Frank asked if the Governor has a plan that
would close the gap. Ms. McConnell suggested that the
commission plan is a starting point. The administration
seeks to work with the legislature to reach consensus. Ms.
McConnell pointed to problems encountered by the commission
in that when one part of a plan is jettisoned, one must
figure out how to fill the hole.
Senator Randy Phillips asked if the administration supports
placing the commission recommendation for conversion of
permanent fund savings to an endowment before the voters.
Ms. McConnell responded, "Not at this point in FY 96."
The Senator next inquired concerning the administration's
stand on additional transfers from the constitutional budget
reserve and earnings reserve account into the principal of
the permanent fund. Ms. McConnell responded, "As we have
outlined in the budget, we're proposing that there be a
transfer in February . . . in the context of a plan." It
does not make sense to foreclose options until a plan has
been developed. In response to subsequent questions from
Senator Phillips concerning the transfer, Ms. McConnell
clarified that the effective date of the transfer from the
earnings reserve (set forth in the front section of the
budget) to the permanent fund corpus was to be February,
unless there was "some other constitutional amendment that
suggested doing it otherwise." The date was set to allow
for the election and subsequent ratification.
Co-chairman Frank inquired regarding the "Dave Rose plan,"
asking if a formal paper had been prepared. Ms. McConnell
responded affirmatively, saying that Mr. Rose submitted his
proposal after the commission finished its work.
Senator Phillips next asked if the administration supports
the recommended increase in motor vehicle fees. Ms.
McConnell replied, "We have not made a determination yet."
That recommendation was for the second year. The
administration has concentrated on recommendations for the
first year.
Senator Phillips voiced his understanding that the
administration supports $5 million in fees rather than the
recommended $3 million. Ms. McConnell clarified that the
budget calls for a total of $8 million in fees. The
commission identified $40 million in cuts and $3 million in
user fees. The administration repackaged the combination.
The effect on the fiscal gap is the same $43 million,
"between those two tools." Senator Phillips asked if the
administration supports the concept of user fees. Ms.
McConnell said that the administration wished to consider
fees on a case-by-case basis. Fees are appropriate in some
instances while they are not in others.
Senator Donley voiced his understanding that commission
recommendations call for $40 million in cuts. Those cuts,
however, were not identified.
Senator Phillips inquired concerning support for the $20
million in alcohol tax increases. Ms. McConnell
acknowledged that it was included in the state of the budget
speech. In response to a further question regarding $30
million in fishing, timber, and mining taxes, Ms. McConnell
remarked, "That's an outyear proposal. We've not yet taken
a position on that." Co-chairman Frank asked if the
Governor had introduced an alcohol tax. Ms. McConnell
responded negatively, saying that the commission drafted
legislation to be introduced as a package through the Rules
Committee. There is now a question as to whether or not
that will happen. In the course of further discussion, Ms.
McConnell said that the commission operated under the
expectation that its recommendations would be introduced as
a package since it was neither the responsibility of any
individual legislator nor the administration to "present
that package of taxes, fees, etc."
Co-chairman Frank pointed to the constitutional requirements
that the Governor submit a budget. That budget anticipates
legislative changes to achieve the target. It thus seems
appropriate for the Governor to introduce legislation needed
to balance the budget. Ms. McConnell said it would be
appropriate for the legislature to give the commission the
courtesy of accepting the legislative package drafted by the
commission.
Discussion of introduction of legislation through the Rules
Committee followed.
Senator Randy Phillips next inquired concerning the $44
million increase (8 cents a gallon to 22 cents) in the motor
fuel tax. Ms. McConnell said that the Governor supports the
proposal. She further advised that the administration is
working on proposals to address issues of transfer of
responsibilities for roads from the state to local
governments. Senator Phillips asked if the Governor would
support dedication of funds for road maintenance. Ms.
McConnell referenced comments in the state of the budget
address to the effect that the Governor supports a
constitutionally dedicated motor fuel tax.
Senator Phillips inquired regarding support for the $43
million tobacco tax. Ms. McConnell acknowledged support and
inclusion of the increase in the proposed budget. She
cautioned that it is not included at $43 million, but at
three-quarter-year funding.
Responding to an inquiry concerning the $20 million tourism
tax, Ms. McConnell noted that it represents an "outyear
tax." There is no specific commission proposal at this
time. As with resource taxes, the commission believes
tourism taxes should be looked at, but it had no time to
develop specifics. The administration has not taken a
position on the issue.
Co-chairman Halford asked when the supplemental request
would be introduced. Ms. McConnell advised of intent to
introduce a proposal "in a couple of weeks." She referenced
the administration's intent to control supplementals and
said she was not expecting "any big surprises."
In response to a question from the Co-chairman concerning
timing of the capital budget, Ms. McConnell advised of the
administration's "hope to have that by the 31st of January."
The number in the budget plan is approximately $110 million.
Co-chairman Halford next inquired concerning a cutoff for
budget amendments. Ms. McConnell referenced the legal
deadline of 60 days. She said she did not anticipate a
great number of amendments. As a caveat, however, she noted
lack of federal resolution in a number of budget areas.
Co-chairman Halford expressed concern regarding large
numbers presented to the Legislative Budget and Audit
Committee by the Exxon Valdez trust. He referenced a
requirement that trustees present a budget as part of the
state budget and noted that "We're not getting that." He
then voiced his hope that the Office of Management and
Budget would review AS 37.14.415 for compliance. Concern
has been raised in budget and audit that those expenditures
go "around decisions made by the full finance committees."
He asked for a joint proposal from the trust authority and
administration. Ms. McConnell acknowledged that
Representative Martin had pinpointed that concern. She said
she would address both that issue as well as concern "about
out years." She acknowledged a number of statutory
requirements that have not been observed in the past and
said she had made considerable effort to comply, pointing to
improvements in the recent budget submission.
Co-chairman Halford stressed the importance of making
information available. Staff must have ample time for
budget review. Ms. McConnell agreed. She noted, however,
the when the capital budget was submitted last year, it was
quite some time before the legislature dealt with it. She
then expressed her opinion that hearings giving it the level
of attention it deserved were never held. She concurred in
need for cooperating between the administration and the
legislature, saying that both have a great deal of work to
do in improving the capital budget process. Ms. McConnell
further commented that she had been unable to make many of
the changes she would like because many of the tools used by
the state are antiquated. Ability to provide information in
a form that is useful to the legislature and the public is
"no where near what it needs to be."
Further comments on timely submission of materials followed
by both Co-chairman Halford and Ms. McConnell. Ms.
McConnell noted that capital budget categories will be the
same as last year.
Co-chairman Halford voiced his understanding that the
Governor's spending plan requires an increased draw from the
constitutional budget reserve from this year compared to
last year. That indicates that "We're not even meeting the
changes . . . with the level of reductions in the budget.
We're increasing the level of draw down of reserves." Ms.
McConnell concurred and acknowledged a long way to go before
the gap is closed. Consensus must be developed regarding
the mix of tools used to achieve that.
Co-chairman Halford remarked that the proposed budget
includes pay increases based on contracts and comparative
provisions. He then asked if pay increases for exempt
employees were included. Ms. McConnell explained that
funding for non-represented employees is equivalent to "what
was being done in the labor contracts." It equates to 1/2
of the CPI with a cap of 1-1/2 percent. Co-chairman Halford
referenced a proposal from last year for reducing salaries
of exempt employees and inquired about the status. Ms.
McConnell responded that some salaries are limited by
statute. She cited commissioners as an example, and advised
that she was not taking her pay increase. A comprehensive
proposal is not being recommended by the administration at
this time.
Co-chairman Halford next inquired regarding recovery of COLA
overpayments within the marine highway system. Ms.
McConnell said she did not know the status. She said she
would ask that the commissioner provide information during
overview of the Dept. of Transportation and Public
Facilities' budget.
Discussion followed regarding budgetary recognition of RIP
benefits. [The following is a transcript of that
discussion.]
Co-chairman Halford - Just one final question. With regard
to the RIP benefits, how are the RIP benefits actually
realized in the budget?
Annalee McConnell - Because the exact effects of the RIP, or
where they would take place, can't be determined right
now, what we decided to do was show that as an
aggregate amount as part of the $13 million that
would require statutory change in order to happen.
The way we expect to implement it . . . . We're
still working out some of the technical aspects of
it, but what we would be doing is working with
each department. And, as you probably recall from
last year's discussion, we set up some fairly
stringent requirements for them to show savings
out of the RIP program (and over a shorter period
of time than the previous version that was three-
years). We need to figure out a mechanics in our
accounting system for how to handle that
throughout the year so that we are sure that those
savings, not only that they happen, but that they
don't get used in other ways. But, the exact
determination of who will be ripping can't be
known up front. We obviously can't require
employees to RIP, for instance. So, we have
undertaken . . . . And the Governor has asked all
of the departments to really begin being extremely
aggressive in attrition management, so that when
any vacancy happens, we don't have to wait for a
RIP program (we have vacancies, obviously,
throughout the year, anyway) that there be a very
aggressive review of those positions to see if
that does not open up some opportunities for doing
things differently so that the person doesn't have
to be replaced. So, we will need to allocate it
out among the departments, once we have some idea
of how RIP will be received.
Co-chairman Halford - But unless there's some mechanism to
take the money out of the budget, does it not stay in the
budget and get spent?
Annalee McConnell - Well, actually . . . . No that's why I
referred to some of the mechanics. I'm trying to work
out a system, for instance, where we could have a
separate account code that we can sort of lock out, in
a sense. Once there's a savings in that account code,
it is not available to the departments to spend for
other purposes. But that would require . . . . You
know, we'll have to do a lot of management.
Co-chairman Halford - In terms of the next 100 days of
debate, and getting something done, should we, if we pass
a RIP bill, include an allocated reduction in
some way in every department to take back out
the projected savings of the RIP? If we
don't have some way that takes it out of the
budget, it's not a savings. It doesn't count
toward the $35 or $40 million that is being
claimed as reached. There's got to be an
implementation somewhere.
Annalee McConnell - That's what I'm working on right now.
I've begun conversations with the department of
administration and finance, in particular, on
setting up some mechanism for us to do exactly
that. I don't want those savings to dribble away.
The whole point of it is to capture it, grab it,
and keep it as a savings, and not let it get spent
for other purposes.
[End of transcript.]
Co-chairman Frank complimented Ms. McConnell on her efforts
to make improvements in the budget process. Ms. McConnell
advised that she was open to suggestions on "ways we can
make this information clearer."
Senator Sharp referenced news reports of the Governor's six-
year plan and asked that copies be provided to committee.
Ms. McConnell explained that Governor Knowles spoke to need
to close the fiscal gap "in no more than six years." He did
not indicate he had a plan. He said he would work with the
legislature. The long-range financial planning commission
set up a four-year plan to close the gap. It is clear that
some elements of the plan (the cap on the dividend and the
permanent fund endowment becoming effective next year were
cited) will not happen right away. Governor Knowles
acknowledges that if those proposals are not acceptable, the
administration and legislature must develop acceptable
options.
Senator Sharp voiced reluctance by legislators to push tax
reform legislation because of what happened last year to "a
lot of hard-worked bills that went through the committee
process with the administration attending every committee
meeting" and having opportunity for input. The Governor
should place specific proposals on the table.
Senator Sharp next referenced the $12 million switch in
funding source contained within the proposed $35 million
reduction, saying that it does not reflect a reduction of
expenditures per se. Ms. McConnell pointed to two problems
faced by the state. The first is the fiscal gap. The
second is alternative means of providing needed services and
charging fees, if appropriate. Senator Sharp concurred but
stressed that the $12 million should not be treated as a
budget reduction.
Referencing rate increases at pioneer homes, Senator Sharp
acknowledged endorsement evidenced by the pioneer home
advisory board letter but said he found no residents at the
Fairbanks home who worked with the administration on the 49
to 75% monthly increase effective February 1. Ms. McConnell
said that representatives of the advisory board met with
families at every pioneer home statewide. She said she
would provide a summary of meetings. Further, staff held
follow-up meetings with families to answer questions about
services, rates, lack of ability to pay, etc. Senator Sharp
noted that most residents endorse some form of adjustment.
He referenced last year's 10% increase and questioned the
magnitude of increases projected for the next seven years
and suggested that it would result in "a lot of people not
paying you anything because you've reduced them to paupers
more quickly than at the old rate." Since these residents
will not be evicted, there will be a diminishing return
situation in terms of savings. Ms. McConnell advise that
the foregoing situation was taken into account in
development of a sliding fee schedule for those who could
not afford the cost of care.
Senator Sharp next referenced proposed legislation to place
an income cap on eligibility for the longevity bonus.
Accompanying fiscal notes reflect reductions but no
personnel or cost increases for examination of
qualifications of the 28,000 bonus recipients to determine
whether or not they fall under the cap. Ms. McConnell
advised of inclusion of $325.0 in the budget for longevity
bonus administration. A note to that effect was to have
been included in the narrative section of the fiscal note.
Co-chairman Halford stressed that fiscal note law requires
that the financial impact from passage or lack of passage of
legislation be shown. Submission within the budget does not
meet that law.
Discussion followed regarding position upgrades. [The
following is a transcript of that discussion.]
Senator Pearce - I have a question. In your comments about
the proposed RIP bill, Annalee brought up a question that
I've had that comes up from a situation that I've been
told is at the international airport in Anchorage. And
I haven't had an opportunity to check it clearly. But,
what is the process the administration uses when a
department wants to [increase] a grade? What process
do you go through to make sure that any increase of a
range and grade for an employee is proper?
Annalee McConnell - I'm not sure what the formal process is.
I haven't asked for anything to be upgraded, so I haven't
gone through that. But I'd have to check it out.
Senator Pearce - . . . are upgrading positions. And I
wondered how . . . . You know, what sort of control do we
keep over that? Ripping may or may not help,
in the long term, if people, once the
position is empty, upgrade it so that the new
person comes in at a higher range, not a
lower range. I assume there is a process.
Annalee McConnell - I assume there is too. Like I say, I
haven't . . . .
Co-chairman Frank - Could you give us a report on the
activity on upgrades so that we get a feel for that?
Senator Rieger - Do you review upgrades at all? Or is it
some departments and not others? I mean OMB.
Annalee McConnell - I don't personally review . . . . I
can't speak to that. I don't know. I haven't
personally reviewed them so I don't know. I'll
have to check out and see what the process . . . .
Co-chairman Frank - Is that something that's handled by the
division of personnel in the Dept. of Administration,
or do you know?
Annalee McConnell - Or it may be handled . . . . I'm not
sure. I mean, I assume . . . .
Co-chairman Frank - It seems like an important budgetary
control thing that maybe we should change the law . . .
and require that you get the opportunity to review
that if you don't now have that opportunity.
[End of transcript.]
Senator Pearce referenced meetings between the Governor and
members of the business community and a proposed media
campaign to "try to force the legislature to do something."
She suggested that proceeding in that manner is not a
constructive way of achieving cooperation between the
parties. The legislature plans to have a long-range
strategy. The legislature has not ignored budget problems.
END: SFC-96, #2, Side 2
BEGIN: SFC-96, #3, Side 1
Ms. McConnell said she did not participate in the meetings
but advised of her understanding that legislators were
invited to attend. She referenced recommendations of the
financial planning commission and acknowledged that she did
not personally support all proposals. Information derived
by the commission indicated that the public sentiment was
not "where we all thought." People may well accept some of
the tax proposals more readily than anticipated. Proposals
for alcohol and tobacco taxes have broader support than
earlier realized. The same is true for the income tax.
There is much to learn about where the public stands. More
information could also be shared with the public. Ms.
McConnell noted indication by the business community that
the public does not understand that the legislature has
already done a considerable amount to reduce the budget and
per capita spending. Statistics evidence reductions of 25%
over the past five years.
Senator Zharoff referenced earlier estimates of a $525
million deficit and inquired concerning an updated
projection. Ms. McConnell advised of an expected FY 96
fiscal gap of $429 million. Some FY 96 tax revenues were
higher than anticipated. That is the largest adjustment.
Senator Zharoff next asked how much of the Governor's budget
is predicated on federal funding. He then inquired about
the status of federal revenues. Ms. McConnell said that the
budget assumes that problems with the Medicaid formula would
be fixed. The congressional delegation was in the process
of trying to work to modify current proposals so that Alaska
would not be penalized. Information from the commissioner
of the Dept. of Health and Social Services indicates there
may not be final resolution of Medicaid questions "anytime
in the next couple of months." Philosophical differences
here remain broad compared to AFDC where all proposals are
generally the same. Senator Zharoff voiced concern over
variables within the budget over which the state has limited
control. Co-chairman Frank acknowledged that legislation
would be required for AFDC reform and said that the
legislature would work with the administration and
congressional delegation.
Co-chairman Halford expressed frustration over numerous
plans but no consensus or willingness to "put something on
the table." It is the obligation of the Governor to propose
a budget and a spending plan containing all the necessary
elements. He questioned how a five-year plan could be
developed if a plan for the first year has not been
forthcoming. The Senator advised that he would start with a
$200 million cut, a $200 million development, and only
thereafter would "I go to the private sector to get the
money." He then urged that the Governor present a plan "at
least for the first year." Ms. McConnell responded, "You
have the plan for the first year . . . the FY 97 budget."
Co-chairman Halford said that it does not contain all the
necessary elements and cited lack of a capital budget as an
example. Ms. McConnell reiterated that it would total $110
million. Details will be available by January 31. She
suggested that discussions centering on closing the fiscal
cap were not being "held up" by "what amount is in the
capital budget." She again referenced the state of the
budget address and noted that the Governor spoke
specifically to taxes and fees, the income tax, and dividend
cap.
Senator Donley concurred in the Governor's reluctance to
introduce a plan he does not totally support. The plan
recommended by the long range financial planning commission
is not necessarily the same as that proposed by the
administration. Referring to discussion of taxes, Senator
Donley advised that his constituents are interested in
additional reductions to state spending. He said he would
not vote for taxes before reductions in spending can be
shown to the public.
Senator Donley complimented the administration on
correspondence to departments seeking priorities in light of
percentage reductions in the budget. He then voiced need to
review those priorities in the course of budget
preparations.
Ms. McConnell reiterated that cuts have been made. The
administration is not proposing taxes before effecting cuts.
She cited direct expenditure reductions last year and in
preceding years. At the same time, there were no tax
increases or major shifts in funding to user support.
Senator Donley asked what programs would be eliminated and
what services would no longer be performed under the
proposed budget. Ms. McConnell said that the list presented
December 15 cites the types of reductions and streamlining
efforts.
Co-chairman Frank referenced the education foundation
program and requested information on projected student
counts versus actual numbers. Ms. McConnell acknowledged
last year's discussion of the issue and the fact that past
information was based not on state numbers but information
submitted by school districts using the statutory October 15
deadline. She explained that Rick Cross, Deputy
Commissioner, Dept. of Education, has taken responsibility
for improving and analyzing count information. It is not
yet known whether a statutory change will be needed. Co-
chairman Frank concurred in possible need for change,
advising that the statute is vague and could be interpreted
in a number of ways. He stressed need for good numbers.
Co-chairman Halford asked if the Legislative Finance
Division could be provided agency responses relating to
proposed percentage (10 to 20% were cited) reductions. Ms.
McConnell said that OMB requested that departments provide
that information verbally. She stressed that she did not
wish departments to devote considerable effort to proposals
that "aren't going to go anywhere." For some departments,
the proposed 20% reduction over three years would be
unacceptable. The effort was intended to determine
"conceptually where are we headed on these ideas."
ADJOURNMENT
The meeting was adjourned at approximately 10:55 a.m.
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