Legislature(1995 - 1996)

01/26/1995 09:10 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HB 100  -  APPROP: FY 96 OPERATING AND LOAN BUDGET                           
            "An  Act making  appropriations for  the operating                 
  and loan            program expenses of state government 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                 
            Presentation made by Annalee  McConnell, Director,                 
                 Office of Management and Budget (OM&B).                       
  Co-chair Frank introduced Annalee McConnell and welcomed her                 
  to  the meeting.   He  emphasized that  the committee  looks                 
  forward to working with her.   Co-chair Frank invited her to                 
  bring to the table any of her staff.                                         
  Ms. McConnell gave  a brief synopsis of her past experience.                 
  She  began  with  her affiliation  as  budget  director when                 
  Governor  Knowles  was  in  his  second  term  as  Mayor  of                 
  Anchorage.  She emphasized that this was during the 1986 oil                 
  crash,  which gave  her  experience at  a  time of  monetary                 
  instability.  She spoke of her experience with Alaska Native                 
  Foundation, and her  work with small  villages, particularly                 
  in  western  and  northwestern  Alaska,  as well  as  Kodiak                 
  Island. She emphasized her work in the larger urban areas as                 
  well.  Ms. McConnell  mentioned that while she has  not been                 
  employed  by   the  state   government  before,   her  other                 
  responsibilities  have   put  her  in   contact  with  state                 
  Ms.  McConnell  introduced her  staff  to the  committee and                 
  asked that they  be excused so they  could go back  to their                 
  other assignments: Nancy Slagle, Director of  Budget Review;                 
  Budget Analysts are Jeff Hoover, Dept. of Transportation and                 
  Public Facilities, Dept. of Community and Regional  Affairs,                 
  the  Governor's  budget,  Dept.   of  Military  and  Veteran                 
  Affairs,  and  the Capital  budget;  Danith Watts,  Dept. of                 
  Health  and  Social Services,  and  Dept. of  Revenue; Laura                 
  Baker, Dept. of   Environmental Conservation, Dept.  Natural                 
  Resources, and Dept.  of Fish and Game;  Royce Weller, Dept.                 
  of Labor, Dept. of  Commerce, and the University  of Alaska;                 
  Dan  Spencer, Dept.  of  Education, and  Legislation budget;                 
  Deborah  Driver,  Dept.  of  Law,  Courts, Dept.  of  Public                 
  Safety,   and   Corrections;   Policy   Analysts  are   Jack                 
  Kreinheder, Fred Pierce, and Jack Fargnoli.                                  
  Ms. McConnell emphasized her goals as Director of OM&B.  She                 
  spoke of expanding the time horizon  of fiscal planning to 5                 
  years and beyond.   She  addressed issues that  tend to  cut                 
  across  departmental  lines  and  are   of  concern  to  the                 
  committee,  such as  deferred  maintenance,  and  issues  of                 
  program  receipts.  She  said  that  she  is  interested  in                 
  developing   a   good  working   relationship   between  the                 
  administration and the legislature on the budget issues. Ms.                 
  McConnell stated her commitment to integrity and openness in                 
  all dealings with the public, the legislature, and with each                 
  other within the administration and various departments.                     
  Ms. McConnell addressed the specifics  of the budget process                 
  and  the  time  line.    The  administration  began  working                 
  immediately with the acting commissioners on the 1995 budget                 
  supplementals and 1996  budget.   Obviously, we were  taking                 
  that which was prepared by the previous administration.  She                 
  stated that this administration did  not have the same  lead                 
  time that  most transitioning  teams  have to   analyze  the                 
  budget.   The permanent commissioners are just now coming on                 
  board.   The previous  administration's material,  which had                 
  been prepared in  OM&B, reflected $69.9 million  in proposed                 
  supplementals to the  1995 budget.  Ms.  McConnell continued                 
  that OM&B has made a conscious decision to work with the new                 
  commissioners in preparing  a realistic budget package.  She                 
  stated that  many of the  items in former  Governor Hickel's                 
  supplemental  materials were the  result of conscious policy                 
  decisions by the legislature last year.   As an example, for                 
  oil and gas litigation, the legislature made a determination                 
  to give  half year funding  and require that  the department                 
  come back to  defend the remainder.   She pointed out  other                 
  areas, such as corrections, where the legislature knew there                 
  would be  a need  for additional  funds to  get through  the                 
  year.   She  said that OM&B  is evaluating those  as well as                 
  other items.   The schedule  at this time  is to have  those                 
  supplementals to the committee within  the next three weeks.                 
  The  statutory  deadline  is  February  14th.    It  is  the                 
  Governor's intention to  provide the  package earlier.   The                 
  1996  amendments  presented  by Governor  Knowles,  December                 
  15th, indicated he  would present amendments  by the end  of                 
  February,  which  would  be  in  advance  of  the  statutory                 
  deadline.  Again, Ms. McConnell stated that Governor Knowles                 
  has asked that it be brought forward sooner.                                 
  Ms.  McConnell  addressed  the 5-year  fiscal  plan  and the                 
  commitment  to  expend  within  recurring   revenues.    She                 
  explained that the 5-year  fiscal projection will be a  tool                 
  for looking at the out-year                                                  
  impacts of current  year budget  recommendations.  She  said                 
  this  is  a  similar   tool  she  put  into  place   in  the                 
  municipality of Anchorage. It  was an active decision-making                 
  tool. The  prior administration  had a  very general  5-year                 
  projection, but minimal projection techniques.  For example,                 
  all state expenditures  were extended out at  population and                 
  inflation   growth.     She   pointed  out   the  unreality,                 
  particularly  within   formula  programs  where   there  are                 
  different growth factors,  depending on education, medicaid,                 
  etc.  The same  is true with revenues.  While  the state has                 
  the  oil  price  and  figures,  there  has  not   been  much                 
  refinement as  to how  the program receipts  are pushed  out                 
  into the future.                                                             
  Ms.McConnell   drew   attention   to  the   administration's                 
  "Preliminary Draft of  Fiscal Model Being  Developed" chart.                 
  Some  adjustments  have been  made  insofar as  breaking out                 
  different parts  of state  government. Information is  being                 
  provided  by  departments  regarding   growth  within  their                 
  agencies.    This  document   does  not  incorporate  policy                 
  decision.   It is simply to show the  size of the fiscal gap                 
  for  5  years  (excluding  any  decisions to  change  either                 
  revenue  structures   or   program   expenditures).      The                 
  administration is developing a tool  to see where the  state                 
  is headed and  take specific looks  at impacts for  proposed                 
  capital  projects. OM&B  is also  working with the  Dept. of                 
  Administration to: finite labor costs; to determine how that                 
  will be included in  the out-year budgets; and  the handling                 
  of revenue projections. In general, she said, this  does not                 
  include any  proposals on  the 1996 budget  amendments.   It                 
  shows approximately $80  million in  supplementals for  1995                 
  (the   amount   of   money  recommended   by   the  previous                 
  administration, plus other items which  have since come in).                 
  She noted that this  is not an indication of  what the final                 
  number will be.                                                              
  Ms.McConnell  then referred  to the "Five-Year  Projection -                 
  Mid Case"  chart.  She  pointed out the FY  95 projected gap                 
  will  be  about   $300  million,  to  be  filled   from  the                 
  constitutional budget reserve fund.  She said that next year                 
  would jump to  over $500  million, and by  the year 2000  we                 
  would  be  well over  $900  million (excluding  any decision                 
  about revenue or  expenditures).  She  pointed out that  the                 
  figure to be concerned about is between 1995 and 1999.   The                 
  state would be using $2.63  billion in reserves, leaving the                 
  constitutional budget reserve fund wiped out in 1999.  These                 
  figures do include the BP settlement amounts of $350 million                 
  in the next two years.                                                       
  Ms. McConnell switched  to the "Five Year  Projection - with                 
  One Low Year" chart  showing the danger point.   Using 1997,                 
  the  budget gap could be $970. million.   She feels that the                 
  public  does  not have  a  sense  of the  magnitude  of this                 
  information.  She stated that there is work that needs to be                 
  accomplished to  disseminate this information.   People need                 
  to  understand  why we  are  making these  necessary painful                 
  choices over the next few years.                                             
  Senator Phillips interjected that his public is aware of the                 
  Senator Rieger  asked what the administration's  position is                 
  on  the  G.O.  debt?    Ms.  McConnell  responded  that  the                 
  administration  is  just   beginning  to  look  at   capital                 
  financing.   She could not  yet give  a recommendation,  but                 
  said it is an item up for discussion next week.                              
  Senator Rieger  said  that he  was skeptical.  He felt  that                 
  there has been enough mortgaging of the future.  He inquired                 
  what  would  happen  to  contributions   toward  the  Public                 
  Employee Retirement System (PERS) over  the next four years,                 
  and if OM&B shows  steady or increasing contributions.   Ms.                 
  McConnell could not answer the  question, but indicated that                 
  she would look into it.                                                      
  Senator Frank wanted  to make  clear that this  presentation                 
  does not reflect  any decision or policy  recommendations by                 
  the administration, but more a snapshot of what would happen                 
  given the inflation  rate.  He  noted that the Governor  has                 
  made repeated statements  that he  would veto any  increases                 
  over  prior-year  appropriations  in  all  areas,  excluding                 
  education.   He  noted  that  this is  not  Ms.  McConnell's                 
  recommendation,  it is a  projection of what  will happen if                 
  growth  were  allowed.   Ms.  McConnell emphasized  that the                 
  various departments understand how their areas must fit into                 
  a bigger  picture and the impact of  what happens if that is                 
  not accomplished.                                                            
  Senator  Frank asked  if  OM&B is  planning  on providing  a                 
  follow-up projection based on  recommendations regarding the                 
  fiscal gap?   Ms. McConnell  indicated that when  the FY  96                 
  budget amendments are presented, OM&B will have a projection                 
  that would  include proposals for FY  96.  At  that point we                 
  will not have recommendations for  years beyond 1996, but at                 
  least we will be showing our  proposals and detail work such                 
  as breaking down major programs and using actual projections                 
  such as education.                                                           
  Senator  Halford inquired  as to  the  governor's statements                 
  relating  to  vetoing increases.    Would the  governor veto                 
  increases,  with the  exception of  education?   Is  this in                 
  nominal  dollars   or  inflated  dollars?     Ms.  McConnell                 
  responded  that  the  Governor meant  it  in  actual nominal                 
  dollars.  She also clarified that  the Governor also said in                 
  the State of the  Budget speech, that he is referring to the                 
  total 1995 budget.   But, as we know, there  are other items                 
  such as oil and gas litigation, corrections, etc. which were                 
  not funded for the  full year. Obviously, the  pledge cannot                 
  be  against  the partial year.  It is the total 1995 budget.                 
  Ms.  McConnell said  it is  not a  department-by-department,                 
  across-the-board  cut. It is a  total dollar amount with the                 
  exception of education.                                                      
  Senator Halford  brought up the  question of  supplementals.                 
  He  said  he  felt it  was  important  that  those who  felt                 
  strongly,  express  their  opinion.    He  was  specifically                 
  referring to the decisions in  the previous administration's                 
  package  where a manager decided to  spend beyond that which                 
  was  appropriated.  Senator Halford made clear that he would                 
  not vote for a supplemental that includes decisions to spend                 
  beyond the appropriated level -- in those areas that are not                 
  obvious  to  the  legislature  as the  area  of  conflict or                 
  conscious decision in  the last budget.   He felt that  what                 
  happens in supplementals would define where this legislature                 
  and this Governor are going.  He stated it was important for                 
  OM&B to know if  others feel the same way, then a conclusion                 
  could be drawn. It  is important when only half  way through                 
  the year, managers are told that  they need to stop spending                 
  at a level above appropriation and try  to make it up in the                 
  year that still  remains.  If in fact, it is not  identified                 
  until May, it is  more difficult to respond to  the problem.                 
  Ms.  McConnell  expressed  her  concerns  on  how  money  is                 
  expended once it is appropriated.  The  focus seems to be on                 
  the  budget  in   terms  of   OM&B  activity,  rather   than                 
  expenditures  and  how  it  is  going  once  the  budget  is                 
  approved.   She pointed  out that  she has  not solved  that                 
  problem yet,  but assured  the committee  that the  incoming                 
  administration has been  somewhat crippled  in dealing  with                 
  the  situations   Senator  Halford   described.    The   new                 
  administration had no legal control  on what happened up  to                 
  December 5th. However, with new commissioners just coming on                 
  board and not  being in a position for a few months to delve                 
  into the areas  of concern,   Ms. McConnell  asked that  the                 
  legislature  be  understanding.  Until   the  administration                 
  brings forward the  1995 supplemental requests, that  is the                 
  position  it  is in.   There  are  certain areas  within the                 
  departments where they  are at a critical level of spending.                 
  She said that the legislature's first opportunity to see how                 
  OM&B  conducts  business  is  not   so  much  in  the   1995                 
  supplemental or even the 1996 budget  process.  What will be                 
  important,  in  terms  of  evaluating  the  administration's                 
  budget capabilities, is what happens in 1997.  Ms. McConnell                 
  affirmed that one of her goals is making the adjustments now                 
  within  departments and  evaluating  budgets and  guidelines                 
  provided  to departments.   Otherwise,   the  administration                 
  will  never  be able  to  form  a budget  that  reflects the                 
  management   that  she,   along   with   the  governor   and                 
  commissioners, believe in.                                                   
  Ms. McConnell  said she is focusing on the long-range vision                 
  and employing preventative measures, rather than turning off                 
  the "spigot".   It is much  easier for the commissioners  to                 
  find the areas that are in  trouble, with respect to needing                 
  supplemental money, than it is to find the places to cut.                    
  Senator Halford  explained  that he  understands the  normal                 
  rule does  not work.   The  first source  of a  supplemental                 
  should be the  salary of the  manager that decided to  spend                 
  beyond  his budget.  In many cases  that manager is gone and                 
  replaced.    It is  a  contest  of agencies  convincing  the                 
  commissioner  of  their   needs  while  at  the   same  time                 
  identifying the duties of the agency.  That contest is going                 
  on all over the state.  From the legislative perspective, it                 
  is important that  the legislature refrain from  being drawn                 
  into a continual supplemental process. If the legislature is                 
  directed by the administration  and continuously follows it,                 
  as  we  have  sometimes done,  we  give  away  the power  to                 
  appropriate.    Senator Halford  said  that  the legislature                 
  might just as well  not bother to appropriate if  the agency                 
  is going to expend without regard  to the amount identified.                 
  He noted that the legislature is thus not in charge of state                 
  spending  as the constitution dictates.  He made clear, that                 
  if the person who made the decision is still there,  and the                 
  decision is bad, it is going  to affect his attitude towards                 
  that supplemental.   If on the other hand, the person is not                 
  there, and OM&B is doing everything  to turn it around, that                 
  is understandable.                                                           
  Senator  Phillips  confirmed  that  he  agreed  with Senator                 
  Ms.  McConnell acknowledged a need  to develop a clearer set                 
  of roles  for the  executive and  legislative branch  in the                 
  appropriation process.   One of the ways  to get there is to                 
  present to  the legislature good faith efforts  to show what                 
  the administration believes is a total  year budget.  If you                 
  have  a  lack  of  confidence in  the  management  of  those                 
  appropriations,  then  it  is an  indication  that  you want                 
  clarification.    She  reiterated  that  OM&B  needs  to  be                 
  involved  in  ensuring  that expenditures  are  appropriate.                 
  What goes on during the year is  not just a matter of adding                 
  up the number of dollars spent, it is also the effectiveness                 
  of the spending along the way.                                               
  Senator Zharoff  asked about the  revenue and if  there were                 
  other anticipated sources of revenues coming into the state?                 
  Ms.  McConnell  responded  that  the  "Notes"  for  1995  as                 
  indicated  on  the  chart, shows  AHFC,  for  1996; previous                 
  Governor Hickel's budget reflects AIDEA, Executive Life, and                 
  DNR land sales. However,  there are no other new  sources of                 
  revenue.   It does include  $5 million in  increased program                 
  receipts (mostly fees included in previous Hickel budgets).                  
  Ms. McConnell asked if the committee would like to have OM&B                 
  return  to answer  any questions  between now  and when  the                 
  supplementals  come  before  the committee.    For  example,                 
  program  receipts.    She asked  if  there  were suggestions                 
  regarding  this  fiscal  projection.    OM&B would  be  most                 
  interested in having  comments referred  to Brad Pierce,  or                 
  any of the other policy analysts.                                            
  Senator Phillips  noted that when he was  Chairman of Budget                 
  and  Audit,   the  Hickel   administration  overturned   the                 
  committee's denial of  two RPL's. Prior to  that time, every                 
  other governor had  followed the  recommendations of  Budget                 
  and  Audit. What  is  the feeling  of the  administration if                 
  Budget and Audit turns down one of the RPL's?  Are you going                 
  to honor  the committee's decision? Ms.  McConnell responded                 
  that Nancy Slagle  brought that  situation to her  attention                 
  just recently, and  that she has  not had  a chance to  look                 
  into  the  details.    She  said   she  wants  to  get  more                 
  information before she  comments.  Senator Phillips  made it                 
  known  that  traditionally   the  executive  branch  honored                 
  whatever  Budget  and  Audit  decided  on the  RPL's.    Ms.                 
  McConnell questioned  whether this  could have  been a  case                 
  where each branch was not  sure what the other was going  to                 
  do?  Her  preference in a  working relationship is to  be up                 
  front.  She  stated, she does  not intend to inflate  costs,                 
  with the intention of being cut in size.  That wastes  a lot                 
  of time.   Senator Phillips said  he was not happy  when the                 
  Hickel administration overturned the RPL's, in effect saying                 
  that the legislature  is not  important.  Senator  Phillips'                 
  intention was to defend the honor  of the committee, and the                 
  legislative branch, once a decision had been made.                           
  Senator Rieger brought  up the subject  of lapse money.   It                 
  might be  worth considering  appropriation by  appropriation                 
  carryover  language  so   that  an  agency  would   have  an                 
  inducement  not  to spend  that  money. Instead,  they could                 
  chose to carryover  to July of the  next fiscal year.   In a                 
  time of tighter  budgets, that might lead  to more efficient                 
  expenditure of state dollars than trying to bring the lapses                 
  up.   Co-chair Frank reiterated that  the incentives are all                 
  the wrong way.  If you d not spend the last dollar, you will                 
  not get it in  your base for the next year.   Co-chair Frank                 
  suggested  that  at the  OM&B  level,  one of  the  ways the                 
  Finance Committee should  deal with  the supplemental is  to                 
  fund  the supplemental  from lapse money  and give  OM&B the                 
  incentive to find  the lapse money. There has to be a way to                 
  reward  for  the  right  kind  of  performance  rather  than                 
  continuously rewarding  for the  wrong kind of  performance.                 
  Ms.  McConnell  responded  that  a  concern brought  to  her                 
  attention by government agencies is that if they save money,                 
  they  are often  penalized  in the  appropriations  process,                 
  particularly where  there  are  across-the-board  cuts.  She                 
  stated that OM&B wants to deal  with this issue. She brought                 
  up other initiatives  that OM&B is considering:  performance                 
  budgeting;  the impact  of  program  activities  that  cross                 
  departmental lines along, the creation of inter-departmental                 
  teams within the administration to deal with issues that cut                 
  across lines, and  the provision of incentives  to eliminate                 
  duplication.     This  can   be  very   difficult  for   the                 
  commissioners  to  do this,  because  they are  facing their                 
  employees  and  the  citizen  groups  and making  some  very                 
  difficult choices.  The governor  mentioned one  of them  in                 
  particular, in  his State of the Budget  speech, relating to                 
  job training  and looking at the various places within state                 
  Co-chair  Frank  commented that  on  the committee  would be                 
  interested in  working with  OM&B on program  receipts.   He                 
  stated that different  kinds of program receipts, need to be                 
  handled differently as opposed to  lumping them all together                 
  and handling  them  all the  same. Co-chair  Frank asked  if                 
  there was any other business.   He thanked Ms. McConnell for                 
  her presentation.                                                            
  ALASKA STUDENT LOAN SUBCOMMITTEE                                             
  Co-chair Frank addressed the committee with the intention of                 
  forming a sub-committee  or a working  group to look at  the                 
  Student Loan Corporation.  He stated there is a need to come                 
  up  with  a plan  to  make  it financially  feasible  in the                 
  future.    He   appointed  Senator   Rieger  to  Chair   the                 
  subcommittee with Senators Phillips and Zharoff serving.                     
  The meeting was adjourned at approximately 10:30 a.m.                        

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