Legislature(2013 - 2014)SENATE FINANCE 532

04/02/2013 06:00 PM FINANCE

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* first hearing in first committee of referral
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Scheduled But Not Heard
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Heard & Held
Moved CSSSSB 47(FIN) Out of Committee
Moved CSSB 57(FIN) Out of Committee
CS FOR HOUSE BILL NO. 30(FIN)                                                                                                 
     "An Act  relating to  performance reviews,  audits, and                                                                    
     termination   of  executive   and  legislative   branch                                                                    
     agencies,  the University  of  Alaska,  and the  Alaska                                                                    
    Court System; and providing for an effective date."                                                                         
6:19:31 PM                                                                                                                    
REPRESENTATIVE  MIKE CHENAULT,  SPONSOR, stated  that HB  30                                                                    
was an investment  in Alaska's future; it  would implement a                                                                    
review of departments and agencies  over a 10-year period to                                                                    
determine efficiencies  and effectiveness  through missions,                                                                    
measures,  and core  services.  He  referred to  legislation                                                                    
from prior years that would  have provided the Department of                                                                    
Corrections  (DOC)  budget  subcommittee with  an  audit  to                                                                    
reference  during the  current session.  He believed  it was                                                                    
impossible for  the House and  Senate Finance  Committees to                                                                    
sufficiently review and approve  a $10 billion budget during                                                                    
a  90-day  session.  He noted  that  while  budget  hearings                                                                    
during  the  interim  allowed  legislators  to  become  more                                                                    
familiar with departments, HB 30  represented an action plan                                                                    
to  make  changes  in  the   process.  He  stated  that  the                                                                    
legislature's job  was not  to micromanage  departments, but                                                                    
to ensure  that funding was  the right amount for  the right                                                                    
service  or  project, at  the  right  time, and  within  the                                                                    
state's financial means.                                                                                                        
Representative  Chenault communicated  that  the bill  would                                                                    
implement  a  review  of  department  operations  and  would                                                                    
compare  them  to  best  practices  from  other  states  and                                                                    
organizations   (e.g.   the   National  Council   of   State                                                                    
Legislatures)  in order  for the  state  to efficiently  and                                                                    
effectively  meet its  constitutional mandates.  He believed                                                                    
the  process would  significantly enhance  the legislature's                                                                    
ability  to  responsibly  handle the  state's  finances.  He                                                                    
thanked the committee for its time.                                                                                             
6:22:19 PM                                                                                                                    
SHARON KELLY, STAFF,  REPRESENTATIVE MIKE CHENAULT, directed                                                                    
attention to  back up documents  contained in  members files                                                                    
(copy  on  file).  She relayed  that  department  staff  was                                                                    
available   to   answer    questions   pertaining   to   the                                                                    
legislation.  She  shared  that  the  authority  for  sunset                                                                    
audits existed in current law  under AS 44.66; the authority                                                                    
for the sunset  of boards and commissions  existed under the                                                                    
statute. She  stated that  unfortunately the  audits related                                                                    
to  state agencies  included  dates and  the  last date  was                                                                    
1983. No cycle date had  been included; therefore, there had                                                                    
been no  authority to continue  the audits. She  referred to                                                                    
the sponsor's preparation of prior  legislation (HB 166) and                                                                    
cited advice from Legislative Legal  Services related to the                                                                    
legislative intent of the bill:                                                                                                 
     ...that there was  a need for an  effective and regular                                                                    
     system of  scrutiny of the  programs and  activities of                                                                    
     agencies  and  the  establishment of  periodic  reviews                                                                    
     would help  the governor and the  legislature determine                                                                    
     the need  for the  continued existence  of each  of the                                                                    
Ms.  Kelly  relayed  that  HB  30  revised  the  process  of                                                                    
performance reviews.  The sponsor  and staff  had referenced                                                                    
the Texas  Sunset Commission during the  bill preparation (a                                                                    
fact sheet  was included in members'  packets). She detailed                                                                    
that the  commission had been  implemented 30  years earlier                                                                    
and had staff  of 32 including senior  and regular analysts;                                                                    
the commission  had a  budget of  slightly above  $2 million                                                                    
per  year plus  reappropriations.  She  elaborated that  the                                                                    
commission had  eliminated 58 agencies and  had consolidated                                                                    
12 agencies. The commission  recommendations had saved Texas                                                                    
approximately $800 million since its establishment.                                                                             
Ms.  Kelly detailed  that a  15 percent  cut to  the current                                                                    
budget  would be  approximately  $600  million. The  sponsor                                                                    
believed HB  30 would significantly help  the legislature as                                                                    
it  began examining  necessary  reductions.  The bill  would                                                                    
establish  a performance  review process  of Alaska's  state                                                                    
departments,  which  would   measure  a  department's  work,                                                                    
efficiency,  and  effectiveness   using  objective  criteria                                                                    
including  missions, measures,  and core  services; it  laid                                                                    
out  a   systematic  10-year   continuing  review   of  each                                                                    
department, beginning with DOC.                                                                                                 
Ms. Kelly  addressed the sectional analysis  (copy on file).                                                                    
Section  1  required  the Legislative  Finance  Division  to                                                                    
identify reductions as a result  of the performance reviews.                                                                    
Sections  2  through  4 reenacted  the  performance  reviews                                                                    
under  the   Division  of   Legislative  Audit.   Section  5                                                                    
established  the  review  order of  departments.  Section  6                                                                    
outlined how  the reviews would  be conducted  including the                                                                    
establishment  of   the  review   team,  working   with  the                                                                    
departments, holding public  hearings, completing the review                                                                    
process,   presenting  a   report   confidentially  to   the                                                                    
Legislative Budget and Audit Committee  (LB&A), and lastly a                                                                    
public report to the finance  committees. Sections 7 through                                                                    
12 set an effective date of  July 1, 2013 and made technical                                                                    
amendments including definitions and appropriate repeals.                                                                       
6:26:08 PM                                                                                                                    
Senator Dunleavy  asked for  detail on  what would  occur in                                                                    
the upcoming  two years  if the bill  became law.  Ms. Kelly                                                                    
replied  that the  effective date  of the  bill was  July 1,                                                                    
2013.  The   Division  of  Legislative  Audit   would  begin                                                                    
preparing  and   beginning  in   January  DOC   would  start                                                                    
supplying information to  the review team. A  10 percent cut                                                                    
would be included  in the process and a  public review would                                                                    
occur.  Subsequently,  the  information would  move  through                                                                    
LB&A in December  and would be presented  to the legislature                                                                    
during the following session.                                                                                                   
Senator Dunleavy asked  if DOC would be  the only department                                                                    
to undergo the process in  the first year. Ms. Kelly replied                                                                    
in  the affirmative.  She elaborated  that  the Division  of                                                                    
Legislative Audit had requested  that the process begin with                                                                    
a  smaller  audit; the  following  year  the Departments  of                                                                    
Education  and  Early  Development  and  Health  and  Social                                                                    
Services  would  undergo  the   process.  Beginning  with  a                                                                    
smaller  department would  provide a  year to  work out  any                                                                    
Senator Dunleavy  surmised that the bill  would implement an                                                                    
ongoing  process  where  departments were  not  all  audited                                                                    
simultaneously.  He observed  that decisions  would be  made                                                                    
related to several departments per  year. Ms. Kelly answered                                                                    
in the affirmative.  The bill included a  10-year period for                                                                    
all  departments  to undergo  reviews.  She  noted that  the                                                                    
departments were listed in Section 6 of the legislation.                                                                        
Vice-Chair  Fairclough  pointed to  page  4  related to  the                                                                    
review order. One department had  indicated that a change in                                                                    
the review order should be  considered. She wondered how the                                                                    
order had been determined. Ms.  Kelly responded that a House                                                                    
subcommittee had reordered the list  in order to look at the                                                                    
large  departments  near  the  beginning.  The  subcommittee                                                                    
believed  the most  significant savings  would occur  in the                                                                    
large departments.                                                                                                              
Vice-Chair  Fairclough asked  whether  departments would  be                                                                    
grouped   together  for   efficiency  in   the  event   that                                                                    
individuals were  hired to  assist with  specific expertise.                                                                    
Ms.  Kelly replied  in the  affirmative.  The Department  of                                                                    
Fish   and    Game,   the   Department    of   Environmental                                                                    
Conservation, and  the Department  of Natural  Resources had                                                                    
been  grouped  together.  Additionally, the  Departments  of                                                                    
Revenue,  Public  Safety,  and  Law  had  all  been  grouped                                                                    
together for review in 2022.                                                                                                    
Senator Dunleavy  pointed to page  4 and inquired  about the                                                                    
inclusion of the foundation formula  under the Department of                                                                    
Education  and  Early  Development review.  He  surmised  it                                                                    
would  not  include  a  study   of  the  state's  53  school                                                                    
districts.  He asked  how the  foundation  formula would  be                                                                    
included. Ms.  Kelly responded  that the  foundation formula                                                                    
was put  in statute  approximately 10  to 12  years earlier.                                                                    
She furthered that  the formula would be  reviewed to ensure                                                                    
that it was working as intended.                                                                                                
6:30:43 PM                                                                                                                    
Senator  Dunleavy  believed that  in  order  to include  the                                                                    
foundation formula discussions with  all 53 school districts                                                                    
would be necessary. Ms. Kelly responded in the affirmative.                                                                     
Co-Chair  Meyer believed  that 1998  was the  last time  the                                                                    
foundation formula had been reviewed.                                                                                           
Representative  Chenault   confirmed  that   the  foundation                                                                    
formula  had  been rewritten  in  1998  under Senators  Gary                                                                    
Wilken and John Torgerson.                                                                                                      
Senator  Hoffman augmented  that special  committees of  the                                                                    
House  and   Senate  had  been  appointed   to  examine  the                                                                    
foundation formula  and substantial  changes had  been made.                                                                    
There  had  been  a look  at  cost  differential,  intensive                                                                    
needs, and the Base Student Allocation.                                                                                         
Senator   Dunleavy   asked   for   verification   that   the                                                                    
department, but not the school  districts, would be audited.                                                                    
Ms. Kelly  replied that  the school  districts would  not be                                                                    
audited. She clarified  that the process would  be a review,                                                                    
not an audit.                                                                                                                   
Co-Chair  Meyer remarked  on the  bill's  30 cosponsors.  He                                                                    
CLOSED public testimony.                                                                                                        
6:33:14 PM                                                                                                                    
Co-Chair Meyer  asked the Division  of Legislative  Audit to                                                                    
explain the  fiscal note and  the division's  involvement in                                                                    
the process.                                                                                                                    
KRIS  CURTIS, LEGISLATIVE  AUDITOR, DIVISION  OF LEGISLATIVE                                                                    
AUDIT, communicated  that the division  saw its role  in the                                                                    
process as a  facilitator; the work group  that compiled the                                                                    
bill had assigned  the review responsibility to  a team that                                                                    
would  be  facilitated  by  the  division.  She  pointed  to                                                                    
language on page  4 of the legislation  designating that the                                                                    
division would  annually ensure that  the review  team would                                                                    
conduct a  performance review  of the  appropriate programs.                                                                    
Page  4,  line 31  stated  that  the division  "shall"  hire                                                                    
individuals and  contract with individuals to  form a review                                                                    
team. The  review team would  be responsible  for conducting                                                                    
and reporting on the review  and its results. The team would                                                                    
be led  by an expert in  the field procured by  the division                                                                    
using the rules adopted by Legislative Council.                                                                                 
Ms. Curtis  continued that the  review team would be  led by                                                                    
an expert and  would also be composed  of division employees                                                                    
to  serve  as  support.   The  division  would  monitor  the                                                                    
contract to ensure that deliverables  were met. The division                                                                    
would  also facilitate  the reporting  process by  providing                                                                    
support to  the expert  in the  preparation and  delivery of                                                                    
the report to LB&A. She  clarified that the reviews under HB                                                                    
30 were not audits and  would not be conducted in accordance                                                                    
with   auditing    standards.   The   bill    provided   for                                                                    
consultant/expert reviews,  which was vastly  different than                                                                    
audits produced  by the division. She  communicated that the                                                                    
scope of the  review would be approved by  LB&A; she relayed                                                                    
that the committee would have a strong role in the process.                                                                     
6:36:04 PM                                                                                                                    
Co-Chair Meyer observed that the  reviews would be different                                                                    
than audits conducted by the  division. He asked whether the                                                                    
reviews  would conflict  the  division's  current work.  Ms.                                                                    
Curtis  answered that  the difference  between an  audit and                                                                    
the  review was  a different  level of  assurance (a  higher                                                                    
level of assurance would require  more hours and resources).                                                                    
The review  under the bill was  designed to be a  leaner and                                                                    
quicker,  which she  believed to  be  important. She  stated                                                                    
that the primary challenge for  the division would be hiring                                                                    
Co-Chair  Meyer  asked  how  the process  would  work  if  a                                                                    
problem was  located during the  review. Ms.  Curtis replied                                                                    
that the bill  specified that the scope of  the review would                                                                    
be approved  and outlined  by LB&A.  She furthered  that the                                                                    
bill  outlined  what the  department  would  be required  to                                                                    
produce  and  provide to  the  review  team. She  noted  the                                                                    
information required  by the departments was  extensive. She                                                                    
detailed that the information built  on what the departments                                                                    
were  currently  required   to  provide  legislative  budget                                                                    
subcommittees  during  session.  Departments  would  provide                                                                    
information   detailing   whether    their   programs   were                                                                    
authorized   in   statute   and/or  in   the   constitution;                                                                    
departments  would   also  prioritize  their   services  and                                                                    
recommend budget  cuts to the  review team. The  review team                                                                    
would analyze  the data  for best  practices and  would look                                                                    
for areas where  savings had been made in  other states. The                                                                    
report would  include various aspects  dictated by  the bill                                                                    
and would  be seen  first by  LB&A; it  would then  become a                                                                    
public document and would be  provided to the legislature at                                                                    
the beginning of session.                                                                                                       
6:38:55 PM                                                                                                                    
Senator Hoffman  asked whether the provision  related to the                                                                    
foundation formula had been included  in the Texas model. He                                                                    
observed  that  any changes  to  the  formula would  require                                                                    
legislation. He was  unsure how the formula fit  in with the                                                                    
review process unless school district input was included.                                                                       
Ms.   Curtis  replied   that  during   discussions  on   the                                                                    
legislation  there  had  been concern  that  the  foundation                                                                    
formula  would  be  excluded  in  the  review  process.  She                                                                    
surmised that the  formula had been included  in response to                                                                    
the concern.                                                                                                                    
Ms. Kelly  supplemented that the foundation  formula was one                                                                    
of the  largest budgets in  the state; it had  been included                                                                    
by  the House  in  response  to concern  that  it should  be                                                                    
reviewed. The review  team would determine how  in depth the                                                                    
formula  would be  examined. She  believed  the review  team                                                                    
would contact school districts.  She furthered that the team                                                                    
may  look  to  other  states  as  examples  and  would  make                                                                    
recommendations, which could be extensive or minimal.                                                                           
Senator Hoffman  asked whether states  other than  Texas had                                                                    
been reviewed during the development  of the bill. Ms. Kelly                                                                    
responded that  some other states had  less extensive sunset                                                                    
reviews; however, only Texas had been looked to as a model.                                                                     
6:41:28 PM                                                                                                                    
Vice-Chair Fairclough  spoke from  her position as  the LB&A                                                                    
chair.   The   committee   had  recently   reviewed   agency                                                                    
performances under  the prior year's  audit and  had located                                                                    
multiple places  where departments  had not  addressed audit                                                                    
findings. She stated that the  bill would be another vehicle                                                                    
to highlight  information located by auditors.  She wondered                                                                    
whether the sponsor  or auditor had questions  about how the                                                                    
items would be highlighted.                                                                                                     
Ms. Curtis  replied that the  bill would require  the review                                                                    
team  to consider  the department's  progress in  addressing                                                                    
findings. She stated that the  bill could be considered as a                                                                    
follow up to findings.                                                                                                          
Ms. Kelly communicated that the  provision had been included                                                                    
in  the  bill  in  response  to  frustration  by  the  prior                                                                    
legislative auditor that the departments  did not respond to                                                                    
some findings.                                                                                                                  
Co-Chair  Meyer discussed  the  schedule  for the  following                                                                    
HB  30  was   HEARD  and  HELD  in   committee  for  further                                                                    

Document Name Date/Time Subjects
SB 47 work draft version G.pdf SFIN 4/2/2013 6:00:00 PM
SB 47
SB 57 work draft version P.pdf SFIN 4/2/2013 6:00:00 PM
SB 57
CSSSSB047(FIN)-EED-K12-4-3-13 (2).pdf SFIN 4/2/2013 6:00:00 PM
SB 47