Legislature(2007 - 2008)BELTZ 211
01/25/2007 09:00 AM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB45 | |
| SB25 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 45 | TELECONFERENCED | |
| *+ | SB 7 | TELECONFERENCED | |
| *+ | SB 25 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 36 | ||
SB 25-STATE PLANNING AND BUDGET
CHAIR MCGUIRE announced the consideration of SB 25.
SENATOR FRED DYSON, Alaska State Legislature, introduced Lucky
Shultz. He said all of the members have discussed what to do
regarding a state financial plan, and SB 25 is largely Mr.
Shultz's work. This bill asks that the administration reveal a
25-year plan for Alaska's financial affairs.
9:50:43 AM
LUCKY SHULTZ, staff to Senator Dyson, said SB 25 does not make a
plan but asks the governor to create a 25-year plan. He said
that across the nation more people want to know what our
government is doing "and how we're going to take care of
issues." He noted that he has helped corporations put together
strategic plans, and many times those plans were not successful
"because we didn't know what we were doing and what we were
looking for in the future." For the past couple of years he has
heard many Alaskans ask what the state's long range plan is.
"And my response has to be, either we're not very good at
communicating what our long range plan is or we don't have a
long range plan." This bill would require the governor to report
the key elements of a long range plan, including costs and
revenues. He quoted the retired publisher of the Ketchikan Daily
News, saying Alaskans need a plan. He said Medicaid costs are
rising, and there will be huge shortfalls in retirement benefits
nationwide. He said the retirement/health care plans alone will
cost a trillion dollars across the country. He said that half of
the 500 biggest companies will lose half of their senior
managers in five years. Civil service will have trouble finding
people to run the government, he noted.
9:53:45 AM
MR. SHULTZ said the European commission has an energy efficiency
action plan to reduce energy consumption by 20 percent. Brazil
has an 80-year plan, Bp has a 50-year plan, and many Japanese
companies have 100-year plans. He showed a chart called the
gully chart of Alaska's declining oil and gas revenue. A gas
pipeline will likely take 10 years before providing revenue. The
Alaska Department of Natural Resources (DNR) provided a chart
showing a decline in oil production and revenue. He spoke of
Medicaid costs by the year 2015, "all of a sudden seniors start
escalating." He said, in 2018, seniors "surpass spending of any
other age group in Alaska." The population is aging. He noted
that, "for the first time in recent history," elderly people are
moving to Alaska. He said they are doing so for different
reasons including: to be with their children; because Alaska has
better road infrastructure now; and "partly because of the
hospitals and partly because of entertainment." Costs of
Medicaid are going up, he noted. Alaska's share of Medicaid is
going to go from $350 million to over $2 billion by 2025 because
of the growing number of seniors, the fact that seniors have
higher costs for Medicaid, Medicaid costs are going up, and the
federal government is reducing their share of Medicaid.
9:57:23 AM
MR. SHULTZ said the state needs to look ahead. By 2025 the fy08
budget allocation for health takes up almost half of all
allocations, he said, and if money for education is added, all
the other departments are squeezed even more. "How are we going
to balance our budget when education and health are consuming so
much of the budget?" he asked. He estimated there will be $10
billion needed for unfunded liabilities of Alaska's retirement
systems. He said Alaska now has $950 million in deferred
maintenance, and the University of Alaska is asking for $67
million per year for the next several years to address deferred
maintenance, "so, again, the question is, how are we going to
handle it?" SB 25 asks the governor for the projected revenues
by source and expenditures for the next 25 years and how the
budget will be balanced. He said Medicaid is just one little
element. Mr. Shultz asked what happens when expenditures are
projected to exceed revenues. He noted that the gas line is at
least ten years away, and the chart shows that Alaska already
has a problem. What happens if the revenue, like the petroleum
tax, is forestalled a year? He told the committee that Venezuela
and Brazil are planning a 7,700-mile natural gas pipeline across
South America, more than twice the size of Alaska's potential
pipeline. A shortage of steel and welders could be a problem for
Alaska. The bill asks for a debt analysis; growing debt is
serviced out of the general fund. "What is [the governor's] plan
for managing that debt? What's the strategy? Unfunded
liabilities-how much per year? Are we going to do several
hundred million dollar contributions every year? Don't know."
10:01:23 AM
MR. SHULTZ asked what actions the legislature should take, and
by when, to make the governor's plan work. The bill will become
effective on July 1, so the information will be required next
January. "It will take at least that long, and perhaps longer…to
get the information that I'm looking for in this bill." He said
that the legislature is facing unprecedented fiscal pressures as
legislatures do everywhere, and "the time for action is now."
10:02:03 AM
SENATOR BUNDE said the Department of Labor has a chart of Alaska
demographics showing the smallest cohort will be 30 to 50-year-
old workers. He asked the chart to be incorporated as it
indicates another salient factor in the need to plan ahead.
10:02:45 AM
SENATOR FRENCH said the bill is a great idea that deserves
thought, but he asked how the governor can realistically project
beyond his or her administration. "How do you get a report
that's…worth the paper it's printed on when the political
landscape changes every four years?" Income can be projected but
expenditures are politically driven, he stated.
MR. SHULTZ said no one can know costs and revenue in 25 years.
His hope is to institutionalize a presentation to the
legislature every January. If a new governor plans to change
everything, "part of this bill says your going tell us the
assumptions that you're basing these projections on." The
legislature can challenge those assumptions or not, he said. The
state can't just look at next year and hope for the best after
that. Currently the governor is required to give the legislature
a budget for one year, "and when we're looking at things like a
gas pipeline and [petroleum production tax] that impacts the
state for 20, 30, or 50 years into the future, we need to have
the full picture…to make informed decisions." If an incoming
administration changes things, the legislature can disagree
during the January briefing sessions, he stated.
10:05:23 AM
SENATOR DYSON said economics is not a dismal science and there
are good tools for analyzing. He said that the Department of
Revenue has always overestimated oil production and
underestimated oil prices. There are patterns to see when
looking back. The legislature will be asking the current
governor if her budget is sustainable at predicted oil
production and prices. He surmised that it is probably not
sustainable, so the legislature needs to ask for a plan of what
to do until the next sugar daddy shows up. This bill should help
get away from the past strategies of hope or hide. He explained
the hope strategy as a fairy godmother rescuing the state from
its financial irresponsibility. He said "all of us" are getting
more cynical about "miraculous deliverances from our own
irresponsibilities." The other strategy is to hide the impending
problems by spending the money that is political popular and
letting the next administration face "the stinky stuff in the
closet." He said problems will not be hidden under SB 25, and
the legislature and governor have to answer the question of how
the state is going to pay for expenditures.
10:08:41 AM
SENATOR STEVENS said the information will be enormously
valuable, but it seems very costly.
MR. SHULTZ said he is not going to come up with the cost, but
the departments are looking at it. Some departments will say it
is not a big deal. He said he thinks it will take at least
another full-time position. "You're making decisions for a
pipeline into several years in the future at billions and
billions of dollars; I think you need good information to make
that decision."
10:10:08 AM
SENATOR BUNDE concurs with Senator French that this might be an
exercise in smoke and mirrors. There is some value in
legislators receiving the information but better value for the
public to receive it. He said Alaskans have a variety of
opinions but the one thing he has heard consistently is that
there is too much state spending. The public has to be part of
the solution; the public demands the spending and the pork, he
stated. People are pandering to self interest and they have to
understand there are long-term consequences. He said it has been
an Alaska tradition since the gold rush days, to "come here and
make your stake and get out."
10:12:20 AM
JACK KREINHEDER, Chief Analyst, Office of Management and Budget,
said the Palin administration supports long-term fiscal
planning, which ties in with her 2008 budget proposal. Key
elements of the budget are to spend less, control government
growth, save surpluses, and live within the state's means by
keeping the FY08 budget in line with projected revenues. He said
a document created from SB 25 needs to be worth the paper it is
printed on and not an exercise that sits on the shelf collecting
dust. He noted that OMB has been involved in long-term fiscal
planning exercises over the years since the mid 1980s when oil
prices took a sharp downturn. The work needs to be done, but is
it the best use of staff time and expense? he asked.
10:15:33 AM
MR. KREINHEDER said the gully chart of long-range spending and
revenue through 2020 highlights the fact that Alaska's long-
range finances can be captured in one chart. He suggested the
state doesn't need a several hundred page report that the
legislature may not have time to read. More targeted information
may be a better use of everyone's time. A 25-year time frame is
better than 100 years, because looking into the future is risky;
the one guarantee is that it will be wrong. He said the gully
chart looked forward 13 years, which is a more reasonable, and
the added value of projecting 25 years may be minimal.
CHAIR MCGUIRE asked what time frame he would suggest.
10:18:16 AM
MR. KREINHEDER said perhaps 15 years. Once a projection gets
beyond 10 or 15 years its value declines, and the line tends to
straighten out at that point. The fiscal note recognizes that
this is not a trivial amount of work and would require some
additional staff. The work involved is tough to project, and
that is why Mr. Kreinheder provided an indeterminate note. He
said OMB would need at least one new position, but it is
difficult to know what other departments will need. The big jobs
would be the Medicaid projections for the Department of Health
and Social Services, enrollment and educational foundation
formula projections for the Department of Educations, and
projections for public facilities, which will affect six other
departments. He said he has heard some concerns from other
departments regarding the work that will be required. His
concern is figuring out the most effective use of everyone's
time and recognizing that large reports don't get read.
10:21:24 AM
MR. KREINHEDER said the gully chart showed the challenge of the
next 10 to 15 years until a gas line can be built. The governor
is committed to getting it built. The gully chart is still
accurate and the gap of declining oil production needs to be
bridged until the gas line is operating. He told the legislature
that it was important to keep the lid on spending, not spend the
state's surplus, and extend the life of the constitutional
budget reserve "so that as oil production does drop off those
funds would be available to help balance the budget.
10:22:51 AM
SENATOR BUNDE spoke of an unsustainable amount of state funding
that will put the state in "deficit mode" in two to three years.
The state will have to start living off of the savings in the
constitutional budget reserve. He said Senator Dyson called the
governor's budget transitional, and no one believes it will be
as small as the governor has projected. "Most people think that
the $150 million in savings will be very difficult to achieve,
even if we achieve that, this year's projected budget goes up
$600 million over last year." The tail begins to wag the dog if
that is the case, he said. If the gully happens, the state will
have to live off savings, and "the wisdom of putting money in
the corpus of the permanent fund, where it will be unavailable
to help bridge this gap, has to come into question."
10:24:37 AM
CHAIR MCGUIRE said this bill is more appropriate in the finance
committee, and she would like to move it. She asked about
reducing the projection to 15 years.
SENATOR DYSON said the value and credibility does decrease over
time, but it is still valuable. Each year the work will be
diminished. He said he is not wedded to 25 years, but 15 years
would be the absolute minimum. Senator Green always asks, "Why
would you do that?" This kind of information will make "all of
us ask the question: why would we do that? Why would we be
building expectations that are not sustainable?" he said. He
stated that there is good expertise in legislative finance that
will challenge all of the legislature's actions.
10:26:50 AM
CHAIR MCGUIRE moved Amendment 1. "Wherever the number 25 is,
that it be stricken and replaced with the number 15." She said
it is a starting point, and she respects OMB's opinion that the
value wavers beyond that time frame.
SENATOR GREEN said page 4 speaks of a six-year increment, and
she asked if that needs to be changed to fifteen. She noted
there is an additional six years on page 4, line 4.
MR. SHULTZ said no, that is the original six years that is
already in statute for where the sources are.
10:28:49 AM
Hearing no objections, Amendment 1 carried.
SENATOR BUNDE SENATOR moved SB 25, as amended, from committee
with individual recommendations and attached fiscal note(s).
There being no objection, CSSB 25(STA) passed out of committee.
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