Legislature(2005 - 2006)HOUSE FINANCE 519

03/14/2005 01:30 PM House FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SJR 6 FEDERAL MEDICAL ASSISTANCE REDUCTION
Moved HCS SJR 6(FIN) Out of Committee
HB 155 USE CRIMINAL FINES FOR YOUTH COURTS
Heard & Held
= SB 98 FAST TRACK SUPPLEMENTAL APPROPS/CBRF
Heard & Held
Bills Previously Heard/Scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 14, 2005                                                                                           
                         1:41 p.m.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 1:41:58 PM.                                                                                                          
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Eric Croft                                                                                                       
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Mike Kelly                                                                                                       
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Senator   Gary   Wilken;   Joel   Gilbertson,   Commissioner,                                                                   
Department  of  Health  &  Social  Services;  Sarah  Nielson,                                                                   
Staff, Representative  Ralph Samuels;  Patty Ware,  Director,                                                                   
Division  of  Juvenile  Justice,  Department  of  Health  and                                                                   
Social Services;  Bob Bartholomew,  Chief Operating  Officer,                                                                   
Alaska  Permanent Fund  Corporation,  Department of  Revenue;                                                                   
Linda   Perez,    Administrative   Director,    Division   of                                                                   
Administrative  Services,  Office   of  the  Governor;  Janet                                                                   
Clark,  Assistant  Commissioner,   Division  of  Finance  and                                                                   
Management   Services,  Department   of  Health  and   Social                                                                   
Services;   Deb  Erickson,  Deputy Director,  Public  Health;                                                                   
David  Marquez,  Assistant Attorney  General,  Department  of                                                                   
Law;  Cheryl  Frasca,  Director,  Division  of  Management  &                                                                   
Budget,  Office  of the  Governor;  Susan  Taylor,  Director,                                                                   
Division of  Administrative Services, Department  of Revenue;                                                                   
Joan Brown,  Chief Budget Analyst,  Office of  Management and                                                                   
Budget, Office of the Governor                                                                                                  
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Jonathon Lack, Anchorage Youth Court                                                                                            
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SJR 6     Relating to a reduction in the Federal Medical                                                                        
          Assistance Percentage for Alaskans, and urging the                                                                    
          United  States Congress to  take action  to prevent                                                                   
          the reduction.                                                                                                        
                                                                                                                                
          HCS SJR 6 was REPORTED out of Committee with a "do                                                                    
          pass"  recommendation  and  with four  zero  fiscal                                                                   
          notes  from  the Department  of  Health and  Social                                                                   
          Services.                                                                                                             
                                                                                                                                
HB 155    "An Act relating to youth courts and to the                                                                           
          recommended  use  of  criminal  fines to  fund  the                                                                   
          activities   of  youth  courts;  and   relating  to                                                                   
          accounting for criminal fines."                                                                                       
                                                                                                                                
          CSHB 155 (JUD) was heard  and HELD in Committee for                                                                   
          further consideration.                                                                                                
                                                                                                                                
CSSB 98(FIN) am                                                                                                                 
                                                                                                                                
          "An   Act   making   supplemental   appropriations,                                                                   
          capital  appropriations, and other  appropriations;                                                                   
          amending  appropriations; making appropriations  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."                                                                           
                                                                                                                                
          CSSB 98  (FIN) am was  heard and HELD  in Committee                                                                   
          for further consideration.                                                                                            
                                                                                                                                
1:42:10 PM                                                                                                                    
SENATE JOINT RESOLUTION NO. 6                                                                                                 
                                                                                                                                
     Relating   to  a  reduction   in  the  Federal   Medical                                                                   
     Assistance  Percentage  for  Alaskans,  and  urging  the                                                                   
     United  States Congress  to take  action to prevent  the                                                                   
     reduction.                                                                                                                 
                                                                                                                                
SENATOR GARY WILKEN, CO-CHAIR, SENATE FINANCE, read the                                                                         
sponsor statement for SJR 6:                                                                                                    
                                                                                                                                
     Senate  Joint  Resolution  6  urges  federal  action  to                                                                   
     maintain the  current level  of federal funding  for the                                                                   
     state's  Medicaid  program.    The  U.S.  Department  of                                                                   
     Health and  Human Services  recently announced  that the                                                                   
     federal share  of the medical assistance  program, known                                                                   
     as  the Federal  Medical  Assistance Percentage  (FMAP),                                                                   
     will be reduced by 7.58% on October 1, 2005.                                                                               
                                                                                                                                
     The   reduction  in   the   FMAP  will   result  in   an                                                                   
     approximately  $53  million  loss  in  federal  Medicaid                                                                   
     dollars in  fiscal year 2006  and $73 million  in fiscal                                                                   
     year 2007.                                                                                                                 
                                                                                                                                
     It  is   imperative  that   Congress  and  the   federal                                                                   
     administration  know and  understand the reasons  behind                                                                   
     the high level  of health care costs in  Alaska.  Senate                                                                   
     Joint Resolution  6 requests Congress to  take action to                                                                   
     correct the  formula flaw that resulted  in the proposed                                                                   
     substantial   FMAP  reduction   and  to  take   whatever                                                                   
     measures  necessary  to hold  Alaska  harmless from  the                                                                   
     reduction in  the Federal Medical Assistance  Percentage                                                                   
     for Alaska.                                                                                                                
                                                                                                                                
     Please join  me in support of our state  Medical program                                                                   
     and endorse Senate Joint Resolution 6.                                                                                     
                                                                                                                                
1:44:33 PM                                                                                                                    
                                                                                                                                
Representative   Weyhrauch  asked   how   7.58  percent   was                                                                   
determined and if it only applies  to Alaska.  Senator Wilken                                                                   
deferred to Commissioner Gilbertson.                                                                                            
                                                                                                                                
JOEL GILBERTSON, COMMISSIONER,  DEPARTMENT OF HEALTH & SOCIAL                                                                   
SERVICES, explained that the Medicaid  program, a partnership                                                                   
between state and federal government,  was created in 1965 to                                                                   
provide  health care coverage  and to  reimburse some  social                                                                   
services,  primarily for  needy and  low income  populations.                                                                   
Each  state has  its  own Medicaid  "match  rate" or  Federal                                                                   
Medical Assistance Percentage  (FMAP).  The formula was based                                                                   
on a state's per capita income  over a certain period of time                                                                   
and the national  per capita average. Mississippi  has always                                                                   
received the  highest level of  federal support, which  is 80                                                                   
percent.    The  lowest  amount  of  federal  support  is  50                                                                   
percent, which  is what Alaska  paid until 1997  when Senator                                                                   
Frank Murkowski had  the amount adjusted to  slightly over 40                                                                   
percent  for  three  years,  bringing   in  $100  billion  in                                                                   
additional  federal   support.    Senator   Murkowski  passed                                                                   
further legislation, a five-year  extension, which brought in                                                                   
an additional $200 billion in federal support.                                                                                  
                                                                                                                                
Commissioner  Gilbertson noted that  the Medicaid  match rate                                                                   
is not paid on  every claim.  A sizeable percent  of Medicaid                                                                   
volume goes through services provided  to Alaska Natives in a                                                                   
Native non-profit  638 or in an Indian Health  Services (IHS)                                                                   
compacted  facility, which  are  reimbursed  at 100  percent.                                                                   
The expiration  of the five-year Medicaid adjustment  is Oct.                                                                   
1,  2005,  and  Alaska's per  capita  income  has  increased.                                                                   
Those  two   factors  plus   the  fact   that  there   was  a                                                                   
recalculation of  how to determine  per capita  income, which                                                                   
involves  including  employer   contributions  to  retirement                                                                   
plans  as income earned,  have  led to a  great reduction  in                                                                   
Alaska's  Medicaid match  support  from 57.58  percent to  50                                                                   
percent.                                                                                                                        
                                                                                                                                
Commissioner  Gilbertson maintained  that  the reason  Alaska                                                                   
was so successful in getting Medicaid  match reductions twice                                                                   
before is  because the formula  is fundamentally flawed.   It                                                                   
looks solely at per capita income  and does not consider cost                                                                   
of delivering  health care, which is exponentially  higher in                                                                   
Alaska.   He suggested that  the formula should  reflect this                                                                   
higher  cost.    Senate  Joint   Resolution  6  encourages  a                                                                   
resolution to hold Alaska harmless  this year and work toward                                                                   
a solution.                                                                                                                     
                                                                                                                                
1:52:08 PM                                                                                                                    
                                                                                                                                
Commissioner Gilbertson  related that the impact  on the next                                                                   
fiscal  year would  be  a loss  of  $53 million  of  Medicaid                                                                   
support, which would have to be  replaced by general funds or                                                                   
by service  reductions.   The impact  on FY  2007 would  be a                                                                   
loss  of $73  million.   Over the  next ten  years the  total                                                                   
impact would  be $914  million.  He  noted that other  states                                                                   
are  affected, but  not by  as  much.   Wyoming's match  rate                                                                   
drops by three points.  He concluded  that Alaska's reduction                                                                   
is unprecedented in history.                                                                                                    
                                                                                                                                
Representative Hawker  referred to the chart  "Impact of FMAP                                                                   
Reduction on State Match" (copy  on file.) He argued that the                                                                   
impact of  reduction is understated  because a  linear growth                                                                   
trend for Medicaid expenditures  is being used.  He suggested                                                                   
that growth  rate has  been exponential  rather than  linear.                                                                   
Commissioner  Gilbertson  agreed  that  it  is  difficult  to                                                                   
predict  growth rate in  the Medicaid  program because  there                                                                   
are moving  targets such  as population  changes.   He called                                                                   
this chart "our  best guess" at projections.   Representative                                                                   
Hawker noted legislators could  also exacerbate the situation                                                                   
with further  additions to the  program such as  adult dental                                                                   
care.  Commissioner  Gilbertson responded that  he personally                                                                   
supports  the  dental  care  policy  and  other  preventative                                                                   
programs.  He concluded that it  is fair to say reductions in                                                                   
Medicaid programs could lead to  increases in services by the                                                                   
state outside of Medicaid.                                                                                                      
                                                                                                                                
1:56:08 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  observed  that  the  federal  formula                                                                   
includes  personal income  levels and  as incomes  go up  the                                                                   
willingness  to match  goes  down.   The  assumption is  that                                                                   
state income has  increased as the per capita  has increased,                                                                   
which  is  true  everywhere  except   Alaska.    Commissioner                                                                   
Gilbertson  responded  that  the   formula  is  fundamentally                                                                   
flawed; the cost  of delivery and care has to  be included in                                                                   
it.                                                                                                                             
                                                                                                                                
Representative Croft mentioned  a recent trip to Bethel where                                                                   
members  of the committee  met  with the head  of the  Yukon-                                                                   
Kuskokwim  Health  Corporation  (YKHC).    They  visited  the                                                                   
Bethel prenatal  center, recently  taken over by  YKHC, which                                                                   
now gets  100 percent Medicaid  match.  There  was discussion                                                                   
about other areas  where that same percentage  of match could                                                                   
be   received.     He   asked   about  the   advantages   and                                                                   
disadvantages  of  moving from  partial  to  full funding  of                                                                   
Medicaid and why it is not done more often.                                                                                     
                                                                                                                                
Commissioner   Gilbertson   explained   that   Mr.   Peltola,                                                                   
President and CEO of YKHC, helped  to set up a planning group                                                                   
and  management  team  to  move   such  integration  projects                                                                   
forward in his  region.  They found that a number  of service                                                                   
delivery providers  were not eligible to receive  100 percent                                                                   
reimbursement from Medicaid.   He explained the Native Health                                                                   
Care   Improvement   Act,   which    allows   Native-operated                                                                   
facilities to bill  for services under Medicaid.   He related                                                                   
the benefits  for dual eligibility.    He noted that  a large                                                                   
portion of the current Medicaid  claim volume for services to                                                                   
Alaska Natives  goes outside of  the IHS system and  can only                                                                   
be reimbursed under  the base rate.  He stressed  that he has                                                                   
had a number  of dialogues with Alaska Native  Health Care to                                                                   
try to  built up  its system  and not  create a new,  general                                                                   
fund responsibility.   An effort  was made, with the  help of                                                                   
MR. Peltola, to  move all services under the  umbrella of one                                                                   
Native  Health  Corporation.     He  pointed  out  downstream                                                                   
benefits:  elimination of  a wait  list, increased  services,                                                                   
and general fund  savings.  He suggested that  integration of                                                                   
these  services is  a strong  opportunity  to strengthen  the                                                                   
system and save  money, but there has to be  consensus at the                                                                   
community level.  He concluded  that more opportunities would                                                                   
be  found  in rural  regions  where  there are  large  Alaska                                                                   
Native  populations and  strong  native health  corporations,                                                                   
plus local consensus.                                                                                                           
                                                                                                                                
2:05:44 PM                                                                                                                    
                                                                                                                                
Representative  Croft  asked  if  any  Alaskan  Native  could                                                                   
obtain this service and why there  would be a wait list.  Mr.                                                                   
Gilbertson replied  that the  service has to  be in  a region                                                                   
where there is a qualified Native  provider.  There has to be                                                                   
a  "dual eligible  served  by  a 638"  in  order  to get  100                                                                   
percent  reimbursement.   He pointed  out  that currently  40                                                                   
percent  of Medicaid beneficiaries  are  Alaska Native.   The                                                                   
challenge  is that  there is  no integrated  managed care  in                                                                   
this  state and  individuals  can go  wherever  they want  to                                                                   
receive health service.  He pointed  out that there is a need                                                                   
to expand services.                                                                                                             
                                                                                                                                
Commissioner   Gilbertson   informed   the   committee   that                                                                   
currently  there is  a  dispute between  the  states and  the                                                                   
federal  government   concerning   the  Native  Health   Care                                                                   
Improvement  Act.    The  Department  of  Health  and  Social                                                                   
Services believes  that Congress intended the  language which                                                                   
states,  "services  provided  through  an  IHS  facility  are                                                                   
reimbursed at 100 percent FMAT"  to also include referral and                                                                   
contract.     He  provided   examples  of  the   department's                                                                   
interpretation of the intended  language.  Greater clarity of                                                                   
this language  would make  it easier  to collect 100  percent                                                                   
reimbursement  because then  contract  and referral  networks                                                                   
could deliver the services.  Representative  Croft clarified,                                                                   
in that case,  the individual would go to the  facility, even                                                                   
if it  were not an Indian  Health provider, be  referred, and                                                                   
then be able to receive full Medicaid reimbursement.                                                                            
                                                                                                                                
2:11:29 PM                                                                                                                    
                                                                                                                                
Representative  Croft asked Commissioner  Gilbertson  to talk                                                                   
to  the  sponsor  about  encouraging  clarification  of  that                                                                   
language  before  the  resolution   goes  to  Congress.    He                                                                   
inquired  if  it   would  be  best  to  do   a  Congressional                                                                   
resolution   or   a  judicial   resolution.      Commissioner                                                                   
Gilbertson replied  that the Medicaid  match rate  is statute                                                                   
and will  not be handled  by the courts.   He opined  that it                                                                   
would  be resolved  by an  act of  Congress with  Congressman                                                                   
Young's help.                                                                                                                   
                                                                                                                                
2:13:46 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer asked if an Alaska  Native could choose either                                                                   
an  Alaska  Native  Hospital   or  Providence  Hospital  when                                                                   
medical services are the same.   Commissioner Gilbertson said                                                                   
that  is  correct.    The  state   does  not  manage  service                                                                   
delivery;  it   authorizes  the  service  and   licenses  the                                                                   
providers.                                                                                                                      
                                                                                                                                
2:15:07 PM                                                                                                                    
                                                                                                                                
Co-Chair Meyer closed public testimony.                                                                                         
                                                                                                                                
Representative  Weyhrauch  referred   to  line  11,  page  2,                                                                   
"gasoline prices  in much of rural  Alaska are close  to $6 a                                                                   
gallon" and  opined that gas is  expensive in other  areas of                                                                   
Alaska, as well.  He MOVED to  ADOPT Amendment 1, which would                                                                   
delete  "are"  and  substitute  "can be".    There  being  NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
Representative  Foster  MOVED  to report  HCR  SJR  6 out  of                                                                   
Committee,  as amended,  with  the accompanying  zero  fiscal                                                                   
notes.                                                                                                                          
                                                                                                                                
HCS SJR  6 was REPORTED  out of Committee  as amended  with a                                                                   
"do  pass" recommendation  and  with four  zero fiscal  notes                                                                   
from the Department of Health and Social Services.                                                                              
                                                                                                                                
2:17:29 PM                                                                                                                    
                                                                                                                                
At ease.                                                                                                                        
                                                                                                                                
2:21:21 PM                                                                                                                    
HOUSE BILL NO. 155                                                                                                            
                                                                                                                                
     "An Act relating to youth  courts and to the recommended                                                                   
     use of  criminal fines to  fund the activities  of youth                                                                   
     courts; and relating to accounting  for criminal fines."                                                                   
                                                                                                                                
SARAH   NIELSON,   STAFF,   REPRESENTATIVE   RALPH   SAMUELS,                                                                   
explained that  HB 155 gives  authority to appropriate  up to                                                                   
25 percent of the fines collected  by the Alaska Court System                                                                   
to fund  youth courts.   She related  that youth  courts help                                                                   
young offenders by intervening  early to help set them on the                                                                   
right  track,   and  to  deter   them  from  becoming   adult                                                                   
offenders.  The  Anchorage Youth Court, the  oldest in Alaska                                                                   
was established  in 1989.  In  the first two quarters  of the                                                                   
current  fiscal  year there  have  been 471  youth  offenders                                                                   
referred to these programs, which  has resulted in over 8,800                                                                   
hours of  community service,  and $7,500  in restitution  has                                                                   
been  ordered.    She  explained  that  HB  155  provides  an                                                                   
accounting  mechanism for  the legislature  to give  money to                                                                   
the youth courts.  The committee  substitute (CS) was written                                                                   
in House Judiciary  to address concerns of the  court system.                                                                   
An amendment  deleted specific  language giving United  Youth                                                                   
Courts the money.                                                                                                               
                                                                                                                                
Representative Croft  asked about a change in  the wording on                                                                   
page  11,  "distribution  to  youth  courts".    Ms.  Nielson                                                                   
replied it used to say "the United Youth Courts".                                                                               
                                                                                                                                
In response to a question by Vice-Chair  Stoltze, Ms. Nielson                                                                   
asked  Mr. Lack  to  address the  issue of  the  lack of  the                                                                   
victim's participation in the process.                                                                                          
                                                                                                                                
2:25:45 PM                                                                                                                    
                                                                                                                                
PATTY   WARE,  DIRECTOR,   DIVISION   OF  JUVENILE   JUSTICE,                                                                   
DEPARTMENT OF HEALTH AND SOCIAL  SERVICES, stated support for                                                                   
the  bill and  offered to  answer questions.  She noted  that                                                                   
youth  courts  handle,  in a  timely  and  effective  manner,                                                                   
between 10 and 15 percent of the  delinquency cases that come                                                                   
to the Department of Health and Social Services.                                                                                
                                                                                                                                
2:27:35 PM                                                                                                                    
                                                                                                                                
At ease.                                                                                                                        
                                                                                                                                
2:28:13 PM                                                                                                                    
                                                                                                                                
JONATHON   LACK,  ANCHORAGE   YOUTH   COURT,  testified   via                                                                   
teleconference  in support  of the  legislation. He  stressed                                                                   
the importance of youth courts  and noted that the bill would                                                                   
provide  an  accounting mechanism  for  them.   He  spoke  in                                                                   
support of HB 155.                                                                                                              
                                                                                                                                
Co-Chair Meyer  asked how  many youth  courts are in  Alaska.                                                                   
Representative Foster replied 14.                                                                                               
                                                                                                                                
HB  155  was   heard  and  HELD  in  Committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
2:32:28 PM                                                                                                                    
                                                                                                                                
At Ease                                                                                                                         
                                                                                                                                
2:37:59 PM                                                                                                                    
CS FOR SENATE BILL NO. 98(FIN) am                                                                                             
                                                                                                                                
     "An  Act  making  supplemental  appropriations,  capital                                                                   
     appropriations,   and  other  appropriations;   amending                                                                   
     appropriations;  making   appropriations  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."                                                                                                        
                                                                                                                                
Sections 7(a) - 7(e)                                                                                                            
                                                                                                                                
     Appropriations associated  with the Natural Gas Pipeline                                                                   
                                                                                                                                
BOB BARTHOLOMEW,  CHIEF OPERATING  OFFICER, ALASKA  PERMANENT                                                                   
FUND  CORPORATION,   DEPARTMENT  OF  REVENUE,   responded  to                                                                   
questions regarding the use of  permanent fund receipts.  The                                                                   
Board  does  not  take  a  position  on  the  expenditure  of                                                                   
permanent fund  earnings. The  Board manages the  investments                                                                   
and it is  the Legislature's prerogative on  how the earnings                                                                   
are used. The Corporation does  recommend that any use of the                                                                   
earnings stay  within the annual sustainable  earnings of the                                                                   
Fund, which is 5% of its value.                                                                                                 
                                                                                                                                
Mr.  Bartholomew spoke  to  corporate receipts.  He  observed                                                                   
that receipts  are used to  fund the Corporation's  operating                                                                   
budget (the  cost of investment  management). There  has been                                                                   
an additional  use of  receipts to  cover costs relating  (in                                                                   
some sense) to the collection  of royalty revenues. The Board                                                                   
accounts for, but has no comment on this use.                                                                                   
                                                                                                                                
Mr.  Bartholomew  noted  that the  designation  of  corporate                                                                   
receipts   is  important  from   the  investment   management                                                                   
prospective.  The  designation  allows  expenditures  of  the                                                                   
investment revenues, before calculating  the amount available                                                                   
for  distribution.  Corporation   receipts  come  from  gross                                                                   
revenues,  not the  Earnings Reserve  Account.   He  observed                                                                   
that  $64 million  dollars designated  as corporate  receipts                                                                   
have been  spent out of  the Fund, which  did not  pertain to                                                                   
the cost of  managing the Fund. Mr. Bartholomew  commented on                                                                   
the difference  between  what is accounted  for as  corporate                                                                   
receipts and what comes out of  the Earnings Reserve Account.                                                                   
Corporate receipts  come "up stream", out of  revenues, minus                                                                   
expenditures. The  determination of net income  goes into the                                                                   
statutory formulas  for what  is available for  distribution:                                                                   
50 percent  of which goes  to dividends.  Other  expenditures                                                                   
would have to be clarified as  to whether they are coming out                                                                   
of  the  Earnings  Reserve  Account or  "up  stream"  out  of                                                                   
corporate receipts.                                                                                                             
                                                                                                                                
Representative  Croft   asked  if  it  would   affect  future                                                                   
calculations of  available distributions, which  would affect                                                                   
the dividend. Mr. Bartholomew  observed that anytime money is                                                                   
taken out of the Permanent Fund,  it affects future earnings.                                                                   
                                                                                                                                
Representative   Croft  asked  if   the  $7  million   dollar                                                                   
diversion of  monies affected  the dividend. Mr.  Bartholomew                                                                   
stated that they had not.                                                                                                       
                                                                                                                                
Representative  Hawker thought that  the affect on  dividends                                                                   
would be .85  cents after five years. Mr.  Bartholomew agreed                                                                   
that  the  estimate  would  be  in  the  "ball  park"  range.                                                                   
Representative  Croft  asked  the Department  of  Revenue  to                                                                   
provide an estimate. Mr. Bartholomew agreed.                                                                                    
                                                                                                                                
2:45:12 PM                                                                                                                    
                                                                                                                                
Co-Chair Chenault  questioned if the investments,  over time,                                                                   
would  help bolster  the Fund.  Mr.  Bob Bartholomew  replied                                                                   
that  there are  two lines  that show  the expenditures:  the                                                                   
costs  of  investment management  and  other  appropriations,                                                                   
which  relate  to  royalty  payments.  He  observed  that  25                                                                   
percent of royalty  payments go into the Permanent  Fund. The                                                                   
Fund  has  received  approximately   $7  billion  in  royalty                                                                   
payments. Any  increase in royalties  would correspond  to an                                                                   
increase in the Permanent Fund.                                                                                                 
                                                                                                                                
In  response  to  a  question   by  Vice-Chair  Stoltze,  Mr.                                                                   
Bartholomew discussed  sources of oil revenue.  He noted that                                                                   
the  three   largest  are:   royalties,  severance   tax  and                                                                   
corporate income  tax.  Royalties  are the primary  source of                                                                   
the Permanent  Fund's deposit  from mineral income.  The Fund                                                                   
does  not receive  a share  of  corporate income  tax or  the                                                                   
severance tax.                                                                                                                  
                                                                                                                                
In  response to  a question  by  Representative Stoltze,  Mr.                                                                   
Bartholomew noted  that the Board  of Trustees has  a neutral                                                                   
position on the use of earnings.                                                                                                
                                                                                                                                
2:48:48 PM                                                                                                                    
                                                                                                                                
In response  to a question  by Representative  Weyhrauch, Mr.                                                                   
Bartholomew reiterated  that corporate  receipts come  out of                                                                   
the revenues  of the investment.  Statutes determine  what is                                                                   
available for appropriation from  the Fund and are determined                                                                   
"downstream" as the net income.  The net income goes into the                                                                   
formula  adopted  by  statute,  which leads  to  a  five-year                                                                   
average. Currently,  50 percent  of this  amount goes  to the                                                                   
dividend.   Corporate receipts don't  have a limit.  They are                                                                   
an  appropriation of  gross  revenues of  investment  income.                                                                   
Earnings  go through  the Earnings  Reserve  Account and  are                                                                   
either   subject  to   the  statutory   formula.  Under   the                                                                   
Constitution   all  of   the  earnings   are  available   for                                                                   
appropriation.                                                                                                                  
                                                                                                                                
2:50:56 PM                                                                                                                    
                                                                                                                                
Representative Kelly referred  to the $64 million [spent from                                                                   
the  Fund] not  related to  the management  of the  Permanent                                                                   
Fund.                                                                                                                           
                                                                                                                                
Mr. Bartholomew  reviewed expenditures. Money has  been spent                                                                   
from the Permanent  Fund for the cost of the  Corporation and                                                                   
costs of investments. Corporate  receipts have also been used                                                                   
for  three  agencies.  He  observed   that  $65  million  was                                                                   
appropriated  between 1989 to  2004: Department  of Law  - 70                                                                   
percent, Department  of Natural  Resources - 15  percent, and                                                                   
Department of  Revenue - 5  percent. The Department  of Law's                                                                   
funding  was   related  to  litigation  on   settlements.  In                                                                   
addition,  $13 billion  has been  appropriated  based on  the                                                                   
statutory formula leading to the  dividend fund distribution:                                                                   
$12.5 to dividends and $480 million  for various programs. He                                                                   
discussed  some of the  programs funded.  The Permanent  Fund                                                                   
Division  receives  costs  associated  with  the  payout  ($5                                                                   
million  a  year).  The  Department   of  Health  and  Social                                                                   
Services'  has a Hold  Harmless Program.  The Departments  of                                                                   
Public  Safety  and Corrections  receive  dividends  withheld                                                                   
from felons. There is also a small amount to legislature.                                                                       
                                                                                                                                
Representative Croft questioned  if expenditures have settled                                                                   
to a yearly average.  Mr. Bartholomew  observed that the peak                                                                   
was  in the  late 1980's  and early  1990's, due  to a  large                                                                   
level  of  litigation.  In  1994,  $10  million  dollars  was                                                                   
withdrawn. There was $5.5 withdrawn  in 2004 and $6.8 million                                                                   
withdrawn  in 2005.  The FY  05 supplemental  request is  for                                                                   
another $6 million.  Representative Croft concluded  that the                                                                   
FY05  upstream  intake  would  be  doubled.  Mr.  Bartholomew                                                                   
agreed and pointed out that expenditures  are associated with                                                                   
the  proposed natural  gas  pipeline.   Representative  Croft                                                                   
pointed out  that the Permanent  Fund receives 25  percent of                                                                   
the royalty  and lease, not 25  percent of the  oil revenues.                                                                   
He thought  the percentage  [of oil  revenue received  by the                                                                   
Fund] would be closer to 10 percent.                                                                                            
                                                                                                                                
2:55:42 PM                                                                                                                    
                                                                                                                                
Vice-Chair Stoltze asked how much  the hold harmless draw is.                                                                   
Mr. Bartholomew  noted that the  draw has been  between $15.4                                                                   
and $15.9  million in the last  two years. He added  that any                                                                   
allocations that come  out of the Dividend Fund  would go out                                                                   
in dividends if they were not otherwise expended.                                                                               
                                                                                                                                
Representative Kelly  observed that the public  has indicated                                                                   
that dividends  should not be  touched and expressed  concern                                                                   
with the  appropriation in the  fast track. He did  not think                                                                   
the approach was "straight up".                                                                                                 
                                                                                                                                
2:58:58 PM                                                                                                                    
                                                                                                                                
Section 8 (a)                                                                                                                   
                                                                                                                                
     ANWR      Total $500                                                                                                       
                                                                                                                                
     Funds for support  of national efforts to  open ANWR for                                                                   
     oil and gas exploration and development                                                                                    
                                                                                                                                
LINDA   PEREZ,    ADMINISTRATIVE   DIRECTOR,    DIVISION   OF                                                                   
ADMINISTRATIVE  SERVICES, OFFICE  OF THE  GOVERNOR, spoke  in                                                                   
support  of   the  appropriation.  The  Senate   removed  the                                                                   
original language,  which would  have appropriated  the grant                                                                   
directly to  Arctic Power.  The Administration has  requested                                                                   
that  the language  be  restored.  Without the  language  the                                                                   
Administration  would  have  to  go  through  a  request  for                                                                   
proposals. She stressed that a  direct grant would be faster.                                                                   
The  version before  the  Committee  would provide  a  direct                                                                   
appropriation  to the  Office  of the  Governor, without  any                                                                   
mention of Arctic Power.                                                                                                        
                                                                                                                                
Representative Hawker  observed that the  appropriation would                                                                   
be subject to  the state of Alaska's procurement  code, which                                                                   
would require competitive contracting,  as opposed to a named                                                                   
recipient grants,  which would  be recognized instantly.  Ms.                                                                   
Perez agreed and noted that it would add to the timeframe.                                                                      
                                                                                                                                
Representative Kelly referred  to an earlier discussion about                                                                   
Arctic  Power and  the  change in  staff.  He questioned  the                                                                   
intent in the deletion [of Arctic  Power] by the Senate.  Ms.                                                                   
Perez noted that the change occurred  as a result of a Senate                                                                   
floor amendment; he could not speak to the intent.                                                                              
                                                                                                                                
Section 9 (a) Alaskan Pioneer Homes: Pioneer Homes                                                                              
                                                                                                                                
     Replacing  unrealizable   federal  Medicaid  funds  with                                                                   
     receipt supported  services.   Lower receipts is  due to                                                                   
     the  voluntary  nature  of   residents  signing  up  for                                                                   
     Medicaid.                                                                                                                  
                                                                                                                                
     (1,200.0) 1,200.0  Receipt Supported Services 0.0                                                                          
                                                                                                                                
Section 9 (b) Health & Soc Srvcs Behavioral Health:                                                                             
                                                                                                                                
     Behavioral Health Medicaid  Svc Medicaid caseload growth                                                                   
     above FY 05 budget projections.   At current expenditure                                                                   
     rate, the  existing appropriation will be  gone in April                                                                   
     or May.                                                                                                                    
                                                                                                                                
     $2,653.7  General Fund    $3,517.7 Federal Funds                                                                           
     $6,171.4 Total funds                                                                                                       
                                                                                                                                
JANET CLARK, ASSISTANT COMMISSIONER,  DIVISION OF FINANCE AND                                                                   
MANAGEMENT   SERVICES,  DEPARTMENT   OF  HEALTH  AND   SOCIAL                                                                   
SERVICES,  explained that  there  was no  change to  sections                                                                   
9(a) or 9(b)  on the Senate side.  She noted that the  in the                                                                   
FY05   budget  the   department  began   to  purse   Medicaid                                                                   
eligibility for residents  of the pioneer homes.  There was a                                                                   
slower,  than  anticipated,  ability to  earn  these  federal                                                                   
receipts.  However, there  has been an  increase in  receipts                                                                   
paid by residents for a net zero in funding.                                                                                    
                                                                                                                                
3:04:28 PM                                                                                                                    
                                                                                                                                
Section 9 (c) Health & Social  Services Health Care Services:                                                                   
                                                                                                                                
     Women's  and  Adolescents  Services Feds  reduced  FFY05                                                                   
     funding  in the  Breast  and Cervical  Cancer  screening                                                                   
     program. The  fund source change will allow  services to                                                                   
     1600 enrolled  women that otherwise would  not be served                                                                   
     due  to  federal  funding  reductions.   Funds  will  be                                                                   
     required by  late March or  early April to  continue the                                                                   
     program.                                                                                                                   
                                                                                                                                
     $500.0 GF  (500.0) 0.0                                                                                                     
                                                                                                                                
Ms. Clark apologized for a miscommunication,  which indicated                                                                   
that  the Department  had  received  a reduction  in  federal                                                                   
funds from FY04 to FY05. Federal  money has not been reduced.                                                                   
There was  a misunderstanding  between the program  staff and                                                                   
the budget staff.   The program had applied  for an increased                                                                   
federal  allocation. When  the increase  did not occur,  they                                                                   
perceived it as  a reduction. The FY05 federal  allocation is                                                                   
$1.9 million, the same as FY04.                                                                                                 
                                                                                                                                
Ms.  Clark clarified  that without  the supplemental  request                                                                   
the department  would have to  restrict access to  the Breast                                                                   
and Cervical Program and will  not be able to serve all those                                                                   
that  are  currently  eligible  and  who  have  applied.  The                                                                   
program can only save $250 thousand  if service is restricted                                                                   
on  April 1  to women  ages 40  - 64  (the program  currently                                                                   
serves women ages  18 - 64).  The program serves  6,000 women                                                                   
annually  and provides  clinical breast  exams, pelvic  exams                                                                   
and pap smear tests  to women ages 18 - 64.  The program also                                                                   
provides screening  mammograms for women  age 50 -  64, which                                                                   
is the  highest risk group. The  program is always  the payer                                                                   
of  last  resort.  Income  eligibility   is  250  percent  of                                                                   
poverty,  which  is  consistent  with 37  other  states  that                                                                   
provide the same service.                                                                                                       
                                                                                                                                
In  response to  a question  by Vice-Chair  Meyer, Ms.  Clark                                                                   
noted  that  states  set  the ages  of  service.  Alaska  has                                                                   
provided  screening  for  women   ages  18  -  64  since  the                                                                   
program's  inception.  Mammograms are  considered  diagnostic                                                                   
and are provided to the suggested  age group of women who are                                                                   
50 - 64 years of age.                                                                                                           
                                                                                                                                
Co-Chair Meyer  asked about the  high-risk group.   Ms. Clark                                                                   
clarified  that mammograms  are recommended  every couple  of                                                                   
years for  women who  are 40  years old;  and every  year for                                                                   
those 50 years of age or older.  The state does not cover the                                                                   
age 40  - 50  group.   Co-Chair Meyer  questioned how  Alaska                                                                   
compares with other  states.  Ms. Clark stated  that Alaska's                                                                   
program  provides   "very  minimal   coverage".  Most   state                                                                   
programs are the  same on coverage, but differ as  to the age                                                                   
of women  served. Some states  do not serve  the 18 -  40 age                                                                   
group.  The service array is the same.                                                                                          
                                                                                                                                
In response to  a question by Co-Chair Meyer,  Ms Clark noted                                                                   
that a  reduction in service  to age  40 and above  would not                                                                   
result in  sufficient savings, due  to the time  remaining in                                                                   
the current fiscal  year.  She did not know  what the savings                                                                   
would be if the  age of those served were changed  for a full                                                                   
fiscal  year. She  noted that  a number of  states cover  the                                                                   
same age group as Alaska.                                                                                                       
                                                                                                                                
3:11:04 PM                                                                                                                    
                                                                                                                                
Representative  Hawker observed  that the Administration  was                                                                   
aware in September that $500 thousand  in federal funds would                                                                   
not be available.  He asked why corrections were  not made at                                                                   
that time to modify  the program, to account for  the lack of                                                                   
federal  funding. He  noted that  the  department could  have                                                                   
reduced  coverage to 30  years of  age and  over in order  to                                                                   
reduce the impact. Ms. Clark replied  that the Administration                                                                   
felt  that program  should be  continued  and a  supplemental                                                                   
sought since  it has such a  direct impact on  saving women's                                                                   
lives.  Representative  Hawker  asked if  the  Administration                                                                   
considered  providing funds  through  the Governor's  Office.                                                                   
Ms. Clark  reiterate the  belief that  the Legislature  would                                                                   
approve the  supplemental and see  the merits of  the program                                                                   
since it directly saves lives.                                                                                                  
                                                                                                                                
Representative  Hawker pointed  to  inconsistencies. He  felt                                                                   
there  was a  conflict between  the Administration's  request                                                                   
for  legislative guidance  and  their actions  regarding  the                                                                   
request.  Ms.  Clark  disagreed;  she pointed  out  that  the                                                                   
Administration was  in front of Legislature  and acknowledged                                                                   
the  Legislature's   authority  to  decide   the  appropriate                                                                   
funding level.                                                                                                                  
                                                                                                                                
Representative  Kelly  asked what  percentage  of  population                                                                   
served is  Alaska Native.  Ms.  Clark did not know  the exact                                                                   
percentage,  but observed  that  the program  does not  serve                                                                   
those that  are eligible  for funding  through Indian  Health                                                                   
Services  (HIS).  He  suggested  that an  adjustment  in  age                                                                   
population  could have  been done,  in order  to protect  the                                                                   
high-risk group.  He felt the  poverty level was  appropriate                                                                   
and noted the affect of the missing  $500 thousand in federal                                                                   
funds.                                                                                                                          
                                                                                                                                
3:17:47 PM                                                                                                                    
                                                                                                                                
Representative  Croft  questioned  how  many women  would  be                                                                   
served by the $500,000 request.                                                                                                 
                                                                                                                                
DEB  ERICKSON, DEPUTY  DIRECTOR,  PUBLIC  HEALTH, noted  that                                                                   
with the additional funding, 7,400  women would be served (if                                                                   
services  were continued  at the  same level).   Without  the                                                                   
request only 5,500 women would  be served.  The request would                                                                   
fund an additional 1,800 to 2,000 women.                                                                                        
                                                                                                                                
Representative  Croft noted  that the  cost is  approximately                                                                   
$300  per  person.  He  asked if  that  number  includes  the                                                                   
examination  and "some sort  of last  ditch insurance".   Ms.                                                                   
Clark  clarified  that  the  program  would  only  cover  the                                                                   
screening program itself.                                                                                                       
                                                                                                                                
Mr. Croft  asked what  would happen to  someone who  does not                                                                   
have insurance, who finds that  they have cancers as a result                                                                   
of the  screening.   Ms. Clark noted  that women  with cancer                                                                   
would  be  eligible   for  Medicaid,  which   would  pay  for                                                                   
treatment.  Representative Croft  stressed  that the  program                                                                   
provides prevention  and avoids  a tremendous amount  of cost                                                                   
as well as human tragedy. Ms.  Clark estimated that for every                                                                   
dollar spent there  is a $7 dollar savings  in treatment with                                                                   
an early diagnosis.                                                                                                             
                                                                                                                                
3:21:18 PM                                                                                                                    
                                                                                                                                
Section 9 (b)                                                                                                                   
                                                                                                                                
Ms. Clark  observed that there  was no change in  the request                                                                   
for the Behavior Health Program.                                                                                                
                                                                                                                                
Section 9 (e)                                                                                                                   
                                                                                                                                
There were no questions on Section 9 (e).                                                                                       
                                                                                                                                
3:22:13 PM                                                                                                                    
                                                                                                                                
Section 10 (a)                                                                                                                  
                                                                                                                                
There were  no questions for  Section 10 (a),  which remained                                                                   
the same.                                                                                                                       
                                                                                                                                
Section 10 (b)                                                                                                                  
     Contractual costs for a prosecutor to represent the                                                                        
     Department of Law in the Therapeutic Courts program.                                                                       
                                                                                                                                
                                                                                                                                
DAVID  MARQUEZ,  ASSISTANT ATTORNEY  GENERAL,  DEPARTMENT  OF                                                                   
LAW, observed  noted that  a prosecutor  would be hired  from                                                                   
the Department  of Law's  Juneau District Attorney's  Office.                                                                   
The cost would be $21,312 for a contract attorney.                                                                              
                                                                                                                                
Section 7 (b)                                                                                                                   
     Civil Division, Oil, Gas and Mining                                                                                        
                                                                                                                                
     Legal costs for work related to the state gas pipeline                                                                     
     and to bringing North Slope natural gas to market, and                                                                     
     other oil and gas projects for FY05 and FY06.                                                                              
                                                                                                                                
     9,000.0                                                                                                                    
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Mr.                                                                   
Marquez   noted   that  the   request   is   needed  in   the                                                                   
supplemental. The work for the  Natural Gas Pipeline would be                                                                   
mostly for outside council.  There  are three firms assisting                                                                   
the state of Alaska. He estimated  that current funding would                                                                   
run out in March or April.                                                                                                      
                                                                                                                                
Representative  Croft observed that  some of the  request was                                                                   
not  needed   for  the  proposed   pipeline  and   asked  for                                                                   
additional information  demonstrating that the  entire amount                                                                   
was needed in the supplemental.                                                                                                 
                                                                                                                                
3:27:37 PM                                                                                                                    
                                                                                                                                
Section 12 (b) Tax Division                                                                                                     
                                                                                                                                
     Increased tobacco tax enforcement costs for the Tobacco                                                                    
     Tax legislation passed as ch. 1, FSSLA 2004.                                                                               
                                                                                                                                
CHERYL  FRASCA, DIRECTOR,  DIVISION OF  MANAGEMENT &  BUDGET,                                                                   
OFFICE  OF  THE  GOVERNOR,  explained  that  Section  12  (b)                                                                   
relates  to  Denali  Commission  funding  for  the  Fairbanks                                                                   
Detoxification  Center.   The  state  authorization   of  the                                                                   
federal  funds was  given  to the  Department  of Health  and                                                                   
Social Services,  but the Denali Commission  appropriated the                                                                   
funds to the Mental Health Trust  Authority because they were                                                                   
the original recipient of the federal funds.                                                                                    
                                                                                                                                
SUSAN TAYLOR, DIRECTOR, DIVISION  OF ADMINISTRATIVE SERVICES,                                                                   
DEPARTMENT OF  REVENUE, explained that the  Denali Commission                                                                   
granted  the   funds  to  the  Alaska  Mental   Health  Trust                                                                   
Authority. The Administration  was unable to change the grant                                                                   
to the  Department of Health  and Social Services,  where the                                                                   
legislature had appropriated the  funds. The funds need to be                                                                   
spent by September 30, 2005.                                                                                                    
                                                                                                                                
Section 7 (a)                                                                                                                   
                                                                                                                                
Vice-Chair Stoltze asked about  corporate receipts in Section                                                                   
7 (a).    Ms. Frasca  acknowledged that  the Legislature  has                                                                   
used corporate  receipts in  previous years  for oil  and gas                                                                   
litigation and other  related matters. She did  not know what                                                                   
the Governor would decide regarding their use.                                                                                  
                                                                                                                                
3:31:33 PM                                                                                                                    
                                                                                                                                
Section 6 (c)                                                                                                                   
                                                                                                                                
Representative  Croft asked  for  more information  regarding                                                                   
expenditures  from the  Information Services  Fund. He  noted                                                                   
that purchases  would be consolidated  into a master  line of                                                                   
credit, which  would make  sense, as long  as the  costs were                                                                   
charged back to  individual departments. He  worried that the                                                                   
debt  would be  paid out  of general  funds,  which would  go                                                                   
around  the GO  bond  process. He  questioned  if state  debt                                                                   
would be borrowed through the master credit card line.                                                                          
                                                                                                                                
Ms. Frasca stressed  that it is a financing  mechanism, which                                                                   
has been used over the years.                                                                                                   
                                                                                                                                
JOAN BROWN,  CHIEF BUDGET ANALYST,  OFFICE OF  MANAGEMENT AND                                                                   
BUDGET, OFFICE  OF THE GOVERNOR, explained that  the Division                                                                   
of Elections,  Accuvote system was purchased  in this manner.                                                                   
Ms. Frasca  added that the  intent was  to charge out  to the                                                                   
departments  and  capture  federal  funds  over  time.    She                                                                   
emphasized that  they were attempting  to lower  general fund                                                                   
spending.                                                                                                                       
                                                                                                                                
Representative Croft  thought that the total  amount would be                                                                   
$37  million  dollars.    Ms. Frasca  noted  that  there  was                                                                   
another $20 million  dollars in the capital  budget for their                                                                   
payroll  system  replacement.   The  Administration  has  not                                                                   
decided how  to proceed, but the  intent is to charge  out to                                                                   
those that get payroll checks  issued, which would allow them                                                                   
to capture  some non-general  fund, fund  sources to  be paid                                                                   
over time.                                                                                                                      
                                                                                                                                
Representative Croft  reiterated his estimate that  there had                                                                   
been a  total of  $37 million  dollars used  in this  type of                                                                   
debt  financing.   Ms.  Frasca summarized  that  there was  a                                                                   
total of $17  million in information technology  (IT) capital                                                                   
projects and $20 million from the payroll system.                                                                               
                                                                                                                                
Section 6 (a)                                                                                                                   
                                                                                                                                
Representative   Hawker  referred   to  Section  6(a),   fuel                                                                   
increases for  the Alaska Marine Highway System.  He observed                                                                   
that $10  million dollars  were allocated  for fuel  costs in                                                                   
the  FY06 budget,  while  the expected  cost  is $16  million                                                                   
dollars.   He questioned  if the  additional money  should be                                                                   
contained in the "whole" budget  and not be brought back as a                                                                   
supplement. Ms.  Frasca explained that  they did not  know if                                                                   
the  high  prices would  continue  when  the budget  was  put                                                                   
together in September 2004. She did not know if it was                                                                          
appropriate to proceed with a FY06 budget amendment.                                                                            
                                                                                                                                
SB 98 was HELD in Committee for further consideration.                                                                          
                                                                                                                                
3:38:03 PM                                                                                                                    
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:38 P.M.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects