Legislature(2009 - 2010)HOUSE FINANCE 519
01/22/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Fy2011 Governor's Budget Overview: Office of Management and Budget | |
| Legislative Finance Division Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 22, 2010
1:32 p.m.
1:32:53 PM
CALL TO ORDER
Co-Chair Hawker called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Vice-Chair
Representative Allan Austerman
Representative Mike Doogan
Representative Anna Fairclough
Representative Neal Foster
Representative Les Gara
Representative Reggie Joule
Representative Mike Kelly
Representative Woodie Salmon
MEMBERS ABSENT
None
ALSO PRESENT
Karen Rehfeld, Director, Office of Management and Budget,
Office of the Governor; David Teal, Director, Legislative
Finance Division
PRESENT VIA TELECONFERENCE
None
SUMMARY
FY2011 GOVERNOR'S BUDGET: OFFICE OF MANAGEMENT AND BUDGET
OVERVIEW
FY2011 GOVERNOR'S BUDGET: LEGISLATIVE FINANCE DIVISION
OVERVIEW
1:32:57 PM
^FY2011 GOVERNOR'S BUDGET OVERVIEW: OFFICE OF MANAGEMENT AND
BUDGET
Co-Chair Hawker presented an overview of today's meeting.
1:37:10 PM
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced her Senior Economist,
John Boucher. She reiterated her department's readiness to
work with the House Finance Committee on the Governor's
FY2011 budget.
1:38:46 PM
Co-Chair Stoltze paid tribute to John Boucher's father for
his help, friendship and assistance in the past and
presented his son with a special DVD.
1:40:23 PM
Ms. Rehfeld began a PowerPoint presentation on the "FY2011
Budget Overview, House Finance Committee, Office of
Management and Budget, January 22, 2010" with a quote on the
governor's mission to "position Alaska's economy for growth
and Alaska's families for opportunity" (copy on file). This
overarching mission was used to plan the focus of this
year's budget. The governor's priorities were mandated by
Alaska's Constitution for Education, Public Safety,
Transportation and Resource Development. Ms. Rehfeld noted
that the governor's guiding principles were to maintain
budget discipline by limiting agency growth, to focus on
results for Alaskans, and to take a long-term view (page 3).
Ms. Rehfeld presented the FY2011 Budget Summary noting the
total FY2011 Authorization with the Permanent Fund was
$10,767.5 million (page 4). Ms. Rehfeld referred to the
FY2011 Expenditures by a category pie chart (page 5). She
began with education funding noting K-12 Education at $1.15
billion or 11 percent of the total budget (burgundy color).
Education funding is distributed statewide to 53 school
districts and approximately 130,000 students. She noted the
governor's budget request fully funds K-12 education and
incorporates the funding increase in student allocation and
intensive needs students. The increase from the current year
to next year's budget is $56 million. The "Other" Formula at
14 percent or $1.5 billion primarily reflects Medicaid
(yellow color). She commented that the drivers within
Medicaid are enrollment and utilization of the program.
Ms. Rehfeld moved to the Capital Budget with 14 percent and
$1.47 billion (blue color). Key elements within the Capital
Budget request are the matching funds for the federal
highway, aviation, and village safe water programs. The
governor also highlighted $100 million for deferred
maintenance over a five year period to address significant
project backlogs. This request also included some resource
development access projects important for Alaska's economic
future, including $75 million funding for the Crime Lab and
$109 million for the University of Alaska Fairbank's Life
Sciences building.
Ms. Rehfeld commented that the Permanent Fund at 14 percent
and $1.52 billion was for both inflation proofing and
dividends (gray color). The Transfer/Savings category at 3
percent and $290.5 million reflected money being transferred
into or taken out of a reserve (orange color). The category
reflects forward funding of education, the governor's
proposal for the merit scholarship program at $400 million,
and $177 million for gas line development.
1:46:59 PM
Ms. Rehfeld continued with Agency Nonformula (dark purple).
This category reflects 36 percent of the budget or $3.85
billion, for state agencies, including the University of
Alaska, the Court System, and the Legislature. She reported
that the governor focused on limiting state agency operating
growth, but there was an increase in the fuel trigger. The
governor felt it was important to invest additional dollars
in the Domestic Violence and Sexual Assault Prevention
initiative. She noted the $7 million investment in Public
Safety and the Department of Law with just under $3 million
for fund replacement to keep current capacity for rural
prosecution, rural outreach, and shelter funding. Ms.
Rehfeld added that there was also additional funding for
Village Public Service Officers, shelters and sexual assault
investigation and training.
Ms. Rehfeld indicated that about 8 percent of the total
budget, or $881.5 million, was for Statewide Appropriations
funding the retirement system, unfunded liability, debt
service and revenue sharing.
1:50:0 9 PM
Ms. Rehfeld summarized that that the governor had primarily
focused on fully funding K-12 education, depositing $400
million to fund the Governor's Performance Scholarship, and
forward funding of K-12 education. The Public Safety focus
was for $75 million for the statewide Crime Lab and $7
million for the Domestic Violence Prevention initiative. The
Resource and Economic Development initiative reflected the
ongoing efforts for gas line development, both for the
Alaska and in-state gas line. It also addressed deferred
maintenance, the UAF Life Sciences Building and
transportation infrastructure. Ms. Rehfeld stated that these
components of the budget would drive economic development
creating some in-state jobs. She noted that the budget
included an energy component to continue traditional efforts
to make areas that rely on diesel fuel more efficient
through rural power system upgrades, fuel storage, renewable
energy, heating assistance, and conservation efforts.
1:51:42 PM
Co-Chair Hawker stated in the renewable energy fund, House
Bill 152, requested $50 million, but the governor's budget
only contained $25 million.
Ms. Rehfeld replied that the initial thought was to put $50
million a year, up to $300 million, over six year period.
She remarked that over the past few sessions, $125 million
had been put in for projects currently funded. The $25
million reflected the governor's overall funding goals, but
the governor was open to other suggestions from the
Legislature.
1:52:53 PM
Co-Chair Stoltze remarked that this past summer reflected an
untraditional mode or effort and wondered if the governor
had factored this into the energy policy. He questioned
where the energy policy might be heading. Ms. Rehfeld
responded that it was a work in progress, adding that in
some communities there were projects being pursued to help
supplement diesel with renewable forms for energy. The
effort is to make sure that these resources are in the
budget. She reported that at present there was about $20
million for the Alaska Energy Authority (AEA) traditional
projects for more efficiency in these communities.
Co-Chair Stoltze projected that this was an evolving
discussion, but $20 million seemed a low projection. Ms.
Rehfeld agreed that the funding of power projects and
discussing new ideas would continue.
1:56:17 PM
Representative Gara asked if decisions to make current
diesel production more efficient and cost effective were
only passing through Denali Commission money or was there
projected additional AEA money.
Ms. Rehfeld responded that in addition to the Denali
Commission, state funds for AEA projects have been included
to work down a list of projects to upgrade rural power
systems and bulk fuel tanks. There are concerns that the
Denali Commission has base funding in the federal budget,
but there has also been a shift at the federal level to
secure earmarks for the Denali Commission.
Representative Gara restated that the Denali Commission and
commission match for diesel power upgrades was welcome, but
he wondered if the state was doing anything beyond what the
federal government required to receive those monies or was
the state just doing the minimum.
Ms. Rehfeld responded that there was not a specific match
required for these funds so the state has been putting in
additional money for the Denali Commission. She added that
the direction and focus of additional funds for the future
needed further discussion.
Representative Gara requested information on what the state
was doing on top of the Denali Commission money for diesel
efficiency upgrades. Ms. Rehfeld responded that she would
send additional information to the committee.
1:59:17 PM
Representative Joule stated that natural gas discussions
were usually presented in two venues; acquiring gas to
market for the world outside of Alaska and acquiring gas for
in-state use. He added that discussions on renewable energy
usually was limited to communities, so he wanted to know if
any thought had been given for drilling gas in some
communities. Ms. Rehfeld remarked that the state and the AEA
have been working hard to identify energy sources and how to
best to move forward, help finance and partner with rural
communities.
Representative Foster emphasized when Power Cost
Equalization (PCE) money was spent, it was gone, whereas
renewable energy money acts as an investment for the future
to save money. He advised that investing for the future be
kept in mind when funding renewable energy.
2:03:10 PM
Vice-Chair Thomas added that when Gustavus put in a hydro
plant with $2.75 million, $750,000 from the renewable energy
funds and $200,000 from appropriations, the community power
costs dropped from 58 cents to 30 cents a kilowatt.
2:04:16 PM
Ms. Rehfeld continued with the next slide entitled Revenue
Forecast Revised Upward (page 7). The slide showed that the
revision between the spring and Fall Forecast had improved
and the forecast for FY2010 and FY2011 reflected a
significant increase in the projected revenue based on the
oil prices to date. Ms. Rehfeld showed with the next slide,
Save/Invest, the projected surplus and indicated the
governor's interest to forward fund education with the
FY2010 surplus and to keep the forward funding in FY2011
(page 8). She also indicated the governor's interest in
using some of the FY2010 surplus to work with the
Legislature on rural school construction and adding money to
the reserve accounts. Ms. Rehfeld indicated that in the
FY2011 budget the governor was asking the Legislature to
consider the Governor's Performance Scholarship program,
and, if approved, set aside $400 million for the program.
She showed another $93 million in savings, based on the
current revenue forecast. She reminded the Committee that
there would be another revised schedule in April.
2:06:44 PM
Representative Doogan pointed out that the forward funding
of K-12 education and the Governor's Performance Scholarship
totaled $1.5 billion which is listed under the
Transfers/Savings category at $290.5 million (page 5). He
inquired where the additional $1.2 billion would come from.
Ms. Rehfeld indicated that in the fund transfer what is
shown as expenditures in FY2011 is the amount of the school
funding formula and people transportation that would be paid
out of the fund and then a transfer will be proposed into
the public education fund to pay for FY2012. The difference
between the two transactions and the increase for FY2012
would net out.
Representative Doogan questioned if Transfer/Savings at 3
percent or $290 million, was the remnant of the forward
funding and Governor's Performance Scholarship. Ms. Rehfeld
agreed that was correct, but she added that there was a
proposal to spend $177 million from the Alaska Housing
Capital Corporation which is another reserve account for gas
line related expenditures.
2:09:16 PM
Co-Chair Hawker clarified that the Transfer/Savings wedge of
pie was an aggregated part of whole. Money is put aside one
year that requires an appropriation and then is spent the
next year. The issue of moving money has been a primary
focus of simplifying and clarifying the budget for the
public. He explained that the more detailed budget report
account reflects more accurately than the pie chart the $1.5
billion put into the savings account, but when taken out,
nets out to zero. It is still money moving among the savings
accounts. The net of the $400 million proposed for the
Governor's Performance Scholarship is going into the savings
account this year, but cutting against it is $177 million
proposed to be taken out of the Parking Garage money over at
Alaska Housing Finance Corporation (AHFC).
2:11:18 PM
Representative Salmon asked what would be the yearly
interest on the $400 million in the Governor's Performance
Scholarship. Ms. Rehfeld replied that it would depend on the
earnings, but approximately $20 million a year.
Co-Chair Hawker asked if a bill had been introduced for the
Governor's Performance Scholarship and if it included a
fiscal note for reference. Ms. Rehfeld believed it was read
across the floor on the first day of session with fiscal
notes attached.
2:12:53 PM
Ms. Rehfeld moved to some of the key elements being worked
on this year in the next chart, FY2011 Results-Based
Budgeting (page 9). She indicated the governor's interest in
reengaging agencies and the public in the process to utilize
the state's performance framework to measure results for
Alaskans. She noted that OMB looked at department statutory
missions, core services, priorities within the core
services, relevant keys to performance and then finally
presenting to the legislature what had been learned. She
hoped the legislature would see the value in this type of
presentation.
Ms. Rehfeld referred to the Long-Range Fiscal Plan that will
be transmitted early February 2010 (page 10). She noted that
the executive summary had been posted on the department
website on December 14, 2009, putting all the agencies into
the detailed package. She indicated that an IT person would
be helping with the programming to link all relevant agency
sites together. Ms. Rehfeld moved to the FY2011 Fund Code
Project which would provide a good segue to the next
presentation (page 11). She observed that the numbers
aligned with Legislature Finance for the FY2011 Revenue and
Expenditures. She remarked that as these issues moved into
the subcommittees, there would be different levels of
understanding and concerns.
2:17:08 PM
Co-Chair Hawker observed that the Alaska budget report is
clearer and more transparent for the public to understand
how the state's finances work. He added that this process
could be more difficult to understand as the state moved
from budget deficit spending to budget surpluses. Co-Chair
Hawker indicated his appreciation to OMB and Legislative
Finance for their work on this issue. He noted sometimes
there was confusion that money put into a savings account
was not really spending. He indicated that clarification was
needed to better recognize state fund money that could be
used for anything, but had really been designated to
specific purposes. There was a reclassification of money in
the summary categories that had been called "other federal"
and "general state fund" into two general funds,
Undesignated (UGF) and Designated (DGF). Co-Chair Hawker
pointed out that the short form books are all prepared under
this new classification. The OMB system, from which the
actual budget bill is generated, has not been put on the new
classification system at this time. Co-Chair Hawker
explained that in the process of moving forward there will
be a committee substitute for the original bill. He added
that there would be no changes in funding or appropriations
in the committee substitute, but will just move the
classifications. He stated that in addition to the committee
substitute, a reconciling report will be generated to shown
there is no change in the budget.
2:24:20 PM
Vice-Chair Thomas pointed out that in many rural areas, the
local school system does not always have all the required
subjects for their students to participate in the governor's
scholarship program. He requested that the governor look at
a debt retirement loan program for rural students to attend
schools outside of their areas to obtain these needed
subjects.
Co-Chair Hawker reported the governor's accessibility to
meet with any individual legislator to discuss any subject.
2:26:56 PM
Ms. Rehfeld acknowledged there was some concern if all
students throughout the state would have access to the
required curriculum to be part of the governor's scholarship
program. She stressed that OMB is working closely on this
element of the bill because it would be important on a
statewide basis. She pointed out that there were a number of
options being explored by the department.
Representative Kelly stressed that the governor's
Scholarship program was a needs based and non-needs based
program open to all. He believed that awarding scholarships
should be performance based.
Vice-Chair Thomas clarified that not all rural school
districts have all the required programs necessary for the
students to qualify for the program. He stressed that the
debt forgiveness program would allow those students to
travel to schools to receive the necessary courses to
qualify them for the scholarship program. Representative
Kelly believed the scholarship program was a huge step for
needs based and non-needs based students.
2:30:37 PM
Representative Gara expressed his doubts regarding the
efficiency of the governor's proposal. He cited a University
of Alaska study indicating that $8 million would cover the
scholarship cost for those students who could not afford to
go to college. The governor's proposal spends $20 million,
an extra $12 million, on those who can afford to pay,
including money being extended to "C" students whose
families could afford to send them to college. He pointed
out that a more efficient plan, spending less than half of
the proposed money, would send everyone who could not afford
to go to college into a state university. Representative
Gara remarked that in the governor's scholarship program,
children in foster care were cut off at ten students. He
asserted that rather than spend extra money for "C"
students, who can afford to go to college, he asked that the
governor make more scholarship money available for children
in foster care.
2:32:47 PM
Ms. Rehfeld indicated the governor's interest in providing
all students with the opportunity to attend college. She
continued that the governor wanted to increase high school
graduation rates and improve the academic quality of
Alaska's schools.
2:33:37 PM
Co-Chair Hawker thanked Ms. Rehfeld for her overview.
2:34:53 PM
Co-Chair Hawker reported that his request from Legislative
Finance was to clarify the long term goal for spending.
^LEGISLATIVE FINANCE DIVISION OVERVIEW
2:35:38 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION
summarized the roles of OMB and Legislative Finance. He
pointed out that OMB presents the governor's budget, with
the policy priorities and the spending amount on those
priorities, but Legislative Finance's role was to add
context to the governor's budget. Mr. Teal indicated he
would be referring to some pages in The Fiscal Year 2011
Budget: Legislative Fiscal Analyst's Overview of the
Governor's Request (copy on file). He pointed out the
increase in the general fund spending of about $550 million
or 10.7 percent (page 5, line 35).
Co-Chair Hawker indicated that at the general spending level
the finance committee agrees completely with the numbers.
Mr. Teal referred to the FY10 General Fund Revenue-Fiscal
Sensitivity chart (page 6). This chart refers to the
breakeven price of oil that needs to be understood to put
the budget requests in context. He noted the flat
expenditure line reflects the proposed FY2010 level of
appropriations and the axis shows oil prices in dollars. Mr.
Teal explained that the revenue line changes with the price
of oil and is curved due to the progressive tax. The
intersection of the revenue line and expenditure line is the
breakeven point.
2:39:58 PM
Co-Chair Hawker interjected that this is an approximation
based on annualized numbers done on monthly and quarterly
bases which can have significant circumstances in a very
volatile oil price period. He noted that in a period of
relative stability it creates a reasonable forward
projection.
Mr. Teal agreed. He continued that the FY2010 budget was
$4.1 billion before forward funding for education. He
believed there to be a general agreement that the governor
will be submitting a supplemental request that most
legislators will probably approve. Mr. Teal observed that
the real budget was probably $5.1 billion therefore the
breakeven point for oil would not be $53 a barrel, but
closer to $64 a barrel. Mr. Teal noted the good news is that
the projected revenue is $67 a barrel, which creates a
surplus of approximately $450 million. He reported that the
current price of oil is up to $73 a barrel generating a $2.2
billion surplus.
Co-Chair Hawker noted that the average year-to-date price of
oil is $73 a barrel and, if this is maintained until the end
of June 2010, there would be a $2 billion surplus.
2:42:55 PM
Representative Gara believed these numbers were similar to
the numbers the governor's office presented in November.
Mr. Teal explained that there were no differences between
the governor's office oil forecast projections and
Legislative Finance. He pointed out that Legislative
Finance's role is to put the governor's budget in context
with revenue, not discuss the governor's budget spending
decisions. He continued with the next chart on the FY2011
General Fund Revenue-Fiscal Sensitivity (page 7). The two
charts differ in that in FY2010 at $90 a barrel, the surplus
would be $9 billion whereas in FY2011, $90 a barrel oil
translates into $8 billion. The expenditure line has also
moved up to $5.6 billion from $5.1, therefore the breakeven
oil price has moved from $64 per barrel to $74 per barrel to
balance the budget. When the extra $1.1 billion was spent to
prefund education, the breakeven point was raised by eleven
dollars. He elaborated that for every dollar change in the
price of oil the revenue impact is approximately $100
million. Mr. Teal added that as expenditures shift up, the
revenue curve shifts down because of lease expenditures,
also known as CAPEX and OPEX, which are deducted as a profit
tax. This shift is reflected in the FY2010 chart at $16 per
barrel, whereas the FY2011 shows revenue lease expenditures
at $19 per barrel.
2:48:50 PM
Mr. Teal continued that even if there were no increase in
capital lease costs, as production falls, there will be less
barrels of oil which translates into less revenue. The
average cost per barrel continues to climb and the profit
per barrel falls, therefore the revenue falls, shifting the
curve downward. The combination of the shift up in the
expenditure line and the shift down in the revenue line
bounces the line to $74 per barrel in FY2011.
2:50:47 PM
Representative Fairclough questioned if the assumption was
being made that no new barrels would be brought online. Mr.
Teal remarked that the Department of Revenue's oil
projection showed a constant 4 percent decline in
production. Representative Fairclough asked if the number
took into account the cost of new barrels production for the
lease expenditure credit and the cost of the old production,
usually less per barrel, or would these remain constant or
were the figures just reverting back to the Revenue
Sourcebook. Mr. Teal responded that was more complicated
than reported on the chart.
Co-Chair Hawker reported that the numbers used by Mr. Teal
came directly from the Revenue Sourcebook projections.
Representative Fairclough questioned the lease expenditures
and calculations of those dollars and asked for a confidence
level inside the Revenue Sourcebook. Co-Chair Hawker agreed
that he shared a concern for the accuracy of the projected
operating numbers within the Revenue Sourcebook.
Representative Doogan asked if it was a combination of fewer
barrels and more expensive barrels. Mr. Teal agreed, but
noted that even if the barrels are not more expensive, the
cost of production does not change. When fewer barrels are
being produced, the production costs are spread out over
fewer barrels making the cost per barrel higher.
Representative Doogan asked if the barrels were then more
expensive in two ways. Mr. Teal agreed.
2:53:36 PM
Mr. Teal referred to the Department of Revenue (DOR) graph,
"10-Year Revenue and Spending." He remarked on the
assumption at the top stating "Assumes Fall 2009 Revenue and
3% budget escalation from FY11." He noted the fiscal summary
shown earlier reflected two numbers: 10.7 percent was
approximately $550 million in increased expenditures and 3
percent was only about $150 million. The difference is $350
million in compounding rate of growth and expenditures, so
when DOR states that FY2011 grows by 3 percent with a
surplus of $700 million, it is really being overstated by
$350 million. In FY2013, the surplus is being overstated by
two years of $350 million or $700 million, so the surplus is
about $200 million. Co-Chair Hawker interjected that the
bars were cumulative.
Mr. Teal agreed because it was being assumed that there was
a growth rate of 10 percent instead of 3 percent. At three
years the surplus is gone. As oil production declines, the
revenue and surplus drops and the revenue curve will shift
down. Mr. Teal remarked that with oil production declining
by 4 percent, there will be a 4 percent shift down in the
revenue curve. This reflects another $200 million shift
downward, therefore the breakeven price of oil will increase
by approximately $4 per year. This translates to $78
breakeven price in FY2012 and $82 breakeven price in FY2013.
Mr. Teal stressed that he did not want to misrepresent the
surplus funding for the state over the long run.
2:58:21 PM
Representative Kelly queried the variance between the
Department of Revenue numbers and the Legislative Finance
calculations.
Mr. Teal replied he had no disagreements with the
projections for FY2011, but only with the projections for
the future years. He pointed out that the price of oil
needed to remain at $74 per barrel to breakeven. He
emphasized that if the price of oil fell to $64 per barrel a
deficit would open up very rapidly. He stressed that there
are years of reserves available, but the more spent each
year pushes up the breakeven point.
Representative Kelly emphasized that spending freely was not
his goal, but noted that 10 percent and 3 percent were huge
differences in the budget. Co-Chair Hawker agreed that there
is a perception of a budget surplus until FY2020, but there
figure is very different when looking at 10 percent versus 3
percent growth escalation.
3:04:23 PM
Co-Chair Hawker recommended that Representative Austerman's
budget subcommittee needs to work on these figures.
Mr. Teal agreed that the budget needs to be looked at with
the goal of long-term plans, not in isolation from year to
year.
Representative Gara questioned where information would be
available on tracking how efficiently government agencies
work with existing funds.
3:07:05 PM
Mr. Teal believed that subcommittees considered efficiency
and long-term planning, even though it was difficult to
always accomplish. He thought that OMB and the governor's
office needed to lead on the subject of efficiency
performance results. He acknowledged that it was difficult
for the legislature to look at the budget for 90 days and
always understand it to the depth required.
Representative Gara reiterated that the subcommittees have
to rely on the information provided by the agencies. Mr.
Teal responded that it would be difficult to reduce
expenditures both at the agency and statewide level.
Historically the capital budget is frequently larger than
the governor's budget.
Co-Chair Stoltze mentioned that in his Public Safety and
Department of Law subcommittees efficiency questions were
addressed, but acknowledged there are frustrations.
3:10:34 PM
Representative Doogan remarked that if the operating budget
has been increasing by a compound rate of 10 percent a year
since 2001, he surmised that no matter how high the price of
oil rises, it would not be possible to keep up with revenue
spending. He questioned why consecutive governors for the
last ten years have not seen this problem and flattened out
the rate of increase in the budget.
Co-Chair Hawker replied this was more a question for the
Legislative Finance Committee or OMB. He noted the increases
in the budget are primarily in Education, the University of
Alaska, Medicaid and Human Services, and employee costs both
in collective bargaining increases and retirement benefits.
He reported that the legislature has lowered the rate of
growth in agency operation spending outside of the just
listed areas. Co-Chair Hawker remarked that the growth in
Medicaid has occurred because of the changes in federal
government reimbursement toward Medicaid, adding $175
million to the state budget spending. He emphasized that the
budget often rises because the public feels strongly if
certain programs are not funded, such as education. He
remarked that the public often reacts negatively when the
governor has reduced budgets. Chair Hawker emphasized that
the legislature has paid close attention to fiscal
discipline with the budget.
Representative Doogan recognized the difficulty in making
budget decisions, but stated that at some point if the
budget surplus continues to fall and oil prices fall there
could be big problems in the future.
3:15:45 PM
Co-Chair Hawker agreed that it is time to really focus on
curbing budget spending. Representative Joule questioned
when the first meeting of the budget subcommittee would
begin. Co-Chair Hawker said the strategy and timeline
meetings would start as soon as the overview meetings wre
completed.
3:17:18 PM
Representative Fairclough remarked that new technology was
available to refurbish old buildings within the state, with
up to 25 percent costs savings in operation. As this
approach would involve the capital budget not the operating
budget, it would be easier to affect immediately. She
observed that there are no standardized building practices
throughout the state so often there is a bid for a new
design in every city. She asserted that standardizing could
save money. Representative Fairclough added that in rural
Alaska the goal was often to make everything unique which
translates to added expense. She believed that on the
procurement side it would be more cost effective to hire
local residents to build in the rural communities putting
more local individuals to work. She added that rural areas
are being penalized because of supply and demand issues and
not being able to attract urban building supplies.
3:19:37 PM
Vice-Chair Thomas reiterated that in many departments
federal grants were expiring and those departments were
looking to have the state replace them with general fund
money.
Representative Fairclough agreed that federal grants are
changing out to state funds. Co-Chair Hawker remarked that
Senator Stevens often warned that federal funding may not be
there in the future and the state would have to take over
that funding. Representative Fairclough asked Mr. Teal if
the federal stimulus money was being tracked in all
departments.
3:22:08 PM
Mr. Teal responded that the question was difficult to
answer. He knew the amount of federal stimulus money
appropriated to each department, but not how the money was
used. He suggested that all subcommittee chairs look at this
situation. Mr. Teal commented that the two prior governors
were concerned about constraining the budget and legislators
have been talking for several years about unsustainable
spending, but it is difficult to do anything about it. He
contended that when federal money evaporates, the people of
Alaska may still want to see the state provide and fund
popular or necessary programs. It is a question of how to
deal with the loss of federal money when people still want
to see the benefits. He continued that up until 2005, the
budget was flat at about $2.5 billion, but then it began to
rise very rapidly. Legislative Finance cannot tell precisely
how the agencies are using the federal stimulus money, how
many new employee positions have been created, if the money
is being treated as a one-time funding, or if it is being
built into the base.
Ms. Rehfeld interjected that at the agency level OMB has
expenditure plans in place with good reports on how the
federal stimulus money is being spent. She believed it was
clear on the agency level that this would not be continued
funding.
Co-Chair Hawker noted that there are some recognized
exceptions, such as the federal stimulus money that went to
the Department of Public Safety to hire and train new
troopers. It was known that this would be a continuing
increment. He agreed it should be the responsibility of
subcommittees to verify and look into agency spending in
more depth. He voiced his confidence in the Administration's
efforts to comply with the intent language provided in
statute.
3:25:45 PM
Mr. Teal interjected that he had been referring to the
Medicaid matching rate. The federal stimulus bill included a
reduction of the federal rate which saved the state $25
million a quarter, $100 million a year. He observed that
this was probably one-time money which was scheduled to
expire on December 31, 2010. Unless the federal government
extended this rate, $50 million more will be needed for
Medicaid then is presently reflected in the governor's
budget. This translates to a $100 million increment in
FY2012 to replace the lost federal funding.
Representative Fairclough said she is asking her budget
subcommittee to recognize that the federal stimulus money is
one-time money. She suggested that all the jobs hired by
federal stimulus money be revisited and that these positions
would end after the stimulus money runs out. She contended
that there is not enough state money to continue funding
these newly created positions. It could be a problem for
present and future legislators if positions created by
federal stimulus funds could not be identified as such. She
hoped all departments would be forthright in identifying
positions created by stimulus funds.
Mr. Teal commented that this issue did not just involve
stimulus money, but it is the reason the Legislative Finance
Committee and Legislative Finance have for the last several
years always emphasized the reporting of one-time items
everywhere in the budget. He realized that departments would
prefer not to have to come back to the Legislature every
year asking for money. A one-time item is not put in the
base budget, but the items must be brought back to the
legislature to review the decision every year.
Representative Fairclough asked the Co-Chair Hawker if
positions created by the federal stimulus money positions
should be floated above the line. These positions are buried
on a line, named stimulus, in the short form, but when the
money line drops, no one will be able to identify stimulus-
created positions.
Co-Chair Hawker reiterated that federal stimulus money all
came in as onetime items and are no longer in the budget for
the future. Mr. Teal agreed that all onetime items created
by the stimulus funding have been taken out of the budget.
3:31:06 PM
Representative Kelly observed that, in the area of the
onetime federal stimulus funds, the subcommittees should not
have authority to replace federal stimulus money at all, but
these decisions would only be brought before the entire
House Finance Committee. Representative Kelly continued that
when adding new employees to the system, it is often
difficult to remove them later. He suggested that no new
employee be added unless another employee is laid off, but
even that would still need approval from the House Finance
Committee. He agreed with Representative Fairclough that
there is the potential for some positions created by the
federal stimulus money to be buried and suggested that a
separate report be generated to account for all the stimulus
money received and where it went. He applauded the governor
for creating a lean budget, but there is a significant
problem when public hears there is a 3 percent increase at
the agency level, but the entire budget growth is more in
the 10 percent range.
Co-Chair Hawker thought it would help to sit down with the
governor to talk about a more reasonable growth picture. The
legislature needs to take a harder line on the budget than
the governor in considering long-term future prospects.
3:36:46 PM
Mr. Teal pointed out that the agency operating budget is
often seen in the public eye as "the budget" and noted that
the governor has tried to keep the agency operation spending
increase to 3 percent. The legislature deals with the entire
budget, not just agency operations.
3:37:56 PM
Co-Chair Hawker remarked on the committee meetings for the
following week.
ADJOURNMENT
The meeting was adjourned at 3:41 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| bFiscal Sensitivity FY10_for Gov Overview.pdf |
HFIN 1/22/2010 1:30:00 PM |
|
| e10-year Rev & Spending from DOR.pdf |
HFIN 1/22/2010 1:30:00 PM |
LFD Overview |
| Fiscal Sensitivity FY10_FY11 Overlay.pdf |
HFIN 1/22/2010 1:30:00 PM |
LFD Overview |
| Fiscal Sensitivity FY11_for Gov Overview.pdf |
HFIN 1/22/2010 1:30:00 PM |
LFD Overview |
| Fiscal Summary from Overview.pdf |
HFIN 1/22/2010 1:30:00 PM |
LFD Overview |
| HFC Budget Overview 01 22 2010 OMB.pdf |
HFIN 1/22/2010 1:30:00 PM |
OMB Overview |