Legislature(2013 - 2014)HOUSE FINANCE 519
01/18/2013 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Overview of the Governor's Fy 2014 Budget: Legislative Finance Division | |
| 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 18, 2013
1:30 p.m.
1:30:55 PM
CALL TO ORDER
Co-Chair Austerman called the House Finance Committee
meeting to order at 1:30 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
David Teal, Director, Legislative Finance Division
SUMMARY
OVERVIEW OF THE GOVERNOR'S FY 2014 BUDGET:
LEGISLATIVE FINANCE DIVISION
^OVERVIEW OF THE GOVERNOR'S FY 2014 BUDGET: LEGISLATIVE
FINANCE DIVISION
1:31:03 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained that the Legislative Finance Division (LFD) was
statutorily charged with budgetary review. The division
published the "Legislative Fiscal Analyst's Overview of the
Governor's Request" (copy on file) annually. The division's
role in the budget process was primarily technical, but he
and his analysts also tracked the process insuring that the
appropriation bills accomplished their intended purposes.
The division reviewed fiscal policy to identify important
budget items. He explained that the division did not
support or oppose policy choices, but instead provided the
information necessary to make decisions. The fiscal
summaries of the Office of Management and Budget (OMB) and
LFD agreed "to the dollar."
1:34:32 PM
Mr. Teal referred to the FY 14 Fiscal Overview (copy on
file). He discussed revenue projections for the current
fiscal year, which were critical because of the changing
fiscal situation. He pointed out that the past eight years
saw revenue from high oil prices exceed spending. The
fiscal summary showed a $490 million surplus at the close
of last session. Since April of 2012, production was more
than 8 percent less than that of FY 12. The reduction for
FY 10 was 7.2 percent, FY 11 was 6.4 percent and FY 12 was
4.1 percent.
1:37:12 PM
Mr. Teal noted that the legislature must withdraw from
savings to fill the FY 13 budget gap instead of debating
how much surplus to save or spend. The deficit situation
provided a new experience for legislators elected after FY
05. He pointed out the fiscal summary on page 8 of the
Overview. He referred to line 51 and the $410 million
deficit. He did not recommend trusting the figure because
of the $250 million deposit into the Statutory Budget
Reserve (SBR) seen on line 45. He suggested that $160
million might provide a more accurate deficit estimate. The
difference was the result of action taken by the last
legislature to actively save money by making a deposit of
$250 million. The surplus was predicted by a poor
projection.
Mr. Teal spoke to the volatility of oil production and
price, which lead to large impacts on revenue. One dollar
change in the price of oil could impact revenue by $135
million. Accurate revenue projections were difficult to
obtain. He mentioned the governor's supplemental
placeholder of $40 million. The average supplemental
operating budget for the past three years was $85 million.
Surplus FY 13 funds were unlikely. Reserves were available
if spending exceeded cash flow. Reduction of expenditures
to sustainable levels provided another solution.
1:41:12 PM
Mr. Teal discussed the profound effects of the deficit on
the FY 14 budget cycle. The legislature could either reduce
expenditures or access savings in the face of declining
revenue. He pointed out the surplus of $508 million seen on
line 51 in the FY 14 governor's request. The Department of
Revenue (DOR) predicted that FY 14 oil production would
decline by 2.7 percent from FY 13 with an increase in oil
prices by $1 per barrel. Projected revenue for FY 14 was
calculated at $510 million below the expectations for FY
13. If the budget for FY 14 equaled that of FY 13, the
state would see a deficit of $510 million in addition to
the deficit seen in FY 13.
Mr. Teal observed that the budget was reduced substantially
by the governor because of the decline in revenue. The
total reduction in general funds from FY 13 to FY 14 was
shown on line 37 as $1.17 billion. He noted that the
majority of the reduction was in the capital budget as
shown on line 28. He opined that the proposed capital
budget, at $870 million was sizable. The average capital
budget for the last ten years was $875 million (including
legislative increases). The FY 14 governor's request was
approximately $100 million below that of FY 13, making it
the second largest governor's request in the last ten
years.
1:44:38 PM
Mr. Teal discussed page 3 of the presentation, which
detailed the governor's request as a percentage of the
adopted budget. The average for the period was 49 percent,
or twice as large as that requested by the governor. If the
"historic share" was added by the legislature to the FY 14
governor's request, the state would encounter a deficit of
$654 million. Essentially, the legislature could safely add
$263 to the governor's capital budget without dipping into
savings.
Representative Gara referred to the page 3 of the
presentation and noted that the governor presented a
capital budget addressing the needs of agencies. The
legislature would then add the needs of the communities to
the budget during the legislative process. He wished to
clarify the process and stressed that the governor expected
the legislature to add to his capital budget request the
needs of the various Alaskan communities.
Mr. Teal agreed that the expectation was for the
legislature to add to the budget. He noted that if the
legislature added more than $263 million, a transfer from
savings would be required.
Co-Chair Austerman recalled a reduction of the governor's
proposed capital budget by the legislature in years
preceding 2005. Mr. Teal concurred.
Mr. Teal explained the fiscal summary (pages 2 and 3). The
summary exhibited a surplus of $508 million by subtracting
a $120 million withdrawal from savings as shown on line 46.
He added that OMB had erroneously omitted a $125 million
deposit to the Alaska Industrial Development and Export
Authority, (AIDEA) energy fund, which led to a surplus of
$263 million. If the legislature added $263 million to the
capital budget, no withdrawal from savings would be
necessary. He pointed out that the surplus/deficit
calculation included operating items as well as capital.
1:51:31 PM
Mr. Teal noted that the ability to spend $263 million on
the capital budget assumed that the operating and
supplemental budget remained at the governor's request. The
governor's request was less than 1 percent increase on
operating expenditures. The average growth rate in the
operating budget was approximately 6.5 percent. The
potential to avoid a deficit existed for the next few years
if the legislature could restrain spending to the proposed
1 percent increase.
Mr. Teal addressed assumptions on statewide expenditures
shown on slide 4. The capital budget remained flat at an
average of $875 million for the past ten years. He stated
that the revenue declined and deficits were projected in
the near future. The six percent growth rate could not be
maintained if the revenue forecast was accurate.
Mr. Teal explained that DOR expected oil production to fall
by 5.5 percent annually. Oil might increase in price
offsetting declining oil production and leading to a fairly
flat revenue curve. He spoke about the drop in revenue, but
the revenue curve exhibited in slide 4 followed the current
tax regime. He noted that LFD did not analyze DOR's
forecast, but focused on expenditures instead.
Mr. Teal furthered that the legislature would not spend the
full $263 million projected surplus in the capital budget
without a withdrawal from savings because of the potential
difficulty of holding the operating budget at the proposed
$52 million increase. He noted that the budget was lean in
comparison to those of the past.
Mr. Teal cautioned that bargaining units for three major
state unions were not included in the governor's proposed
budget. The $40 million supplemental budget placeholder
might also prove questionable. Pressure to increase K-12
school funding was anticipated. Many unknown expenses might
make the proposed 1 percent growth rate difficult to
maintain.
Co-Chair Austerman asked if slide 4 exhibited a 1 percent
growth rate.
Mr. Teal concurred. He added that LFD's projection was
viewed as "gloomy," but he countered that the picture was
positive when compared to other states facing cuts in
operating budgets in addition to furloughs and lay-offs.
Alaska could afford a sizable capital budget of $875
million and was not forced to reduce the operating budget.
In addition, Alaska had the luxury of large reserve
balances. The major change might be the inability to
contribute large deposits to savings. He reminded the
committee that the LFD overview contained the fiscal
summaries along with recommendations for capital and
operating budget language. Copies of the publication were
available in the documents room on the fifth floor of the
Capitol and on the LFD website.
1:58:19 PM
Vice-Chair Neuman commented that the legislature could not
typically maintain the operating budget recommendations
proposed by the governor. He asked about the specific
savings employed to address a deficit. He asked about
potential reserves in years past 2022. He asked how the
reserve balance affected the state's rating on Wall Street
regarding bonding abilities.
Mr. Teal responded that Alaska's bond rating was due, in
part to the state's massive reserves. The state had
approximately $16 billion in reserves and a budget of $5
billion. If the pipeline ceased activity and the state was
left without revenue, the state could "coast" for three
years. Budget reserves in other states were often less than
5 percent of their budget. He argued that reserves were a
necessity because of the volatile revenue stream. The
legislature was not obligated to spend $875 million in the
capital budget. He presented a chart including years 1975 -
2012, which illustrated that when the state did not have
money, spending was curtailed, creating flat budgets for 20
years. The past proved that the legislature was not
required to increase budgets by 6.5 percent per year. Bond
raters observed reserves in addition to responsible
spending and action on the part of the legislature. He
opined that Alaska deserved its AAA bond reserve rating.
2:02:26 PM
Vice-Chair Neuman believed that the reductions in the
reserves would affect the state's bond rating. The back-up
was necessary.
Mr. Teal agreed that dipping heavily into reserves would
affect the bond rating. The expectation was to respond to
the declining revenue, by avoiding the rapid spending of
reserves.
Representative Wilson asked for the annual percent increase
in the formula programs.
Mr. Teal responded that Medicaid growth was approximately 8
percent for the past several years. The FY 14 proposal was
a $10 million increase in Medicaid, which lowered the
growth rate to 1.4 percent. He added that the K-12 program
included funding increases, changes to the formula, and
annual appropriations making the growth rate difficult to
predict.
Representative Wilson asked about the K-12 formula increase
percentage minus an increase to the Base Student Allocation
(BSA).
Mr. Teal responded that the proposed increase for education
was $14 million plus the governor's $25 million one-time
appropriation. The governor's intent was to retain the
current BSA and provide the additional funding to the
Department of Education and Early Development (DEED) of $14
million. The funding would be targeted to school district
spending.
2:06:34 PM
Representative Thompson asked about the projected $2.9
billion in federal funds. He asked about the effect on the
budget if the federal funds were not received.
Mr. Teal replied that Trinity Tomsic, Deputy Executive
Director for Federal Funds would provide a presentation
about federal funding issues to both the Senate and House
finance committees. He stated that sequestration affected
certain grants for education. Federal cuts might affect
some programs. He stated that legislators might decide to
reduce program funding or replace it with general funds.
Representative Gara asked if Medicaid growth was documented
at 1 percent.
Mr. Teal replied that Medicaid growth was documented at 8
percent. He noted that the governor's increase for Medicaid
in FY 14 was 1.4 percent.
Representative Gara referred to the graph on page 4 that
depicted government spending with a surplus through 2022.
Mr. Teal stated that the same revenue projections were
used. The difference was that the price and production,
which determined the graph's revenue curve.
2:10:18 PM
Representative Gara asked about 2022 and projected price of
oil. He wondered if the graph's bar was influenced by the
price of oil.
Mr. Teal explained that the green background in the graph
depicted the revenue curve, which was affected by the price
of oil.
Representative Gara commented that the fall 2011 and spring
2012 Revenue Source Books exhibited revenue declines. The
most recent Revenue Source Book illustrated an even greater
decline in oil production. He expressed curiosity about the
potential surplus or debt based on the production forecast
provided by DOR.
Mr. Teal responded that DOR would provide testimony
regarding the difference between the spring and fall
forecasts.
2:12:42 PM
Representative Munoz complimented the division on the
budget publications. She asked about the percentage
increase in negotiated pay costs by bargaining unit from
2005 forward.
Mr. Teal replied that the bargaining agreements had a
series of 2 and 3 percent increases during the past several
years. He believed that the Department of Administration
(DOA) could best respond to the question during their
scheduled testimony on January 29, 2013 for the House
Finance Committee.
Co-Chair Austerman disused the agenda for next week.
ADJOURNMENT
The meeting was adjourned at 2:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| LFC Overview 1-18-13.pdf |
HFIN 1/18/2013 1:30:00 PM |
LFD Overview |