Legislature(2013 - 2014)HOUSE FINANCE 519
01/23/2014 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Fy 15 Governor's Budget Proposal: Office of Management and Budget | |
| 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 23, 2014
1:33 p.m.
1:33:01 PM
CALL TO ORDER
Co-Chair Austerman called the House Finance Committee
meeting to order at 1:33 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 David Guttenberg
Representative Lindsey Holmes
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Karen Rehfeld, Director, Office of Management and Budget,
Office of the Governor; John Boucher, Senior Economist,
Office of Management and Budget, Office of the Governor.
SUMMARY
^FY 15 Governor's Budget Proposal: Office of Management and
Budget
1:33:25 PM
Co-Chair Austerman discussed the schedule for the day.
1:35:06 PM
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced staff. She welcomed
committee members back and thanked them for time they would
spend reviewing the budget. She also thanked the
Legislative Finance Division staff for their time spent on
the budget. She provided a PowerPoint presentation titled
"FY2015 Budget Overview" (copy on file). She highlighted
her intention to discuss the capital, operating, and mental
health budgets (HB 265, HB 266, and HB 267 respectively).
She turned to slide 2 titled "Budget Vision." She spoke to
the governor's optimism about Alaska's future; the economy
was growing and the state's finances were solid. She moved
to slide 3 that outlined four budget principles including:
· Live within our means
· Focus on constitutional priorities
· Fix what we have
· Finish what we started
Ms. Rehfeld elaborated on the four principles on slide 3.
She compared living within the state's means to an
individual managing their personal cash and savings in
times when income is down. A focus on constitutional
priorities included education, resource development, public
safety, and transportation infrastructure. She highlighted
the importance of maintaining the state's existing
infrastructure and of finishing existing projects. The
governor's office had spent many months working with state
agencies on budget preparation. She relayed that
commissioners and departments had taken the budget very
seriously given the "different" environment. She detailed
that department's had brought forward a minimal number of
requests that included challenging budget areas.
Ms. Rehfeld moved to slide 4 that showed a snapshot of
current and proposed revenue and spending levels. She
explained that revenue forecasts were published twice a
year and that the December budget represented a point in
time; adjustments would be made during the legislative
session with the supplemental budget, amendments, and
legislative decisions. The slide showed the change in
revenue forecast from spring to fall of 2013 and the
overall spending level, which resulted in a draw from
savings. She pointed to discussions about managing the use
of state reserves in the long-term fiscal plan; the prior
year, the governor and legislature had agreed to an overall
spending target that had reduced General Fund (GF) spending
by more than $1 billion from the prior year. The governor's
proposed FY 15 budget included another reduction of over $1
billion. She communicated that draws from the Statutory
Budget Reserve (SBR) and spending discipline would be
required.
1:40:48 PM
Ms. Rehfeld moved to slide 5 that included a bar chart
showing the state's reserve accounts over time [FY 02 to FY
15]. The state had taken advantage of higher oil prices in
order to build up reserves and was committed to maintaining
funds; managing the use of reserves in times of financial
difficulty was important to the state's long-term plan and
to continue providing essential public services including
public safety, education, and transportation. The
administration believed it could use the reserves to
flatten out future operating budgets. She mentioned a
discussion that would take place regarding a proposal to
move funds from the Constitutional Budget Reserve (CBR)
into the retirement system trust funds; the administration
believed the option was important to consider and that it
would help the state manage its budgets in the future. She
pointed to the FY 14 and FY 15 columns that incorporated
projected draws given proposed spending levels. She touched
on the potential of moving $3 billion from the CBR into
retirement funds and noted that greater earnings may be
accrued in the trust funds.
Ms. Rehfeld communicated that the total proposed FY 15
budget was $12.4 billion (slide 6); Unrestricted General
Funds (UGF) accounted for just over 50 percent of the total
($5.64 billion). Of the total budget, federal funds
accounted for 23 percent, the Permanent Fund (including
inflation proofing and dividends) represented 15 percent,
Designated General Funds (GF program receipts or university
receipts) made up 7 percent, and other funds (including
international airports and statutory designated program
receipts) represented 4 percent. She pointed out that the
"Other State Funds" column in the fiscal summary would show
the proposed CBR draw of $3 billion and the proposed direct
deposit into the retirement trust funds (the transfer
netted out to zero).
Ms. Rehfeld addressed a pie chart representing the FY 15
budget by category on slide 7. Nondiscretionary funds were
shown in three shades of pink on the left side of the chart
(including formula programs, debt service, and statewide
appropriations). The blue slices of the chart on the left
showed discretionary funds (including agency and capital
budgets). She noted that when a reduction in state spending
was necessary the focus tended to be on discretionary
funds. She shared that the $1.25 billion for K-12 education
referred to the school funding formula and pupil
transportation. The state had 54 school districts with a
projection of 128,400 students for the FY 15 budget.
1:46:10 PM
Ms. Rehfeld continued to discuss slide 7. She detailed that
$25 million had been included outside of the education
formula to address energy, utility, and fuel costs. The
proposed budget included the current statutory Base Student
Allocation (BSA) of $5,680. She added that K-12 education
was forward-funded for FY 16. The "other formula" category
included Medicaid, public assistance, Power Cost
Equalization, and shared taxes; Medicaid represented the
largest portion of the category at $1.67 billion GF. She
referred to the Department of Health and Social Services'
(DHSS) projection that Medicaid would serve approximately
$151,000 Alaskans in FY 15. Large cost drivers of Medicaid
included the number of eligible individuals, the number of
individuals enrolled, and the cost of service. The
"statewide appropriations" category included the proposed
$3 billion direct payment into the retirement system
unfunded liability. Statewide appropriations that also
included funding for the eligible oil tax credits were
included at $450 million, total debt service payments of
$317 million, and revenue sharing. The Permanent Fund
accounted for $2.15 billion.
1:48:15 PM
Ms. Rehfeld looked at the blue slices of the pie chart on
slide 7. The top two slices referred to agency operations
totaling approximately $4.3 billion; of the $4.3 billion
total, $2.26 billion was UGF. The allocation provided
funding for 14 agencies, the University of Alaska, the
legislative branch, and the Alaska Court System. The
capital budget slice totaled $1.67 billion. She moved to
slide 8 titled "FY2015 UGF Spend: $5.6 billion." The slide
included a chart showing the downward pressure on the UGF
portion of the budget from $8 billion in FY 13 to $6.9
billion in FY 14 to $5.6 billion in FY 15.
Ms. Rehfeld directed attention to a pie chart on slide 9
showing GF budget by category. She addressed how UGF only
fit into the equation of a nondiscretionary and
discretionary view. She noted that approximately 50 percent
of the UGF request accounted for formula programs including
education, Medicaid, and others as well as statewide
appropriations for debt service, tax credits, and revenue
sharing. The right hand side of the chart showed that $1.45
million accounted for agency personnel services; budgeted
positions totaled 24,800. The capital budget represented
$426.3 million of the chart. She reiterated her earlier
testimony that discretionary funds tended to be the most
scrutinized when the goal was a reduction in state GF. She
communicated that department budgets were lean and "real"
reductions had been made.
1:51:40 PM
Ms. Rehfeld directed attention to slide 10 titled "State
Assistance Payments." The slide illustrated what payments
looked like under the state's current level percent of pay
method (represented in black) and the governor's proposal
(represented in blue). The chart showed that if the state
continued on the same path payments would escalate and the
cost would total approximately $15.2 billion. She relayed
that the governor's proposal was to put a direct payment
into the retirement trust funds in the current year and to
cap the payments going forward. The proposal also extended
the amortization schedule time period by three years and
the total was approximately $2 billion less than the state
would have paid otherwise.
Ms. Rehfeld recognized that the challenge of the unfunded
liability was a collective issue; over $3 billion had been
spent in direct payment assistance to the municipal
governments and school districts over the past 7 years. She
remarked that the escalation would continue to put an
increasing amount of pressure on the state's annual
operating budget and the ability to provide essential
services particularly in the current revenue environment.
She believed the state's goals had remained the same
including meeting its obligation to retirees, to manage
costs over time, to preserve the health of the funds, and
to avoid pushing costs off to future generations. The
governor's proposal was to take care of the problem at
present in order to manage the cost over time and to
prevent the state from ever having to decide between
funding the retirement liability payment or education. The
administration understood that many different ideas and
options existed. She pointed to a handout titled "FY 2015
Budget Addresses Biggest Operating Cost Driver" (copy on
file). The handout compared the current level percent of
pay, the governor's proposal, and the Alaska Retirement
Management Board (ARMB) proposal to move to a level dollar
method. She pointed out that a transfer of the funds would
improve the health of the funds by 10 percent immediately.
1:55:04 PM
Ms. Rehfeld discussed spending controls on slide 11. She
communicated that in addition to reductions taken from the
operating budget, business processes were improving and
being streamlined. The governor had issued Administrative
Order 266, a regulation review process to look at repealing
and removing barriers to efficiency. She touched on the
importance of enhancing technology. The Department of
Administration had negotiated centralized contracts to
reduce purchasing costs. New space standards had been
implemented to reduce the state's footprint and the cost of
office space. Additionally, the governor had deleted 150
long-term vacant positions and had reduced funding
associated with the positions. Specific reductions had been
taken in agency budgets including a $6 million reduction to
the fuel trigger and reductions to working reserve rates.
Additionally, one-time budget items had not all been
restored and pressure was put on agency budgets to absorb
staff merit increases.
Ms. Rehfeld stressed that departments had worked hard to
reach their current place; they recognized that FY 15 was
the first step and that the budget the following year would
include additional reductions. She relayed that the long-
term plan needed to include a balance of spending controls,
reductions, and management of the use of reserves over
time.
1:58:19 PM
Ms. Rehfeld pointed to a one page handout titled "Focusing
on Alaska's Future" (copy on file). She highlighted various
items pertaining to education that were included in the
governor's proposed budget including K-12 education, the
Alaska Performance Scholarship, Alaska Advantage Needs-
Based Grants, Alaska Digital Teaching Initiative (a three-
year project included in the capital budget), early
learning (including Head Start, Parents as Teachers, and
Best Beginnings), school construction (including funding to
complete the school in Kwethluk), University of Alaska
engineering buildings, and the Statewide Library, Archives,
and Museums project; additional funding was needed for the
last two projects. She pointed to funding for resources and
energy including Roads to Resources (continuing efforts to
reach the Ambler mining district, improvements to the
Dalton Highway, and the road to Tanana), Chinook Salmon
research (the second year request), the Susitna-Watana
Hydro Project, weatherization and home energy rebates, and
renewable energy.
Ms. Rehfeld continued to discuss items included in the
governor's proposed budget. She addressed funding for
public safety items such as the prevention of domestic
violence and sexual assault (including survivor support)
and Village Public Safety Officer programs. She highlighted
transportation and infrastructure items including state
highway and aviation programs (a significant portion was
federally funded), the Alaska Marine Highway (operating and
capital budgets), municipal water and sewer projects (paid
with a 50/50 percent match with municipalities), village
safe water, and year five of the deferred maintenance
program. She discussed funding for military items such as
homeland security, veterans services and outreach, and
armory facilities statewide.
2:01:35 PM
Ms. Rehfeld turned to slide 13 titled "FY2015 Budget -
Another Perspective." She addressed the importance of the
budget process and believed budget work was one of the most
important items undertaken by the legislature on an annual
basis. She pointed to the yellow area of the pie chart and
detailed that a large portion [56 percent] of the budget
went towards funding grants, direct payments, and capital
projects statewide (including Permanent Fund Dividends,
revenue sharing, Medicaid, school funding, capital
projects, named recipient grants, and other). Purchased
services accounted for 24 percent of the total budget and
included travel, hotels, professional services, equipment,
and other. State salaries accounted for 19 percent of the
total budget.
Ms. Rehfeld communicated the governor's optimism about
Alaska. She relayed that state's economy was growing due to
important decisions that had been made, opportunities were
increasing, and the state was working together on fiscal
discipline. She expressed appreciation in advance on budget
work the legislature would undertake.
2:04:21 PM
Co-Chair Austerman pointed to slide 8 and noted that the
$6.9 billion in UGF spending in FY 14 included all capital
projects added in the budget by the legislature, which he
believed the number was $796 million. He observed that the
governor had included $426 million in the current budget,
which was reflected in the $5.6 billion. He surmised that
the budget would be closer to $6 billion if the legislature
added approximately the same amount it had added the prior
year.
Ms. Rehfeld replied in the affirmative.
Co-Chair Austerman asked for verification that the budget
would be approximately $6 billion if the legislature added
in its own projects outside of the governor's proposed
projects. Ms. Rehfeld agreed that the budget would be
approximately $6 billion if the legislature added $4
million [in capital projects].
Co-Chair Austerman felt that the legislature had been
painted into a box related to the Public Employees'
Retirement System (PERS) and Teachers' Retirement System
(TRS) payment because the budget of $5.6 billion did not
reflect the $3 billion payment proposed by the governor. He
stated that under normal circumstances the legislature
would spend another $708 million in the current year;
however, the figure was not reflected in the $5.6 billion
(shown on slide 8).
Ms. Rehfeld replied in the affirmative. She explained that
the proposal was to transfer the payment of $3 billion from
the CBR into the retirement trust funds. The transfer would
not affect the UGF in the current year; the following year
the $500 million capped payment would come from recurring
revenues.
2:06:40 PM
Co-Chair Austerman explained that the $500 million payment
that would be required the following year was not reflected
in the current budget. He observed that in order to
maintain the downward budget trend the state would need to
look at another $500 million reduction that was not
reflected in the proposed $5.6 billion. He elaborated that
if the legislature did not agree to fund the $3 billion
payment and added $708 million the budget would be around
$6.7 billion. He wondered what wiggle room existed if the
legislature did not agree with the governor's CBR draw.
Ms. Rehfeld replied that work needed to be done between the
governor and the legislature to come to a spending target
agreement. She believed part of the current discussion was
to evaluate the proposal and options. She stressed that the
governor had not set a budget cap. She stated that
hopefully there would be a good conversation to determine
whether the best option was on the table and if there were
other options the legislature wanted to put forward. She
emphasized that no one was trying to paint anyone into a
box. She added that sometimes there were significant
changes that could be made to the budget in the
nondiscretionary statewide appropriations; however, the
focus in reductions appeared to be on the agency side,
which could be more difficult depending on what the
legislature was willing to discontinue.
Co-Chair Austerman asked for verification that no budget
cap existed. Ms. Rehfeld replied in the affirmative, but
surmised that the governor and legislature wanted to work
towards a spending target.
Vice-Chair Neuman referred to an executive summary from the
Office of Management and Budget FY 15 10-Year Plan that
related to the diversification of revenue over the upcoming
10 years. He noted that the summary addressed oil and gas
as the primary revenue generator for the state. He
mentioned concern from individuals such as T. Boone Pickens
and Bloomberg that oil could drop down to $80 per barrel.
He noted the importance of not building a budget around
high oil prices. He detailed that a gas pipeline was not
expected to be a large income generator. He read a
statement from the summary:
One particularly challenging example of this issue in
the operations portion of the budget is the state's
projected Medicaid spending. In FY 2015, the state's
portion of the federal Medicaid program was $693.3
million. Over the next 10 years that figure is
projected to increase at an annual rate of over 7.2
percent and by FY 2024 is projected to require a $1.3
billion contribution from the state's general fund.
He wondered how the state could continue GF spending at
$5.6 billion over 10 years and account for a $600 million
projected increase in Medicaid alone.
2:11:55 PM
Ms. Rehfeld agreed that at $5.6 billion it would be
difficult to manage a Medicaid program with the growth rate
mentioned. The issue highlighted the difficulty in
estimating long-term projections. She referred to current
discussions with departments on how to do a better job with
long-term projections. She noted that DHSS Commissioner
[William] Streur was concerned about some of the long-term
projections; however, it was different when looking back at
what actual costs had been versus the long-term
projections. She explained that the 10-year plan took
components that were known factors and used a combination
of fiscal restraint and what reserves and resource
development would look like. The plan included three
scenarios to adjust for a mid-case scenario looking at
production in the forecast (rather than having no new
production), what would happen at a lower dollar amount,
and how far reserves would go. The summary was designed to
help make decisions going forward; however, there were some
things that were very difficult to project in the future.
Vice-Chair Neuman observed that "projections are
projections" and that a significant number of things
related to Medicaid were beyond the state's control. He
mentioned 5-year and 10-year plans. He referred to state
data showing that Alaska should be in good shape if oil
production levels could hold at 500,000 barrels. He
understood that the cost of government would increase due
to items such as inflation, cost of living, contracts, and
other. He observed that slide 8 showed a decrease [in
spending]; however, slide 5 showed a decrease in savings
that was more than proportionate to savings in the 10-year
summary. He wondered where OMB saw dramatic decreases in
the operating budget and where things would level out. He
stated that taking money out of savings would have a
negative impact on the state's bond rating and would mean
less money for infrastructure projects and fewer jobs for
Alaskans. He stressed that the issue was coming to a head.
2:16:11 PM
Ms. Rehfeld replied that everyone was concerned about the
issues discussed by Vice-Chair Neuman. She relayed that it
would be very difficult cut the state's way out of a draw
from the CBR in the short-term if reductions were focused
on the agency portion of the budget. She communicated that
there were reductions included in the proposed budget and
she suspected the legislature would include reductions as
well. She stressed that significant cuts to the state's
operating budget [would be challenging] unless there were
specific items the legislature did not want departments to
do any longer. She believed it was necessary to remain
optimistic about revenue, oil production, potential gas
production, mining, and other emerging industries. The 10-
year plan was focused on keeping Alaskans employed and the
economy moving. She emphasized that ratings agencies had
rated the state high because of its strong financial
reserves and its fiscal discipline. She believed the
components were all important when looking at a 5-year or
10-year plan. She added that the farther out into the
future the more difficult it was to make predictions. She
noted that different points in time provided different
information, but making some decisions currently based on a
long-term plan was helpful.
2:18:48 PM
Representative Gara expressed appreciation for Ms.
Rehfeld's work. He discussed that two years earlier he and
Representative Guttenberg along with other democrats had
proposed paying down the pension liability in order to save
interest rates over the long-term. He was glad the
discussion would take place. He was unsure whether the
money should come out of the CBR or SBR, but noted that the
payment would save money over the long-term. He also agreed
with Co-Chair Austerman that it was important to talk about
drawing down savings. He recalled that when he had met with
the governor prior to the release of the FY 15 budget the
governor had promised that he would not characterize the
budget as a $1.3 billion cut. He opined that the budget did
not represent a $1.3 billion cut; however, all subsequent
presentations reflected a $1.3 billion cut. He believed it
was necessary for everyone to start with the same numbers.
He pointed to slide 8 that showed the budget was down from
$6.9 billion in FY 14 to $5.6 billion in FY 15; however,
normally $700 million would be applied to paying down
PERS/TRS deficit from the GF. He elaborated that instead of
using GF money the governor had proposed to take the annual
$700 payment out of the CBR plus an additional $2.3 billion
to pay down the debt. He surmised that when taking the
items into account the budget was really at $6.3 billion
plus the $2.3 billion the governor would like to apply to
the unfunded liability. He asked if the characterization
was fair.
Ms. Rehfeld answered that the math was correct, but she
would not propose to spend an extra $2.9 billion or $2.3
billion out of UGF. She explained that the proposal was
specific to a $3 billion transfer from the CBR into the
retirement funds. She elaborated that the governor had been
clear that the GF reduction in the current budget was not
meant to be a sleight of hand; he had been clear that the
$500 million would be part of the number the following
year.
Representative Gara remarked that money coming out of the
CBR was still state money. He relayed that the governor had
also communicated that room had been left for the
legislature to add money into the capital budget; he noted
that historically the figure had been about $400 million.
He stated that items not represented in the $5.6 billion
figure included $700 million [historical GF payment to
PERS/TRS], $400 million for the capital budget, and
operating budget adjustments. He stressed that if nothing
was done about increasing funds for education the state
would be up to 1,000 laid off teachers, guidance
counselors, and other support staff. He observed that any
additional education funding was not included in the $5.6
billion figure. He extrapolated that the proposed budget
was closer to $7.1 billion. He contended that legislators
voting in favor of the capital budget would be
characterized as adding $1.3 billion that was essentially
already in the budget. He did not believe it was fair for
the governor to call the budget a $1.3 billion reduction.
2:23:40 PM
Ms. Rehfeld believed everyone was talking about the same
numbers. She surmised that the governor's proposed budget
would look very different at the end of session. She
believed there would be many productive conversations about
what was needed to meet an agreed upon fiscally responsible
budget. She did not disagree, but the intention was not to
provide a false number.
Representative Gara discussed that the legislature had
passed and renewed legislation related to energy projects
for the Railbelt and statewide. He pointed to the Renewable
Energy Fund and noted that statute included an
appropriations provision that was unenforceable, but that
acted as a statement of legislative intent that $50 million
would be put into the fund annually for the next couple of
years to provide funding for statewide projects. He stated
that the governor had continued to cut the amount and that
the proposed budget only included $25 million. He wondered
whether there had been an analysis done related to the
issue.
Ms. Rehfeld answered that the proposed figure for FY 15 was
$20 million. She recalled the intent language about
appropriating $50 million per year. The administration had
approached the issue with the idea that if increasing
funding for the Renewable Energy Fund was a higher priority
than another item, additional funds would be appropriated.
She believed it was part of the discussion about fixing
what the state had currently. She communicated that over
$200 million had been appropriated in the fund and some
very good projects had been completed as a result. She
acknowledged there was more to do.
2:26:30 PM
Representative Costello asked if withdrawals from the CBR
had to be replenished. Ms. Rehfeld replied in the
affirmative. She elaborated that when money was used from
the CBR typically provisions in the budget would provide
for a sweep of funds into the reserve account to replenish
its balance. She relayed that in the past it had taken a
number of years to repay the CBR from spending in the mid-
1980s.
Representative Costello asked about the total current funds
that had been appropriated for capital projects but had not
yet been spent. Ms. Rehfeld replied that OMB provided an
annual report on the status of capital appropriations,
which would be available in early to mid-February. The
prior spring (since about 2007) there was approximately $6
billion allocated to specific projects that had not yet
been spent (including all fund sources such as federal and
state general funds). She detailed that a significant
portion of the total was associated with the past couple of
fiscal years. She added that it took several years for
federal project planning, design, and construction phases.
Additionally, there was approximately $5 billion encumbered
for specific projects that had not yet been spent.
2:28:57 PM
Representative Costello pointed to the governor's priority
to fix what the state currently had. She referred to agency
budgets that included funding for phase 1 of many capital
projects. She asked for an explanation of the apparent
disconnect. Ms. Rehfeld answered that of the total $426
million in proposed GF spending, $100 million was allocated
to deferred maintenance for state agencies, roughly $100
million was allocated to match and leverage funds (i.e.
matching funds for federal highway and aviation money,
village safe water, municipal matching grants), and funding
was included for energy projects. She communicated that
there were very few other state agency projects including a
project on Kenai River.
Representative Costello believed the project was a dock on
the Kenai River. She discussed the role of the creation of
jobs in the state. She wondered why the state did not
report the number of jobs created in its departments.
Ms. Rehfeld asked for clarification on the question.
Representative Costello clarified that she was interested
in department operating funds spent on job creation
efforts. Ms. Rehfeld would follow up with a response.
2:31:30 PM
Co-Chair Austerman recalled that at the start of the prior
year the state had approximately $15.8 billion in savings
that was accessible to balance the budget. He asked for
verification that the state had used $908 million the prior
year for FY 13.
Ms. Rehfeld referred to slide 5 that showed year-end
balances.
JOHN BOUCHER, SENIOR ECONOMIST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, responded that the figure
was closer to $700 million.
Ms. Rehfeld added that figures on slide 5 reflected year-
end balances and projections for the current and following
years.
Co-Chair Austerman asked if the $11.3 million [balance in
the CBR and SBR] for FY 15 reflected the $3 billion draw
from the CBR [for the unfunded retirement liability]. Ms.
Rehfeld replied in the affirmative. Co-Chair Austerman
asked if the data reflected the projected $1.9 billion in
spending from the SBR in FY 14. Ms. Rehfeld answered in the
affirmative.
2:33:27 PM
Representative Munoz asked about the impact of one-time tax
credits that would occur in the current year and the 35
percent credit for new oil activity [both items included in
oil tax legislation (SB 21) that had become law after the
prior legislative session].
Ms. Rehfeld responded that she was not the best person to
answer questions related to tax credits. She referred to an
SB 21 fiscal note that included information about changes
for the current-year and the following-year budgets. She
detailed that the revised fall forecast had shown a
difference in the numbers. She believed that some of the
change was due to non-North Slope activity; activity in
Cook Inlet had led to forecast changes. She noted that the
OMB fiscal summary reflected the changes; the number had
increased from $550 million to $600 million in the current
year and the projected FY 15 number had increased from $330
million to $450 million.
Representative Munoz referred to a payoff of Alaska's old
Clear and Equitable Share (ACES) tax credits. She asked
about the total amount reflected in the FY 15 budget. She
had heard the figure was around $400 million. Ms. Rehfeld
would obtain the information from the Department of Revenue
(DOR) and follow up.
Representative Munoz asked how the removal of poor 2008
returns would impact the trust fund five-year average
earnings calculation. She wondered if the change would be
reflected in projections.
2:35:45 PM
Mr. Boucher responded that early projections showed that
drop off of poor years would take effect two budget cycles
from the present. Some increase in the funded level of the
system would occur, but it would not be dramatic; models
projected that the increase would be around 1 percent.
Representative Munoz asked if the payment would be
approximately $500 million or less. Mr. Boucher responded
that the governor's plan would cap the payment at $500
million. He elaborated that as returns changed and the
liability floated the payment would not necessarily change,
but the payment term may change; the idea was to increase
the payment predictability and sustainability over time in
comparison with the current view up to 2029. He added that
significant savings could be seen over time if the current
path was altered.
Co-Chair Austerman noted that slide 4 showed that the SBR
draw from FY 14 and FY 15 was over $3 billion. He looked at
a projection showing that the governor's proposal would
only draw $5 billion from reserves. He referred to
testimony that the proposal factored in the $3 billion to
pay the retirement liability. He asked for clarity on how
the numbers penciled out.
Mr. Boucher replied that the projected $1.9 billion draw in
FY 14 and projected $1.1 billion draw in FY 15 would be
taken from the SBR, which did not retain any earnings. He
noted that some earnings were assumed to occur in the CBR
subaccount in FY 14 and FY 15, which would offset some of
the $3 billion draw. He would follow up with more
information.
Representative Wilson pointed to slide 4 and asked if $1.9
billion had been drawn from the SBR on 12/12/2013. Mr.
Boucher replied in the negative and clarified that the
figure was the projection for the end of current fiscal
year [FY 14].
Representative Wilson wondered if the final number would be
available on December 12, 2014 or June 30, 2014. Mr.
Boucher replied that final audited numbers would come out
in the Comprehensive Annual Financial Report (CAFR) in
December, but OMB would have a good idea about the numbers
at the appropriations closeout period in mid-August.
2:40:06 PM
Ms. Rehfeld elaborated that the figure for the SBR draw
would be known once appropriations bills had passed in the
current session that would potentially effect the current
fiscal year and once the final revenue forecast was known;
the items would dictate the total draw at the end of FY 14
on June 30, 2014. She added that there was an audit period;
therefore the final number would not be available until the
CAFR came out in December.
Representative Wilson discussed the comparison between her
personal finances and the budget process. She contended
that she would not use savings until she knew she would
have enough revenue to cover the next couple of years. She
appreciated the optimism, but noted that substantial gains
would be needed. She asked if the $4.532 billion shown on
slide 4 under FY 15 would be needed to prevent the state
from dipping into savings.
Ms. Rehfeld replied that relying only on the income in the
current year would mean that the proposed budget would need
to be reduced down to that revenue figure.
Representative Wilson asked when in the past GF spending
had been at the $4.5 billion level. Ms. Rehfeld would
follow up on the question.
Representative Wilson hypothesized that the numbers were
correct; the numbers showed $3 billion from savings plus
the additional $3 billion if the legislature agreed to fund
the amount to PERS/TRS. She pointed to the $11.3 billion
[projected FY 15 CBR and SBR balance] and surmised that if
the other figures were correct the figure should really be
$8.3 billion.
Ms. Rehfeld responded that the $15 billion in projected
savings for FY 14 (slide 5) included the reduction of $1.9
billion; likewise, the $1.1 billion reduction was included
in the FY 15 projection of $11.3 billion. She explained
that the reductions would occur in two different fiscal
years. The proposed $3 billion transfer from the CBR was
reflected in the FY 15 column as well.
2:44:11 PM
Representative Wilson asked for detail on the difference
between the $16.3 billion in FY 13 and the $15 billion in
FY 14 (slide 5). Mr. Boucher replied that the $1.9 billion
was reflected in the SBR change from FY 13 to FY 14 [shown
in gray]. The change in the SBR balance from FY 13 to FY 14
was $4.7 billion down to $2.7 billion and reflected the
reduction of $1.9 billion. The change from FY 14 to FY 15
was $2.7 billion down to $1.6 billion and reflected the
reduction of $1.1 billion. He expounded that the remaining
funds would earn interest at a rate of around 6 percent
blended. The proposed $3 billion transfer was reflected in
the CBR change from $12.2 billion down to $9.9 billion
between FY 14 and FY 15; the difference did not add exactly
to $3 billion because the projection assumed that the
remaining money would continue to earn interest.
Representative Guttenberg discussed the passage of SB 21
the prior session. He requested projections showing when
production would increase under the new tax system.
Co-Chair Austerman answered that the question would be
appropriate for DOR at an upcoming meeting.
Representative Guttenberg pointed to slide 11 related to
spending controls. He wondered about measurements of the
departments' business plans, delivery of services, and
efficiencies of facilities. He asked if missions and
measures were still used. Ms. Rehfeld responded that
results-based budgeting (missions and measures) had been
used for some time. She detailed that over the past decade
there had been some good changes and improvements in the
process. She believed that some departments were better at
using the process than others. She communicated that the
departmental measures were a good way to determine on a
larger level how well a department was meeting the
statutorily required services in its agencies. She believed
it would be more difficult to look at individual components
depending on the program. Representative Guttenberg noted
it had been frustrating being told that someone would get
back to him related to the issues.
2:48:39 PM
Representative Edgmon pointed to slide 3. He believed the
budget principles should include a statement about
investing in the future. He opined that the governor's
budget looked like a fair starting point. He highlighted
basic necessities the operating budget was designed to
serve including K-12 education, the Low Income Home Energy
Assistance Program (LIHEAP), Power Cost Equalization,
Village Public Safety Officer positions, community revenue
sharing at $60 million, Best Beginnings, the digital
learning initiative, the Renewable Energy Grant Fund at $20
million (he wanted to see the program funded at $50
million), and other. He stated that the items all provided
investment for the future. He believed the budget was
reasonable. He referred to differing opinions about how
much should be cut or not cut from the proposed budget. He
believed that one of the budget priorities (slide 12)
should relate to investing in the Arctic. He believed
Arctic investment would be Alaska's future including
offshore development, safety and monitoring, the building
of infrastructure assets, the building of capacity at the
University of Alaska Fairbanks, and other items seen by the
Arctic Policy Commission.
2:51:31 PM
Representative Gara discussed budget initiatives touched on
by the governor the prior evening [during his State of the
State speech]. He was a long-term supporter of the Digital
Learning Initiative and was glad to see it included in the
proposed budget; he believed its value needed to be
explained further during the current session. He referred
to a statement made by the governor and asked if the
intention was to trade a Base Student Allocation (BSA)
increase for a vote on private school vouchers. He noted
the BSA increase would be around $300 in Fairbanks, Juneau,
and Anchorage. He remarked that he did not trade votes.
Ms. Rehfeld answered that the governor planned to introduce
legislation that would include a number of education
reforms including dual credit charter schools and a BSA
increase. She did not believe an amendment to the Alaska
Constitution was part of the same discussion. She believed
the governor's goal was to work to bring parties with
different education concerns together.
Representative Gara asked whether the governor was
sympathetic to a BSA increase that would prevent cuts
facing school districts in the current year. Ms. Rehfeld
deferred the conversation until the governor's legislation
was introduced.
Co-Chair Austerman surmised that costs associated with the
governor's education bill were not included in the proposed
budget. Ms. Rehfeld replied in the affirmative.
Vice-Chair Neuman wondered how OMB worked with departments
to integrate their budgets in a more cooperative effort.
He pointed to slide 11 related to the improvement and
streamlining of business processes. He discussed a recent
meeting with DHSS related to administrative employees; he
had learned that 225 staff conducted the administrative
work for the department's 4,000 employees. He discussed
OMB's job of looking at the departments collectively to
determine how they were integrated. He stated that
departments tended to work in silos and all individually
competed for GF dollars. He pointed to a $4 million
increase in information technology in the past four years.
He had overseen the Department of Administration's budget
in the past and believed there had been $100 million
invested in new technology and in the coordination of the
Integrated Resource Information System (IRIS). He referred
back to the streamlining of business processes and pointed
to a $4 million increase in the DHSS administrative
operating budget over recent years. He believed a large
portion of the amount went to paying RSAs [Reimbursable
Services Agreement] to DOA. He communicated that
legislators were struggling to determine how to reduce
individual budgets.
2:57:06 PM
Ms. Rehfeld answered that managing complex agencies was a
huge job. One of the ways the administration had attempted
to break down silos was to involve various groups that
worked closely on issues of how best to manage the
different cost centers. Department administrative services
directors met every other week. Additionally, groups of
finance officers met to work on issues related to the
implementation of the new accounting system; the original
accounting system had been built in the 1980s. She believed
the new accounting system would help in a number of ways.
Her office also talked with central service providers that
had chargeback and costs in their budgets to determine cost
drivers before determining what agencies needed in order to
pay the costs. She communicated that one size did not
always fit all; each department had a unique set of
circumstances. The office tried to identify opportunities
to work across several departments to address a particular
issue. She relayed that the job was not easy. She discussed
looking at core services rates and issues that put
increased pressure on budgets and what was needed to get
the job done.
Vice-Chair Neuman addressed what was needed to "get the job
done." He pointed to a reduction in 58 personnel positions
in DHSS the prior year and an additional 28 in the current
year; administrative services made up 5 or 6 of the
positions. He noted that there were unfilled accountant
positions. He wondered if a lack of accountants hindered
departments' ability to monitor funds. He believed the
reductions in staff looked good on paper, but he wondered
whether the state was going backwards.
3:00:55 PM
Ms. Rehfeld replied that a key piece in looking for
departmental operating budget reductions was to have the
ability to say that the state would be able to manage the
people and resources to get the job done. She relayed that
the department leadership had the ability to focus on
priorities and to get the work done. She remarked that DHSS
was a very complex organization. She opined that
Commissioner Streur was a tremendous leader in the
department. She did worry about the state's ability to
deliver and its capacity; it was not possible to cut a
budget without looking at doing things differently. The
governor was working hard to bring the legislature a lower
budget. She was not completely happy with the way the
budget looked but the goal was to do the best with the
people and resources that were available.
Co-Chair Austerman discussed the schedule for the following
day.
ADJOURNMENT
3:02:52 PM
The meeting was adjourned at 3:02 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| OMB-HFIN FY2015_2 page_Cost_Driver_Budget_Priorities_for _Finance_Committees_1-23-14.pdf |
HFIN 1/23/2014 1:30:00 PM |
OMB Overview |
| OMB Budget Overview HFC Final 01 22 2014.pdf |
HFIN 1/23/2014 1:30:00 PM |
OMB Overview |