Legislature(2015 - 2016)HOUSE FINANCE 519
02/12/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB72 || HB73 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 72 | TELECONFERENCED | |
| += | HB 73 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 12, 2015
1:33 p.m.
1:33:04 PM
CALL TO ORDER
Co-Chair Neuman called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Mark Neuman, Co-Chair
Representative Steve Thompson, Co-Chair
Representative Dan Saddler, Vice-Chair
Representative Bryce Edgmon
Representative Les Gara
Representative Lynn Gattis
Representative David Guttenberg
Representative Scott Kawasaki
Representative Cathy Munoz
Representative Lance Pruitt
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; David Teal, Director, Legislative
Finance Division.
SUMMARY
HB 72 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 72 was HEARD and HELD in committee for further
consideration.
HB 73 APPROP: MENTAL HEALTH BUDGET
HB 73 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 72
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs, capitalizing funds, making
reappropriations, and making appropriations under art.
IX, sec. 17(c), Constitution of the State of Alaska,
from the constitutional budget reserve fund; and
providing for an effective date."
HOUSE BILL NO. 73
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:33:17 PM
Co-Chair Neuman called the meeting to order, and explained
that members of the public should consider the FY 16
Governor's endorsed budget as a starting point for budget
discussion. He added that the committee was expecting some
amendments to come from the administration.
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
(OMB), OFFICE OF THE GOVERNOR, clarified that she was
speaking from a summary document entitled "FY 2016 Governor
Endorsed Budget Summary by Department" (copy on file). She
added there was an additional packet of detail that she
would not be addressing. She mentioned that she had brought
individuals from the department to assist in answers
questions of a detailed nature.
1:36:30 PM
Co-Chair Neuman recognized the department commissioners and
staff and thanked them for their availability.
Ms. Pitney gave some background on the budget process to
date. She stated that the new governor had used the work-
in-progress (WIP) budget of the previous administration to
meet a statutory deadline. Several amendments had been put
forth, which resulted in the endorsed budget before the
committee. She pointed out that the endorsed budget was
very close to the overview budget she had provided two or
three weeks previously, with only minor changes.
Ms. Pitney highlighted reductions illustrated in the budget
summary: 6.1 percent for non-formula related agency
operations ($134 million for all agencies except the
legislative component); and 4.8 percent ($106 million) for
formula-related agency budgets. In total between non-
formula and formula agency budgets there was a reduction of
nearly $240 million from the previous fiscal year. She
clarified that the entirety of the savings in the operating
budget came from agency operations.
Ms. Pitney drew attention to the "Statewide Functions"
section of the summary, explaining that they included debt
service, direct payments to the retirement fund, and oil
and gas tax credits; with an increase of $129 million from
the previous year. She summarized that the increase, in
combination with the decrease in agency operations, totaled
an operating reduction of two percent.
1:40:07 PM
Ms. Pitney explained that when OMB went from the work-in-
progress budget to the endorsed budget, it asked department
commissioners to consider 5 percent and 8 percent reduction
scenarios. Additionally, departmental priorities and
priorities of the administration were considered; as well
as reductions and additions from prior years. Other impacts
to services and impacts such as the fuel trigger mechanism
were considered. She explained that OMB did not do a strict
across the board cut, but rather reflected on trends to
make different levels of reductions based on priorities of
state functions. She pointed out the reductions listed by
department on the budget summary, and highlighted some of
the decreases in different areas that were anticipated to
generate dialogue and questions.
Ms. Pitney discussed two areas of reduction within the
Department of Administration (DOA), including the Alaska
Land Mobile Radio (ALMR) program. She felt that the
reductions could be accomplished in the contractual
services area by contract savings and equipment
manufacturing changes.
Co-Chair Neuman asked Ms. Pitney if OMB was totally de-
funding ALMR, and asserted that there had been issues with
the program in the legislature for years. He discussed the
history of ALMR, recounting that the military had initially
developed the communications program, and the state was
going to take over parts of it before the military ended
its affiliation with it. The state then picked up functions
previously done by the military. It was his understanding
that fire departments and other emergency services did not
use the system.
1:43:13 PM
Ms. Pitney responded that ALMR was alive and well; there
would be cost reductions to the program, but it was a
system that many emergency services relied on.
Co-Chair Neuman wondered if there would be additional
funding needed in the future. Ms. Pitney responded that she
could not guarantee future costs due to changes in
technology and the next iteration of ALMR. She did not
anticipate additional costs in FY 17.
Representative Gara pointed out two parts of the budget
summary that did not make sense to him, and thought that
there was a bigger cut that was not reflected. Within the
"Statewide" section, he pointed out the 'Direct
Appropriation to Retirement Account' item for $257,278.30
and suggested it was a "fake increase" due to the $3
billion from the previous year spent from the
Constitutional Budget Reserve (CBR). Ms. Pitney attributed
credit to the legislative body for putting the $3 billion
in funding into the retirement accounts, which were long-
term liabilities. The alternative plan had been for the
contribution of $1 billion in the current and prior year.
She concluded that the action taken the previous year
[funding the $3 billion] put the state in a better position
for meeting its retirement liability in the long run.
Representative Gara reiterated his point that despite how
the funding was shown on the budget summary, the retirement
account spending had not gone from zero to $256 million. He
noted that many legislators had supported the $3 billion in
additional funding from the CBR.
1:46:37 PM
Representative Gara highlighted education under the
"Formula" section, and referred to the previous year's
three-year education plan. He asserted that he would do
whatever he could to avoid school cuts and that there would
be a continuing conversation. He recounted how the
legislature had added funding in the Base Student
Allocation for three years, as well as a plan for a step-
down of money that would be distributed through the
foundation formula but was not foundation formula. He
thought that the additional funding was approximately $40
million; and was planned to reduce by $12 million in year
two and $12 million in year three to total roughly $90
million. He pointed out that the first installment had
already been spent in the current school year, and wondered
if the $91 million indicated on the budget summary were the
same funds that were sent through the foundation formula
(yet was not foundation formula money). He questioned as to
how the $91 could be cut when half of it had already been
spent.
Ms. Pitney referred to the supplemental budget that had
been presented earlier in the week, and noted that the
component was reduced by $32 million in the current year
and $19 million for the following year. She continued to
explain the difference between the increase in the BSA in
the formula and forward-funding at 90 percent for FY 17.
Representative Gara asked if it was correct that there was
roughly $50 million being taken from year two and year
three, and the additional $40 million was coming from
forward funding at 90 percent instead of 100 percent, to
add up to $90 million. Ms. Pitney clarified that the $52
million was only showing up on the FY 15 supplemental
budget.
Representative Gara asked if the $90 million was the
forward-funding at 90 percent instead of 100 percent. Ms.
Pitney answered in the affirmative.
1:50:11 PM
Co-Chair Neuman discussed the issue of the forward-funding
of education, making note of the $1,269,430.60 indicated on
the budget summary for education in the FY 16 WIP budget.
He relayed that the Governor decided to fund the amount at
90 percent, with 10 percent ($126 million) unfunded. He
asked Ms. Pitney if any of her materials reflected the
reduction in the current year's expenditures. Ms. Pitney
noted that there was two components: the amount of funding
that education had for use in FY 16 (formula funded in FY
15), less the one time funding of $32 million. She
clarified that the education funding for FY 16 proposed in
the combination of the supplemental and current budget was
the full BSA, but not funding for the additional one-time
amount. She explained that the budget before the committee
reflected the amount of money being banked for FY 17,
rather than intention (of the administration) for FY 17
education funding. She continued that the forward-funding
of education was merely moving funds from one bank to
another. She noted that this administration did not plan to
forward-fund education as much, pending discussion over the
student formula anticipated to take place the following
summer to inform how much the administration would endorse
for the FY 17 education budget.
Co-Chair Neuman related that the legislature (in around
2006) had established the education fund in order to fund
education a year ahead to ensure that school districts had
an idea of their budgets even though their fiscal year did
not adhere to that of the legislature. By only funding it
at 90 percent in the current year, there would be a gap the
following year when there was sure to be a deficit and even
less available funds. He noted his intention of
establishing whether forward funding was a best practice.
He considered it important to provide some clarity in the
current budget. He thought that the will of the legislature
might be to ensure that it showed the education community
that it did intend to fund education. He referred to the
fiscal summary, which showed draws on the constitutional
budget reserve (CBR) and a difference of $127 million which
would be a forthcoming expense the following session. He
was not sure that forward funding was an appropriate
budgeting tool, and wondered if other members had similar
concerns. He asked Representative Gattis to comment on the
matter.
1:55:48 PM
Representative Gattis remarked that such budgeting (forward
funding) had been a concern with subcommittees, and also
thought it was important to bring some clarity to the
process. She thought it was difficult for people to
understand, and related that her constituents perceived the
budget process as "a shell game."
Co-Chair Neuman noted that the expense drew less from
savings in the current year but would be present the
following year, and even more would need to be withdrawn.
He stated the committee would work with the department to
identify the concerns and plan for moving forward.
Representative Pruitt added his support for what was stated
with regard to forward-funding for education. He referred
to the aforementioned discussion that would take place in
the summer, and felt that it was a dubious and doubtful
task to engage in productive discussion regarding the
education formula during the time frame mentioned. He
stressed the critical importance of clarity for the public
as well as school districts. He highlighted the importance
of discussion of education funding, but was not optimistic
about "fixing the formula" over the summer. He thought that
the one-time funding should be funded in its entirety, or
not at all.
Co-Chair Neuman supposed that the legislature could not
fund the one-time money and say that it cut $1.27 billion
out of the current year's budget.
1:58:50 PM
Representative Wilson asked if the $240 million decrease
included the $91 million. Ms. Pitney said that OMB could
provide the numbers to clarify.
Representative Wilson referred to the Department of Labor
and Workforce Development (DLWD) budget, which reflected a
reduced authorization, and asked if it was a "real" budget
cut. She noted that many of the budget cuts on the budget
summary were related to reducing authorizations. She
recounted her experience with reducing authorizations in
the budget, which she considered to make it appear as if
there were budget cuts when there were not, and asked if
that what was shown on the budget summary. Ms. Pitney
explained that DLWD was being reduced by almost $4.3
million on a $33 million unrestricted general fund (UGF),
which was an almost 13 percent UGF reduction. She added
that it was fortunate that DLWD operated heavily with
federal funds, so the reductions were not relative to their
entire operation. She pointed out two areas being reduced
in the immediate sense: the allied health programs in the
Alaska Vocational Technical Center (AVTEC); and a
reorganization of business partnerships and a reduction of
staff. She noted that the decreases combined with a
decrease in federal funding for job centers would have a
real service impact for DLWD. She summarized that while
there was authorization reductions, the $4.2 million was
also a reduction in real services.
2:02:15 PM
Representative Wilson expressed her understanding of the
cuts, and highlighted the importance of the public
understanding the difference between authorization and
actual funds. She described authorizations as money that
departments may have gotten but did not necessarily have at
the current point.
Ms. Pitney replied that for every state agency, the budget
process required authority to expend, regardless of the
fund source. She used a hypothetical scenario about a
federal project to illustrate the concept of authorization.
She continued that there were some authorization
reductions, but when UGF was discussed it represented cash
in the bank and real service reductions of revenue that was
no longer available.
Ms. Pitney explained her intention to highlight larger
reduction components of each department, and wondered if
she should continue in the same way. Co-Chair Neuman asked
that she continue discussing the highlights.
Ms. Pitney discussed reductions in Department of Commerce,
Community and Economic Development (DCCED) within the
Tourism Marketing Program, the Alaska Seafood Marketing
Institute (ASMI), and internal departmental changes, to
equal a nearly $5 million decrease from the previous year.
She pointed out a $24 million reduction in Department of
Corrections (DOC); a key component of which was a reduction
of the Community Jails Program.
Ms. Pitney referred to Department of Education and Early
Development (DEED) and discussed a reduction to some of the
grant programs on the non-formula side including digital
learning, network, and broadband programs. She listed a
reduction in food and water inspections in the Department of
Environmental Conservation (DEC), resulting in fewer
inspectors. She pointed out a reduction in the Department of
Fish and Game (DFG), part of which was made up with fund-
source shift to other DFG receipts.
2:06:59 PM
Ms. Pitney pointed out a reduction in the Office of the
Governor, including one-time reductions in the Division of
Elections, and with primary reductions in reduced staffing
levels from previous years. She pointed out one of the
changes from the recently presented overview budget;
originally there were non-formula programs that were being
reduced that shifted to some formula programs being
reduced. She discussed reductions in Department of Health
and Social Services (DHSS) due to some office streamlining,
and grant program reductions. Additionally in DHSS, there
were two components related to Medicaid expansion;
including a state to federal cost shift for the
Catastrophic Acute Medical Assistance (CAMA) program, a
program for individuals who would be eligible for Medicaid.
She noted three primary offsets in the budget due to
Medicaid expansion: CAMA, a $1.5 million reduction in
behavioral health grants, and cost savings from additional
eligibility of the Medicaid expansion population for some
prisoners transported to medical facilities.
2:09:28 PM
Ms. Pitney addressed a "fairly significant" reduction to
the Department of Law (DOL), which reflected the number of
lawyers and support staff and pooling of resources. She
pointed out that Department of Military and Veterans
Affairs (DMVA) had been split in to two components on the
budget summary, and that it was largely federally funded.
She explained that although the reduction of 4.5 percent
would have an impact, because its operations were largely
federally funded, the department would continue to operate
well. She specified that the Alaska Aerospace Corporation,
shown on a separate line on the budget summary, had been
zeroed out for general fund. She furthered that OMB had
asked the aerospace board and the chief executive officer
to look at opportunities for privatizing the operation.
Ms. Pitney pointed out a reduction of 2.5 percent to the
Department of Natural Resources (DNR). She explained that
DNR was a fairly high priority due to the nature of the
revenue capacity that they supported for the state. Similar
to DOL, there would be pooling of resources through
minimizing stand-alone offices and having expertise in a
more general pool of resources.
Ms. Pitney addressed the Department of Public Safety (DPS)
and noted the biggest reduction in transitioning from a
stand-alone highway patrol division to having all troopers
serve the full scope of a trooper requirement. She
clarified that transition would require all troopers to
work in the whole breadth of the trooper component rather
than specializing in highways alone. She pointed out a
reduction in the specialized special emergency reaction
teams (SERT), who would also be required to work in full
trooper duty. She noted that the number of troopers would
be impacted across the board.
Ms. Pitney stated that reductions to the Department of
Revenue (DOR) were much more on the administrative side,
with the reduction of some administrative duties, as well
as in the tax area including elimination of the film tax
credit division.
Ms. Pitney discussed components in the Department of
Transportation and Public Facilities (DOT) with a reduction
in the Alaska Marine Highway system, a reduction in the
various maintenance and operations areas for surface
transportation, and consolidation in the IT divisions. She
specified that the overall reduction totaled $10.8 million.
She referred to a 2.5 percent reduction in the University
of Alaska, driven by recommendations from the Board of
Regents. She added that the reduction was similar to what
the reduction in K-12 education would be.
Ms. Pitney addressed a reduction to the fuel utilities
mechanism (commonly known as "the trigger mechanism"),
noting that the mechanism was being eliminated. She added
that with the price of oil going down, the mechanism would
not have been invoked in the first place.
2:15:47 PM
Ms. Pitney referred to the branch-wide unallocated reserve,
and explained that the administration was proposing a $10
million contingency fund of sorts. The funds were planned
to mitigate effects of the large reductions that were being
made, some of which may have unintended consequences or may
inadvertently impact another agency. She noted that
relative to a $134 million reduction among agency non-
formula operating budgets, the $10 million was to correct
any errors. She referred to a proposed decrease of just
under $500,000 to Judiciary. She left the legislative
budget for the body to work out.
Co-Chair Neuman asked if the $10 million reduction when the
fuel trigger was eliminated was the same $10 million being
moved to the governor's office for the contingency fund.
Ms. Pitney replied that the description of the $10 million
was correct, whether it was part of the $24 million
reduction in DOC versus the $27 million reduction in the
fuel trigger mechanism. She did not think the $10 million
for the contingency fund could be attributed to any one of
the reductions. She added that the purpose of the $10
million was to address cuts that may not have been in the
best interest of Alaskans; or to "shore up the edge" until
future plans could be made.
Co-Chair Neuman stated that he had done a similar funding
maneuver in the past in DHSS. He noted that there was a
legal opinion stating that the maneuver was
unconstitutional since it was unallocated funds from the
legislature. He stated that the supplemental could be
better used to address any issues that arose. He referred
to the current year's supplemental budget, which was left
at zero, and shared that normally it would be at around $20
million. He mentioned that in times past it had been up to
$50 million, but was reduced to minimize draws on the
budget. He reiterated that it appeared as though the $10
million would be housed under the governor's office, and
asked Ms. Pitney to discuss reasons why.
2:20:05 PM
Ms. Pitney replied that the $10 million was for the
flexibility of providing for unintended consequences of a
reduction.
Co-Chair Neuman indicated there would be further discussion
on the subject.
Co-Chair Thompson noted he was not looking to criticize but
felt there were items he did not feel were actual
reductions. He referred to Medicaid expansion and pointed
out that many reductions listed on the budget summary were
based on the assumption that it would go through. He
referred to the Kotzebue community jail and used it as an
example to discuss expenses that were a result of
reductions. He expressed the need for responsible cuts but
was concerned about having "real numbers" listed in the
budget.
Vice-Chair Saddler asked about the governor's statement
that the fiscal situation demanded a response of 16 percent
budget cuts, and stated that he did not see cuts to that
amount in departments or budget-wide. He asked if Ms.
Pitney could explain the discrepancy. Ms. Pitney responded
that she was not aware of the exact quote, and that OMB had
asked the commissioners to forecast service delivery three
or four years in the future in the case of a reduction of
25 percent in state funding. She qualified that it would be
a multi-year process to make the reductions, and they would
inevitably identify particular areas that the government
would not want to reduce to 75 percent of the current level
of surface. In other areas, it may be possible to cut 25
percent or even 30 percent through drastic changes in how
business was done. She stated that the reality of the
funding in a deficit environment of $3.5 billion, even at a
25 percent reduction, left an inability to reach the
deficit level. She postulated that there were two
conversations going on: what would the state look like if
its footprint was much smaller; and what was the right size
of government for Alaska, given the services expected and
the uniqueness of the state and its geography. She
furthered that Alaska had the largest airport system in the
world, and the largest marine highway system in the world.
She added that there was a third item to be aware of,
whether the state would be fortunate in the price of oil,
or would it have to pull out different tools going forward.
2:25:04 PM
Co-Chair Neuman asked Ms. Pitney to clarify that the
aforementioned 25 percent reduction was for non-formula
funds. Ms. Pitney stated she would like to challenge the
reduction for all areas, but reiterated that it was likely
there were certain areas that couldn't be 25 percent
smaller. She thought that without asking for the challenge,
things would not be looked at differently.
Co-Chair Neuman agreed and stated that his understanding
was the governor's request to the departments was for a 25
percent over four years on non-formula funds, which would
be equivalent to a $550 million reduction from $2.2 billion
in formula funds, and would clearly not deal with a $3.5
billion deficit. He characterized the governor's statement
as "everything is on the table."
Vice-Chair Saddler noted that he thought the expectation
was raised for a 16 percent reduction, and wondered how
well the state would be served by not making the harder
cuts sooner. He echoed Ms. Pitney's statements regarding
more budget cuts being necessary in the future, and stated
that he looked forward to working with Ms. Pitney and OMB
to make the reductions sooner rather than later.
Representative Edgmon referred to a previous conversation
with Co-Chair Neuman and alluded to his subcommittee
budgets for DOC and DPS; he noted that in the subsequent
week he would be having a joint meeting between two
subcommittees to fully measure the cutting of community
jails in particular and the corresponding impact on DPS. He
noted that there would be representatives from the court
system and DOA to be present to help further delineate the
overall supply chain of costs that included prisoner
transport and video conference. He also noted they would be
addressing videoconferencing as a means of cost savings. He
spoke to the impact of budget cuts and that sometimes the
impacts of the cuts were very different than they were
initially perceived to be.
Co-Chair Neuman stated that Representative Edgmon made a
good point and that subcommittees were working on a process
to break down silos between departments.
2:29:10 PM
Representative Gara opined that when the budget was
regarded by the public, the cuts would be characterized in
different ways. He discussed the funding of the retirement
system, and reiterated that he thought it was inaccurate to
call the $257,278.30 direct appropriation an increase in
spending because of the previous year's expenditure of $3
billion spent from the CBR. He asked the administration to
consider that school districts wanted early and adequate
funding; explaining that of the two, schools would rather
have adequate funding for the coming year. He considered
"adequate" funding to be beyond what was done the previous
year, and beyond what was being proposed in the governor's
budget. He would consider adequate funding to be not
cutting any more teachers, and not cutting any more staff.
If the state was not going to do early funding, he hoped it
would do at least adequate funding after facing years of
teacher and staff cuts that could drive people from the
state.
Ms. Pitney acknowledged Representative Gara's remarks.
Representative Wilson revisited the idea of a 16 percent
cut as heard from the governor. She shared that her
constituents had communicated that they did not want to pay
for additional revenue. She asked if the administration was
looking at a maximum amount of savings it was looking at
taking out for the following year. Ms. Pitney restated that
OMB had asked departments to look at what their current
operations would look like at a 25 percent reduction. She
highlighted the importance of making the reductions in an
informed manner, with knowledge of current issues and cost
ramifications; and the impact to the overall economy. She
stated that the 25 percent target was being considered over
time, with agency operations being reduced 6 percent this
year and the following two years. She commented that the
overall reduction being reflected at 2 percent was due to
increased tax credits and increased retirement savings.
She emphasized that making the budget reductions was a
balance, and added that this was the first year (with the
exception of the university) that agencies were faced with
a GF budget that was less than the prior year. She
characterized the timeline as a prudent balance, and
asserted that the legislative body had the ability to go
faster. She stated that the cuts affected people and did
push off to other entities.
2:35:27 PM
Representative Wilson stated she would like to see the
departmental plans and noted that she would soon be working
in budget subcommittee. She commented that she had received
little information from the departments about program and
budget specifics.
Co-Chair Neuman remarked that he had discussed related
matters with Ms. Pitney and hoped to address them later in
the meeting.
Representative Wilson clarified that she was referring to
the plans that showed what the departments would look like
at 20 to 25 percent less. She wondered why the committee
could not view the plans in order to help make the
judgement as to what cuts to make. Ms. Pitney explained
that the target was given to the departments, with the
expectation that the commissioners begin considering the
scenario. They had gotten through the 5 percent and 8
percent reduction scenarios, but the plans looking at a
longer term reduction of 25 percent were not currently
available. She furthered that the plans, when available,
would inform how to take the next steps in budget
reductions where appropriate.
Co-Chair Neuman stated that he had a similar understanding
and that it was the goal set to work on through the summer.
Vice-Chair Saddler made note of the long-term trend of
increased education funding, and asserted that the
legislature was not firing teachers.
2:38:24 PM
Representative Munoz asked for clarification on the
overview and if Ms. Pitney would explain areas in which
there was a funding deletion that was also added back in.
Ms. Pitney gave the example of the Alcohol and Beverage
Control Board (ABC) and the marijuana law as one of the
important operations that needed to happen despite budget
reductions. She explained there was a reduction throughout
DCCED, however there was also an increase of approximately
$1.4 million for the ABC board. She furthered that there
were increments for all of the bargaining unit salary
adjustments, and the reduction target had to be met after
the increases. For each entity to meet their reductions,
there were additional cuts to make in order to meet the
salary obligations.
Representative Munoz pointed out $850,000 of restored
funding in the DEED budget for the Language Network, and a
line below it indicating the reversal of the amount; and
stated that such examples were seen throughout the
document. Ms. Pitney explained that the scenario was
reflecting when a particular entity was given a three-year
program, in this case $2.5 million to spread across three
years.
2:40:54 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION (LFD),
noted that he would be presenting the budget, and thought
it might be helpful to ensure there was a common
understanding of terms. He went on to explain the column
known as "governor's endorsed budget," which was also
sometimes called the "governor's amended budget." He stated
that LFD did not use the latter term, as it was reserved
for the budget as the governor submitted amendments on
February 18th. He furthered that the WIP budget was "dead,"
and was merely a budget submitted to meet a statutory
deadline, and had now been replaced by the governor's
endorsed budget. He did not see the need for comparisons
between the previous year's budget and the WIP budget, nor
between the WIP budget and the governor's endorsed budget.
He considered that it would simplify things immensely for
the committee if they would consider the governor's
endorsed budget only.
Mr. Teal explained that he would be working from the
document "State of Alaska Fiscal Summary-FY 15 and FY 16"
(copy on file). He noted the purpose of a fiscal summary
was to provide clear and concise comparison of spending by
category across fiscal years. He thought that emphasizing
the categories was important because LFD looked at agency
operations differently than they looked at statewide,
because of the ability to control the agency operating
budgets much more readily than statewide costs. He added
that cash flow surplus and deficit was also reflected in a
fiscal summary, as well as deposits and withdrawals from
reserve accounts. He stated that OMB had adopted a format
very similar to LFD several years previously, however in
the current year the format had become more challenging to
compare on a line by line basis. He argued that it did not
need to be compared on a line by line basis, but the
summaries matched on the bottom of the documents, for total
state spending as well as each of the categories. He
qualified that the summaries did not exactly match; there
was a $20 million difference due to the fact that OMB did
not have a supplemental placeholder on its document. He
pointed out line 45 of the fiscal summary, which showed
pre-transfer authorization of $5,624.9 million for FY 16;
and OMB's fiscal summary indicated $5,604.9 million for
pre-transfer authorization.
2:46:10 PM
Mr. Teal discussed the $20 million supplemental
placeholder, and wondered if it was a problem that it was
not reflected in OMB's materials. He pointed out that the
fiscal summary listed the supplemental budget for FY 15 on
line 15 for about $45 million; and clarified that did not
mean it would be the same every year. He pointed out the
predictability of some supplemental budget items such as
fire suppression (could run $20 million or more), and
judgements and claims ($6 million for the current year). He
stated that LFD was more concerned about areas such as the
Public Defender's Office and the Office of Public Advocacy
(OPA), in which there was a supplemental request of about
$300,000. In the past such supplemental requests had an
accompanying request for the following year. In the current
budget this was not the case, in fact there was a deficit.
He shared that LFD was concerned about the ability of such
agencies, which were case-load driven, to be able to really
absorb the cuts. He thought perhaps the inconsistency was
on purpose. He expressed that he knew the executive branch
was working to reduce costs. He acknowledged that they may
have been aware of missing things from the supplemental
budget to the FY 16 budget requests, and were considering
them as planned reductions for FY 16 or FY 17.
Mr. Teal pointed out Section 4 of the HB 72 Operating
Budget:
Sec. 4. LEGISLATIVE INTENT. (a) It is the intent of
the legislature that the amounts appropriated by this
Act are the full amounts that will be appropriated for
those purposes for the fiscal year ending June 30,
2016.
Mr. Teal thought there was an issue with Section 4, and
asserted that some managers could manage with the budget
they were given, and some could not. He considered it not a
management flaw, but rather that certain areas had costs
that were uncontrollable. He used Medicaid as an example,
as well as fire suppression. He noted a few other concerns,
including a $10 million unallocated appropriation, and a
legal opinion pertaining to the unallocated "contingency
funds" discussed earlier. He clarified that it was not
merely an opinion; rather it had been tested in 1983 and
declared by the Superior Court of Alaska to be
unconstitutional. LFD was concerned that the funds could
not stay in the bill the way it was presently drafted. He
pointed out that if those funds are removed, the governor
would have no money to meet what might be supplemental
needs. He summarized it as an argument for the supplemental
"placeholder" to be in the budget, at whatever amount was
chosen.
2:50:50 PM
Mr. Teal referenced the public education fund, and
recognized there had been some confusion. He referred to
line 49 of the Fiscal Summary, which showed a negative
number of $113.5 million. He explained that normally a
negative number indicated a withdrawal from savings,
however in this case it indicated a negative cash flow. He
discussed forward-funding and pointed out the amount going
in for FY 17 was $126 million less than was projected to be
needed for FY 17. He explained that there was nothing
technically incorrect about the situation, but it brought
up the issue of transparency. He favored making the amount
of spending and the amount of the deficit as clear and
simple as possible, and alleged that the deficit and the
CBR draw were essentially the same thing. He iterated that
when the legislature started drawing money or failing to
fully fund something in a reserve account, so that it
appeared as if savings were being used, the fiscal gap
appeared to be reduced and it was harder to understand the
balance of surplus and deficit. He went on to describe a
hypothetical scenario of short-funding the education fund
for FY 17 to make the deficit appear smaller. He voiced the
concern that the public education fund, if not filled,
would no longer be available as reserves.
2:54:02 PM
Mr. Teal commented that he was not aware of the governor's
intent with regard to the public education fund, however
the amount of short-funding would not matter and disguised
the amount of the deficit. He emphasized the importance of
not understating the deficit for the public or other
entities. He opined that it was not clear to the public
that the short-funding was distorting the deficit.
Mr. Teal pointed out line 46 of the "OMB vs LFD UGF Fiscal
Summary," (copy on file) showing a pre-transfer surplus
deficit of $3.428 million for FY 16; and noted that OMB
emphasized the post-transfer deficit (line 65 of the
comparative fiscal summary) and did not have a pre-transfer
deficit printed on its summary. He considered the pre-
transfer figure to be more important in communicating how
the current year's revenues compared to spending the
current year's money before pulling money from savings
accounts. He extrapolated that money was pulled from
savings accounts, it would easily reduce the deficit by $1
billion; however, in the long term nothing had been
accomplished as the $1 billion in other reserves was not
available to spend.
Mr. Teal remarked that it was not easy to simplify the
budget due to political considerations. He discussed the
challenge of incomplete budget information conveyed by the
press and the challenge for the public to understand what
the press did not report.
2:58:23 PM
Mr. Teal explained the third issue was reappropriations. He
noted that there were always reappropriations and it was
not merely a governors issue or an OMB issue. He explained
that reappropriations could be from one capital project to
another; from capital budget to operating budget, or the
reverse. He thought that capital to capital
reappropriations were fairly easy, simple to understand,
were like changing the scope of a project, and there was no
new money involved. He noted that confusion could arise
because reappropriations crossed fiscal years, and did not
receive the scrutiny that other funds did. He argued that
in the present fiscal climate, perhaps the funds should go
back to the GF in order for any potential projects to
compete for the funds with all other projects. He
considered that such a process could be a way to reduce
spending because of a change in methodology.
Co-Chair Neuman clarified that the point of putting funds
back into the GF rather than reappropriating would provide
clarity on explaining the budget, particularly in the
current fiscal situation. He highlighted that public money
was being spent, and clarity in explaining the budget was
crucial. He added that when there were reductions in an
agency, and they used other funds to backfill agency
operations, the agency was not really reduced. He expressed
concern and asked Mr. Teal if it was a normal practice. He
noted that he had seen a lot of agencies participating in
the activity by using special use funds and other means of
backfilling.
3:03:26 PM
Mr. Teal thought that it muddied the water to use funds in
such a way. He used the example of creating a Medicaid fund
with $500 million in it, and the subsequent finance DHSS
subcommittee's budget would not reflect the $500 million of
GF. He summarized that the process would not give the
subcommittee all the information about the funding that was
used in that department. He urged the committee to avoid
running money through funds, and appropriate general funds
for shortages in agencies rather than filling a fund and
creating a different picture for the subcommittee. Mr. Teal
reiterated the need for transparency in order to have the
clearest budget picture.
Co-Chair Neuman noted the approximate 25 percent turnover
in the finance committee and reflected that it was
important to have a system in place with clear accounting
practices.
Ms. Pitney commented that she agreed with Mr. Teal in some
cases but considered there to be some cases that were
different, such as direct-service items. She compared the
difference in funds and thought that the funds acted
differently. She thought that to the degree that offline
funds could be reduced and made to be UGF, there would be a
lot more clarity.
3:07:19 PM
Vice-Chair Saddler stated that in the DHSS budget he was
working with were several million dollars of unallocated
reductions; and asked if Mr. Teal could address the use of
unallocated reductions as a way to cut the budget. Mr. Teal
considered the weak point to be lack of opportunity for the
legislature to deliberate the effects of the budget cut. He
furthered that in using unallocated reductions, the
legislative body would be ceding the power of appropriation
to the executive branch. He asserted that it was the
legislatures job to determine how much money was
appropriated for what purpose, and by simply saying "cut
somewhere," the legislature was failing to do its job.
Conversely, the unallocated reduction gave the executive
branch the flexibility they needed to absorb a cut. He
reminded the committee that after the budgets were
prepared, the administration needed time to determine where
the cuts could be taken.
Mr. Teal referred to the time needed to formulate cuts and
described the scenario as a "huge offsetting balance." He
considered that as long as unallocated reductions were used
with that in mind, they were not bad, as long as they were
left unallocated within a restricted area. He furthered
that an unallocated reduction or increment in the
governor's office, with no sideboards, was
unconstitutional. An unallocated reduction within a
department had some legal challenges with it, but was much
less legally problematic when it had confines and could be
spread between multiple allocations.
Representative Gara asked about a number he had heard
regarding a potential $1.5 billion in savings through
cutting all state employees. Furthermore, he had heard
discussion about a $3.5 billion cut from the $5.6 billion
UGF budget and wondered if Mr. Teal viewed the cut as
realistic. Mr. Teal responded that both numbers were
factual, and explained there was roughly $2.6 billion spent
on personal services. He clarified that only about half of
state government positions were funded with GF, with some
being only partially GF funded. Mr. Teal discussed the
hypothetical $3.5 billion cut and referred to an
introduction in the governor's overview which included a
list of "hard to cut items" items, including K-12 formula
funding (roughly $1.3 billion), Medicaid (roughly $700
million), and debt service (roughly $200 million). The
items totaled $2.2 billion, which was equal to the amount
of UGF revenue that the state had. He concluded that if the
legislature was going to try and cut $3.5 billion from the
budget in order to match revenue, the state could have the
three items listed and nothing else, or find cuts in the
"hard to cut" areas. He did not think it was possible to
cut $3.5 billion from the budget.
3:13:08 PM
Co-Chair Neuman commented that the departments had worked
hard to uphold the governor's proposed reductions. He
acknowledged the difficulty of reducing the budget by $1
billion, and recounted that the previous year's operating
budget had been reduced by $70 million. He opined that
cutting the state government drastically could result in
inefficiency. He stated that the committee would look at
the Governor's amended budget and have a discussion to
ensure clarity in the budget process. He referred to DHSS
and a bubble chart they created to reflect their priorities
and use as a budgeting tool. The chart also illustrated the
cross-overs between departments which enabled them to
identify efficiencies. He concluded that his suggestion was
to try and utilize the same methodology with departments
and then create a budget from the work.
3:18:06 PM
Co-Chair Neuman continued to note that he had asked LFD and
the commissioners to examine laws, regulations and policies
for opportunities for savings. Statutes and regulations
could be examined for additional personnel costs and
procedures that did not make fiscal sense. He added that
the committee would be unlikely to pass any legislation
with a sizeable fiscal note unless it was very good. He
forecast that by the subsequent year there would be more
information on the price of oil, the revenue forecast, and
a profile of the size of government the state could afford
to fund. He stressed the need for building a government
based on the funds that were available rather than
continuing to use the state savings, would last about 2.5
years without utilizing the permanent fund. He thought the
committee needed a current plan to address the deficit in
forthcoming years as well as the current deficit. He
supported giving the departments the tools they needed for
a strategy to identify and protect core missions.
3:22:13 PM
Representative Guttenberg relayed that he appreciated Co-
Chair Neuman's statement and goals. He stressed the
importance of defining the core function of government. He
expressed concern with some of the cuts being proposed; and
mentioned prisons, job training, therapeutic programs, and
the system of dealing with societal woes. He discussed
stresses on society in the long run, and elaborated that
perhaps in the future the state would see resultant
increases in corrections. He wondered how it would be
possible to get through the work in a 90-day session, and
noted the difference in what could be accomplished and
examined in a 120-day session. He discussed the depth of
understanding needed to understand the cascading effects of
a diminished budget. He mentioned the concept of "silo-
ing."
Co-Chair Neuman noted that next week the committee would be
hearing about a recidivism/reduction group and its goals.
Co-Chair Neuman thanked the testifiers, as well as
department staff in attendance.
ADJOURNMENT
3:27:19 PM
The meeting was adjourned at 3:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 16amd_deptsummary_2-5-15.pdf |
HFIN 2/12/2015 1:30:00 PM |
HB 72 |
| 16amd_deptsummary_ugf_2-5-15.pdf |
HFIN 2/12/2015 1:30:00 PM |
HB 72 |
| ABS Worldview 2-11-15.pdf |
HFIN 2/12/2015 1:30:00 PM |
HB 72 |
| Final_FY2016_Gov_Amended_Budget_Summary_2-5-15.pdf |
HFIN 2/12/2015 1:30:00 PM |
HB 72 |
| OMB vs LFD UGF Fiscal Summary FY15-FY16 2.11.15.pdf |
HFIN 2/12/2015 1:30:00 PM |
|
| 2 12 15 FY15 Mgt Plan to FY16 GovEnd.pdf |
HFIN 2/12/2015 1:30:00 PM |