Legislature(2013 - 2014)HOUSE FINANCE 519

01/17/2013 01:30 PM FINANCE

Download Mp3. <- Right click and save file as

Audio Topic
01:31:21 PM Start
01:31:21 PM Overview of the Governor's Fy 14 Budget: Office of Management and Budget
02:59:48 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Governor's FY14 Budget Proposal TELECONFERENCED
by Karen Rehfeld, Director, Office of Management
and Budget
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 17, 2013                                                                                           
                         1:31 p.m.                                                                                              
1:31:21 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 1:31 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative David Guttenberg                                                                                                 
ALSO PRESENT                                                                                                                  
Helen   Phillips,   Committee   Assistant,   House   Finance                                                                    
Committee,  Legislative  Finance  Division;  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.                                                                                  
COMMITTEE INTRODUCTIONS                                                                                                         
OVERVIEW OF THE GOVERNOR'S FY 2014 BUDGET:                                                                                      
     Office of Management and Budget                                                                                            
1:31:21 PM                                                                                                                    
Co-Chair  Stoltze   turned  the   gavel  over   to  Co-Chair                                                                    
Co-Chair Austerman  asked House Finance  Committee Assistant                                                                    
Helen Phillips  to provide  staff introductions  and discuss                                                                    
information pertaining to the committee room.                                                                                   
HELEN   PHILLIPS,   COMMITTEE   ASSISTANT,   HOUSE   FINANCE                                                                    
COMMITTEE,  LEGISLATIVE  FINANCE  DIVISION  (LFD),  provided                                                                    
introductions and functions of  LFD committee support staff.                                                                    
She  had referenced  a memo  she had  provided to  committee                                                                    
members  pertaining  to  supplies, meeting  recording,  room                                                                    
resources,  bill  files,  weekly schedules,  room  use,  and                                                                    
other (copy on file).                                                                                                           
1:38:47 PM                                                                                                                    
Co-Chair  Austerman  discussed   that  alternates  had  been                                                                    
assigned  to the  committee.  Representative Guttenberg  had                                                                    
been excused for  one to two weeks.  He asked Representative                                                                    
Kawasaki to join the committee  at the table as an alternate                                                                    
in Representative Guttenberg's absence.                                                                                         
Co-Chair Austerman introduced his staff.                                                                                        
1:41:20 PM                                                                                                                    
Co-Chair  Stoltze  introduced  his   staff  and  provided  a                                                                    
description of their responsibilities.                                                                                          
Vice-Chair Neuman discussed that  his staff was working hard                                                                    
to prepare for the Department  of Health and Social Services                                                                    
budget subcommittee meetings.                                                                                                   
Representative Thompson introduced his staff                                                                                    
Representative Edgmon introduced his staff.                                                                                     
Representative Wilson introduced her staff.                                                                                     
Representative Costello introduced herself and her staff.                                                                       
Representative Gara introduced his staff.                                                                                       
Representative Kawasaki introduced himself and his staff.                                                                       
Representative Holmes introduced herself and her staff.                                                                         
1:46:11 PM                                                                                                                    
Representative Munoz introduced her staff.                                                                                      
Co-Chair  Austerman  provided  information  about  committee                                                                    
rules (memo  on file).  He shared  that the  committee would                                                                    
meet at  1:30 going forward  and asked committee  members to                                                                    
be on  time. He communicated  that members would need  to be                                                                    
present to  vote and could  not vote via  teleconference. He                                                                    
relayed that committee reports  for reported out legislation                                                                    
needed  to be  signed in  the committee  room. He  discussed                                                                    
that  the committee  would be  meeting on  a daily  basis in                                                                    
order to  address the governor's  proposed FY 14  budget. He                                                                    
mentioned  that  March 1,  2013  would  be the  subcommittee                                                                    
closeout deadline.                                                                                                              
1:50:07 PM                                                                                                                    
^OVERVIEW  OF  THE  GOVERNOR'S   FY  14  BUDGET:  OFFICE  OF                                                                  
MANAGEMENT and BUDGET                                                                                                         
1:50:26 PM                                                                                                                    
KAREN REHFELD,  DIRECTOR, OFFICE  OF MANAGEMENT  AND BUDGET,                                                                    
OFFICE  OF THE  GOVERNOR,  introduced  her senior  economist                                                                    
John Boucher.  She introduced additional staff  and provided                                                                    
descriptions of  the areas they  worked in.  She appreciated                                                                    
the opportunity to present to the committee.                                                                                    
1:54:08 PM                                                                                                                    
Ms. Rehfeld  provided a Power Point  presentation titled "FY                                                                    
2014  Budget  Overview."  She emphasized  that  approving  a                                                                    
budget  on an  annual basis  was one  of the  most important                                                                    
items  addressed  by  the  legislature.  She  discussed  her                                                                    
intent  to provide  a high  level overview  of the  capital,                                                                    
operating, and mental  health budgets (HB 64, HB  65, and HB                                                                    
66 respectively).  She shared that  the governor  had talked                                                                    
about  weighing  priorities  and  constraints  when  he  had                                                                    
released the  budget in  December 2012;  he had  also talked                                                                    
about  the state's  solid position  and results.  She shared                                                                    
that the state's AAA bond  rating was largely due its budget                                                                    
reserves,  the  permanent  fund,  the  legislature's  budget                                                                    
discipline,  and  the  opportunity to  develop  the  state's                                                                    
resources.  She applauded  the committee's  efforts to  work                                                                    
with state agencies on their  missions, their core services,                                                                    
and  the delivery  of services.  She stated  that government                                                                    
needed to  be accountable  for its expenditures.  She shared                                                                    
that  the administration  had worked  for months  with state                                                                    
agencies to  review their requests  and challenges  in order                                                                    
to bring  forward the most  pressing needs  while practicing                                                                    
fiscal constraint.                                                                                                              
Ms.  Rehfeld  communicated  that the  performance  framework                                                                    
needed  to  be a  meaningful  tool  for state  agencies  and                                                                    
program  managers.  She  shared that  Governor  Parnell  had                                                                    
maintained  a vision  of economic  growth and  strengthening                                                                    
families.  She  stated  that  Alaska's  future  depended  on                                                                    
responsibly developing  its resources  and on  job creation.                                                                    
She believed  the budget supported the  governor's vision in                                                                    
several key areas (slide 3):                                                                                                    
     Budget Priorities                                                                                                          
     · Resources and Energy                                                                                                     
     · Education                                                                                                                
     · Public Safety                                                                                                            
     · Transportation/Infrastructure                                                                                            
     · Military Support                                                                                                         
Ms. Rehfeld elaborated  on each of the  bullet points listed                                                                    
on  slide  3.  In  relation  to  resources  and  energy  the                                                                    
administration  was  focusing   on  creating  an  investment                                                                    
climate  designed  to  grow   Alaska's  economy  and  create                                                                    
private  sector jobs.  The education  focus  was to  prepare                                                                    
students  for  success  in  job  training  or  college.  The                                                                    
primary focus  in public  safety was  to provide  safe homes                                                                    
and  strong  families.  Attention   was  given  to  building                                                                    
Alaska's infrastructure and  transportation corridors and to                                                                    
supporting military missions and families.                                                                                      
Ms.  Rehfeld turned  to slide  4 titled  "Fall 2012  Revenue                                                                    
Forecast." She stated that  there were significant decreases                                                                    
in the revenue forecast from the  spring of 2012 to the fall                                                                    
of  2012.  She relayed  that  declining  oil production  and                                                                    
price had  a profound  impact on  the funding  available for                                                                    
the current and next fiscal  years. The chart showed that in                                                                    
the  spring  of  2012 the  administration  was  anticipating                                                                    
$8.44 billion  in revenue; the  numbers had been  revised in                                                                    
the  fall 2012  forecast to  $7.5 billion  largely due  to a                                                                    
drop in  oil price  and production, representing  a decrease                                                                    
of approximately $928  million. The FY 14  forecast had been                                                                    
revised  from  $7.68  billion  to   just  over  $7  billion,                                                                    
representing a  decline of $678  million. The  total decline                                                                    
was  $1.6 billion.  She remarked  that the  changes provided                                                                    
the context that was used in developing the FY 14 budget.                                                                       
1:58:53 PM                                                                                                                    
Ms. Rehfeld moved  to slide 5 "FY 2013/FY  2014 Budgets: Big                                                                    
Picture." She communicated  that the state was  looking at a                                                                    
deficit of $410  million instead of the  expected surplus of                                                                    
$514  million.  She  referenced  an  appropriation  of  $250                                                                    
million  that  had  been  approved   the  prior  spring  for                                                                    
transfer into  the Statutory Budget  Reserve (SBR);  the net                                                                    
deficit  would be  approximately  $160  million. She  stated                                                                    
that  less  revenue  meant  spending  less;  therefore,  the                                                                    
administration  had  asked  departments  to  evaluate  their                                                                    
current  employees  and resources  used  to  carry out  core                                                                    
services  without  increases  in   the  FY  14  budget.  The                                                                    
administration was  working to  decrease overhead  costs, to                                                                    
increase efficiency, and to focus on priorities.                                                                                
Co-Chair Austerman pointed out that  the figures used in the                                                                    
presentation  came  from  the   Department  of  Revenue  and                                                                    
Department of  Natural Resources projections. He  noted that                                                                    
the  departments   would  present   to  the   committee  the                                                                    
following week.                                                                                                                 
Representative  Gara  referenced  the $410  million  deficit                                                                    
projection for the end of  the current fiscal year. He asked                                                                    
what the projected  price was and what the  actual price had                                                                    
been  for  the current  fiscal  year  to date.  Ms.  Rehfeld                                                                    
responded  that the  price included  in the  spring forecast                                                                    
for FY 13  was $110.44; the 2012 fall  forecast was $108.67.                                                                    
Production in  the spring had  been 563,000 barrels  per day                                                                    
and $553,000 barrels per day in the fall.                                                                                       
Representative Gara  asked what the actual  price per barrel                                                                    
had been in the current fiscal year.                                                                                            
JOHN  BOUCHER, SENIOR  ECONOMIST, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, OFFICE  OF THE GOVERNOR,  responded that  the figure                                                                    
was  running slightly  below the  forecast. He  believed the                                                                    
actual price was  within $1 to $2 from  the projected price.                                                                    
He  communicated that  he  would follow  up  with the  exact                                                                    
2:02:28 PM                                                                                                                    
Ms.  Rehfeld pointed  to slide  6  titled "Alaska's  Reserve                                                                    
Accounts." The chart provided a  visual of the growth in the                                                                    
state's  savings accounts  from  2002 to  2012. She  relayed                                                                    
that there was  nearly $16 billion in savings at  the end of                                                                    
FY 12.  She elaborated that  the state had  used "windfalls"                                                                    
from  high oil  prices to  repay past  Constitutional Budget                                                                    
Reserve (CBR) draws  and to maintain money  put into reserve                                                                    
accounts; the  element was important to  consider because it                                                                    
was the  reason for the  state's AAA  bond rating and  was a                                                                    
key factor in the long-range  fiscal plan. She detailed that                                                                    
managing  the   use  of  reserves  in   times  of  declining                                                                    
production  was key  and would  help  provide for  essential                                                                    
services  (e.g.  public safety,  education,  transportation,                                                                    
and other).                                                                                                                     
Co-Chair    Austerman   acknowledged    the   presence    of                                                                    
Representatives Andrew  Josephson and Shelley Hughes  in the                                                                    
committee room.                                                                                                                 
Ms.  Rehfeld discussed  spending  controls on  slide 7.  She                                                                    
stated  that over  the past  three years  the administration                                                                    
had  asked  state  agencies to  absorb  increases  in  their                                                                    
budgets including  merit increases for staff,  and increases                                                                    
in  central support  services rates,  contractual costs  and                                                                    
lease   costs.  She   furthered  that   the  Department   of                                                                    
Administration (DOA) had been  closely examining what it was                                                                    
charging agencies for core services  and how the costs could                                                                    
be  reduced.  Agencies had  been  directed  to manage  their                                                                    
budgets, not  plan on supplemental  funding, and  to provide                                                                    
services to Alaskans without disrupting services.                                                                               
Ms. Rehfeld referenced the governor's  FY 13 budget that had                                                                    
deleted over  280 positions; departments  had been  asked to                                                                    
make  adjustments in  their budgets  to  minimize impact  on                                                                    
service delivery.  The administration had employed  a number                                                                    
of strategies  to help manage costs  with existing resources                                                                    
including (slide 7):                                                                                                            
     · Improve/Streamline business processes                                                                                    
     · Enhance technology                                                                                                       
     · Lower cost of purchasing                                                                                                 
     · Reduce footprint/cost of office space                                                                                    
     · Share services                                                                                                           
2:06:38 PM                                                                                                                    
Ms. Rehfeld  continued to  discuss slide  7. She  noted that                                                                    
DOA  had  recently issued  new  space  guidelines that  were                                                                    
consistent   with   private   and  public   sector   changes                                                                    
nationwide;  the  shift  would  help the  state  reduce  the                                                                    
footprint and the cost of office space.                                                                                         
Ms.  Rehfeld  communicated  that  the  FY  14  state  budget                                                                    
totaled $12.8  billion. She moved  to slide 8,  which showed                                                                    
the makeup of the FY 14 budget by fund source:                                                                                  
          Unrestricted General Funds    $6.49 billion - 51%                                                                     
          Federal Funds                 $2.94 billion - 23%                                                                     
          Permanent Funds DGF           $1.92 billion - 15%                                                                     
          Designated General Fund       $866.6 million - 7%                                                                     
          Other Funds                   $559.3 million - 4%                                                                     
Ms. Rehfeld  elaborated that Designated General  Funds (DGF)                                                                    
included items  such as University of  Alaska receipts ($377                                                                    
million)   and  general   fund   program  receipts   ($133.3                                                                    
million).  Other   funds  included  items  such   as  Alaska                                                                    
Permanent  Fund   Corporation  (APFC)   receipts  (including                                                                    
management fees  and fund operation at  approximately $133.3                                                                    
million),  International Airport  Funds ($146  million), and                                                                    
Statutory Designated Receipts ($70.5 million).                                                                                  
Co-Chair Austerman asked  for the top three  items that made                                                                    
up  the $1.92  billion  for APFC.  Ms.  Rehfeld shared  that                                                                    
inflation proofing (a total of  $943 million; $22 million of                                                                    
the amount was for  the Alaska Capital Income appropriation)                                                                    
and the Permanent  Fund Dividend ($958 million)  made up the                                                                    
lion share  of the cost.  She noted that  the administration                                                                    
received  a monthly  financial  statement  from APFC;  OMB's                                                                    
December 2012 fiscal summary reflected  data from the end of                                                                    
October. She shared that the  most current information would                                                                    
be used in the budget amendment package in February 2013.                                                                       
2:09:58 PM                                                                                                                    
Ms.  Rehfeld addressed  budget priorities  on  slide 9.  The                                                                    
budget contained a $14.8 million  request to fund the fourth                                                                    
year of  the governor's  Choose Respect initiative  aimed at                                                                    
preventing domestic violence and  sexual assault; $3 million                                                                    
of  the   total  was  an   annual  request   designated  for                                                                    
prevention.   She  discussed   different  elements   of  the                                                                    
initiative  including  prevention  and intervention  in  the                                                                    
amount of $5.25 million  for public education and awareness,                                                                    
community  level   prevention  projects,  and   rural  pilot                                                                    
projects;  $2.6 million  in survivor  support for  shelters,                                                                    
services for children exposed  to violence, trauma services,                                                                    
and  housing; and  $6.9 million  in law  enforcement for  15                                                                    
Village  Public  Safety  Officers   (VPSO)  and  1  trooper,                                                                    
additional  prosecutors for  child abuse  cases (in  Juneau,                                                                    
Fairbanks,  and  Bethel),  and  3  investigators  for  child                                                                    
protection and sex trafficking.                                                                                                 
Ms.  Rehfeld relayed  that more  than  120 communities  held                                                                    
Choose  Respect events  in 2012  and additional  communities                                                                    
were expected to participate in  March 2013; the events sent                                                                    
a strong  message of support  to victims and  survivors. The                                                                    
governor's proposed  budget also  included $2.8  million for                                                                    
15  additional  state troopers  in  the  Mat-Su, Kenai,  and                                                                    
Fairbanks region; the request  was to account for escalating                                                                    
population   growth.  Additionally,   the  budget   included                                                                    
$823,700 for a new trooper  post (2 troopers) in Hooper Bay.                                                                    
She noted  a similar request  for Selawik had  been approved                                                                    
two years earlier and had been very effective.                                                                                  
2:12:50 PM                                                                                                                    
Vice-Chair  Neuman  acknowledged   that  the  programs  were                                                                    
important to  the state's communities; however,  he believed                                                                    
the state  was starting  out at a  $920 million  deficit not                                                                    
including  any  FY  12   supplemental  budget  requests.  He                                                                    
wondered whether the administration  had considered what the                                                                    
state could afford and the cost-benefit of programs.                                                                            
Ms. Rehfeld  replied that the administration  had considered                                                                    
the  issue  prior  to  submitting  the  budget.  The  budget                                                                    
focused on  areas that the administration  believed were key                                                                    
priorities  and services  that  Alaskans  expected from  the                                                                    
state.  She  detailed that  the  state  had a  $410  million                                                                    
deficit in  the current  year and it  would be  necessary to                                                                    
draw from  the SBR to  pay for  current services. The  FY 14                                                                    
budget would  be funded  by $6.49  billion of  state general                                                                    
funds, which was approximately  $500 million below projected                                                                    
revenue.   The  administration   believed  the   budget  was                                                                    
responsible  and would  help in  the  long-term with  public                                                                    
safety and  to reduce  problems that  could occur  without a                                                                    
law enforcement presence.                                                                                                       
Vice-Chair  Neuman  communicated  that   he  had  asked  the                                                                    
Departments    of   Health    and   Social    Services   and                                                                    
Transportation and  Public Facilities to cut  10 percent off                                                                    
their  proposed  budgets.  He wondered  whether  there  were                                                                    
specific   areas  where   spending  could   be  reduced   if                                                                    
Ms.  Rehfeld answered  that she  could address  the question                                                                    
later in the presentation.                                                                                                      
Representative  Gara acknowledged  the  importance of  being                                                                    
fiscally responsible.  He observed that $250  million of the                                                                    
$410 deficit in the current  year had been put into savings.                                                                    
He surmised  that excluding the  money put into  savings the                                                                    
deficit would be closer to $160 million.                                                                                        
Ms. Rehfeld  replied that the  $250 million  was technically                                                                    
considered a  transfer and not savings.  Representative Gara                                                                    
asked for  verification that  the state  had the  money. Ms.                                                                    
Rehfeld responded in the affirmative.                                                                                           
2:17:18 PM                                                                                                                    
Ms.  Rehfeld  moved  to  slide 10  titled  "FY  2014  Budget                                                                    
Priorities," which  focused on the  governor's comprehensive                                                                    
energy  strategy. Strategy  components included  $95 million                                                                    
for Susitna-Watana hydro  (continued engineering feasibility                                                                    
studies,   design,    environmental   work,    and   license                                                                    
application  to  be  submitted   in  September  2015);  $125                                                                    
million  for the  capitalization of  the Sustainable  Energy                                                                    
Transmission  and Supply  Development  Fund  to provide  low                                                                    
cost financing  for energy projects (a  technical correction                                                                    
would be  included in the budget  amendments); $31.5 million                                                                    
for weatherization  to help low-income families  with energy                                                                    
improvements;  $20  million  for   home  energy  rebates  to                                                                    
homeowners  for  energy  efficiency  improvements;  and  $67                                                                    
million for  the Low Income  Home Energy  Assistance Program                                                                    
(LIHEAP) and the Power Cost Equalization (PCE) program.                                                                         
Co-Chair Stoltze  asked how the  $67 million would  be split                                                                    
between  LIHEAP  and  PCE. Ms.  Rehfeld  answered  that  the                                                                    
LIHEAP request  was for just  under $27 million and  the PCE                                                                    
request was $40 million.                                                                                                        
Ms.  Rehfeld  discussed  a  $25   million  request  for  the                                                                    
Renewable  Energy Grant  Fund (slide  10).  She shared  that                                                                    
during the  past several  years over  $200 million  had been                                                                    
appropriated for the grants to  address high-cost areas. The                                                                    
program  had  been extended  to  2023  the prior  year  (the                                                                    
proposed budget included funding for  "round 6" of the grant                                                                    
Ms.  Rehfeld  turned to  slide  11  pertaining to  education                                                                    
funding.  She  highlighted   the  governor's  initiative  to                                                                    
prepare  Alaska students  for success  and  to increase  the                                                                    
high  school graduation  rate  to 90  percent  by 2020.  She                                                                    
discussed  the Alaska  Performance  Scholarships (APS)  that                                                                    
were  aimed  at increasing  the  number  of students  taking                                                                    
higher academic  rigor and rewarding them  for success; more                                                                    
than  4,600  students  had  qualified  for  the  performance                                                                    
scholarships under the program.  The budget also included $4                                                                    
million for  needs based grants  that were also part  of the                                                                    
APS  package. She  emphasized that  the graduation  rate was                                                                    
moving in  the right  direction, but  it was  currently just                                                                    
under  70 percent.  She relayed  that the  governor's budget                                                                    
included $800,000 for the Jobs  for Alaska's Graduates (JAG)                                                                    
initiative; JAG  was mirrored after  a program  operating in                                                                    
33 states  that had  seen a 93  percent graduation  rate for                                                                    
at-risk students.  She elaborated that the  initiative would                                                                    
be  a partnership  between businesses,  United Way,  and the                                                                    
Department  of Education  and Early  Development (DEED);  it                                                                    
targeted at-risk students and  would assist them with skills                                                                    
and job  training opportunities to  keep them in  school and                                                                    
Ms. Rehfeld continued to discuss  slide 11. She pointed to a                                                                    
request   for  $5.9   million  for   the  Digital   Learning                                                                    
Initiative.  She  explained  that  the first  piece  of  the                                                                    
initiative was a partnership with  the Association of Alaska                                                                    
School Boards  (AASB) (the association had  been operating a                                                                    
similar  project  over  the  past   couple  of  years).  The                                                                    
initiative would last for a  period of four years to provide                                                                    
digital devices  to teachers and students.  The economies of                                                                    
scale  that would  be  created by  joint  purchasing of  the                                                                    
devices to  help deliver educational content  and curriculum                                                                    
had been very effective.                                                                                                        
2:22:18 PM                                                                                                                    
Ms.  Rehfeld  communicated  that   another  portion  of  the                                                                    
initiative was  its support of  the Alaska  Learning Network                                                                    
distance delivered courses that  would help students receive                                                                    
higher level curriculum  that may not be  available in their                                                                    
communities.  Additionally,  the  initiative  would  provide                                                                    
live  homework help  through an  online homework  assistance                                                                    
Ms. Rehfeld  shared that the  budget also  included $320,000                                                                    
for a  K-3 literacy project;  it would help provide  pre and                                                                    
post  screening  assessments  for students  in  kindergarten                                                                    
through 3rd  grade to identify any  reading deficiencies and                                                                    
to  target  efforts needed  to  help  students succeed.  She                                                                    
noted  that  deficiency  in  reading  was  predictive  of  a                                                                    
student's success.                                                                                                              
Representative Wilson asked  for verification that broadband                                                                    
support to libraries was a  significant piece of the Digital                                                                    
Learning Initiative.  She wondered why the  support would be                                                                    
provided  to   the  libraries  instead   of  schools   or  a                                                                    
combination of the two.                                                                                                         
Ms. Rehfeld replied that the  online homework assistance had                                                                    
been a  cooperative with libraries  and in  many communities                                                                    
libraries  had broadband  access.  She  elaborated that  the                                                                    
initiative  worked with  libraries in  order to  provide the                                                                    
service. She  believed the cost  included in the  budget was                                                                    
approximately $800,000 for broadband support.                                                                                   
Representative  Wilson  believed  that in  addition  to  the                                                                    
online  homework   support  there  was  a   portion  of  the                                                                    
initiative that  worked with  providing broadband  access in                                                                    
an increased number of communities.  She believed that while                                                                    
libraries  were  a  reasonable place  to  expand  broadband,                                                                    
there were schools in the  areas that did not have broadband                                                                    
Ms.  Rehfeld believed  that  a portion  of  the funding  was                                                                    
directly for  library broadband. She clarified  that digital                                                                    
learning devices provided through  the partnership with AASB                                                                    
did  not  necessarily  need to  have  internet  access.  She                                                                    
detailed that an important part  of the program was district                                                                    
readiness assessments to determine  their ability to deliver                                                                    
education through  technology; some districts would  be able                                                                    
to do more  in the area of broadband  connections, but there                                                                    
would still be valuable technology tools without it.                                                                            
2:25:34 PM                                                                                                                    
Representative Costello wondered  whether there was research                                                                    
showing  increased   student  results  related   to  digital                                                                    
learning opportunities. She wondered  whether money would be                                                                    
better   spent  on   vocational   education  with   hands-on                                                                    
opportunities that would prepare students for jobs.                                                                             
Ms.  Rehfeld replied  that there  were  some very  effective                                                                    
digital  learning programs  in different  grade levels  that                                                                    
currently  existed;   the  Kuspuk,  Kodiak,   Denali  school                                                                    
districts  had pilot  programs and  could share  information                                                                    
about  results.  She  noted  that  AASB  could  provide  the                                                                    
Representative   Holmes   referenced    the   K-3   Literacy                                                                    
Initiative  and wondered  about the  amount of  funding that                                                                    
went to pre and post screening versus intervention.                                                                             
Ms.  Rehfeld answered  that she  did not  have the  breakout                                                                    
available.  She  believed  the   majority  of  the  proposed                                                                    
funding  would   go  to   preliminary  assessment   work  in                                                                    
determining  where students'  reading deficiencies  lay. She                                                                    
opined that the only  additional requirement may be targeted                                                                    
attention and not an additional resource.                                                                                       
2:27:50 PM                                                                                                                    
Ms. Rehfeld  addressed transportation and  infrastructure on                                                                    
slide  12.   She  noted  that  the   funding  requests  were                                                                    
primarily  regular  requests  that   were  included  in  the                                                                    
governor's  annual  capital   budget.  The  proposed  budget                                                                    
included $1 billion in  funding for statewide infrastructure                                                                    
projects including  $971 million for highways  and aviation,                                                                    
$56  million for  the Village  Safe Water  program, and  $34                                                                    
million for  municipal water and sewer  projects (with local                                                                    
matching funding). Additionally,  the budget contained $46.2                                                                    
million  for  school  construction including  the  Nightmute                                                                    
school  renovation  at  $33   million  (the  next  Kasayulie                                                                    
school) and  $13.2 million for the  Quinhagak renovation (in                                                                    
addition to  funds provided in  the past). She  relayed that                                                                    
DEED prepared the list annually;  school districts apply for                                                                    
grants;  the  current  list  totaled  $284  million  for  24                                                                    
projects. She noted that the  next Kasayulie school would be                                                                    
in the  FY 15 budget for  the community of Kwethluk  and was                                                                    
estimated at approximately $56 million.                                                                                         
Ms.  Rehfeld continued  with slide  12; the  budget included                                                                    
$22.3 million  for the first  12 major  maintenance projects                                                                    
on DEED's list; the list  totaled $253 million and contained                                                                    
111 projects.                                                                                                                   
Co-Chair  Austerman asked  whether  a portion  of the  $56.5                                                                    
million for  the Village  Safe Water  program had  a federal                                                                    
funds  match. Ms.  Rehfeld replied  in the  affirmative. She                                                                    
believed  the figure  was  approximately  $8.5 million.  She                                                                    
furthered that the budget included  a $5 million request for                                                                    
new  technologies  to  help provide  communities  with  safe                                                                    
drinking water. The  $5 million would also  available to the                                                                    
Department   of   Environmental   Conservation   (DEC)   for                                                                    
emergencies (e.g. the failure of older water systems).                                                                          
Co-Chair  Austerman recommended  that DEC  should present  a                                                                    
plan on  how it would  obtain needed information and  how it                                                                    
would operate  in the  future. He  believed the  DEC project                                                                    
list was approximately  $700 million; he did  not believe $5                                                                    
million would go very far in addressing the overall plan.                                                                       
Ms. Rehfeld agreed.                                                                                                             
2:31:47 PM                                                                                                                    
Co-Chair Stoltze  surmised that the project  list would grow                                                                    
significantly  if communities  believed  they would  receive                                                                    
any of the money.                                                                                                               
Ms.  Rehfeld shared  that the  budget included  $100 million                                                                    
for  year four  of the  administration's five-year  deferred                                                                    
maintenance effort. She  highlighted that the administration                                                                    
had  learned  that absence  of  a  capital asset  management                                                                    
system  had  limited  the  state's  ability  to  manage  the                                                                    
deferred maintenance backlog. She  furthered that the annual                                                                    
increment  helped  communities  to  plan  and  complete  the                                                                    
projects. She  detailed that  the administration  had carved                                                                    
out a  $2 million piece of  the $100 million total  to apply                                                                    
towards  a capital  asset  management  system for  statewide                                                                    
Ms. Rehfeld discussed slide  13: "Resources and Permitting."                                                                    
She  referred  to  the governor's  plan  for  an  all-Alaska                                                                    
gasline  project.  The  budget   included  $50  million  for                                                                    
gasline  development: $25  million  for  the Alaska  Gasline                                                                    
Inducement  Act (AGIA)  reimbursement fund  and $25  million                                                                    
for  the  Alaska   Gasline  Development  Corporation  (AGDC)                                                                    
project.  The   proposed  budget  included  a   $15  million                                                                    
increment for  the Geologic Materials Center.  She expounded                                                                    
that the  state had a  wealth of materials  currently stored                                                                    
in container  vans that hindered research  by explorers; the                                                                    
funding would go  towards the purchase and  renovation of an                                                                    
existing facility to house the materials.                                                                                       
Vice-Chair  Neuman asked  how much  had been  spent on  AGIA                                                                    
reimbursement  to  date.  Ms. Rehfeld  responded  that  $223                                                                    
million  had  been spent  on  AGIA  reimbursement; with  the                                                                    
current  request  the  total  appropriation  would  be  $330                                                                    
2:34:50 PM                                                                                                                    
Ms.  Rehfeld  pointed  to  the  administration's  effort  to                                                                    
streamline  permitting and  to  a $4  million increment  for                                                                    
statewide  digital   mapping  that   would  allow   for  the                                                                    
completion of mapping the Arctic  region. She highlighted an                                                                    
$18 million  request for Roads  to Resources  including $8.5                                                                    
million  for  the  Ambler Mining  district  and  other.  The                                                                    
budget also contained  $10 million in funding  for the first                                                                    
year of  the five-year  Chinook Salmon  Research Initiative.                                                                    
The   initiative  would   enable   the  state   to  take   a                                                                    
comprehensive look at Chinook  salmon stocks and to increase                                                                    
their  abundance  and  sustainability. She  added  that  the                                                                    
Department of Fish and Game  was preparing the research plan                                                                    
with a number of stakeholders.                                                                                                  
Representative  Gara asked  for clarification  on the  total                                                                    
AGIA   reimbursement   including    the   current   proposed                                                                    
2:36:29 PM                                                                                                                    
Ms.   Rehfeld   answered   that  $305   million   had   been                                                                    
appropriated for  AGIA reimbursement  to date.  The proposed                                                                    
$25  million would  bring  the total  to  $330 million.  She                                                                    
added that  at present  approximately $223 million  had been                                                                    
reimbursed from the fund.                                                                                                       
Representative Costello referenced  a significant permitting                                                                    
backlog that  had existed in  the past. She queried  how the                                                                    
$7.3  million   designated  for  permitting   and  statewide                                                                    
digital mapping (slide 13) would be divided.                                                                                    
Ms.  Rehfeld replied  that $3.3  million was  designated for                                                                    
the unified  permitting project and  $4 million would  go to                                                                    
statewide digital mapping.                                                                                                      
Ms. Rehfeld  turned to  slide 14  titled "FY  2014 Operating                                                                    
Budget  Highlights." She  remarked  that the  administration                                                                    
believed  the proposed  budget was  very lean.  Full funding                                                                    
was included for the current  K-12 education funding formula                                                                    
and  pupil  transportation  (the K-12  funding  formula  was                                                                    
based on the current Base  Student Allocation of $5,680) for                                                                    
approximately 129,000 students  statewide. Also included was                                                                    
a  request for  a direct  deposit of  $633.8 million  to the                                                                    
retirement  system unfunded  liability; the  figure included                                                                    
$4.5 million  for the Judicial Retirement  System (JRS). She                                                                    
elaborated that the prior valuation  on June 30, 2011 showed                                                                    
the  unfunded liability  at slightly  over  $11 billion;  $7                                                                    
billion for  the Public Employees' Retirement  System (PERS)                                                                    
(estimated to  be funded at approximately  61.5 percent) and                                                                    
$4.1 billion  for Teachers' Retirement System  (TRS) (funded                                                                    
at approximately  53.6 percent). Actuaries were  expected to                                                                    
provide  the  Alaska  Retirement Management  Board  with  an                                                                    
updated valuation in the near future.                                                                                           
2:39:28 PM                                                                                                                    
Co-Chair  Stoltze asked  about the  breakout related  to the                                                                    
$633.8  million  designated   for  the  unfunded  retirement                                                                    
liability. Ms.  Rehfeld believed  approximately half  of the                                                                    
$629.3 million  (designated for  PERS and  TRS) would  go to                                                                    
PERS and about $300 million  would go to TRS. She reiterated                                                                    
that $4.5  million would go  to JRS.  She would get  back to                                                                    
the committee with the exact figures.                                                                                           
Representative  Munoz  asked  whether   the  change  to  the                                                                    
Defined Contribution  (DC) system [from the  Defined Benefit                                                                    
system]  positively  impacted  the growth  of  the  unfunded                                                                    
liability. Ms.  Rehfeld replied  that the  change to  the DC                                                                    
system had helped close the  system. She elaborated that the                                                                    
system  had  helped with  the  determination  of the  annual                                                                    
rates.  She stated  that a  pertinent issue  was related  to                                                                    
fund  earnings  and  how  the   valuations  were  done.  She                                                                    
believed  the liability  would continue  to increase  in the                                                                    
short-term until a greater market recovery took place.                                                                          
2:41:32 PM                                                                                                                    
Ms. Rehfeld relayed  that the budget included  a $60 million                                                                    
increment for revenue  sharing (slide 14). She  pointed to a                                                                    
pie  chart showing  FY 14  expenditures  by category  (slide                                                                    
15).  The left  portion of  the chart  totaled $6.6  billion                                                                    
(approximately 52  percent of the total  budget request) and                                                                    
included  formula  programs, statewide  appropriations,  and                                                                    
the permanent  fund dividend. She elaborated  that the items                                                                    
were  considered  nondiscretionary   (items  that  were  not                                                                    
typically  targeted   when  looking  for  areas   to  reduce                                                                    
spending).  The right  portion of  the  chart contained  the                                                                    
agency  nonformula  portion  of the  operating  budget;  the                                                                    
checkered  piece of  the pie  represented  the general  fund                                                                    
portion of  the agency  nonformula budget  in the  amount of                                                                    
$2.3  billion. Other  funds (e.g.  federal  and other)  were                                                                    
included  at $2.5  billion, and  the capital  budget portion                                                                    
was included at $1.82 billion.  She expounded that the right                                                                    
portion of the chart encompassed  areas that could be looked                                                                    
at in order  to reduce or restrain  government growth; state                                                                    
salaries made up  a large portion of  the nonformula general                                                                    
fund  expenditures. She  stressed that  it was  important to                                                                    
take a  hard look when  adding positions for  the governor's                                                                    
specific  priorities because  the  salary area  was a  place                                                                    
where costs could be managed  over time. She reiterated that                                                                    
the  administration's  effort  had  been  to  focus  on  the                                                                    
constitutionally  and  statutorily required  priorities  and                                                                    
what it believed Alaskans expected from government.                                                                             
2:44:54 PM                                                                                                                    
Ms. Rehfeld  concluded with a  pie chart on slide  16 titled                                                                    
"FY 2014  Budget - Another  Perspective." She  addressed how                                                                    
important it  was to spend  so much  time on the  budget; 60                                                                    
percent  of  the   budget  benefited  Alaska's  communities,                                                                    
organizations, and individuals with  items such as Medicaid,                                                                    
Permanent Fund  Dividends, revenue sharing,  school funding,                                                                    
unfunded liability,  capital projects, and  other. Purchased                                                                    
services accounted for  21 percent (shown in  dark blue) and                                                                    
included items such as  travel, contractual, supplies, fuel,                                                                    
professional services,  and other.  She expounded  that some                                                                    
of  the  funding  was  internal to  state  agencies,  but  a                                                                    
significant amount was for  services purchased from Alaska's                                                                    
private sector.  Salaries and  benefits for  state employees                                                                    
accounted  for 19  percent or  $2.54 billion.  She estimated                                                                    
that approximately 53 percent of  the $2.54 billion would be                                                                    
paid for with general funds.  She noted that departments had                                                                    
different funding sources for their personal services.                                                                          
Ms. Rehfeld communicated that  the governor had consistently                                                                    
used   guiding  principles   including,  fiscal   restraint,                                                                    
strategic investments,  carefully managing cash  reserves as                                                                    
oil production declines,  and to focus on  core services and                                                                    
agency missions. She  shared that many people  had worked on                                                                    
preparing the budget; she  thanked departments, their staff,                                                                    
and  the Legislative  Finance  Division.  She offered  OMB's                                                                    
help going forward.                                                                                                             
Co-Chair  Austerman asked  for the  cost difference  between                                                                    
the FY 13 and FY 14 budgets.  He noted that at one point the                                                                    
growth was expected  to be less than 1  percent. Ms. Rehfeld                                                                    
pointed to  slide 5  that showed  that the  total authorized                                                                    
budget for FY 13 at  $7,977.5; a $40 million placeholder had                                                                    
been included for supplemental  budget items. She emphasized                                                                    
that  the  administration was  taking  a  hard look  at  any                                                                    
supplemental  requests and  had  asked  departments to  only                                                                    
bring forward requests for items  that they did not have the                                                                    
ability  to fix  in the  current  year. The  proposed FY  14                                                                    
budget  totaled   $6,493.8.  She  relayed  that   the  total                                                                    
increase  in  the  operating budget  was  approximately  0.8                                                                    
Co-Chair  Austerman  noted  that   there  was  a  difference                                                                    
between the  total $12.8 billion  budget versus  the general                                                                    
fund numbers.  He asked about  the total  budget difference.                                                                    
Ms. Rehfeld replied that the  total budget was $12.8 billion                                                                    
and proposed budget general funds was $6.49 billion.                                                                            
Co-Chair Austerman asked about the  FY 13 budget amount. Ms.                                                                    
Rehfeld replied that the total  budget was $13.2 billion and                                                                    
$7,977.5 in general funds.                                                                                                      
2:50:57 PM                                                                                                                    
Co-Chair Austerman  was interested in  how the FY 13  and FY                                                                    
14  budgets   would  differ.   Ms.  Rehfeld   expressed  her                                                                    
understanding  and stated  that slide  5 showed  the general                                                                    
fund difference.                                                                                                                
Representative Costello  referred to  33 positions  that had                                                                    
been  housed under  DOA that  were being  "parceled out"  to                                                                    
other departments  with the  expectation that  the positions                                                                    
would be paid for  by divisions through interagency receipts                                                                    
at a total  cost of approximately $12  million. She observed                                                                    
that there only appeared to  be $4 million in the governor's                                                                    
proposed   budget.   She   wondered   whether   savings   in                                                                    
departments would make  up for the $8  million difference or                                                                    
if  there  had  been  discussions  on  how  divisions  would                                                                    
accommodate the interagency receipts.                                                                                           
Ms. Rehfeld  replied that there  were various  rates charged                                                                    
by DOA (e.g. mail  room, information technology, Division of                                                                    
Finance,  Division  of Personnel,  and  other);  all of  the                                                                    
costs were  charged back to departments.  She explained that                                                                    
DOA had  been going  through a rigorous  review of  rates to                                                                    
determine what the rates were and  its own costs in order to                                                                    
minimize charges to  departments. There were a  whole set of                                                                    
rates that needed  to be built into the budget  on an annual                                                                    
basis. She  furthered that DOA had  identified approximately                                                                    
$12 million  in increased costs to  departments; departments                                                                    
had been asked  to absorb the increases for  many years. The                                                                    
administration had  looked at the  issue to  determine where                                                                    
some relief  could be  provided because  at a  certain point                                                                    
agencies would  not have the financial  resources to support                                                                    
the increases. The administration  believed $4 million would                                                                    
assist  departments   in  managing  budget   increases.  She                                                                    
communicated  that  the  human resource  position  transfers                                                                    
were a  different situation; departments  were going  to pay                                                                    
for the positions  whether they remained in DOA  or moved to                                                                    
departments.  She   explained  that  DOA's   Human  Resource                                                                    
Division had found  an error in its  process for determining                                                                    
its  rates (the  costs would  have to  be picked  up in  the                                                                    
rates  going  forward).  The   department  also  found  that                                                                    
dealing with  a pool of individuals  made handling vacancies                                                                    
and other  items much  easier than  when the  positions were                                                                    
divided amongst  individual departments. She  furthered that                                                                    
positions transferred  out were  in response  to departments                                                                    
wanting   their   own   human   resource   manager/workforce                                                                    
development/recruitment staff onsite.                                                                                           
2:55:33 PM                                                                                                                    
Ms.  Rehfeld continued  to explain  that when  the positions                                                                    
were  moved to  departments,  the departments  were able  to                                                                    
keep  the money  that would  have been  paid to  DOA through                                                                    
chargeback; however,  some of the  costs were going  up. She                                                                    
reiterated that  the administration believed the  $4 million                                                                    
figure  would help  departments to  accommodate for  some of                                                                    
the increases.                                                                                                                  
Representative  Edgmon pointed  to fund  sources on  slide 5                                                                    
and  observed that  federal  funds were  at  23 percent.  He                                                                    
asked  whether  the  number  had  been  getting  smaller  or                                                                    
staying steady over recent years.                                                                                               
Ms.  Rehfeld replied  that the  federal funds  authorization                                                                    
request  had  not  changed  as  dramatically  as  one  might                                                                    
expect. She  detailed that the  largest change  had occurred                                                                    
when American  Recovery and Reinvestment Act  (ARRA) funding                                                                    
had been  discontinued. She furthered that  the large ticket                                                                    
items  in  the  budget   for  federal  funds  were  highway,                                                                    
aviation, transportation, Medicaid,  Department of Labor and                                                                    
Workforce  Development, Department  of  Education and  Early                                                                    
Development,  the  University  of  Alaska,  and  other.  She                                                                    
stated that there  had not been many changes  in the amounts                                                                    
requested  currently; the  proposed  budget did  not try  to                                                                    
anticipate  what  may occur  at  the  federal level  because                                                                    
there were  too many  unknowns. She  noted that  an entirely                                                                    
different conversation  would pertain to federal  funds that                                                                    
went directly to programs and  not through the state budget.                                                                    
She believed the administration  would know more in upcoming                                                                    
months  about what  federal  funds would  look  like in  the                                                                    
2:58:32 PM                                                                                                                    
Co-Chair Austerman discussed the  schedule for the following                                                                    
day. He shared  that the committee would begin  meeting as a                                                                    
Committee of  the Whole for  the Health and  Social Services                                                                    
2:59:48 PM                                                                                                                    
The meeting was adjourned at 2:59 p.m.                                                                                          

Document Name Date/Time Subjects
OMB Budget Overview HFC 01.17.2013 Final.pdf HFIN 1/17/2013 1:30:00 PM
Overview OMB