Legislature(2013 - 2014)HOUSE FINANCE 519

01/23/2014 01:30 PM FINANCE

Download Mp3. <- Right click and save file as

Audio Topic
01:33:01 PM Start
01:33:25 PM Fy 15 Governor's Budget Proposal: Office of Management and Budget
03:02:52 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Governor's FY15 Budget Proposal TELECONFERENCED
Karen Rehfeld, Director, Office of Management
& Budget
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 23, 2014                                                                                           
                         1:33 p.m.                                                                                              
1:33:01 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Austerman called the House Finance Committee                                                                           
meeting to order at 1:33 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Karen Rehfeld, Director, Office of Management and Budget,                                                                       
Office of the Governor; John Boucher, Senior Economist,                                                                         
Office of Management and Budget, Office of the Governor.                                                                        
^FY 15 Governor's Budget Proposal: Office of Management and                                                                   
1:33:25 PM                                                                                                                    
Co-Chair Austerman discussed the schedule for the day.                                                                          
1:35:06 PM                                                                                                                    
KAREN REHFELD,  DIRECTOR, OFFICE  OF MANAGEMENT  AND BUDGET,                                                                    
OFFICE  OF  THE  GOVERNOR, introduced  staff.  She  welcomed                                                                    
committee members back and thanked  them for time they would                                                                    
spend   reviewing  the   budget.   She   also  thanked   the                                                                    
Legislative Finance  Division staff for their  time spent on                                                                    
the budget.  She provided  a PowerPoint  presentation titled                                                                    
"FY2015  Budget Overview"  (copy on  file). She  highlighted                                                                    
her intention to discuss the  capital, operating, and mental                                                                    
health budgets  (HB 265, HB  266, and HB  267 respectively).                                                                    
She turned to  slide 2 titled "Budget Vision."  She spoke to                                                                    
the governor's  optimism about Alaska's future;  the economy                                                                    
was growing and  the state's finances were  solid. She moved                                                                    
to slide 3 that outlined four budget principles including:                                                                      
     · Live within our means                                                                                                    
     · Focus on constitutional priorities                                                                                       
     · Fix what we have                                                                                                         
     · Finish what we started                                                                                                   
Ms. Rehfeld  elaborated on the  four principles on  slide 3.                                                                    
She  compared   living  within  the  state's   means  to  an                                                                    
individual  managing  their  personal cash  and  savings  in                                                                    
times  when  income  is  down.  A  focus  on  constitutional                                                                    
priorities included education,  resource development, public                                                                    
safety, and  transportation infrastructure.  She highlighted                                                                    
the   importance  of   maintaining   the  state's   existing                                                                    
infrastructure  and  of  finishing  existing  projects.  The                                                                    
governor's office  had spent many months  working with state                                                                    
agencies   on   budget   preparation.   She   relayed   that                                                                    
commissioners  and departments  had  taken  the budget  very                                                                    
seriously  given the  "different" environment.  She detailed                                                                    
that department's  had brought  forward a minimal  number of                                                                    
requests that included challenging budget areas.                                                                                
Ms.  Rehfeld moved  to slide  4  that showed  a snapshot  of                                                                    
current  and  proposed  revenue  and  spending  levels.  She                                                                    
explained  that revenue  forecasts  were  published twice  a                                                                    
year and  that the  December budget  represented a  point in                                                                    
time;  adjustments  would  be made  during  the  legislative                                                                    
session  with  the   supplemental  budget,  amendments,  and                                                                    
legislative  decisions.  The  slide  showed  the  change  in                                                                    
revenue  forecast  from  spring  to fall  of  2013  and  the                                                                    
overall  spending  level,  which  resulted in  a  draw  from                                                                    
savings. She  pointed to discussions about  managing the use                                                                    
of state  reserves in the  long-term fiscal plan;  the prior                                                                    
year, the governor and legislature  had agreed to an overall                                                                    
spending target that had reduced  General Fund (GF) spending                                                                    
by more than $1 billion  from the prior year. The governor's                                                                    
proposed FY 15 budget included  another reduction of over $1                                                                    
billion.  She communicated  that  draws  from the  Statutory                                                                    
Budget  Reserve  (SBR)  and  spending  discipline  would  be                                                                    
1:40:48 PM                                                                                                                    
Ms.  Rehfeld moved  to slide  5  that included  a bar  chart                                                                    
showing the state's reserve accounts  over time [FY 02 to FY                                                                    
15]. The state  had taken advantage of higher  oil prices in                                                                    
order to build up reserves  and was committed to maintaining                                                                    
funds; managing  the use of  reserves in times  of financial                                                                    
difficulty was  important to the state's  long-term plan and                                                                    
to  continue providing  essential public  services including                                                                    
public   safety,   education,    and   transportation.   The                                                                    
administration  believed  it  could   use  the  reserves  to                                                                    
flatten  out  future  operating  budgets.  She  mentioned  a                                                                    
discussion  that would  take place  regarding a  proposal to                                                                    
move  funds from  the  Constitutional  Budget Reserve  (CBR)                                                                    
into the  retirement system trust funds;  the administration                                                                    
believed the  option was important  to consider and  that it                                                                    
would help the  state manage its budgets in  the future. She                                                                    
pointed to  the FY  14 and FY  15 columns  that incorporated                                                                    
projected draws given proposed  spending levels. She touched                                                                    
on  the potential  of moving  $3 billion  from the  CBR into                                                                    
retirement  funds and  noted that  greater  earnings may  be                                                                    
accrued in the trust funds.                                                                                                     
Ms.  Rehfeld  communicated that  the  total  proposed FY  15                                                                    
budget  was $12.4  billion (slide  6); Unrestricted  General                                                                    
Funds (UGF) accounted for just  over 50 percent of the total                                                                    
($5.64  billion).   Of  the  total  budget,   federal  funds                                                                    
accounted  for 23  percent,  the  Permanent Fund  (including                                                                    
inflation  proofing and  dividends) represented  15 percent,                                                                    
Designated General Funds (GF  program receipts or university                                                                    
receipts)  made up  7 percent,  and  other funds  (including                                                                    
international  airports  and  statutory  designated  program                                                                    
receipts) represented  4 percent.  She pointed out  that the                                                                    
"Other State Funds" column in  the fiscal summary would show                                                                    
the proposed CBR draw of  $3 billion and the proposed direct                                                                    
deposit  into  the  retirement  trust  funds  (the  transfer                                                                    
netted out to zero).                                                                                                            
Ms. Rehfeld  addressed a  pie chart  representing the  FY 15                                                                    
budget by  category on slide 7.  Nondiscretionary funds were                                                                    
shown in three shades of pink  on the left side of the chart                                                                    
(including  formula programs,  debt  service, and  statewide                                                                    
appropriations). The  blue slices of  the chart on  the left                                                                    
showed  discretionary funds  (including  agency and  capital                                                                    
budgets). She noted that when  a reduction in state spending                                                                    
was  necessary  the  focus tended  to  be  on  discretionary                                                                    
funds. She shared that the  $1.25 billion for K-12 education                                                                    
referred   to  the   school   funding   formula  and   pupil                                                                    
transportation.  The state  had 54  school districts  with a                                                                    
projection of 128,400 students for the FY 15 budget.                                                                            
1:46:10 PM                                                                                                                    
Ms. Rehfeld continued to discuss  slide 7. She detailed that                                                                    
$25  million  had been  included  outside  of the  education                                                                    
formula  to address  energy, utility,  and  fuel costs.  The                                                                    
proposed budget included the  current statutory Base Student                                                                    
Allocation (BSA)  of $5,680. She  added that  K-12 education                                                                    
was forward-funded  for FY 16. The  "other formula" category                                                                    
included   Medicaid,    public   assistance,    Power   Cost                                                                    
Equalization,  and shared  taxes;  Medicaid represented  the                                                                    
largest portion  of the  category at  $1.67 billion  GF. She                                                                    
referred to  the Department of  Health and  Social Services'                                                                    
(DHSS)  projection that  Medicaid would  serve approximately                                                                    
$151,000 Alaskans in  FY 15. Large cost  drivers of Medicaid                                                                    
included the  number of eligible individuals,  the number of                                                                    
individuals  enrolled,   and  the   cost  of   service.  The                                                                    
"statewide  appropriations" category  included the  proposed                                                                    
$3  billion  direct  payment   into  the  retirement  system                                                                    
unfunded  liability.  Statewide   appropriations  that  also                                                                    
included  funding  for the  eligible  oil  tax credits  were                                                                    
included  at $450  million, total  debt service  payments of                                                                    
$317  million,  and  revenue  sharing.  The  Permanent  Fund                                                                    
accounted for $2.15 billion.                                                                                                    
1:48:15 PM                                                                                                                    
Ms. Rehfeld  looked at the blue  slices of the pie  chart on                                                                    
slide 7.  The top two  slices referred to  agency operations                                                                    
totaling  approximately $4.3  billion; of  the $4.3  billion                                                                    
total,  $2.26  billion  was  UGF.  The  allocation  provided                                                                    
funding  for  14 agencies,  the  University  of Alaska,  the                                                                    
legislative  branch,  and  the   Alaska  Court  System.  The                                                                    
capital  budget slice  totaled $1.67  billion. She  moved to                                                                    
slide 8 titled  "FY2015 UGF Spend: $5.6  billion." The slide                                                                    
included a  chart showing the  downward pressure on  the UGF                                                                    
portion  of the  budget from  $8 billion  in FY  13 to  $6.9                                                                    
billion in FY 14 to $5.6 billion in FY 15.                                                                                      
Ms. Rehfeld  directed attention  to a pie  chart on  slide 9                                                                    
showing GF  budget by category.  She addressed how  UGF only                                                                    
fit   into   the   equation  of   a   nondiscretionary   and                                                                    
discretionary view. She noted  that approximately 50 percent                                                                    
of the UGF request  accounted for formula programs including                                                                    
education,  Medicaid,  and  others   as  well  as  statewide                                                                    
appropriations for  debt service,  tax credits,  and revenue                                                                    
sharing. The right hand side  of the chart showed that $1.45                                                                    
million  accounted for  agency personnel  services; budgeted                                                                    
positions  totaled 24,800.  The  capital budget  represented                                                                    
$426.3  million of  the chart.  She  reiterated her  earlier                                                                    
testimony  that discretionary  funds tended  to be  the most                                                                    
scrutinized when the  goal was a reduction in  state GF. She                                                                    
communicated that  department budgets  were lean  and "real"                                                                    
reductions had been made.                                                                                                       
1:51:40 PM                                                                                                                    
Ms.  Rehfeld directed  attention to  slide 10  titled "State                                                                    
Assistance  Payments." The  slide illustrated  what payments                                                                    
looked like under  the state's current level  percent of pay                                                                    
method (represented  in black)  and the  governor's proposal                                                                    
(represented in  blue). The chart  showed that if  the state                                                                    
continued on the  same path payments would  escalate and the                                                                    
cost would  total approximately  $15.2 billion.  She relayed                                                                    
that the  governor's proposal  was to  put a  direct payment                                                                    
into the retirement  trust funds in the current  year and to                                                                    
cap the  payments going forward. The  proposal also extended                                                                    
the  amortization schedule  time period  by three  years and                                                                    
the total was  approximately $2 billion less  than the state                                                                    
would have paid otherwise.                                                                                                      
Ms. Rehfeld  recognized that the  challenge of  the unfunded                                                                    
liability was a  collective issue; over $3  billion had been                                                                    
spent  in   direct  payment  assistance  to   the  municipal                                                                    
governments and school districts over  the past 7 years. She                                                                    
remarked  that  the  escalation would  continue  to  put  an                                                                    
increasing  amount   of  pressure  on  the   state's  annual                                                                    
operating  budget  and  the  ability  to  provide  essential                                                                    
services  particularly in  the current  revenue environment.                                                                    
She  believed  the  state's  goals  had  remained  the  same                                                                    
including  meeting its  obligation  to  retirees, to  manage                                                                    
costs over  time, to preserve  the health of the  funds, and                                                                    
to  avoid  pushing  costs off  to  future  generations.  The                                                                    
governor's  proposal was  to  take care  of  the problem  at                                                                    
present  in  order to  manage  the  cost  over time  and  to                                                                    
prevent  the  state  from  ever  having  to  decide  between                                                                    
funding the  retirement liability payment or  education. The                                                                    
administration  understood  that  many different  ideas  and                                                                    
options existed.  She pointed to  a handout titled  "FY 2015                                                                    
Budget  Addresses Biggest  Operating Cost  Driver" (copy  on                                                                    
file).  The handout  compared the  current level  percent of                                                                    
pay,  the governor's  proposal,  and  the Alaska  Retirement                                                                    
Management Board (ARMB)  proposal to move to  a level dollar                                                                    
method. She pointed  out that a transfer of  the funds would                                                                    
improve the health of the funds by 10 percent immediately.                                                                      
1:55:04 PM                                                                                                                    
Ms.  Rehfeld discussed  spending controls  on slide  11. She                                                                    
communicated that  in addition to reductions  taken from the                                                                    
operating  budget,  business  processes were  improving  and                                                                    
being  streamlined. The  governor had  issued Administrative                                                                    
Order 266, a regulation review  process to look at repealing                                                                    
and  removing barriers  to efficiency.  She  touched on  the                                                                    
importance  of  enhancing   technology.  The  Department  of                                                                    
Administration  had  negotiated   centralized  contracts  to                                                                    
reduce  purchasing  costs.  New  space  standards  had  been                                                                    
implemented to reduce the state's  footprint and the cost of                                                                    
office  space. Additionally,  the governor  had deleted  150                                                                    
long-term   vacant  positions   and   had  reduced   funding                                                                    
associated with the positions.  Specific reductions had been                                                                    
taken in agency budgets including  a $6 million reduction to                                                                    
the fuel  trigger and reductions  to working  reserve rates.                                                                    
Additionally,  one-time  budget  items   had  not  all  been                                                                    
restored and  pressure was put  on agency budgets  to absorb                                                                    
staff merit increases.                                                                                                          
Ms.  Rehfeld stressed  that departments  had worked  hard to                                                                    
reach their  current place; they  recognized that FY  15 was                                                                    
the first step and that  the budget the following year would                                                                    
include additional  reductions. She  relayed that  the long-                                                                    
term plan needed to include  a balance of spending controls,                                                                    
reductions,  and  management of  the  use  of reserves  over                                                                    
1:58:19 PM                                                                                                                    
Ms. Rehfeld pointed  to a one page  handout titled "Focusing                                                                    
on Alaska's Future" (copy on  file). She highlighted various                                                                    
items  pertaining to  education  that were  included in  the                                                                    
governor's  proposed budget  including  K-12 education,  the                                                                    
Alaska Performance Scholarship, Alaska Advantage Needs-                                                                         
Based Grants,  Alaska Digital Teaching Initiative  (a three-                                                                    
year  project   included  in  the  capital   budget),  early                                                                    
learning  (including Head  Start, Parents  as Teachers,  and                                                                    
Best Beginnings), school  construction (including funding to                                                                    
complete  the  school  in Kwethluk),  University  of  Alaska                                                                    
engineering buildings, and  the Statewide Library, Archives,                                                                    
and Museums  project; additional funding was  needed for the                                                                    
last two projects. She pointed  to funding for resources and                                                                    
energy including  Roads to Resources (continuing  efforts to                                                                    
reach  the  Ambler  mining  district,  improvements  to  the                                                                    
Dalton  Highway, and  the road  to  Tanana), Chinook  Salmon                                                                    
research  (the  second  year  request),  the  Susitna-Watana                                                                    
Hydro Project,  weatherization and home energy  rebates, and                                                                    
renewable energy.                                                                                                               
Ms.  Rehfeld  continued to  discuss  items  included in  the                                                                    
governor's  proposed  budget.   She  addressed  funding  for                                                                    
public  safety  items such  as  the  prevention of  domestic                                                                    
violence  and sexual  assault  (including survivor  support)                                                                    
and Village Public Safety  Officer programs. She highlighted                                                                    
transportation  and  infrastructure  items  including  state                                                                    
highway  and aviation  programs (a  significant portion  was                                                                    
federally funded), the Alaska  Marine Highway (operating and                                                                    
capital budgets),  municipal water and sewer  projects (paid                                                                    
with  a 50/50  percent match  with municipalities),  village                                                                    
safe  water,  and  year five  of  the  deferred  maintenance                                                                    
program. She  discussed funding for  military items  such as                                                                    
homeland  security,  veterans  services  and  outreach,  and                                                                    
armory facilities statewide.                                                                                                    
2:01:35 PM                                                                                                                    
Ms.  Rehfeld turned  to  slide 13  titled  "FY2015 Budget  -                                                                    
Another Perspective."  She addressed  the importance  of the                                                                    
budget process and believed budget  work was one of the most                                                                    
important items  undertaken by the legislature  on an annual                                                                    
basis. She pointed  to the yellow area of the  pie chart and                                                                    
detailed that  a large  portion [56  percent] of  the budget                                                                    
went towards  funding grants,  direct payments,  and capital                                                                    
projects  statewide  (including  Permanent  Fund  Dividends,                                                                    
revenue   sharing,   Medicaid,   school   funding,   capital                                                                    
projects,  named  recipient  grants, and  other).  Purchased                                                                    
services accounted  for 24 percent  of the total  budget and                                                                    
included travel,  hotels, professional  services, equipment,                                                                    
and other.  State salaries accounted  for 19 percent  of the                                                                    
total budget.                                                                                                                   
Ms.  Rehfeld  communicated  the  governor's  optimism  about                                                                    
Alaska. She relayed that state's  economy was growing due to                                                                    
important decisions  that had been made,  opportunities were                                                                    
increasing,  and the  state was  working together  on fiscal                                                                    
discipline. She expressed appreciation  in advance on budget                                                                    
work the legislature would undertake.                                                                                           
2:04:21 PM                                                                                                                    
Co-Chair Austerman  pointed to  slide 8  and noted  that the                                                                    
$6.9 billion in  UGF spending in FY 14  included all capital                                                                    
projects added  in the budget  by the legislature,  which he                                                                    
believed the number  was $796 million. He  observed that the                                                                    
governor had  included $426 million  in the  current budget,                                                                    
which was  reflected in the  $5.6 billion. He  surmised that                                                                    
the budget would be closer  to $6 billion if the legislature                                                                    
added approximately the  same amount it had  added the prior                                                                    
Ms. Rehfeld replied in the affirmative.                                                                                         
Co-Chair Austerman  asked for  verification that  the budget                                                                    
would be  approximately $6 billion if  the legislature added                                                                    
in  its  own projects  outside  of  the governor's  proposed                                                                    
projects.  Ms.  Rehfeld  agreed that  the  budget  would  be                                                                    
approximately  $6  billion  if   the  legislature  added  $4                                                                    
million [in capital projects].                                                                                                  
Co-Chair  Austerman  felt  that  the  legislature  had  been                                                                    
painted  into  a  box  related   to  the  Public  Employees'                                                                    
Retirement  System (PERS)  and  Teachers' Retirement  System                                                                    
(TRS) payment  because the  budget of  $5.6 billion  did not                                                                    
reflect the $3 billion payment  proposed by the governor. He                                                                    
stated  that  under  normal  circumstances  the  legislature                                                                    
would  spend  another  $708 million  in  the  current  year;                                                                    
however, the  figure was not  reflected in the  $5.6 billion                                                                    
(shown on slide 8).                                                                                                             
Ms. Rehfeld  replied in the affirmative.  She explained that                                                                    
the proposal was to transfer  the payment of $3 billion from                                                                    
the CBR into the retirement  trust funds. The transfer would                                                                    
not affect the  UGF in the current year;  the following year                                                                    
the $500  million capped payment  would come  from recurring                                                                    
2:06:40 PM                                                                                                                    
Co-Chair Austerman  explained that the $500  million payment                                                                    
that would be required the  following year was not reflected                                                                    
in  the  current  budget.  He  observed  that  in  order  to                                                                    
maintain the downward  budget trend the state  would need to                                                                    
look  at  another  $500  million   reduction  that  was  not                                                                    
reflected in  the proposed $5.6 billion.  He elaborated that                                                                    
if  the legislature  did not  agree to  fund the  $3 billion                                                                    
payment and  added $708 million  the budget would  be around                                                                    
$6.7 billion.  He wondered what  wiggle room existed  if the                                                                    
legislature did not agree with the governor's CBR draw.                                                                         
Ms. Rehfeld replied that work  needed to be done between the                                                                    
governor and  the legislature to  come to a  spending target                                                                    
agreement. She  believed part of the  current discussion was                                                                    
to evaluate the proposal and  options. She stressed that the                                                                    
governor  had  not  set  a   budget  cap.  She  stated  that                                                                    
hopefully there  would be a  good conversation  to determine                                                                    
whether the best  option was on the table and  if there were                                                                    
other  options the  legislature wanted  to put  forward. She                                                                    
emphasized that  no one  was trying to  paint anyone  into a                                                                    
box.  She  added  that   sometimes  there  were  significant                                                                    
changes  that   could  be   made  to   the  budget   in  the                                                                    
nondiscretionary  statewide   appropriations;  however,  the                                                                    
focus  in reductions  appeared  to be  on  the agency  side,                                                                    
which  could  be  more  difficult   depending  on  what  the                                                                    
legislature was willing to discontinue.                                                                                         
Co-Chair  Austerman asked  for verification  that no  budget                                                                    
cap  existed. Ms.  Rehfeld replied  in the  affirmative, but                                                                    
surmised that  the governor and  legislature wanted  to work                                                                    
towards a spending target.                                                                                                      
Vice-Chair Neuman referred to  an executive summary from the                                                                    
Office  of Management  and Budget  FY 15  10-Year Plan  that                                                                    
related to the diversification  of revenue over the upcoming                                                                    
10 years.  He noted that  the summary addressed oil  and gas                                                                    
as  the   primary  revenue  generator  for   the  state.  He                                                                    
mentioned concern from individuals  such as T. Boone Pickens                                                                    
and Bloomberg  that oil could  drop down to $80  per barrel.                                                                    
He  noted the  importance of  not building  a budget  around                                                                    
high oil  prices. He  detailed that a  gas pipeline  was not                                                                    
expected  to  be  a  large   income  generator.  He  read  a                                                                    
statement from the summary:                                                                                                     
     One particularly  challenging example of this  issue in                                                                    
     the  operations portion  of the  budget is  the state's                                                                    
     projected Medicaid  spending. In  FY 2015,  the state's                                                                    
     portion  of the  federal  Medicaid  program was  $693.3                                                                    
     million.  Over  the  next  10   years  that  figure  is                                                                    
     projected to  increase at  an annual  rate of  over 7.2                                                                    
     percent and by  FY 2024 is projected to  require a $1.3                                                                    
    billion contribution from the state's general fund.                                                                         
He  wondered how  the state  could continue  GF spending  at                                                                    
$5.6 billion  over 10 years  and account for a  $600 million                                                                    
projected increase in Medicaid alone.                                                                                           
2:11:55 PM                                                                                                                    
Ms.  Rehfeld  agreed  that  at  $5.6  billion  it  would  be                                                                    
difficult to manage a Medicaid  program with the growth rate                                                                    
mentioned.   The  issue   highlighted   the  difficulty   in                                                                    
estimating  long-term projections.  She referred  to current                                                                    
discussions with departments on how  to do a better job with                                                                    
long-term  projections.  She  noted that  DHSS  Commissioner                                                                    
[William] Streur  was concerned about some  of the long-term                                                                    
projections; however, it was different  when looking back at                                                                    
what   actual   costs   had  been   versus   the   long-term                                                                    
projections.  She  explained  that  the  10-year  plan  took                                                                    
components that  were known factors  and used  a combination                                                                    
of  fiscal   restraint  and   what  reserves   and  resource                                                                    
development  would  look  like.   The  plan  included  three                                                                    
scenarios  to  adjust for  a  mid-case  scenario looking  at                                                                    
production  in  the  forecast (rather  than  having  no  new                                                                    
production),  what would  happen at  a lower  dollar amount,                                                                    
and how far  reserves would go. The summary  was designed to                                                                    
help make decisions going forward;  however, there were some                                                                    
things that were very difficult to project in the future.                                                                       
Vice-Chair   Neuman    observed   that    "projections   are                                                                    
projections"  and  that  a   significant  number  of  things                                                                    
related  to Medicaid  were beyond  the  state's control.  He                                                                    
mentioned  5-year and  10-year plans.  He referred  to state                                                                    
data  showing that  Alaska should  be in  good shape  if oil                                                                    
production  levels   could  hold  at  500,000   barrels.  He                                                                    
understood that  the cost of  government would  increase due                                                                    
to items such  as inflation, cost of  living, contracts, and                                                                    
other.  He  observed that  slide  8  showed a  decrease  [in                                                                    
spending];  however, slide  5 showed  a decrease  in savings                                                                    
that was more  than proportionate to savings  in the 10-year                                                                    
summary.  He wondered  where OMB  saw dramatic  decreases in                                                                    
the operating  budget and where  things would level  out. He                                                                    
stated  that  taking  money  out of  savings  would  have  a                                                                    
negative impact  on the state's  bond rating and  would mean                                                                    
less money  for infrastructure  projects and fewer  jobs for                                                                    
Alaskans. He stressed that the issue was coming to a head.                                                                      
2:16:11 PM                                                                                                                    
Ms. Rehfeld  replied that everyone  was concerned  about the                                                                    
issues discussed  by Vice-Chair Neuman. She  relayed that it                                                                    
would be  very difficult cut the  state's way out of  a draw                                                                    
from the  CBR in the  short-term if reductions  were focused                                                                    
on the agency  portion of the budget.  She communicated that                                                                    
there were  reductions included in  the proposed  budget and                                                                    
she suspected  the legislature  would include  reductions as                                                                    
well.  She stressed  that significant  cuts  to the  state's                                                                    
operating budget  [would be  challenging] unless  there were                                                                    
specific items  the legislature did not  want departments to                                                                    
do  any longer.  She  believed it  was  necessary to  remain                                                                    
optimistic  about  revenue,  oil production,  potential  gas                                                                    
production, mining, and other  emerging industries.  The 10-                                                                    
year plan was  focused on keeping Alaskans  employed and the                                                                    
economy  moving. She  emphasized that  ratings agencies  had                                                                    
rated  the  state  high  because  of  its  strong  financial                                                                    
reserves  and  its  fiscal   discipline.  She  believed  the                                                                    
components were  all important when  looking at a  5-year or                                                                    
10-year  plan.  She added  that  the  farther out  into  the                                                                    
future the  more difficult it  was to make  predictions. She                                                                    
noted  that  different  points in  time  provided  different                                                                    
information, but making some decisions  currently based on a                                                                    
long-term plan was helpful.                                                                                                     
2:18:48 PM                                                                                                                    
Representative   Gara   expressed   appreciation   for   Ms.                                                                    
Rehfeld's work. He  discussed that two years  earlier he and                                                                    
Representative  Guttenberg along  with  other democrats  had                                                                    
proposed paying down the pension  liability in order to save                                                                    
interest  rates   over  the  long-term.  He   was  glad  the                                                                    
discussion  would  take place.  He  was  unsure whether  the                                                                    
money should come out of the  CBR or SBR, but noted that the                                                                    
payment would save money over  the long-term. He also agreed                                                                    
with Co-Chair Austerman that it  was important to talk about                                                                    
drawing down savings. He recalled  that when he had met with                                                                    
the governor  prior to the release  of the FY 15  budget the                                                                    
governor  had promised  that he  would not  characterize the                                                                    
budget as a $1.3 billion cut.  He opined that the budget did                                                                    
not represent  a $1.3 billion  cut; however,  all subsequent                                                                    
presentations reflected  a $1.3 billion cut.  He believed it                                                                    
was necessary for  everyone to start with  the same numbers.                                                                    
He pointed to  slide 8 that showed the budget  was down from                                                                    
$6.9 billion  in FY 14  to $5.6  billion in FY  15; however,                                                                    
normally  $700  million  would be  applied  to  paying  down                                                                    
PERS/TRS deficit from the GF.  He elaborated that instead of                                                                    
using GF money the governor  had proposed to take the annual                                                                    
$700 payment out of the  CBR plus an additional $2.3 billion                                                                    
to  pay down  the debt.  He  surmised that  when taking  the                                                                    
items into  account the  budget was  really at  $6.3 billion                                                                    
plus the  $2.3 billion the  governor would like to  apply to                                                                    
the  unfunded liability.  He asked  if the  characterization                                                                    
was fair.                                                                                                                       
Ms.  Rehfeld answered  that the  math was  correct, but  she                                                                    
would not  propose to  spend an extra  $2.9 billion  or $2.3                                                                    
billion  out of  UGF. She  explained that  the proposal  was                                                                    
specific  to a  $3 billion  transfer from  the CBR  into the                                                                    
retirement funds. She elaborated  that the governor had been                                                                    
clear that  the GF reduction  in the current budget  was not                                                                    
meant to  be a sleight of  hand; he had been  clear that the                                                                    
$500  million would  be  part of  the  number the  following                                                                    
Representative Gara  remarked that  money coming out  of the                                                                    
CBR was still state money.  He relayed that the governor had                                                                    
also  communicated   that  room   had  been  left   for  the                                                                    
legislature to add  money into the capital  budget; he noted                                                                    
that historically  the figure had  been about  $400 million.                                                                    
He stated  that items  not represented  in the  $5.6 billion                                                                    
figure  included  $700  million [historical  GF  payment  to                                                                    
PERS/TRS],  $400   million  for  the  capital   budget,  and                                                                    
operating budget  adjustments. He  stressed that  if nothing                                                                    
was  done about  increasing  funds for  education the  state                                                                    
would   be  up   to  1,000   laid  off   teachers,  guidance                                                                    
counselors, and  other support staff.  He observed  that any                                                                    
additional education  funding was  not included in  the $5.6                                                                    
billion  figure. He  extrapolated that  the proposed  budget                                                                    
was closer  to $7.1  billion. He contended  that legislators                                                                    
voting   in   favor  of   the   capital   budget  would   be                                                                    
characterized as  adding $1.3  billion that  was essentially                                                                    
already in  the budget. He did  not believe it was  fair for                                                                    
the governor to call the budget a $1.3 billion reduction.                                                                       
2:23:40 PM                                                                                                                    
Ms.  Rehfeld believed  everyone was  talking about  the same                                                                    
numbers. She  surmised that  the governor's  proposed budget                                                                    
would  look  very  different  at the  end  of  session.  She                                                                    
believed there would be  many productive conversations about                                                                    
what was needed to meet  an agreed upon fiscally responsible                                                                    
budget. She did  not disagree, but the intention  was not to                                                                    
provide a false number.                                                                                                         
Representative  Gara  discussed  that  the  legislature  had                                                                    
passed and  renewed legislation  related to  energy projects                                                                    
for the Railbelt and statewide.  He pointed to the Renewable                                                                    
Energy   Fund   and   noted   that   statute   included   an                                                                    
appropriations  provision that  was unenforceable,  but that                                                                    
acted as a statement of  legislative intent that $50 million                                                                    
would be put  into the fund annually for the  next couple of                                                                    
years to  provide funding for statewide  projects. He stated                                                                    
that the governor  had continued to cut the  amount and that                                                                    
the proposed  budget only included $25  million. He wondered                                                                    
whether  there had  been  an analysis  done  related to  the                                                                    
Ms. Rehfeld answered that the  proposed figure for FY 15 was                                                                    
$20  million.   She  recalled  the  intent   language  about                                                                    
appropriating $50  million per year. The  administration had                                                                    
approached  the  issue  with the  idea  that  if  increasing                                                                    
funding for the Renewable Energy  Fund was a higher priority                                                                    
than another  item, additional funds would  be appropriated.                                                                    
She  believed it  was part  of the  discussion about  fixing                                                                    
what  the state  had currently.  She communicated  that over                                                                    
$200  million had  been appropriated  in the  fund and  some                                                                    
very  good projects  had  been completed  as  a result.  She                                                                    
acknowledged there was more to do.                                                                                              
2:26:30 PM                                                                                                                    
Representative Costello  asked if  withdrawals from  the CBR                                                                    
had  to   be  replenished.   Ms.  Rehfeld  replied   in  the                                                                    
affirmative. She  elaborated that  when money was  used from                                                                    
the  CBR typically  provisions in  the budget  would provide                                                                    
for a sweep  of funds into the reserve  account to replenish                                                                    
its balance.  She relayed that  in the  past it had  taken a                                                                    
number of years  to repay the CBR from spending  in the mid-                                                                    
Representative Costello asked about  the total current funds                                                                    
that had been appropriated for  capital projects but had not                                                                    
yet been  spent. Ms.  Rehfeld replied  that OMB  provided an                                                                    
annual  report  on  the status  of  capital  appropriations,                                                                    
which  would  be available  in  early  to mid-February.  The                                                                    
prior spring  (since about 2007) there  was approximately $6                                                                    
billion  allocated to  specific  projects that  had not  yet                                                                    
been spent (including  all fund sources such  as federal and                                                                    
state  general  funds).  She  detailed  that  a  significant                                                                    
portion of the total was  associated with the past couple of                                                                    
fiscal  years. She  added  that it  took  several years  for                                                                    
federal project  planning, design, and  construction phases.                                                                    
Additionally, there was  approximately $5 billion encumbered                                                                    
for specific projects that had not yet been spent.                                                                              
2:28:57 PM                                                                                                                    
Representative Costello  pointed to the  governor's priority                                                                    
to fix what the state  currently had. She referred to agency                                                                    
budgets that  included funding for  phase 1 of  many capital                                                                    
projects.  She  asked for  an  explanation  of the  apparent                                                                    
disconnect.  Ms. Rehfeld  answered  that of  the total  $426                                                                    
million in proposed GF spending,  $100 million was allocated                                                                    
to  deferred maintenance  for state  agencies, roughly  $100                                                                    
million  was allocated  to match  and  leverage funds  (i.e.                                                                    
matching  funds  for  federal highway  and  aviation  money,                                                                    
village safe water, municipal  matching grants), and funding                                                                    
was  included for  energy  projects.  She communicated  that                                                                    
there were very few other  state agency projects including a                                                                    
project on Kenai River.                                                                                                         
Representative Costello  believed the project was  a dock on                                                                    
the Kenai River.  She discussed the role of  the creation of                                                                    
jobs  in the  state.  She  wondered why  the  state did  not                                                                    
report the number of jobs created in its departments.                                                                           
Ms. Rehfeld asked for clarification on the question.                                                                            
Representative  Costello clarified  that she  was interested                                                                    
in  department   operating  funds  spent  on   job  creation                                                                    
efforts. Ms. Rehfeld would follow up with a response.                                                                           
2:31:30 PM                                                                                                                    
Co-Chair Austerman recalled  that at the start  of the prior                                                                    
year the  state had  approximately $15.8 billion  in savings                                                                    
that  was accessible  to balance  the budget.  He asked  for                                                                    
verification that the state had  used $908 million the prior                                                                    
year for FY 13.                                                                                                                 
Ms.  Rehfeld  referred  to  slide  5  that  showed  year-end                                                                    
JOHN  BOUCHER, SENIOR  ECONOMIST, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, OFFICE  OF THE GOVERNOR,  responded that  the figure                                                                    
was closer to $700 million.                                                                                                     
Ms. Rehfeld  added that figures  on slide 5  reflected year-                                                                    
end balances  and projections for the  current and following                                                                    
Co-Chair Austerman  asked if the  $11.3 million  [balance in                                                                    
the CBR  and SBR] for  FY 15  reflected the $3  billion draw                                                                    
from the  CBR [for  the unfunded retirement  liability]. Ms.                                                                    
Rehfeld  replied  in  the  affirmative.  Co-Chair  Austerman                                                                    
asked if  the data reflected  the projected $1.9  billion in                                                                    
spending from the SBR in FY  14. Ms. Rehfeld answered in the                                                                    
2:33:27 PM                                                                                                                    
Representative Munoz asked about  the impact of one-time tax                                                                    
credits  that would  occur in  the current  year and  the 35                                                                    
percent credit for new oil  activity [both items included in                                                                    
oil tax  legislation (SB 21)  that had become law  after the                                                                    
prior legislative session].                                                                                                     
Ms. Rehfeld  responded that she  was not the best  person to                                                                    
answer questions related to tax  credits. She referred to an                                                                    
SB 21  fiscal note  that included information  about changes                                                                    
for  the current-year  and the  following-year budgets.  She                                                                    
detailed  that  the  revised  fall   forecast  had  shown  a                                                                    
difference in  the numbers.  She believed  that some  of the                                                                    
change  was due  to  non-North Slope  activity; activity  in                                                                    
Cook Inlet had  led to forecast changes. She  noted that the                                                                    
OMB  fiscal summary  reflected the  changes; the  number had                                                                    
increased from $550  million to $600 million  in the current                                                                    
year and the projected FY  15 number had increased from $330                                                                    
million to $450 million.                                                                                                        
Representative Munoz  referred to  a payoff of  Alaska's old                                                                    
Clear  and Equitable  Share (ACES)  tax  credits. She  asked                                                                    
about the  total amount reflected  in the FY 15  budget. She                                                                    
had heard  the figure was  around $400 million.  Ms. Rehfeld                                                                    
would obtain the information from  the Department of Revenue                                                                    
(DOR) and follow up.                                                                                                            
Representative  Munoz asked  how  the removal  of poor  2008                                                                    
returns  would  impact  the  trust  fund  five-year  average                                                                    
earnings calculation.  She wondered  if the change  would be                                                                    
reflected in projections.                                                                                                       
2:35:45 PM                                                                                                                    
Mr.  Boucher responded  that early  projections showed  that                                                                    
drop off of  poor years would take effect  two budget cycles                                                                    
from the present.  Some increase in the funded  level of the                                                                    
system would  occur, but  it would  not be  dramatic; models                                                                    
projected that the increase would be around 1 percent.                                                                          
Representative  Munoz   asked  if   the  payment   would  be                                                                    
approximately $500  million or  less. Mr.  Boucher responded                                                                    
that  the governor's  plan  would cap  the  payment at  $500                                                                    
million.  He  elaborated that  as  returns  changed and  the                                                                    
liability floated the payment  would not necessarily change,                                                                    
but the  payment term may  change; the idea was  to increase                                                                    
the payment  predictability and sustainability over  time in                                                                    
comparison with the  current view up to 2029.  He added that                                                                    
significant savings could  be seen over time  if the current                                                                    
path was altered.                                                                                                               
Co-Chair Austerman  noted that slide  4 showed that  the SBR                                                                    
draw from FY 14 and FY 15  was over $3 billion. He looked at                                                                    
a  projection showing  that  the  governor's proposal  would                                                                    
only  draw   $5  billion  from  reserves.   He  referred  to                                                                    
testimony that  the proposal factored  in the $3  billion to                                                                    
pay the  retirement liability. He  asked for clarity  on how                                                                    
the numbers penciled out.                                                                                                       
Mr. Boucher replied that the  projected $1.9 billion draw in                                                                    
FY 14  and projected  $1.1 billion  draw in  FY 15  would be                                                                    
taken from  the SBR, which  did not retain any  earnings. He                                                                    
noted that  some earnings were  assumed to occur in  the CBR                                                                    
subaccount in  FY 14 and FY  15, which would offset  some of                                                                    
the  $3  billion   draw.  He  would  follow   up  with  more                                                                    
Representative Wilson pointed  to slide 4 and  asked if $1.9                                                                    
billion  had been  drawn  from the  SBR  on 12/12/2013.  Mr.                                                                    
Boucher  replied  in the  negative  and  clarified that  the                                                                    
figure  was the  projection for  the end  of current  fiscal                                                                    
year [FY 14].                                                                                                                   
Representative Wilson wondered if  the final number would be                                                                    
available  on  December  12,  2014 or  June  30,  2014.  Mr.                                                                    
Boucher replied  that final audited  numbers would  come out                                                                    
in  the  Comprehensive  Annual Financial  Report  (CAFR)  in                                                                    
December, but OMB  would have a good idea  about the numbers                                                                    
at the appropriations closeout period in mid-August.                                                                            
2:40:06 PM                                                                                                                    
Ms.  Rehfeld elaborated  that the  figure for  the SBR  draw                                                                    
would be known  once appropriations bills had  passed in the                                                                    
current session  that would  potentially effect  the current                                                                    
fiscal year and  once the final revenue  forecast was known;                                                                    
the items would  dictate the total draw at the  end of FY 14                                                                    
on June 30, 2014. She added  that there was an audit period;                                                                    
therefore the final number would  not be available until the                                                                    
CAFR came out in December.                                                                                                      
Representative Wilson  discussed the comparison  between her                                                                    
personal  finances and  the  budget  process. She  contended                                                                    
that  she would  not use  savings until  she knew  she would                                                                    
have enough revenue  to cover the next couple  of years. She                                                                    
appreciated the  optimism, but noted that  substantial gains                                                                    
would be  needed. She asked  if the $4.532 billion  shown on                                                                    
slide 4  under FY 15  would be  needed to prevent  the state                                                                    
from dipping into savings.                                                                                                      
Ms. Rehfeld replied  that relying only on the  income in the                                                                    
current year would mean that  the proposed budget would need                                                                    
to be reduced down to that revenue figure.                                                                                      
Representative  Wilson asked  when in  the past  GF spending                                                                    
had  been  at the  $4.5  billion  level. Ms.  Rehfeld  would                                                                    
follow up on the question.                                                                                                      
Representative  Wilson hypothesized  that  the numbers  were                                                                    
correct;  the numbers  showed $3  billion from  savings plus                                                                    
the additional $3 billion if  the legislature agreed to fund                                                                    
the amount  to PERS/TRS.  She pointed  to the  $11.3 billion                                                                    
[projected FY 15  CBR and SBR balance] and  surmised that if                                                                    
the other figures  were correct the figure  should really be                                                                    
$8.3 billion.                                                                                                                   
Ms.  Rehfeld responded  that the  $15  billion in  projected                                                                    
savings for FY  14 (slide 5) included the  reduction of $1.9                                                                    
billion; likewise,  the $1.1 billion reduction  was included                                                                    
in  the FY  15 projection  of $11.3  billion. She  explained                                                                    
that  the reductions  would occur  in  two different  fiscal                                                                    
years. The  proposed $3  billion transfer  from the  CBR was                                                                    
reflected in the FY 15 column as well.                                                                                          
2:44:11 PM                                                                                                                    
Representative  Wilson asked  for detail  on the  difference                                                                    
between the  $16.3 billion in FY  13 and the $15  billion in                                                                    
FY 14 (slide  5). Mr. Boucher replied that  the $1.9 billion                                                                    
was reflected in  the SBR change from FY 13  to FY 14 [shown                                                                    
in gray]. The change in the SBR  balance from FY 13 to FY 14                                                                    
was  $4.7 billion  down to  $2.7 billion  and reflected  the                                                                    
reduction of  $1.9 billion. The change  from FY 14 to  FY 15                                                                    
was  $2.7 billion  down to  $1.6 billion  and reflected  the                                                                    
reduction of  $1.1 billion. He expounded  that the remaining                                                                    
funds  would earn  interest at  a rate  of around  6 percent                                                                    
blended. The  proposed $3 billion transfer  was reflected in                                                                    
the  CBR change  from  $12.2 billion  down  to $9.9  billion                                                                    
between FY 14 and FY 15;  the difference did not add exactly                                                                    
to  $3  billion  because  the projection  assumed  that  the                                                                    
remaining money would continue to earn interest.                                                                                
Representative  Guttenberg discussed  the passage  of SB  21                                                                    
the  prior session.  He requested  projections showing  when                                                                    
production would increase under the new tax system.                                                                             
Co-Chair  Austerman  answered  that the  question  would  be                                                                    
appropriate for DOR at an upcoming meeting.                                                                                     
Representative  Guttenberg pointed  to slide  11 related  to                                                                    
spending  controls. He  wondered about  measurements of  the                                                                    
departments'  business  plans,  delivery  of  services,  and                                                                    
efficiencies  of  facilities.  He   asked  if  missions  and                                                                    
measures  were  still  used.   Ms.  Rehfeld  responded  that                                                                    
results-based  budgeting (missions  and  measures) had  been                                                                    
used for some  time. She detailed that over  the past decade                                                                    
there had  been some  good changes  and improvements  in the                                                                    
process. She  believed that some departments  were better at                                                                    
using  the process  than others.  She communicated  that the                                                                    
departmental  measures were  a good  way to  determine on  a                                                                    
larger  level   how  well  a  department   was  meeting  the                                                                    
statutorily required services in  its agencies. She believed                                                                    
it would be more difficult  to look at individual components                                                                    
depending  on the  program. Representative  Guttenberg noted                                                                    
it had  been frustrating being  told that someone  would get                                                                    
back to him related to the issues.                                                                                              
2:48:39 PM                                                                                                                    
Representative Edgmon  pointed to  slide 3. He  believed the                                                                    
budget   principles  should   include   a  statement   about                                                                    
investing  in  the future.  He  opined  that the  governor's                                                                    
budget  looked like  a fair  starting point.  He highlighted                                                                    
basic  necessities  the  operating budget  was  designed  to                                                                    
serve including  K-12 education, the Low  Income Home Energy                                                                    
Assistance  Program   (LIHEAP),  Power   Cost  Equalization,                                                                    
Village Public  Safety Officer positions,  community revenue                                                                    
sharing  at  $60  million,   Best  Beginnings,  the  digital                                                                    
learning initiative, the Renewable  Energy Grant Fund at $20                                                                    
million  (he  wanted  to  see  the  program  funded  at  $50                                                                    
million), and other.  He stated that the  items all provided                                                                    
investment  for  the  future. He  believed  the  budget  was                                                                    
reasonable.  He referred  to  differing  opinions about  how                                                                    
much should be  cut or not cut from the  proposed budget. He                                                                    
believed  that  one  of the  budget  priorities  (slide  12)                                                                    
should  relate  to  investing in  the  Arctic.  He  believed                                                                    
Arctic  investment   would  be  Alaska's   future  including                                                                    
offshore  development, safety  and monitoring,  the building                                                                    
of infrastructure  assets, the  building of capacity  at the                                                                    
University of Alaska Fairbanks, and  other items seen by the                                                                    
Arctic Policy Commission.                                                                                                       
2:51:31 PM                                                                                                                    
Representative Gara discussed  budget initiatives touched on                                                                    
by the governor  the prior evening [during his  State of the                                                                    
State speech]. He  was a long-term supporter  of the Digital                                                                    
Learning Initiative and  was glad to see it  included in the                                                                    
proposed  budget;  he  believed   its  value  needed  to  be                                                                    
explained further  during the  current session.  He referred                                                                    
to  a  statement made  by  the  governor  and asked  if  the                                                                    
intention  was  to trade  a  Base  Student Allocation  (BSA)                                                                    
increase for  a vote  on private  school vouchers.  He noted                                                                    
the BSA increase would be  around $300 in Fairbanks, Juneau,                                                                    
and Anchorage. He remarked that he did not trade votes.                                                                         
Ms. Rehfeld answered that the  governor planned to introduce                                                                    
legislation  that  would  include   a  number  of  education                                                                    
reforms  including dual  credit  charter schools  and a  BSA                                                                    
increase. She  did not  believe an  amendment to  the Alaska                                                                    
Constitution was  part of the same  discussion. She believed                                                                    
the  governor's  goal was  to  work  to bring  parties  with                                                                    
different education concerns together.                                                                                          
Representative   Gara  asked   whether   the  governor   was                                                                    
sympathetic  to  a  BSA increase  that  would  prevent  cuts                                                                    
facing  school districts  in the  current year.  Ms. Rehfeld                                                                    
deferred the  conversation until the  governor's legislation                                                                    
was introduced.                                                                                                                 
Co-Chair Austerman  surmised that costs associated  with the                                                                    
governor's education bill were  not included in the proposed                                                                    
budget. Ms. Rehfeld replied in the affirmative.                                                                                 
Vice-Chair Neuman  wondered how OMB worked  with departments                                                                    
to  integrate their  budgets in  a more  cooperative effort.                                                                    
He  pointed  to slide  11  related  to the  improvement  and                                                                    
streamlining of  business processes.  He discussed  a recent                                                                    
meeting with  DHSS related  to administrative  employees; he                                                                    
had  learned that  225  staff  conducted the  administrative                                                                    
work  for the  department's  4,000  employees. He  discussed                                                                    
OMB's  job of  looking  at the  departments collectively  to                                                                    
determine  how   they  were   integrated.  He   stated  that                                                                    
departments  tended to  work in  silos and  all individually                                                                    
competed  for  GF  dollars.  He  pointed  to  a  $4  million                                                                    
increase in  information technology in the  past four years.                                                                    
He had  overseen the  Department of  Administration's budget                                                                    
in  the  past  and  believed there  had  been  $100  million                                                                    
invested in  new technology and  in the coordination  of the                                                                    
Integrated Resource  Information System (IRIS).  He referred                                                                    
back to  the streamlining of business  processes and pointed                                                                    
to  a  $4  million   increase  in  the  DHSS  administrative                                                                    
operating  budget over  recent  years. He  believed a  large                                                                    
portion  of the  amount  went to  paying RSAs  [Reimbursable                                                                    
Services   Agreement]   to   DOA.   He   communicated   that                                                                    
legislators  were  struggling  to determine  how  to  reduce                                                                    
individual budgets.                                                                                                             
2:57:06 PM                                                                                                                    
Ms. Rehfeld  answered that managing  complex agencies  was a                                                                    
huge job. One  of the ways the  administration had attempted                                                                    
to  break down  silos  was to  involve  various groups  that                                                                    
worked  closely  on  issues  of   how  best  to  manage  the                                                                    
different cost  centers. Department  administrative services                                                                    
directors  met every  other  week.  Additionally, groups  of                                                                    
finance  officers  met to  work  on  issues related  to  the                                                                    
implementation of  the new  accounting system;  the original                                                                    
accounting system had been built  in the 1980s. She believed                                                                    
the new  accounting system would  help in a number  of ways.                                                                    
Her office  also talked with central  service providers that                                                                    
had chargeback and costs in  their budgets to determine cost                                                                    
drivers before determining what  agencies needed in order to                                                                    
pay  the  costs. She  communicated  that  one size  did  not                                                                    
always  fit  all;  each  department  had  a  unique  set  of                                                                    
circumstances.  The office  tried to  identify opportunities                                                                    
to work  across several departments to  address a particular                                                                    
issue. She relayed that the  job was not easy. She discussed                                                                    
looking  at   core  services  rates  and   issues  that  put                                                                    
increased pressure  on budgets  and what  was needed  to get                                                                    
the job done.                                                                                                                   
Vice-Chair Neuman addressed what was  needed to "get the job                                                                    
done." He pointed  to a reduction in  58 personnel positions                                                                    
in DHSS the  prior year and an additional 28  in the current                                                                    
year;  administrative  services  made  up  5  or  6  of  the                                                                    
positions.  He noted  that  there  were unfilled  accountant                                                                    
positions.  He wondered  if a  lack of  accountants hindered                                                                    
departments'  ability  to  monitor funds.  He  believed  the                                                                    
reductions in  staff looked good  on paper, but  he wondered                                                                    
whether the state was going backwards.                                                                                          
3:00:55 PM                                                                                                                    
Ms.  Rehfeld  replied  that  a  key  piece  in  looking  for                                                                    
departmental  operating budget  reductions was  to have  the                                                                    
ability to  say that the state  would be able to  manage the                                                                    
people and resources  to get the job done.  She relayed that                                                                    
the  department  leadership  had  the ability  to  focus  on                                                                    
priorities and to get the  work done. She remarked that DHSS                                                                    
was   a  very   complex   organization.   She  opined   that                                                                    
Commissioner  Streur   was  a   tremendous  leader   in  the                                                                    
department.  She  did worry  about  the  state's ability  to                                                                    
deliver  and its  capacity; it  was  not possible  to cut  a                                                                    
budget  without looking  at  doing  things differently.  The                                                                    
governor was working  hard to bring the  legislature a lower                                                                    
budget.  She  was not  completely  happy  with the  way  the                                                                    
budget  looked but  the goal  was to  do the  best with  the                                                                    
people and resources that were available.                                                                                       
Co-Chair Austerman discussed the  schedule for the following                                                                    
3:02:52 PM                                                                                                                    
The meeting was adjourned at 3:02 p.m.                                                                                          

Document Name Date/Time Subjects
OMB-HFIN FY2015_2 page_Cost_Driver_Budget_Priorities_for _Finance_Committees_1-23-14.pdf HFIN 1/23/2014 1:30:00 PM
OMB Overview
OMB Budget Overview HFC Final 01 22 2014.pdf HFIN 1/23/2014 1:30:00 PM
OMB Overview