Legislature(2013 - 2014)HOUSE FINANCE 519

02/10/2014 01:30 PM FINANCE


Download Mp3. <- Right click and save file as

Audio Topic
01:32:26 PM Start
01:32:35 PM Overview: Fy 15 10-year Plan
02:56:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ - Overview of FY2015 Ten-year Plan by TELECONFERENCED
Karen Rehfeld, Director & John Boucher, Senior
Economist, Office of Management & Budget
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 10, 2014                                                                                          
                         1:32 p.m.                                                                                              
                                                                                                                                
1:32:26 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Austerman  called   the  House  Finance  Committee                                                                    
meeting to order at 1:32 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Karen Rehfeld,  Director, Office  of Management  and Budget,                                                                    
Office  of the  Governor;  John  Boucher, Senior  Economist,                                                                    
Office of Management and Budget, Office of the Governor.                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
^OVERVIEW: FY 15 10-YEAR PLAN                                                                                                 
                                                                                                                                
1:32:35 PM                                                                                                                    
                                                                                                                                
KAREN REHFELD,  DIRECTOR, OFFICE  OF MANAGEMENT  AND BUDGET,                                                                    
OFFICE   OF   THE   GOVERNOR,   presented   the   PowerPoint                                                                    
presentation:  "FY 2015  Ten-Year  Plan  Overview" (copy  on                                                                    
file). She described the ten year  plan as a tool to utilize                                                                    
when crafting the annual budget  and place in context of the                                                                    
long   term  view.   Adjustments  would   be  necessary   as                                                                    
conditions and circumstances change.                                                                                            
                                                                                                                                
JOHN  BOUCHER, SENIOR  ECONOMIST, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, OFFICE OF THE GOVERNOR,  began with began with slide                                                                    
2: "Brief History."                                                                                                             
                                                                                                                                
   · Enacted in 2008 (HB 125)                                                                                                   
   · Initial statewide plan in winter 2008                                                                                      
   · First agency plans in January 2009                                                                                         
   · Fiscal planning module automated and part of the                                                                           
     Alaska Budget System (ABS) 2010/2011                                                                                       
   · First ABS generated plan in January 2012                                                                                   
                                                                                                                                
Mr.  Barnhill stated  that the  FY 15  plan represented  the                                                                    
sixth year  of the ten-year  plan. The Office  of Management                                                                    
and Budget strove to continually  improve the plan's process                                                                    
and product.                                                                                                                    
                                                                                                                                
Ms. Rehfeld discussed slide 3: "Purpose of the Plan."                                                                           
                                                                                                                                
   A tool to keep a dialogue about Alaska's future in the                                                                       
   forefront.                                                                                                                   
                                                                                                                                
   · Creates annual dialogue about the future fiscal health                                                                     
     of Alaska                                                                                                                  
   · Provides context for budget decisions within the                                                                           
     overall revenue picture                                                                                                    
   · Informs decision making given a range of scenarios                                                                         
                                                                                                                                
Ms. Rehfeld  related that over  the next decade  Alaska must                                                                    
transition from a  predominantly oil revenue base  to an oil                                                                    
and  natural gas  revenue base  and  develop other  resource                                                                    
industries. Natural  gas development would  provide economic                                                                    
opportunity  and  a  stable  and  clean  energy  source  for                                                                    
Alaskans. She  offered that the  plan was  produced annually                                                                    
and  was  based  on  Department   of  Revenue's  (DOR)  Fall                                                                    
Forecast.  Alaska needed  to  enforce  budget discipline  in                                                                    
order to sustain itself through  2024. The state expected to                                                                    
slow  the  decline  in  oil  production  while  natural  gas                                                                    
production  expanded  into  a larger  role  in  the  state's                                                                    
economy.                                                                                                                        
                                                                                                                                
Ms.  Rehfeld  assumed  that the  combined  balances  of  the                                                                    
state's two  primary reserve accounts; the  Statutory Budget                                                                    
Reserve (SBR)  and the  Constitutional Budget  Reserve (CBR)                                                                    
would  remain   positive  over   the  next   decade  through                                                                    
conservative   spending  scenarios.   The  level   of  state                                                                    
spending  played  a  critical  role in  the  revenue  versus                                                                    
expenditure  equation. The  plan  was  designed to  "inform"                                                                    
through  a  range  of  scenarios.  Reserve  funds,  spending                                                                    
reductions, and  "other fiscal tools"  would be  employed to                                                                    
manage the budget over the next ten-year period.                                                                                
                                                                                                                                
Mr. Boucher continued with slide 4: "Plan Requirements."                                                                        
                                                                                                                                
   Objectives of the 10-year plan                                                                                               
                                                                                                                                
   · AS 37.07.020 (b) (2) says the annual plan must:                                                                            
        o Balance the budget between sources and uses of                                                                        
          funds                                                                                                                 
        o Provide for essential state services                                                                                  
        o Protect Alaska's economic stability                                                                                   
                                                                                                                                
Mr. Boucher added  that the plan must  also project balances                                                                    
for the reserve accounts  and describe the major assumptions                                                                    
of the plan. He indicated  that the "foundation" of the plan                                                                    
was   DOR's  Fall   Revenue   Forecast.   He  listed   other                                                                    
assumptions of  the plan: a  2.5 percent inflation  rate and                                                                    
population  growth  projected  at slightly  over  1  percent                                                                    
annually.                                                                                                                       
                                                                                                                                
Mr.  Boucher continued  with slide  5: "Annual  Plan Release                                                                    
Scheduled."                                                                                                                     
                                                                                                                                
   Executive Summary and Agency plans                                                                                           
                                                                                                                                
   · Statewide Executive Summary released in December                                                                           
   · Individual agency plans released in January                                                                                
   · Statewide and agency plans provide different levels of                                                                     
     detail and information                                                                                                     
                                                                                                                                
Mr. Boucher  explained that OMB granted  the agencies leeway                                                                    
when developing  its spending projections but  also provided                                                                    
the following guidance from the instruction memo. He read:                                                                      
                                                                                                                                
     "The process  of making ten-year projections  is not an                                                                    
     opportunity  to ask  for  every  program or  everything                                                                    
     that  every   program  has   ever  wanted   rather  the                                                                    
     projections  should   be  the  result  of   a  rational                                                                    
     objective  process  within  the department  that  would                                                                    
     withstand   the   scrutiny   of   the   governor,   the                                                                    
     legislature, and the public."                                                                                              
Mr.  Boucher reported  that each  agency plan  contained two                                                                    
types of  projections. One projected  the "current  level of                                                                    
service;"  the  cost  of  providing  the  current  level  of                                                                    
service for  10 years. An  important rule was not  to assume                                                                    
that  general   funds  (GF)  could   be  used   to  backfill                                                                    
anticipated lost revenue from  other fund sources. The other                                                                    
type of projections  made in the plan  was "initiatives." He                                                                    
explained  that "the  projection was  designed to  highlight                                                                    
projected costs  associated with expanding or  contracting a                                                                    
service capacity  of the agency from  its FY 14 level  or if                                                                    
new GF  would be required  to replace non-GF  fund sources."                                                                    
Agencies were  required to produce spending  projections for                                                                    
the operating,  capital, and for formula  programs. He noted                                                                    
that some  budget items, i.e.,  wage and  benefit increases,                                                                    
state  assistance payments  to employee  retirement systems,                                                                    
annual   debt  service,   and   fund  capitalizations   were                                                                    
projected  as statewide  appropriations.  The budget  office                                                                    
was responsible for coordinating  or producing the statewide                                                                    
projections.                                                                                                                    
                                                                                                                                
1:45:28 PM                                                                                                                    
                                                                                                                                
Ms. Rehfeld  continued with slide 6:  "Guiding Principles of                                                                    
the FY2015 Plan."                                                                                                               
                                                                                                                                
Foundation framework and strategies                                                                                             
                                                                                                                                
   · Develop Alaska's Natural Resources                                                                                         
   · Restrain Spending                                                                                                          
   · Save for Future Generations                                                                                                
                                                                                                                                
Mr.  Boucher detailed  slide  7:  "Develop Alaska's  Natural                                                                    
Resources."                                                                                                                     
                                                                                                                                
   Prosperity hinges on responsible development of abundant                                                                     
   natural resources                                                                                                            
                                                                                                                                
   · Strategy - Increase Oil Production                                                                                         
   · Strategy - Gas for Alaskans and Markets Beyond                                                                             
   · Strategy - Strategic Minerals Development                                                                                  
   · Strategy - Affordable Power                                                                                                
                                                                                                                                
Mr.  Boucher  announced  that  90  percent  of  the  state's                                                                    
unrestricted  general  fund  revenue was  created  from  oil                                                                    
production. The  administration's highest  economic priority                                                                    
was the  development of the  state's natural  resources. The                                                                    
state's long-term  plan included slowing the  decline in oil                                                                    
production. The vast natural gas  potential was an important                                                                    
piece of the long term  health of Alaska's economy. He noted                                                                    
that Alaska had  an important role in  developing a domestic                                                                    
supply  of strategic  minerals. The  state had  an ambitious                                                                    
goal  to  generate 50  percent  of  the state's  electricity                                                                    
through renewable  resources by 2025 and  continue to invest                                                                    
in  energy   conservation.  Developing  the   state's  other                                                                    
natural  resources played  a significant  part in  Alaskan's                                                                    
future.                                                                                                                         
                                                                                                                                
Ms. Rehfeld continued with slide 8: "Restrain Spending."                                                                        
                                                                                                                                
     Smaller,    more   efficient    government   delivering                                                                    
     essential services                                                                                                         
                                                                                                                                
     • Strategy - Spending Targets                                                                                              
     • Strategy - Results Based Budgeting                                                                                       
     • Strategy - Long-Term Investment Initiatives                                                                              
                                                                                                                                
Ms.  Rehfeld   noted  that  spending  reductions   had  been                                                                    
achieved in the past two  years years due to the significant                                                                    
effort  by  the  governor  and legislature  to  stay  within                                                                    
defined spending  targets. The administration  also employed                                                                    
"performance based budgeting;" focused  on the outcomes from                                                                    
agency  mission   and  core  services.   The  administration                                                                    
coordinated  among the  agencies in  an effort  to eliminate                                                                    
waste    and   duplication.    She   mentioned    that   the                                                                    
administration  encouraged agencies  to discover  innovative                                                                    
ways  to   deliver  services.   She  added   that  long-term                                                                    
investments  included legacy  projects, roads  to resources,                                                                    
transportation infrastructure,  and energy  and were  key to                                                                    
the long-term economic health of the state.                                                                                     
                                                                                                                                
Mr.  Boucher  continued  with  slide  9:  "Save  for  Future                                                                    
Generations."                                                                                                                   
                                                                                                                                
     Maintain Alaska's economic stability                                                                                       
                                                                                                                                
     • Strategy - Preserve and grow Alaska's                                                                                    
       Permanent Fund                                                                                                           
     • Strategy - Build Reserves/Prudent Use                                                                                    
       of Reserves                                                                                                              
     • Strategy - Forward Fund                                                                                                  
     • Strategy - Focus on essential services                                                                                   
                                                                                                                                
Mr. Boucher announced  that the savings portion  of the plan                                                                    
was  the  foundation   for  "protecting"  Alaska's  economic                                                                    
stability.  Savings  extended  Alaska's  economic  stability                                                                    
beyond the  life of  the revenue  resource. He  informed the                                                                    
committee  that two  critical  elements  grew the  permanent                                                                    
fund;   mineral  royalty   revenue  and   inflation-proofing                                                                    
appropriations.  The December  [2013] Permanent  Fund Report                                                                    
showed that out of the  $44 billion balance over $22 billion                                                                    
had been  appropriated through the legislature.  The state's                                                                    
dedicated  oil  revenue  contributed $14.5  billion  to  the                                                                    
fund.   Inflation  proofing   and  dedicated   revenue  were                                                                    
projected to  contribute $19.8 billion  to the fund  by 2024                                                                    
when the balance could be $78 billion.                                                                                          
                                                                                                                                
Mr.  Boucher communicated  that  the plan  advised that  any                                                                    
surplus  GF should  be  set aside  in  reserve accounts.  He                                                                    
noted that from  the inception of the CBR  through 2005 more                                                                    
than $5.2 billion was borrowed  from the fund to balance the                                                                    
budget. Surpluses  beginning in FY 2007  replenished the CBR                                                                    
and  the  balance had  grown  to  $12 billion.  The  current                                                                    
balance  of the  SBR was  $4.7 billion.  The plan  predicted                                                                    
that  draws  on  the  reserve fund  would  be  necessary  to                                                                    
balance the  budget in  the near  future. The  plan employed                                                                    
the  strategy of  forward funding  for endowing  programs to                                                                    
provide fiscal stability.                                                                                                       
                                                                                                                                
Mr.  Boucher listed  the important  funds that  were endowed                                                                    
through   forward  funding;   the  public   education  fund,                                                                    
Community Revenue Sharing Fund,  the Power Cost Equalization                                                                    
Fund  (PCE),  and  the Alaska  Higher  Education  Investment                                                                    
Fund.  From a  spending  prospective,  the plan  prioritized                                                                    
spending  according  to  essential services;  resources  and                                                                    
energy,    education,    public    safety,    transportation                                                                    
infrastructure, and Alaska's military.                                                                                          
                                                                                                                                
1:56:07 PM                                                                                                                    
                                                                                                                                
Ms. Rehfeld discussed slide 10: "Plan Scenarios."                                                                               
                                                                                                                                
   Alternate scenarios provide reasons for optimism and                                                                         
   caution                                                                                                                      
                                                                                                                                
   · Optimism                                                                                                                   
        o Alaska's current financial outlook is positive                                                                        
        o Strong reserves                                                                                                       
        o Triple A bond rating                                                                                                  
        o Fiscal discipline                                                                                                     
                                                                                                                                
   · Caution                                                                                                                    
   • Oil price and production levels quickly change the                                                                         
     fiscal outlook                                                                                                             
 • Conservative revenue picture tempers long term outlook                                                                       
                                                                                                                                
Ms. Rehfeld continued with slide 11: "Three Alternate                                                                           
Statewide Scenarios."                                                                                                           
                                                                                                                                
     Revenue outlook requires reduced spending and use of                                                                       
     reserves                                                                                                                   
                                                                                                                                
     • Lower oil price and production result in                                                                                 
       decreased revenue                                                                                                        
     • Require fiscal discipline and prudent use of                                                                             
       reserve funds in the near term to provide essential                                                                      
       services                                                                                                                 
    • Focus on priorities and strategic investments to                                                                          
       grow the economy                                                                                                         
                                                                                                                                
Mr. Boucher continued with slide 12: "Three Alternate                                                                           
Statewide Scenarios."                                                                                                           
                                                                                                                                
   Illustrate possibilities given different price and                                                                           
   production assumptions                                                                                                       
                                                                                                                                
     Scenario 1 - Fall 2013 forecast with flat general                                                                          
      fund spending beginning in FY2015                                                                                         
                                                                                                                                
      Scenario 2 - Fall 2013 forecast for price with                                                                            
    enhanced production and flat general fund spending                                                                          
      beginning in FY201                                                                                                        
                                                                                                                                
      Scenario 3 - $100 price per barrel with flat general                                                                      
      fund spending beginning in FY2015                                                                                         
                                                                                                                                
Mr. Boucher discussed slide 13: "Disclaimer."                                                                                   
                                                                                                                                
     Expect the plan to change                                                                                                  
                                                                                                                                
     • The statewide scenarios are used as a planning tool                                                                      
     • Assumptions of revenue and expenditures are intended                                                                     
       to inform and provide context to budget                                                                                  
       deliberations                                                                                                            
     • Revenue shortfalls will need to be managed through a                                                                     
       combination of budget reductions and use of reserve                                                                      
       funds in the near term.                                                                                                  
    • All three principles of the ten-year plan need to                                                                         
     move in concert - develop our natural resources,                                                                           
       restrain spending, and save for the future.                                                                              
     • The plan will change as conditions warrant.                                                                              
                                                                                                                                
Mr. Boucher  continued with slide  14: "Fall  2013 forecast,                                                                    
General  Fund  spending  capped   at  $5.6  billion  through                                                                    
FY2024." He detailed  that the chart depicted  the price and                                                                    
production forecast  from the fall  revenue forecast  on the                                                                    
top  two lines,  the third  line contained  the expected  GF                                                                    
revenue, the fourth  line showed the GF  expenses, the fifth                                                                    
line displayed revenue surplus or  shortfalls. The blue line                                                                    
depicted  the  balance  of  the   CBR  and  the  green  line                                                                    
disclosed the SBR balance. He  explained that the model used                                                                    
to  generate the  information  did  not anticipate  rational                                                                    
behavior. The  order in which  the reserves were  drained in                                                                    
the  plan  was  SBR,  CBR  main account,  and  the  CBR  sub                                                                    
accounts. Scenario 1 predicted  budget deficits through 2024                                                                    
and  steady  draws form  the  SBR  and  the CBR.  The  total                                                                    
reserve balance would be $7.9 billion by the end of 2024.                                                                       
                                                                                                                                
Mr.  Boucher continued  with slide  15:  "Mid-High Case  oil                                                                    
Production, Fall  2013 price, $5.6 Billion  GF Spending." He                                                                    
explained that  scenario 2 assumed that  oil production fell                                                                    
half  way between  DOR's 2013  forecast and  the "un-risked"                                                                    
technical assessment  that was  provided to  the department.                                                                    
With  the scenario,  the state  had a  deficit of  nearly $2                                                                    
billion  in 2014  and  a short  term decline,  due  to a  $3                                                                    
billion  deposit in  the retirement  accounts, in  the total                                                                    
reserves through  2015. As oil production  and prices raised                                                                    
the reserve deficit was reversed  by 2016. Annual draws were                                                                    
anticipated  in order  to  balance the  budget  but the  CBR                                                                    
balance would  continue to increase  to $12  billion through                                                                    
2023 when the budget deficits start to increase.                                                                                
                                                                                                                                
Mr. Boucher  continued with slide  16: "Revenue at  $100 oil                                                                    
beginning  FY  2015, $5.6  Billion  GF  Spending through  FY                                                                    
2024." He relayed that in  scenario 3 annual spending growth                                                                    
was  held  at $5.6  billion.  The  scenario illustrated  the                                                                    
potential deficits  under lower than forecasted  oil prices.                                                                    
He stated  that if  the scenario actually  happened spending                                                                    
would most  likely not be sustained  at FY 15 levels  but he                                                                    
wanted  to  demonstrate  the  length   or  the  strength  of                                                                    
Alaska's  reserve   position.  Under  the   scenario  budget                                                                    
deficits would grow to $3  billion through 2014. The reserve                                                                    
balances would be exhausted by 2022.                                                                                            
                                                                                                                                
Ms. Rehfeld concluded with slide 17: "Wrap Up."                                                                                 
                                                                                                                                
     The ten-year plan is a tool to guide budget                                                                                
     development and decisions                                                                                                  
                                                                                                                                
     Optimism                                                                                                                   
     • Alaska's current financial outlook is positive                                                                           
     • Strong reserves                                                                                                          
     • Triple A bond rating                                                                                                     
     • Fiscal discipline                                                                                                        
                                                                                                                                
     Caution                                                                                                                    
     • Oil price and production levels quickly change the                                                                       
       fiscal outlook                                                                                                           
     • Conservative revenue picture tempers long term                                                                           
       outlook                                                                                                                  
                                                                                                                                
Ms.  Rehfeld  cautioned that  while  the  future pointed  to                                                                    
"relative fiscal stability for the  state if oil prices hold                                                                    
above  $100 per  barrel,"  the state  must  take a  cautious                                                                    
approach  to its  finances to  ensure essential  services in                                                                    
the  future. The  challenge was  to find  a balance  between                                                                    
current and  future Alaskans.  She thought  that due  to the                                                                    
diligent  budget   work  done  by  the   administration  and                                                                    
legislature, the  state was in  a position to  be optimistic                                                                    
while exercising strength and caution.                                                                                          
                                                                                                                                
Co-Chair  Austerman understood  that the  ten-year plan  was                                                                    
authorized   in  statute,   but  oil   prices  were   highly                                                                    
unpredictable  and  production   models  were  variable.  He                                                                    
wondered  whether the  Ten-Year Plan  provided value  to the                                                                    
state.                                                                                                                          
                                                                                                                                
2:09:03 PM                                                                                                                    
                                                                                                                                
Ms. Rehfeld  perceived that  the exercise  had value  on two                                                                    
levels.  One  level  was the  global  perspective  the  plan                                                                    
provided in the budget  development. On a departmental level                                                                    
it allowed the  agencies to examine how its  mission or core                                                                    
services  were delivered  and  what  future challenges  they                                                                    
were facing.  She noted that the  global perspective allowed                                                                    
OMB  to identify  where  the  department budget  "pressures"                                                                    
were. The information was useful  to identify the priorities                                                                    
and necessary  reductions for the current  and future fiscal                                                                    
years. She  thought that the  ten-year plan was  not precise                                                                    
but the exercise provided value to the budget process.                                                                          
                                                                                                                                
Mr. Boucher  added that the  value was in the  education and                                                                    
"self-examination"  the  process  allowed.  He  provided  an                                                                    
example about a  previous year's budget based  on higher oil                                                                    
prices   which  then   dropped.   The  situation   initiated                                                                    
discussions   about  the   plan's   model   and  how   price                                                                    
fluctuations  affect GF  revenue  in the  current year.  The                                                                    
department's  managers  understood  how  the  price  of  oil                                                                    
influenced overall  state revenue  and the  impact decisions                                                                    
made at  the department level  had on the budget.  He stated                                                                    
that the ten-year plan was  a tool available to the agencies                                                                    
to  emphasize  the state's  dependence  on  oil revenue  and                                                                    
fluctuations in price. The plan  was also a valuable tool in                                                                    
employee contract negotiations.                                                                                                 
                                                                                                                                
Co-Chair Austerman  identified that  the GF expenses  in the                                                                    
three models were  held at $5.6 billion each  year. He added                                                                    
that the spending  in Medicaid was predicted  to increase to                                                                    
$1.3 billion over  the same time period, PERS  and TRS would                                                                    
increase by $500 million next  year, the governor's increase                                                                    
for education  in FY 15  was $51 million, the  Department of                                                                    
Environmental  Conservation  (DEC)   was  expected  to  have                                                                    
spending  increases  in  the  range of  $6  million  to  $16                                                                    
million. He  wondered how  the administration  could project                                                                    
FY 15 budget figures with  all of the impending expenses and                                                                    
how  the  governor  planned  to  keep  the  budget  at  that                                                                    
spending level. He reiterated his  doubt regarding the value                                                                    
of the ten-year plan.                                                                                                           
                                                                                                                                
Ms. Rehfeld  replied that the executive  summary in December                                                                    
designated $5.6 billion  as a target level  for GF expenses.                                                                    
She noted  much discussion regarding capping  state spending                                                                    
at that level. The plan was  not designed to consider all of                                                                    
the  individual components  that  comprise GF  expenditures.                                                                    
Difficult  budget  choices  would  be  necessary  in  future                                                                    
budget  deliberations. She  thought  that the  value of  the                                                                    
plan kept  the "pressure on  the overall spending  number in                                                                    
our planning process."                                                                                                          
                                                                                                                                
Co-Chair  Austerman stated  that  the  projections for  next                                                                    
year  were available  and the  plan's  projections were  not                                                                    
accurate. He did not wish  to release the plan's projections                                                                    
to the  public with the knowledge  that anticipated expenses                                                                    
were much higher.                                                                                                               
                                                                                                                                
Mr. Boucher  acknowledged the plan's shortcoming.  He stated                                                                    
that the  LFD projection  utilized similar numbers  based on                                                                    
$100 oil.  He noted that  it was challenging to  decide what                                                                    
the  costs  would look  like  in  the  next five  years.  He                                                                    
believed that  the plan kept the  budget discussions focused                                                                    
on spending.                                                                                                                    
                                                                                                                                
Co-Chair Austerman  declared that  the state would  never be                                                                    
able to cut  its way to prosperity. A flat  budget would not                                                                    
grow the  state's economy enough to  establish a sustainable                                                                    
tax base.                                                                                                                       
                                                                                                                                
2:20:25 PM                                                                                                                    
Representative  Thompson expressed  the same  concerns about                                                                    
flat  funding. He  stressed that  aside  from the  increases                                                                    
that  Co-Chair Austerman  mentioned the  largest portion  of                                                                    
the  budget was  expended on  personnel. The  step increases                                                                    
and  contractual   obligations  made  the   spending  target                                                                    
unattainable. He thought that it  was unrealistic to use the                                                                    
FY  15 level  as a  target unless  entire programs  were cut                                                                    
from the budget.                                                                                                                
                                                                                                                                
Ms.  Rehfeld replied  that the  administration was  actively                                                                    
involved  in   educating  the  agencies  about   the  fiscal                                                                    
outlook, which  tempered expectations. She stated  that some                                                                    
negotiated  contracts were  lean.  She knew  that the  state                                                                    
would not be able to conduct  business as usual and meet the                                                                    
spending targets.  The necessity  to cut some  positions and                                                                    
reevaluate  current  merit  and   step  schedules  would  be                                                                    
warranted.                                                                                                                      
                                                                                                                                
Representative Munoz  cited slide 14, which  depicted the FY                                                                    
15 $5.6  billion general fund expenses.  She understood that                                                                    
the PERS and  TRS actuarial payment of $600  million was not                                                                    
included in the figure and  was expected to be deducted from                                                                    
the CBR. The  subsequent $500 million PERS  and TRS payments                                                                    
proposed  by the  governor  were also  not  included in  the                                                                    
model. She asked for clarification.                                                                                             
                                                                                                                                
Ms.  Rehfeld  replied  that the  CBR  main  account  balance                                                                    
showed the  $3 billion FY  15 draw  into the trust  fund. In                                                                    
the  out  years,  the annual  retirement  payment  would  be                                                                    
capped at $500 million and would  have to be included in the                                                                    
$5.6 billion cap.                                                                                                               
                                                                                                                                
Representative  Munoz emphasized  that her  exact point  was                                                                    
that it was not included in the FY 15 plan.                                                                                     
                                                                                                                                
Ms.  Rehfeld  stated  that current  year's  target  was  not                                                                    
established and the $5.6 billion was a discussion point.                                                                        
                                                                                                                                
Representative   Wilson   asked  whether   priorities   were                                                                    
established  by agencies.  She remarked  that she  had never                                                                    
seen priorities  listed for the Department  of Education and                                                                    
Early  Development   (DEED)  or  Department  of   Labor  and                                                                    
Workforce Development  (DOL). She understood  the difference                                                                    
between   governmental  priorities   and  obligations.   She                                                                    
expressed concern  that the bills that  contained additional                                                                    
GF expenses  were governor's  bills and  he did  not include                                                                    
the expenditures  in the  model. She asked  how much  of the                                                                    
budget expenses  would be shifted  to the  municipalities if                                                                    
the  state could  not  cover the  bills.  She believed  that                                                                    
additional budget pressures would overwhelm the Interior.                                                                       
                                                                                                                                
Ms.  Rehfeld  answered  that  agencies  were  instructed  to                                                                    
allocate its resources to  statutorily driven core services.                                                                    
She  offered that  non-core services  were a  lower priority                                                                    
especially in low funding  environments. The agencies budget                                                                    
should focus  on statutorily driven core  services in budget                                                                    
subcommittee.  She added  that  cost  shifting to  municipal                                                                    
governments  would  happen  through the  decisions  made  in                                                                    
budget  deliberations. She  noted that  the December  budget                                                                    
preceded the  governor's legislation  and would  be included                                                                    
in the amended fiscal  summary due the thirtieth legislative                                                                    
day.                                                                                                                            
                                                                                                                                
Representative Wilson  wondered why the information  was not                                                                    
utilized in the presentation.                                                                                                   
                                                                                                                                
Mr. Boucher  stated that  the numbers in  the plan  could be                                                                    
changed.                                                                                                                        
                                                                                                                                
Representative Wilson revealed that  a commissioner had told                                                                    
her  he  was unable  to  share  a  list of  priorities.  She                                                                    
reiterated  that she  had never  seen a  list of  priorities                                                                    
based on agencies mission.                                                                                                      
                                                                                                                                
Representative Gara  asked about slide 14.  He asked whether                                                                    
the proposal  was to flat fund  agencies to the FY  15 level                                                                    
through FY 24.                                                                                                                  
                                                                                                                                
Ms. Rehfeld  responded in the  affirmative. She  stated that                                                                    
for the  purposes of  the executive  summary, the  model was                                                                    
designed to show the impacts of flat funding.                                                                                   
                                                                                                                                
2:30:56 PM                                                                                                                    
                                                                                                                                
Representative Gara asserted  that the FY 15  budget was not                                                                    
really  a  $5.6 billion  budget  because  more PERS/TRS  and                                                                    
capital expenses  amounting to a $6.7  billion were proposed                                                                    
by the  governor. The CBR  would have a budget  deficient by                                                                    
2024 with  a $6.7  billion budget.  He wondered  whether the                                                                    
governor wanted the legislature  to cut $1.5 billion between                                                                    
FY 15 and FY 16.                                                                                                                
                                                                                                                                
Ms.  Rehfeld  replied  that  the   decision  of  what  would                                                                    
ultimately be  funded would be  made during  the legislative                                                                    
process.                                                                                                                        
                                                                                                                                
Representative Gara  asserted that in order  attain the $5.6                                                                    
billion goal in  FY 16 the legislature would need  to cut $1                                                                    
billion.                                                                                                                        
                                                                                                                                
Representative Gara referenced that  the state adopted a new                                                                    
methodology to  forecast oil production.  He stated  that he                                                                    
did not remember  projections of 285,000 barrels  per day by                                                                    
FY 24 under  SB 21. He wanted proof  from the administration                                                                    
that the figures were disclosed during SB 21 hearings.                                                                          
                                                                                                                                
Ms. Rehfeld  stated she would  follow up with  Department of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
Representative  Gara   stated  that  the  state   could  not                                                                    
continue  to cut  its way  to prosperity.  He discussed  the                                                                    
proposed cuts  of $1 billion  for the following  fiscal year                                                                    
and more cuts in subsequent  years to sustain a flat budget.                                                                    
He pointed to  the Department of Health  and Social Services                                                                    
(DHSS)  and  other  agencies that  could  not  identify  any                                                                    
additional   wasteful  spending.   He   stressed  that   the                                                                    
administration  needed  to  identify  wasteful  spending  in                                                                    
order for the  legislature to know how to  develop a "proper                                                                    
budget." He wanted answers from the agencies.                                                                                   
                                                                                                                                
Ms.  Rehfeld did  not disagree.  She  communicated that  the                                                                    
governor's   office   had   the   exact   discussions   with                                                                    
departments on  an annual basis.  She stated that  the "hard                                                                    
work" to locate inefficiencies  would continue. She believed                                                                    
a  conversation  was  necessary to  determine  a  reasonable                                                                    
level of spending in the current environment.                                                                                   
                                                                                                                                
Representative  Guttenberg was  concerned about  the general                                                                    
fund expenses  line on slide  14 regarding the  "reality and                                                                    
lack of vision  for the future." He concurred  with the plan                                                                    
requirements and  the importance  of economic  stability. He                                                                    
anticipated major  projects on  the horizon listed  on slide                                                                    
7. He contended  that the projects were  expensive but could                                                                    
be  planned and  costs could  be estimated.  He wanted  "the                                                                    
vision of  the state built  into a dialog" around  the costs                                                                    
and benefits of  the mega projects for the  state and wanted                                                                    
the  governor  to  take  the   lead.  He  wondered  how  the                                                                    
different initiatives  would affect  the next ten  years. He                                                                    
emphasized  that the  costs were  quantifiable now.  He felt                                                                    
that the plan  did not include any  possibilities for growth                                                                    
through investments in  the state and lack  vision. The plan                                                                    
could be  a place to begin  the dialog but needed  "help and                                                                    
guidance" from the administration.                                                                                              
                                                                                                                                
Mr. Boucher  replied that mega  projects were  an optimistic                                                                    
piece of  Alaskans future. He thought  that estimating costs                                                                    
at  this point  was premature  because the  dialog with  the                                                                    
legislature needed  to occur "at the  appropriate time." The                                                                    
text of  the plan  acknowledges future  competing priorities                                                                    
that  will  demand  difficult   conversations  in  the  near                                                                    
future.  He did  not  believe  that the  plan  was meant  to                                                                    
provide all of the answers.                                                                                                     
                                                                                                                                
Representative   Guttenberg  stated   that  the   governor's                                                                    
anticipated  work on  the  pipeline  and anticipated  future                                                                    
work on the  Susitna Dam were known  quantities. He wondered                                                                    
why  the project  costs were  not included  in the  plan. He                                                                    
pointed  out that  OMB suppressed  information  to keep  the                                                                    
budget flat in the various  scenarios. He felt that the plan                                                                    
could be more "realistic" if not precise.                                                                                       
                                                                                                                                
2:43:37 PM                                                                                                                    
                                                                                                                                
Representative Edgmon  appreciated the work involved  in the                                                                    
projections. He understood  that external circumstances were                                                                    
difficult  to predict.  He hoped  that the  scenarios worked                                                                    
out as  described in the  plan, but felt that  internal cost                                                                    
drivers and  external forces  could dramatically  change the                                                                    
budget. He appreciated that  the scenarios were conservative                                                                    
and included "bare bones" numbers  regarding oil revenue. He                                                                    
understood  that it  was impossible  to control  the general                                                                    
fund  revenues  and oil  production.  He  wondered when  the                                                                    
revenue curve would begin to  rise again and where the state                                                                    
would be  on the  revenue curve  in four  to five  years. He                                                                    
felt that the scenarios were not optimistic.                                                                                    
                                                                                                                                
Ms.  Rehfeld  acknowledged  that  the  scenarios  were  very                                                                    
conservative in terms of revenue.                                                                                               
Mr.  Boucher  felt that  it  was  "important" to  include  a                                                                    
scenario with  a "tempered" amount of  increased production.                                                                    
He  portrayed a  mid-level  scenario based  on  half of  the                                                                    
anticipated increased  oil production, which  would increase                                                                    
revenues  approximately $4  billion. He  deferred to  DOR to                                                                    
ascertain "how conservative the estimate was."                                                                                  
                                                                                                                                
Co-Chair  Austerman opined  that the  budget process  should                                                                    
continue  with  similar  "reality based"  conversations.  He                                                                    
thanked  OMB for  the smaller  budget that  was $30  million                                                                    
less than last year and  felt that the approach was correct.                                                                    
He wanted to  avoid drastic reductions that  would cause the                                                                    
state's economy  to crash. He appreciated  the conversations                                                                    
with the administration over the previous summer.                                                                               
                                                                                                                                
Co-Chair Stoltze acknowledged the  role of OMB in submitting                                                                    
a   "more   realistic"   and   smaller   budget   than   the                                                                    
commissioners  requested.   He  understood   the  difficulty                                                                    
involved  in   cutting  the   budget  and   appreciated  the                                                                    
leadership.   He   warned   against   uncontrollable   state                                                                    
spending. He  communicated that his constituents  had strong                                                                    
fiscal concerns about budget sustainability.                                                                                    
                                                                                                                                
Co-Chair Stoltze discussed  the Susitna Dam and  the goal to                                                                    
produce  50  percent  of  the  state's  electricity  through                                                                    
renewable resources. He  did not see a  "commitment for that                                                                    
from  the administration."  He  believed  that the  governor                                                                    
displayed  a commitment  to gas  for railbelt  utilities. He                                                                    
averred  that  the  public  was  misled  about  the  state's                                                                    
commitment  to renewable  energy based  on the  "assumptions                                                                    
that  were built  into the  gasline  proposals." He  thought                                                                    
that the  price was "far  too optimistic." He  revealed that                                                                    
some  of  the contracts  that  were  made with  the  Susitna                                                                    
hydroelectric project were being  shifted to the gasline. He                                                                    
wished  that  "the  state would  stop  pretending  that  the                                                                    
administration had  a goal of 50  percent renewable energy."                                                                    
He  stated  that  every   message  from  the  administration                                                                    
countered that  goal. He proposed  a "more candid  and blunt                                                                    
discussion  about   what  the   real  commitment"   was.  He                                                                    
acknowledged  problems with  management of  the Susitna  Dam                                                                    
project  from "a  bunch of  exempt employees."   He  advised                                                                    
disciplinary action to get the  project on track rather than                                                                    
abandoning the project.                                                                                                         
                                                                                                                                
2:55:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Stoltze  spoke to board extensions.  He stated that                                                                    
"larger,  overriding issues"  existed regarding  funding the                                                                    
boards. He  judged that  there were "real  big holes  in the                                                                    
way that the Department  of Commerce, Community and Economic                                                                    
Development (DCCED)  was portioning  the cost."  He believed                                                                    
that  the  issue  made  it "difficult  to  pass  out"  board                                                                    
extension legislation without some resolution with DCCED.                                                                       
                                                                                                                                
Representative  Costello  stated  that  the  department  was                                                                    
concerned  about  some of  the  "erratic"  board costs.  She                                                                    
stated that  Representative Olson introduced  legislation to                                                                    
address  some  of   the  "longstanding  problems"  regarding                                                                    
licensure and the fees that Alaskans paid.                                                                                      
                                                                                                                                
Co-Chair  Stoltze   related  that  he  had   not  heard  any                                                                    
contention about specific board  extensions but spoke to the                                                                    
larger fiscal concerns related to boards.                                                                                       
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
2:56:26 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:57 p.m.                                                                                          

Document Name Date/Time Subjects
OMB Ten-Year Plan Overview 02.10.2014.pdf HFIN 2/10/2014 1:30:00 PM
OMB 10 year plan HFC