Legislature(2019 - 2020)ADAMS ROOM 519

02/26/2019 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

Audio Topic
01:35:36 PM Start
01:36:08 PM Presentation: Overview of the Governor's Fy 20 Budget - Round 2
03:26:56 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ FY20 Fiscal Overview by David Teal, Director, TELECONFERENCED
Leg. Finance Div.
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 26, 2019                                                                                          
                         1:35 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:35:36 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Foster called the House Finance Committee meeting                                                                      
to order at 1:35 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Tammie Wilson, Co-Chair                                                                                          
Representative Jennifer Johnston, Vice-Chair                                                                                    
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
David Teal, Director, Legislative Finance Division;                                                                             
Representative   Steve   Thompson;   Representative   Sharon                                                                    
Jackson.                                                                                                                        
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
PRESENTATION: OVERVIEW OF THE GOVERNOR'S FY 20 BUDGET -                                                                         
ROUND 2                                                                                                                         
                                                                                                                                
1:36:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster reviewed the meeting agenda.                                                                                    
                                                                                                                                
^PRESENTATION: OVERVIEW OF THE GOVERNOR'S FY 20 BUDGET -                                                                      
ROUND 2                                                                                                                       
                                                                                                                                
1:36:34 PM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
provided a  PowerPoint presentation titled "Overview  of The                                                                    
Governor's FY 20 Budget -  Round 2," dated February 26, 2019                                                                    
(copy  on file).  He noted  that  the governor  had made  it                                                                    
clear that  the December 15  [2018] budget had been  a place                                                                    
holder.  The amended  budget had  been released  recently by                                                                    
the  governor.  He  could  not  tell  the  legislature  what                                                                    
actions to take on the  budget, but he could discuss whether                                                                    
something  met  the  budgetary principles  outlined  by  the                                                                    
governor. He noted there was  a fine line when talking about                                                                    
proposals -  he clarified that  any criticism he  would make                                                                    
was not ideological or personal,  but reflected a discussion                                                                    
of the process.                                                                                                                 
                                                                                                                                
1:38:37 PM                                                                                                                    
                                                                                                                                
Mr.  Teal turned  to slide  2 and  addressed the  governor's                                                                    
five guiding budget principles:                                                                                                 
                                                                                                                                
   1. expenditures cannot exceed existing revenue;                                                                            
   2. the budget is built on core functions that impact a                                                                     
   3. majority of Alaskans;                                                                                                   
   4. maintaining and protecting our reserves;                                                                                
   5. the budget does not take additional funds from                                                                          
     Alaskans                                                                                                                   
   6. through taxes or the PFD;                                                                                               
   7. it must be sustainable, predictable and affordable.                                                                     
                                                                                                                                
Mr. Teal addressed  the first item on slide  2 and confirmed                                                                    
that  expenditures could  not exceed  revenues in  the long-                                                                    
term. He moved  to slide 3 showing real  per capita revenues                                                                    
and  expenditures  by  the  state  and  he  noted  that  the                                                                    
governor's policy  for expenditures to equal  revenues was a                                                                    
mathematical relationship  with policy implications.  He did                                                                    
not  believe  there  was   any  question  that  expenditures                                                                    
exceeded revenues in  recent years [shown on  slide 3]. Even                                                                    
with the  addition of percent  of market value (POMV)  in FY                                                                    
19 (shown  in black), revenue was  still substantially below                                                                    
expenditures. With the reductions  proposed by the governor,                                                                    
the budget was  essentially balanced. In FY  19 and earlier,                                                                    
the  prudent  question  was  whether  expenditures  exceeded                                                                    
revenues  because  expenditures  were too  high  or  because                                                                    
revenues were  historically low.  He stated  it was  for the                                                                    
legislature to  judge. The expenditures operating  budget in                                                                    
real per capita terms had  been fairly steady, while revenue                                                                    
had  sometimes been  very high  and in  recent years  it had                                                                    
fallen with oil prices.                                                                                                         
                                                                                                                                
Mr. Teal pointed out that  the mathematical relationship was                                                                    
easy, while the policy implications  were not. He noted that                                                                    
the Office of Management  and Budget (OMB) director reasoned                                                                    
that  expenditures  were  too  high  because  they  exceeded                                                                    
revenue. He  pointed out that  it could also be  argued that                                                                    
revenue  was  too   low.  He  reiterated  it   was  for  the                                                                    
legislature  to judge.  He believed  the  answer would  only                                                                    
come when  the legislature  reviewed the budget  and decided                                                                    
what it  wanted to  spend, where the  funds would  be spent,                                                                    
and  how  much   would  be  spent  and   then  compared  the                                                                    
expenditures  to  existing  revenue.   At  that  point,  the                                                                    
legislature could  decide what to  do to fix the  deficit if                                                                    
there was one.                                                                                                                  
                                                                                                                                
1:42:15 PM                                                                                                                    
                                                                                                                                
Co-Chair  Wilson turned  to slide  3 and  referred to  FY 19                                                                    
when  the  state  had  the  POMV for  the  first  time.  She                                                                    
presented a  scenario where the  state had the  same concept                                                                    
and  lived  within  its  means.   She  asked  how  much  the                                                                    
legislature  would  have  needed  to reduce  the  budget  to                                                                    
remain at that spot.                                                                                                            
                                                                                                                                
Mr. Teal  answered that when  the legislature had  gone home                                                                    
the previous year, a deficit  of about $700 million had been                                                                    
expected. He  detailed that because revenue  had been higher                                                                    
than anticipated, the deficit was closer to $300 million.                                                                       
                                                                                                                                
Co-Chair  Wilson   asked  for   verification  that   if  the                                                                    
legislature  would have  used the  forecasted revenue  and a                                                                    
POMV, there would have been a surplus versus a deficit.                                                                         
                                                                                                                                
Mr. Teal replied  in the affirmative. He  explained that the                                                                    
same  was  true for  the  current  year; if  Permanent  Fund                                                                    
Dividends (PFD)  were not paid  there would be a  surplus of                                                                    
about $300  million. He elaborated  that the  dividends cost                                                                    
about $1.9 billion and the deficit was about $1.6 billion.                                                                      
                                                                                                                                
Co-Chair  Wilson  noted  that  the legislature  had  paid  a                                                                    
dividend  the previous  year.  She did  not  believe it  was                                                                    
about a zero dividend. She  elaborated it was about how much                                                                    
government  needed  to  be  able  to  meet  the  requirement                                                                    
portion and having that discussion.  She stated that in past                                                                    
years  the legislature  had not  had the  discussion because                                                                    
the money had always come from a savings account.                                                                               
                                                                                                                                
Mr. Teal  agreed. He elaborated  that the argument  could be                                                                    
made that if  FY 20 dividends were paid at  the FY 19 level,                                                                    
the  state would  have  an additional  $900  million in  the                                                                    
General  Fund,  which  would   have  reduced  the  projected                                                                    
deficit to roughly $700 million.                                                                                                
                                                                                                                                
Co-Chair Foster  acknowledged Representative  Steve Thompson                                                                    
in the room.                                                                                                                    
                                                                                                                                
1:44:54 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz  asked   if  the  year-to-year  government                                                                    
expenditures on slide 3 included the PFD.                                                                                       
                                                                                                                                
Mr.  Teal replied  that  the  PFD was  not  included in  the                                                                    
chart. He  explained that in  past years dividends  had been                                                                    
put at  the bottom of the  fiscal summary and had  been "off                                                                    
budget" in  a sense. He  believed LFD, OMB, and  the finance                                                                    
committee chairs had at some  point said that dividends were                                                                    
not  a  zero  expense  and   should  be  shown  as  a  state                                                                    
expenditure.  He explained  that  historically  LFD had  not                                                                    
gone  back to  include dividends.  There was  some confusion                                                                    
because it  would require  showing the  revenue as  well. He                                                                    
elaborated that each  of the bars on slide  3 would increase                                                                    
with  the  inclusion  of  the PFD  and  revenue  would  also                                                                    
increase by that same amount each year.                                                                                         
                                                                                                                                
Mr.  Teal continued  that the  chart showed  about half  the                                                                    
revenue  in FY  19 from  POMV compared  to FY  20. In  FY 19                                                                    
there  was  roughly the  same  $3  billion payout  from  the                                                                    
Earnings  Reserve  Account (ERA),  but  $1  billion went  to                                                                    
dividends and $2 billion went to  the General Fund. In FY 20                                                                    
there  was closer  to $2  billion going  out, which  left $1                                                                    
billion  in  net revenue  to  the  General Fund.  The  chart                                                                    
showed  the extra  revenue,  but not  the  portion going  to                                                                    
dividends.   He  reiterated   his  earlier   statement  that                                                                    
dividends were not included in the chart.                                                                                       
                                                                                                                                
1:47:18 PM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz asked if the  "20GovA" bar [to the right of                                                                    
the chart on slide 3] would  increase by $900 million if the                                                                    
PFD was included.                                                                                                               
                                                                                                                                
Mr. Teal replied  that the FY 20 bar would  increase by $1.9                                                                    
billion - the  entire amount of the dividend.  He added that                                                                    
expenditures would also increase by $1.9 billion.                                                                               
                                                                                                                                
Representative Merrick  asked how much each  recipient would                                                                    
receive  if  there  was  an   expenditure  of  $1.9  million                                                                    
[billion] for PFDs.                                                                                                             
                                                                                                                                
Mr. Teal replied roughly $3,000.                                                                                                
                                                                                                                                
1:48:14 PM                                                                                                                    
                                                                                                                                
Mr. Teal  returned to  slide 2 and  addressed the  second of                                                                    
the  governor's five  guiding principles  pertaining to  the                                                                    
budget: the budget is built  on core functions that impact a                                                                    
majority of  Alaskans. He highlighted that  the Donna Arduin                                                                    
the  director of  OMB had  stated that  the budget  had been                                                                    
built  from   the  ground  up.   He  believed   many  people                                                                    
interpreted that  to be zero-based budgeting,  which was not                                                                    
correct. He explained  that if the method  utilized had been                                                                    
zero-based  budgeting, the  legislature would  have received                                                                    
an analysis on  the impacts of the cuts.  He elaborated that                                                                    
the  analysis  would  have  been  required  to  develop  the                                                                    
budget. He  noted that Ms.  Arduin had later  clarified that                                                                    
the process  was really  core-based budgeting.  He expounded                                                                    
that  OMB had  prioritized  things but  did not  necessarily                                                                    
have  a position  paper  or  any type  of  vetting of  their                                                                    
ideas.                                                                                                                          
                                                                                                                                
Mr. Teal  discussed that Senator  Lisa Murkowski  had spoken                                                                    
to  the legislature  in a  joint session  and had  specified                                                                    
that  core  services   include  education,  healthcare,  and                                                                    
access to  transportation. Senator Murkowski had  noted that                                                                    
the governor's budget  had major reductions in  all three of                                                                    
those areas.  Whatever the budgeting process  was called, he                                                                    
believed it  was apparent that  many legislators  shared his                                                                    
frustration  with  the  lack of  analysis,  evaluation,  and                                                                    
vetting of the governor's  proposal. He thought the proposal                                                                    
seemed to  be ideas without  the defense one may  expect. He                                                                    
did not see  budgeting as merely a math  problem. He pointed                                                                    
out that expenditures equal revenue  was an equation, but it                                                                    
did not  tell the  legislature what needed  to be  done; the                                                                    
calculation merely conveyed that there  was a problem if the                                                                    
two  were  not  balanced.  He believed  making  good  policy                                                                    
decisions  required  good  information,  which  he  did  not                                                                    
believe had been provided yet.                                                                                                  
                                                                                                                                
Vice-Chair  Johnston believed  the other  part of  the core-                                                                    
based  budgeting  received  from  Ms. Arduin  was  the  core                                                                    
programs  including  public  safety, management  of  natural                                                                    
resources,  and   preserving  maintenance  of   the  state's                                                                    
transportation  infrastructure. She  asked  Mr.  Teal if  he                                                                    
intended to  address how  the core  programs fit  into core-                                                                    
based budgeting.                                                                                                                
                                                                                                                                
Mr. Teal replied  that he could address  the agency budgets,                                                                    
but he did not  tie it back to core because  LFD did not yet                                                                    
have   the   priorities   from   the   administration.   The                                                                    
administration had  stated that the budget  was developed by                                                                    
setting the  priorities. He thought  that the  Department of                                                                    
Health  and Social  Services (DHSS)  may  have released  its                                                                    
priorities  to   the  Senate   Finance  Committee.   He  was                                                                    
uncertain the  House subcommittee on education  had met yet.                                                                    
He had  not yet  seen the priorities  from the  governor and                                                                    
assumed  the legislature  had  not yet  seen  them. He  also                                                                    
assumed  the   information  would  be  provided   to  budget                                                                    
subcommittees at  some point. He believed  the subcommittees                                                                    
would discuss how to stack up core programs and spending.                                                                       
                                                                                                                                
1:52:02 PM                                                                                                                    
                                                                                                                                
Vice-Chair Johnston highlighted  that the administration had                                                                    
its  guiding   principles  and  the  budget   included  core                                                                    
programs, which she believed was prudent to keep in mind.                                                                       
                                                                                                                                
Representative   Josephson  referenced   slide   3  of   the                                                                    
presentation. He  asked for verification the  chart included                                                                    
inflation and reflected relative values year-to-year.                                                                           
                                                                                                                                
Mr.  Teal  answered in  the  affirmative.  He explained  the                                                                    
information   was  adjusted   for   population  growth   and                                                                    
inflation.                                                                                                                      
                                                                                                                                
Representative  Josephson asked  for  confirmation that  the                                                                    
data reflected  the administration's proposal to  spend less                                                                    
in the coming fiscal year  than the legislature spent before                                                                    
first  oil flowed  out of  the Trans-Alaska  Pipeline System                                                                    
(TAPS) in August 1977. He noted the chart included FY 75.                                                                       
                                                                                                                                
Mr.  Teal replied  that per  capita spending  for FY  20 was                                                                    
lower than in FY 04 and the  1980s and put the state back on                                                                    
par with the late 1970s. Spending  on a per capita basis was                                                                    
as low as it had ever been.                                                                                                     
                                                                                                                                
1:53:58 PM                                                                                                                    
                                                                                                                                
Representative  Josephson stated  that  the chart  reflected                                                                    
that before  production from  TAPS -  he imagined  there had                                                                    
been a  small amount  of revenue for  the Kenai  Peninsula -                                                                    
that  the  budget  included more  in  relative  dollars  for                                                                    
government  based on  a  state income  tax  and other  small                                                                    
sources   of  revenue   relative  to   the  population   and                                                                    
inflation.                                                                                                                      
                                                                                                                                
Mr. Teal agreed.  He believed the state income  tax had been                                                                    
in place through 1981 or  the early 1980s. He explained that                                                                    
the chart  began with 1975 because  that was as far  back as                                                                    
the system went  reliably. Records prior to  1975 were paper                                                                    
budgets.                                                                                                                        
                                                                                                                                
1:55:11 PM                                                                                                                    
                                                                                                                                
Mr. Teal returned to slide 2  and addressed the third of the                                                                    
governor's  five   guiding  principles  pertaining   to  the                                                                    
budget: maintaining and protecting  our reserves. He pointed                                                                    
out that the  budget pulled $436 million  from the Statutory                                                                    
Budget Reserve  (SBR) and Alaska Industrial  Development and                                                                    
Export Authority (AIDEA) reserves.  He elucidated that in FY                                                                    
19 the budget  used less than $300 million  in reserves. The                                                                    
proposed budget pulled  more from reserves in FY  20 than in                                                                    
the previous year.                                                                                                              
                                                                                                                                
Representative LeBon asked  about the use of  AIDEA funds as                                                                    
a fund source  in the budget. He wondered if  the amount was                                                                    
too high or just right and whether it was sustainable.                                                                          
                                                                                                                                
Mr.  Teal believed  Representative LeBon  had addressed  the                                                                    
point  well the  previous  week when  he  had expressed  his                                                                    
concern from the  perspective of a banker.  He recalled that                                                                    
Representative LeBon had  shared that he had  made loans for                                                                    
economic development projects,  often with the participation                                                                    
of  AIDEA.  He  stated  that even  the  reduction  to  AIDEA                                                                    
reserves  would  limit  its   ability  to  finance  economic                                                                    
development projects. He  reported it was a  policy call. He                                                                    
pointed out  the proposal was  a one-time drain  of reserves                                                                    
and would  take over half  of AIDEA's reserves,  which could                                                                    
not be continued for very long.                                                                                                 
                                                                                                                                
1:57:14 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster summarized  Mr. Teal's  statement that  the                                                                    
proposed  budget   would  take   about  $437   million  from                                                                    
reserves.  He surmised  that almost  a quarter  of the  $1.6                                                                    
billion the  public believed the proposed  budget would cut,                                                                    
was actually coming from savings.                                                                                               
                                                                                                                                
Mr. Teal responded that he  would address the point later in                                                                    
the presentation. He  moved to the fourth  of the governor's                                                                    
five guiding principles pertaining  to the budget (slide 2):                                                                    
the  budget does  not take  additional  funds from  Alaskans                                                                    
through taxes or  the PFD. He highlighted  that the proposed                                                                    
budget  did not  really rely  on existing  state revenue  to                                                                    
balance   the   budget   -  it   would   push   costs   onto                                                                    
municipalities,  removed  tax revenue  from  municipalities,                                                                    
and  past some  to  all  of those  costs  onto citizens.  He                                                                    
recommended  that   the  legislature  consider   whether  it                                                                    
believed  the  administration was  satisfactorily  following                                                                    
the outlined guiding principles.                                                                                                
                                                                                                                                
Mr. Teal addressed the fifth  of the governor's five guiding                                                                    
principles pertaining  to the budget  (slide 2): it  must be                                                                    
sustainable,  predictable  and affordable.  If  expenditures                                                                    
were set to equal  revenues annually (revenue fluctuated due                                                                    
to the  reliance on  oil), the  equation would  specify that                                                                    
expenditures  would  be  cut when  [oil]  prices  fell,  and                                                                    
expenditures  would  increase  when [oil]  prices  rose.  He                                                                    
explained  it was  not  a good  way  to operate  government;                                                                    
government worked  better with stable funding.  For example,                                                                    
hiring teachers and other employees  back would be difficult                                                                    
once they were  laid off. He acknowledged the  same would be                                                                    
true  for  private  business.   Government  operated  a  bit                                                                    
differently  and  stability  was significant  to  government                                                                    
services.                                                                                                                       
                                                                                                                                
Mr. Teal  recommended considering  what would happen  if oil                                                                    
prices fell to $50. He  questioned how the budget could ever                                                                    
be  cut  to   match  that  price  while   trying  to  remain                                                                    
sustainable,  predictable, and  affordable.  He pointed  out                                                                    
that  reserves would  be used  if spending  was straightened                                                                    
out and  stabilized. He  thought it  seemed that  by setting                                                                    
out the principles the governor  was taking two of the three                                                                    
traditional  budget balancing  tools off  the table:  1) add                                                                    
revenue,  and 2)  pull  money from  reserves  (slide 4).  He                                                                    
thought  many  people  believed the  governor  balanced  the                                                                    
budget by  cutting $1.6 billion from  state expenditures. He                                                                    
clarified  that  it  was  not  the  case.  Especially  after                                                                    
hearing about the cuts to  Medicaid, the University, and the                                                                    
Alaska  Marine Highway  System  (AMHS),  he believed  people                                                                    
thought  the  cuts  were  much deeper  than  they  were.  He                                                                    
underscored that the cuts were nowhere near $1.6 billion.                                                                       
                                                                                                                                
2:01:33 PM                                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard  returned  to  point  4  on                                                                    
slide  2.  She referenced  Mr.  Teal's  testimony about  the                                                                    
governor's   statement  that   the  budget   did  not   take                                                                    
additional  funds from  Alaskans through  taxes or  the PFD.                                                                    
She clarified that  the governor had stated he  did not want                                                                    
an  income or  sales  tax or  the  use of  the  PFD to  fund                                                                    
government operations.  She believed  it was  something that                                                                    
needed to be said as  opposed to just stating that municipal                                                                    
government would have an increase  in taxes. She stated that                                                                    
was not yet  known. She thought they needed to  stick to the                                                                    
state budget and not the municipal budget.                                                                                      
                                                                                                                                
Mr. Teal  noted the  point but  recalled statements  made by                                                                    
members of the committee  that perhaps the governor's budget                                                                    
put too much focus on the  treasury as opposed to the state.                                                                    
He explained that  if the treasury was looked  at by itself,                                                                    
the economic  and local government  impacts were  missed. He                                                                    
stated it was the legislature's  job to consider the impacts                                                                    
to the state as a whole.                                                                                                        
                                                                                                                                
Representative Sullivan-Leonard  did not dispute  the point,                                                                    
but she clarified that point  4 on slide 3 communicated that                                                                    
the governor  did not  want to impose  an income  tax, sales                                                                    
tax, or the use of the PFD.                                                                                                     
                                                                                                                                
2:03:44 PM                                                                                                                    
                                                                                                                                
Mr.  Teal turned  to slide  5 and  addressed an  abbreviated                                                                    
fiscal  summary  showing  undesignated  general  fund  (UGF)                                                                    
only. He  noted it was  perhaps all the committee  needed at                                                                    
present. He explained that LFD  did not disagree with any of                                                                    
the  numbers in  OMB's  fiscal summary;  LFD only  disagreed                                                                    
with some  of the way  the budget was  presented. Therefore,                                                                    
it  was possible  to eliminate  all of  the other  funds and                                                                    
federal funds and  focus on the UGF only because  it was the                                                                    
only  type of  fund that  could have  a deficit.  The simple                                                                    
comparison showed  that revenue  was $200 million  higher in                                                                    
FY 19 than  the projection for FY 20. The  difference was an                                                                    
oil price of  $68 in FY 19 compared to  a projected price of                                                                    
$64 for  FY 20. He  continued that appropriations  were down                                                                    
$73 million (from roughly $5.772  billion in FY 19 to $5.699                                                                    
billion in  FY 20). In FY  19 there was a  projected deficit                                                                    
of $262  million; the  governor was  proposing a  deficit of                                                                    
$428 million in FY 20 (before  new revenue came in). The new                                                                    
revenue  of $448.8  million, comprised  of  $420 million  of                                                                    
petroleum  property tax  (currently local  revenue that  the                                                                    
governor would turn  into state revenue) and  $20 million in                                                                    
shared taxes  (currently shared with local  governments that                                                                    
the  governor  would  turn  into  state  revenue).  The  new                                                                    
revenue resulted in a surplus.                                                                                                  
                                                                                                                                
Mr.  Teal   noted  that  in  the   overview  publication  he                                                                    
specified that the  governor would find it  difficult to cut                                                                    
money from  agency operations and  that he may  find himself                                                                    
having  to cut  where  the money  was  (i.e. Medicaid,  K-12                                                                    
education, PFDs,  DHSS, and the  University) or  costs would                                                                    
end up  shifting to  local governments.  He did  not believe                                                                    
his statement  went very  far out  on a  limb. He  turned to                                                                    
slide  6 that  showed  cuts the  governor  was proposing  to                                                                    
state  agencies (excluding  Medicaid  and K-12  - the  large                                                                    
formula programs  under DEED and  DHSS). The table  showed a                                                                    
$2  billion expenditure.  He highlighted  the difficulty  of                                                                    
cutting  $1.6  billion from  a  $2  billion portion  of  the                                                                    
budget.                                                                                                                         
                                                                                                                                
Co-Chair Wilson  appreciated that Medicaid and  K-12 was not                                                                    
included  in  the  table;  however,  she  wondered  why  the                                                                    
University was included  if the goal was to  look at whether                                                                    
government had  gotten smaller. She explained  that although                                                                    
the table showed a decrement, the  state gave a grant to the                                                                    
University  and she  did not  view it  as agency  operations                                                                    
(unlike  the  Department  of Environmental  Conservation  or                                                                    
DHSS).  She  asked  how  to  make  the  determination  about                                                                    
exactly  how much  came out  of agency  operations that  the                                                                    
state  was  responsible  for  versus   those  that  went  to                                                                    
municipalities (e.g.  K-12 or grants through  DHSS). She did                                                                    
not believe  the cut to  the University should  be reflected                                                                    
in state government operations.                                                                                                 
                                                                                                                                
2:08:29 PM                                                                                                                    
                                                                                                                                
Mr. Teal knew  the University liked to consider  itself as a                                                                    
fourth branch  of government, but  it was not.  He clarified                                                                    
that  the University  was an  executive  branch agency.  The                                                                    
University was named in the  constitution, but for budgetary                                                                    
purposes  it was  still considered  as an  agency and  state                                                                    
funding was used for operations  (like any other agency). He                                                                    
added  that the  legislature did  not budget  the University                                                                    
the same way it budgeted other agencies.                                                                                        
                                                                                                                                
Co-Chair Wilson understood that  the University [was part of                                                                    
state government]. She reasoned  that Medicaid and K-12 were                                                                    
also part of  government. She relayed the desire  to be able                                                                    
to explain to constituents  the reductions in areas directly                                                                    
impacting the public such as  DPS, DHSS, and DEC (areas that                                                                    
had substantial  regulation and impact). She  noted that the                                                                    
table excluded  the other two  [Medicaid and K-12].  She was                                                                    
trying  to  ascertain whether  there  was  a better  way  to                                                                    
specify  what came  out  of  the budget  that  would be  for                                                                    
municipalities to  cover and the everyday  budget items. She                                                                    
reasoned  that  $1.6  billion  had been  taken  out  of  the                                                                    
budget, but  it was from  areas that citizens would  not all                                                                    
consider to be state operations.                                                                                                
                                                                                                                                
Mr. Teal  replied there were  many ways to break  the budget                                                                    
apart to make  it digestible. The table was simply  a way of                                                                    
showing  the  day-to-day  operations  of  state  government,                                                                    
without the  large formula programs. The  University was not                                                                    
a formula program - funds  went to operate the University in                                                                    
the same way  state funds went to the  Department of Natural                                                                    
Resources  (DNR)  to  operate. He  stated  whether  Co-Chair                                                                    
Wilson  considered   the  services  to  be   a  function  of                                                                    
government was up to her.  He elaborated that LFD viewed the                                                                    
University as a  function of government and he  did not know                                                                    
how LFD  would treat it  differently; LFD would  continue to                                                                    
include the University  in reporting because it  was part of                                                                    
the  budget  process.  To LFD,  the  University  was  simply                                                                    
another agency;  it had been  included in the  table because                                                                    
it was  a nonformula as were  most of the other  agencies in                                                                    
the table.  The large formula  funds were Medicaid  and K-12                                                                    
and had been excluded from the table.                                                                                           
                                                                                                                                
Representative Sullivan-Leonard asked  why the Department of                                                                    
Commerce, Community and  Economic Development (DCCED) showed                                                                    
a 297 percent increase (slide 6).                                                                                               
                                                                                                                                
Mr. Teal  replied that  the increase was  due to  Power Cost                                                                    
Equalization (PCE)  that had previously  been funded  by the                                                                    
designated PCE  Fund. The governor planned  to eliminate the                                                                    
designated PCE Fund and not  the program; the funding source                                                                    
would be  transferred to  UGF. The  amount was  $33 million,                                                                    
which accounted for the huge increase.                                                                                          
                                                                                                                                
2:12:28 PM                                                                                                                    
                                                                                                                                
Mr. Teal  continued to review  the FY 19 management  plan to                                                                    
FY 20 governor's amended budget  on slide 6 and reported the                                                                    
total cut was  13 percent or approximately  $260 million. He                                                                    
remarked  that  despite  campaign  statements  made  by  the                                                                    
governor that  he believed  $200 million  could be  cut from                                                                    
state  agencies with  no impact  (part  of that  was due  to                                                                    
efficiencies  and the  governor's belief  that there  were a                                                                    
couple thousand  positions that  were funded  but unfilled),                                                                    
he believed it was a  myth. He believed cutting $200 million                                                                    
from the specific  portion of the budget was  a stretch. The                                                                    
governor  had  exceeded  Mr.   Teal's  expectations  in  his                                                                    
ability to cut  from the area, but he had  not foreseen a 41                                                                    
percent ($134 million) cut to  the University or the cuts to                                                                    
the Alaska  Marine Highway System  (AMHS) that  would result                                                                    
in  the  end of  the  system  as  the residents  of  coastal                                                                    
communities  knew  it.  He  summarized  that  cuts  of  $260                                                                    
million were  more than he  expected but were far  less than                                                                    
$1.6 billion.                                                                                                                   
                                                                                                                                
Representative  Merrick  asked  for an  explanation  of  the                                                                    
positive  figures  for   DEED,  Judiciary,  the  legislature                                                                    
(slide 6).                                                                                                                      
                                                                                                                                
Mr. Teal replied that the  agencies listed by Representative                                                                    
Merrick  had received  increases;  they received  additional                                                                    
grants  in some  cases. He  highlighted that  they had  been                                                                    
expecting to  see a large  reduction to DEED;  however, K-12                                                                    
funding had  been removed  from the data  shown on  slide 6.                                                                    
The DEED  figures on slide  6 only included funding  for the                                                                    
department itself. There  was an increase, but  he could not                                                                    
specify exactly what had been  increased. He knew some early                                                                    
education cuts  had been  made, so  it seemed  strange there                                                                    
was  an  increase. He  believed  the  increase for  DNR  was                                                                    
related  to  the governor's  addition  of  funding for  fire                                                                    
suppression.  He explained  that fire  suppression had  been                                                                    
underfunded for years;  the governor had decided  to fund it                                                                    
at  a  more  reasonable  level, which  was  several  million                                                                    
dollars higher than in the past.                                                                                                
                                                                                                                                
Representative  Merrick  reminded  Mr. Teal  she  had  asked                                                                    
about Judiciary.                                                                                                                
                                                                                                                                
Mr.  Teal  explained  that the  increase  to  Judiciary  was                                                                    
primarily  due to  an  effort to  end  the Friday  afternoon                                                                    
Judiciary office closures, which  was part of the governor's                                                                    
criminal justice  initiative. He  remarked that  because the                                                                    
governor wanted to be tough  on crime, he would expect there                                                                    
to be  increases in the  Department of Public  Safety (DPS),                                                                    
Department  of  Law  (DOL), the  Department  of  Corrections                                                                    
(DOC),  and the  Court  System; however,  that  was not  the                                                                    
case. He  highlighted the proposed $30  million reduction to                                                                    
DOC  as an  example. He  detailed  it was  a combination  of                                                                    
replacing UGF with Permanent Fund  criminal funds (the state                                                                    
garnished  felons'  PFDs and  deposited  them  in the  Crime                                                                    
Victims Compensation  Fund to  fund healthcare  costs within                                                                    
DOC). He explained that a  bigger dividend the previous year                                                                    
meant more dollars that were  not paid to criminals and more                                                                    
money to DOC. He elaborated  that it resulted in a reduction                                                                    
of  general  funds; most  of  the  reduction  was due  to  a                                                                    
decision to  move prisoners out  of state. Despite  the fact                                                                    
the governor  wanted to be  tough on  crime there was  a $30                                                                    
million reduction to DOC.                                                                                                       
                                                                                                                                
2:17:51 PM                                                                                                                    
                                                                                                                                
Mr. Teal  continued to  answer the  question. He  pointed to                                                                    
the  DHSS line  on slide  6 and  reminded the  committee the                                                                    
reduction did  not include Medicaid. The  increment included                                                                    
the Pioneer Homes, which may  appear to be untouched because                                                                    
there was a  loss of $18 million UGF that  was replaced with                                                                    
the  authority to  increase rates.  The data  only reflected                                                                    
the UGF, not  the potential for rate  increases. He returned                                                                    
to  DOC and  relayed that  LFD believed  the numbers  may be                                                                    
erroneous;  based on  a quick  analysis,  LFD anticipated  a                                                                    
supplemental   of  $7   million   or   more.  Similarly,   a                                                                    
supplemental for DHSS  may be required, but he  did not know                                                                    
because LFD  did not  have the  data (i.e.  what assumptions                                                                    
had  been used  -  the number  of  residents receiving  what                                                                    
level of care,  how much money they make,  etcetera). He was                                                                    
uncertain the administration had  such an analysis. He could                                                                    
not envision  how the subcommittees could  make decisions on                                                                    
the  items without  more information  about who  was served,                                                                    
the chances of recovering  money through rate increases, the                                                                    
number of people living in homes  that would be moved out of                                                                    
homes.  He  reiterated  that  LFD  did not  have  a  set  of                                                                    
assumptions showing how the administration got its numbers.                                                                     
                                                                                                                                
Representative Merrick  asked about  the 1  percent increase                                                                    
to the legislature's budget on slide 6.                                                                                         
                                                                                                                                
Mr. Teal stated  that the increase was due  primarily to two                                                                    
things. First,  the Senate Finance  Committee had  added two                                                                    
members and  funding their staff. Second,  the House Finance                                                                    
Committee was a larger share  of the increase because it had                                                                    
curtailed  its own  funding substantially;  it  had left  18                                                                    
positions with only  11 or 12 to be filled  according to the                                                                    
money  in the  committee's  budget. At  the  request of  the                                                                    
Legislative Budget  and Audit Committee chair  (Senator Bert                                                                    
Stedman)  they had  included  the money  to  fully fund  the                                                                    
House   Finance  Committee.   He   pointed   out  that   the                                                                    
subcommittee  may determine  the money  was unnecessary.  He                                                                    
would  not  be surprised  if  the  subcommittee decided  the                                                                    
money  was  not needed  since  the  positions had  not  been                                                                    
filled.                                                                                                                         
                                                                                                                                
2:21:30 PM                                                                                                                    
                                                                                                                                
Representative LeBon  asked what the  cost would be  for the                                                                    
governor's  proposal to  close a  correctional facility  and                                                                    
transfer prisoners out of state.                                                                                                
                                                                                                                                
Mr. Teal replied he could  not answer the questions yet. His                                                                    
assumption on moving  prisoners out of state  would mean the                                                                    
legislature  would have  received  an explanation  outlining                                                                    
the criteria used to select  who would be transferred out of                                                                    
state,   the  costs   of   the   psychological  and   health                                                                    
examinations, the transportation  cost, and the institutions                                                                    
the individuals were currently in.  He explained that if the                                                                    
500 individuals came fairly  evenly spread from institutions                                                                    
across the state,  it was not a very efficient  way to run a                                                                    
prison.  He  elaborated  that  under  the  scenario  perhaps                                                                    
individuals in-state  would be  transferred around  in order                                                                    
to close  to of the  buildings at the  Wildwood Correctional                                                                    
Complex. He questioned what the  cost would be to internally                                                                    
rearrange  prisoners. He  emphasized that  LFD did  not have                                                                    
any information  on how  the governor's  office had  come up                                                                    
with  the numbers  or  how  much would  be  saved by  moving                                                                    
prisoners out of  state. He stated it was  a budget proposal                                                                    
and should be included in the  budget - a fiscal note should                                                                    
not  be  needed. He  believed  the  information should  have                                                                    
already   been  provided   to   the   legislature  [by   the                                                                    
administration] for its review.                                                                                                 
                                                                                                                                
2:24:14 PM                                                                                                                    
                                                                                                                                
Representative LeBon asked if the  $29 million in savings to                                                                    
DOC  [shown  on  slide  6]   may  not  include  the  details                                                                    
highlighted by Mr. Teal.                                                                                                        
                                                                                                                                
Mr. Teal  answered that  the information  was not  known. He                                                                    
added  that   LFD  estimated  the   administration's  budget                                                                    
understated   the  DOC   cost  by   at  least   $7  million.                                                                    
Consequently,  he would  expect a  supplemental request.  He                                                                    
noted that LFD had not done  what he would consider to be an                                                                    
acceptable analysis either.                                                                                                     
                                                                                                                                
Co-Chair Wilson asked for verification  that DOC could issue                                                                    
an  RFP  and  move  prisoners   out  of  state  without  the                                                                    
legislature's permission.                                                                                                       
                                                                                                                                
Mr. Teal agreed.                                                                                                                
                                                                                                                                
Co-Chair  Wilson  clarified  the legislature  did  not  know                                                                    
where the administration was in  the process. She understood                                                                    
it would be  nice for the legislature  to understand whether                                                                    
a  supplemental   would  be   needed  before   the  proposed                                                                    
decrement  was made.  However, she  wanted the  committee to                                                                    
understand  that the  decision was  in the  administration's                                                                    
purview and  not necessarily  in budgeting.  Separately, she                                                                    
asked  for verification  that the  decrements of  32 percent                                                                    
and  41  percent to  the  Department  of Transportation  and                                                                    
Public  Facilities  (DOT)  and the  University  respectively                                                                    
represented  general  funds  only  and  not  a  cut  to  the                                                                    
agencies' entire budget.                                                                                                        
                                                                                                                                
Mr. Teal  agreed, the chart  only included UGF.  He detailed                                                                    
that the  cut [to DOT]  was almost all  to the AMHS;  it did                                                                    
not  include the  reduction in  marine highway  system funds                                                                    
because they were DGF program receipts.                                                                                         
                                                                                                                                
Co-Chair Wilson  noted the figures  did not include  the DOT                                                                    
capital budget either.                                                                                                          
                                                                                                                                
Mr. Teal responded affirmatively.                                                                                               
                                                                                                                                
Co-Chair Wilson  asked what the  decrements would be  to the                                                                    
entire University and DOT budgets.                                                                                              
                                                                                                                                
Mr.  Teal did  not know,  but the  reports were  on the  LFD                                                                    
website.                                                                                                                        
                                                                                                                                
Co-Chair  Wilson stated  that she  found it  interesting the                                                                    
table only  included UGF funds.  She pointed out  there were                                                                    
other fund  sources including DGF  and federal  funding. She                                                                    
noted the  University received a  substantial amount  of DGF                                                                    
funds; both  entities received federal funding  as well. She                                                                    
wanted to ensure everyone understood  the entire fund source                                                                    
picture.   For   example,   perhaps  federal   funding   had                                                                    
increased.                                                                                                                      
                                                                                                                                
2:26:55 PM                                                                                                                    
                                                                                                                                
Mr. Teal used the $134 million  in cuts to the University an                                                                    
example.  He explained  that  if a  person  looked at  total                                                                    
funds or total  general funds, the University was  up by 1.4                                                                    
percent. However,  as the  University president  Jim Johnson                                                                    
had  testified in  the Senate  Finance  Committee, the  $134                                                                    
million  cut  to UGF  was  real  money. He  elaborated  that                                                                    
adding $134  million in tuition receipts  was fantasy money.                                                                    
He furthered  that Mr.  Johnson had no  doubt that  he could                                                                    
not  come anywhere  close to  replace the  UGF with  tuition                                                                    
increases.                                                                                                                      
                                                                                                                                
Co-Chair Wilson  agreed, but  wanted to  look at  the bigger                                                                    
picture.  She used  Pioneer  Homes as  an  example where  it                                                                    
appeared there  was not  really a  reduction because  it was                                                                    
receipts - she reasoned that  the Pioneer Homes could likely                                                                    
not collect the money  [from residents]. She elaborated that                                                                    
at  that point  most of  a person's  assets had  been turned                                                                    
over  to  the  Pioneer  Home  for care.  She  spoke  to  the                                                                    
importance of  looking at the entire  funding source picture                                                                    
including DGF and federal funds.  She noted it appeared that                                                                    
DOT had  been cut  by 32 percent;  however, there  were many                                                                    
other funds  that came from  other fund sources.  She stated                                                                    
that  sometimes people  did not  realize how  many different                                                                    
funds came  in to  make up  the whole  picture. She  did not                                                                    
want to make it look worse than it was.                                                                                         
                                                                                                                                
Mr. Teal answered  that for AMHS the federal  funds were not                                                                    
an  issue; there  were general  funds  and program  receipts                                                                    
from  ticket sales.  He detailed  that  federal funds,  like                                                                    
highways,   helped   with   construction  of   ferries   and                                                                    
terminals,  but could  not be  used for  operating. In  that                                                                    
case it  was not  a big  issue. For  the University,  to the                                                                    
extent the  loss in general  funds caused a loss  in faculty                                                                    
and  research grants,  there was  potentially a  significant                                                                    
loss of  federal funds  that general  funds attract.  He did                                                                    
not have details on the amounts.                                                                                                
                                                                                                                                
Co-Chair Wilson stated her point  was that the situation was                                                                    
not as  simple as one  worksheet. She noted there  were many                                                                    
moving parts.  She added  that DOT  could use  federal funds                                                                    
for  design. She  remarked it  would offset  some operations                                                                    
but not all.                                                                                                                    
                                                                                                                                
2:30:01 PM                                                                                                                    
                                                                                                                                
Mr.  Teal  asked  Co-Chair  Foster   if  his  memorandum  on                                                                    
subcommittees had been disseminated to committee members.                                                                       
                                                                                                                                
Co-Chair Foster  believed the memo  would go out  to members                                                                    
that afternoon.                                                                                                                 
                                                                                                                                
Mr. Teal  addressed that Co-Chair Wilson  was highlighting a                                                                    
need to see some facts  and justification from the agencies.                                                                    
The memo from  Co-Chair Foster mentioned a  request that had                                                                    
gone out asking agencies to  provide an impact statement for                                                                    
each of the proposed changes.  There was concern that if the                                                                    
subcommittee process  started and agencies had  to follow up                                                                    
on requests to learn how  numbers had been derived, it would                                                                    
delay the  process another week  or two.  Therefore, letters                                                                    
had gone  out to  agencies asking  for impact  statements in                                                                    
order  for  subcommittees  to already  have  information  on                                                                    
impacts of proposed cuts to programs.                                                                                           
                                                                                                                                
Co-Chair Wilson  thought it was  important to be  careful in                                                                    
subcommittees to keep  in mind that all fiscal  notes in the                                                                    
governor's crime bills  and others were not  included in the                                                                    
percentages,  and   yet  subcommittees  generally   did  not                                                                    
consider pending legislation.                                                                                                   
                                                                                                                                
Mr.  Teal agreed.  He detailed  they did  not know  what the                                                                    
fiscal notes  were and had not  seen a number of  the bills.                                                                    
He  had first  heard the  governor would  submit 30  or more                                                                    
bills that would affect the  budget; that number had dropped                                                                    
to 25  because the bills  had been consolidated.  The number                                                                    
was  down to  16 bills,  but LFD  had not  seen them  or any                                                                    
associated fiscal notes and analyses.                                                                                           
                                                                                                                                
2:32:37 PM                                                                                                                    
                                                                                                                                
Representative  Josephson  stated  that  his  sense  of  Mr.                                                                    
Johnson's  statement on  behalf of  the University  was that                                                                    
the  match the  University  received brought  in about  $250                                                                    
million  to $300  million in  the research  component, which                                                                    
was as much as  $4 to $1 and without the  grant much of that                                                                    
funding  would disappear.  He asked  if  the conclusion  was                                                                    
reasonable -  that the  reduction could  result in  a ripple                                                                    
effect.                                                                                                                         
                                                                                                                                
Mr. Teal replied that it  was reasonable. He did not believe                                                                    
the   legislature  should   trust   what   appeared  to   be                                                                    
reasonable.  He   wanted  to   see  the  analysis   and  the                                                                    
University's   statements  showing   what  it   would  lose.                                                                    
Specifically,  how  a  cut in  general  funds  would  impact                                                                    
programs and what  federal funds would be lost  as a result.                                                                    
He did not believe the request was unreasonable.                                                                                
                                                                                                                                
Representative  Josephson calculated  that  if the  proposed                                                                    
cuts to the University came  to fruition, the overall cut to                                                                    
agency operations would be about  11 percent. He thought the                                                                    
reduction would be in addition  to cuts of around 24 percent                                                                    
since  2014.  He combined  the  two  figures  for a  cut  of                                                                    
approximately 35 percent to University operations.                                                                              
                                                                                                                                
Mr.  Teal  was  not  certain  Representative  Josephson  was                                                                    
referring to the  University or the totals.  He explained if                                                                    
the  $134  million  for  the University  (on  slide  6)  was                                                                    
removed it would  cut the total figure [of  $260 million for                                                                    
all  agencies] in  half and  would result  in a  6.5 percent                                                                    
reduction [in total agency operations for FY 20].                                                                               
                                                                                                                                
2:35:19 PM                                                                                                                    
                                                                                                                                
Representative  Josephson  clarified  he  was  removing  the                                                                    
University altogether,  not only  the reduction.  He thought                                                                    
the total cut  to the University would be  around 35 percent                                                                    
from FY 15 to FY 20.                                                                                                            
                                                                                                                                
Mr.  Teal answered  that the  subject was  best left  to the                                                                    
budget subcommittee. He  elaborated that subcommittees would                                                                    
receive  detailed  binders  that  would  include  a  10-year                                                                    
lookback and reports  comparing FY 15 to FY 19  and FY 15 to                                                                    
FY 20.  Subcommittees would review  agencies' past  cuts and                                                                    
additional cuts.                                                                                                                
                                                                                                                                
Representative  Josephson referenced  Mr. Teal's  discussion                                                                    
about   the   need  for   the   legislature   to  ask   [the                                                                    
administration] for impacts. He  wondered whether the Senate                                                                    
had made the requests.                                                                                                          
                                                                                                                                
Mr. Teal replied he did not  think the House needed to worry                                                                    
about  duplicating work.  The House  and  Senate were  going                                                                    
through  the  same process  and  were  considering the  same                                                                    
budget.  The   departments  would  respond  with   the  same                                                                    
information for both bodies.                                                                                                    
                                                                                                                                
Representative Josephson  asked if the Senate  had asked the                                                                    
same impact questions.                                                                                                          
                                                                                                                                
Mr.  Teal believed  the Senate  was  in the  same place  the                                                                    
House was.  He thought  questions had  been drafted  but may                                                                    
not   have   been   submitted   [to   departments   or   the                                                                    
administration] yet.                                                                                                            
                                                                                                                                
2:37:38 PM                                                                                                                    
                                                                                                                                
Mr. Teal continued  with slide 6 and  addressed proposed $87                                                                    
million  in cuts  to  DHSS. He  reported  that Adult  Public                                                                    
Assistance was  down $15  million, Temporary  Assistance was                                                                    
down $2.5  [million], $17 million for  Tribal Assistance had                                                                    
been  eliminated, and  $20 million  for Senior  Benefits had                                                                    
been eliminated. He remarked that  the committee had not yet                                                                    
started  its  budget  overviews  and  he  doubted  the  full                                                                    
committee would get into the  detail that the Senate had. He                                                                    
noted  the Senate  [Finance Committee]  had held  nearly two                                                                    
weeks  of three-hour  per day  meetings  on agency  impacts.                                                                    
There was  information available  and he  suggested watching                                                                    
the Senate overviews. He suggested  moving on to other areas                                                                    
of the budget since of the  $1.6 billion in cuts, the agency                                                                    
operating portion was the $260  million shown on slide 6. He                                                                    
speculated that  slide 6 likely left  members wondering what                                                                    
the means of balancing the budget  was (if the means was not                                                                    
agency operations).                                                                                                             
                                                                                                                                
Mr.  Teal turned  to a  table on  slide 7,  "Filling a  $1.6                                                                    
Billion  Deficit."  The  top portion  of  the  table  showed                                                                    
reductions  in   agency  operations  of  $650   million.  He                                                                    
explained that  the table split  agency operations in  a way                                                                    
that made  sense to him.  He agreed  that the data  could be                                                                    
looked at  in a number  of ways. The nonformula  line showed                                                                    
reductions of  $249 million; the  number was  different from                                                                    
the $259 million on slide  6 because there were some formula                                                                    
programs  (included   on  slide  6)  other   than  K-12  and                                                                    
Medicaid. The  table showed a  cut of $302 million  to DEED,                                                                    
which  reflected only  the  cut to  the  K-12 formula  state                                                                    
funded  portion.   He  elaborated  there  were   also  local                                                                    
contributions.  He   underscored  that   if  there   was  an                                                                    
implication that  local governments could make  up the cuts,                                                                    
it was not necessarily how things worked.                                                                                       
                                                                                                                                
Mr.  Teal  explained  that  local  funding  had  two  pieces                                                                    
mandatory   contributions   and   voluntary   contributions.                                                                    
Mandatory  contributions were  based on  property tax  rates                                                                    
and  2.65 mills  went to  schools. He  explained that  under                                                                    
voluntary contributions  schools could  contribute up  to 23                                                                    
percent of basic  need (another way of saying  23 percent of                                                                    
what  the  state  gave  schools  through  the  formula).  He                                                                    
pointed  out that  a  25 percent  reduction  to the  formula                                                                    
would  also mean  a 25  percent reduction  in the  voluntary                                                                    
contribution cap.  For example, Juneau and  Anchorage funded                                                                    
to  the  cap,  meaning   voluntary  contributions  in  those                                                                    
districts would decrease by 25  percent; it was not possible                                                                    
to give above  the cap. Whereas, in places  like Mat-Su that                                                                    
did not  fund to the  cap, local contributions  could remain                                                                    
the same. Funding  also depended on some  other things, like                                                                    
how much state money went  to the communities. For instance,                                                                    
the  governor  had  proposed  a  reduction  to  school  debt                                                                    
reimbursement. He  used Mat-Su  as an example  and explained                                                                    
that if  school debt reimbursement was  reduced, the borough                                                                    
would have  less money from  the state. He noted  that there                                                                    
was no  way to know  what communities  would do, but  it was                                                                    
extremely unlikely that local contributions would increase.                                                                     
                                                                                                                                
2:43:45 PM                                                                                                                    
                                                                                                                                
Mr.  Teal   continued  to   discuss  reductions   in  agency                                                                    
operations  on  slide  7.  He  stated  there  were  indirect                                                                    
impacts, which tended  to shy away from  when discussing the                                                                    
cuts. He  recommended hearing from  Institute of  Social and                                                                    
Economic  Research  (ISER),  Ed  King  from  the  Office  of                                                                    
Management   and  Budget,   and/or  Neal   Fried  from   the                                                                    
Department  of Labor  and Workforce  Development about  what                                                                    
effects the cuts may have on the economy.                                                                                       
                                                                                                                                
Mr.  Teal highlighted  cuts  of $132  million  to DHSS,  but                                                                    
noted it  was tricky because  the category at the  bottom of                                                                    
the table  included a line  item labeled "SBR  for Medicaid"                                                                    
for a  total of  $172 million. He  explained that  the issue                                                                    
was  more complicated  than just  using  reserves. The  $172                                                                    
million would  drain the SBR;  the funds were  available for                                                                    
Medicaid in FY  19 with a carry forward  specifying that the                                                                    
funds could be  used in FY 20  if they were not  spent in FY                                                                    
19. The department's supplemental request  for FY 19 was $15                                                                    
million. He explained  that the $172 million  was not needed                                                                    
in  FY 19  and was  essentially an  FY 20  appropriation. He                                                                    
believed using  reserves in FY 19  was a way to  make the FY                                                                    
20 budget look  smaller than it was. He  elucidated that the                                                                    
$172 million cut appearing in FY 20 did not happen.                                                                             
                                                                                                                                
Mr.  Teal reviewed  a  $33  million line  item  for PCE  the                                                                    
governor had proposed  to fund with UGF instead  of DGF. The                                                                    
total reductions  to agency operations  on slide 7  was $650                                                                    
million.  He turned  to the  category of  "cost shifts  from                                                                    
state  government"  on slide  7.  The  first item  was  $420                                                                    
million in  petroleum property tax. The  shift would require                                                                    
legislation and  would take money from  various communities,                                                                    
primarily the North Slope, and  would shift tax revenue from                                                                    
communities  to state  government. The  second item  was $28                                                                    
million  in shared  taxes that  would  be new  money to  the                                                                    
Treasury. Third,  $68 million  in school  debt reimbursement                                                                    
would  take money  from communities  and shift  it to  state                                                                    
government. The  same was  true for the  $3 million  in debt                                                                    
service. The  section totaled $520 million  in costs shifted                                                                    
from local governments to state government.                                                                                     
                                                                                                                                
Mr. Teal addressed  the using reserves category  on slide 7.                                                                    
The first  line showed  $180 million in  AIDEA funds  to pay                                                                    
for oil and  gas tax credits and capital. He  did not really                                                                    
care what the  reserves were called, but  he emphasized that                                                                    
the cash reserves  of a state corporation  were reserves. He                                                                    
detailed  that UGF  built the  capital  to establish  AIDEA;                                                                    
while  the state  may have  the right  to take  the reserves                                                                    
back, they were simply another  form of reserves. He did not                                                                    
want to  focus on the  legalities of taking the  money back,                                                                    
or how it may impact  credit ratings or economic development                                                                    
in the state.                                                                                                                   
                                                                                                                                
Mr. Teal  shared that his  focus was on the  transparency of                                                                    
the  operation. He  shared  that LFD  thought  if money  was                                                                    
going  to  be  pulled  from a  state  corporation  or  other                                                                    
reserve  accounts,  it  should show.  The  more  transparent                                                                    
method would be to show the  proposed use of $180 million in                                                                    
AIDEA funds  in FY 20 and  $84 million for FY  19; that $264                                                                    
million would be  deposited into the General  Fund and would                                                                    
be spent  as general  funds. He explained  that transparency                                                                    
would show  where the  money came  from and  count it  as an                                                                    
expenditure.  Under   the  current  budget   process,  AIDEA                                                                    
receipts  were not  general  funds and  the  money would  be                                                                    
spent  as invisible  revenue and  expenditures.  He did  not                                                                    
view the method as transparent.                                                                                                 
                                                                                                                                
2:50:03 PM                                                                                                                    
                                                                                                                                
Mr. Teal  pointed to $107 million  at the bottom of  slide 7                                                                    
under  "eliminating December  15  increments." He  explained                                                                    
that  the administration  had used  the December  15 budget,                                                                    
referred to  by some  as the Walker  budget, which  was $107                                                                    
million  higher than  the FY  19  budget. The  legislature's                                                                    
starting point was  the FY 19 budget. Less than  half of the                                                                    
deficit  was actually  filled with  budget reductions  - the                                                                    
remainder was  filled by shifts  and reserves. He  found the                                                                    
shifts and use  of reserves to be unexpected  given the five                                                                    
principles  outlined by  the  administration. He  questioned                                                                    
whether adhering to the  principles mattered or transparency                                                                    
mattered. The  legislature could  ask for another  bill from                                                                    
the  governor -  one that  did not  cross fiscal  years, use                                                                    
reserves,  shift costs  to local  governments, and  one that                                                                    
did  not include  cuts the  legislature found  unacceptable.                                                                    
However,  he had  zero  expectation  another amended  budget                                                                    
would be received.                                                                                                              
                                                                                                                                
Mr. Teal noted  that when OMB had been  asked about analysis                                                                    
for  the budget  proposal,  the answer  had frequently  been                                                                    
that the budget  was merely a proposal. A  statement by Mike                                                                    
Barnhill  [OMB  Policy  Director]   to  the  Senate  Finance                                                                    
Committee  was  that  the legislature  would  have  to  find                                                                    
alternative reductions to  balance the budget if  it did not                                                                    
like the proposal  by the governor. He  stated the situation                                                                    
put the legislature  in a box. He asked  how the legislature                                                                    
was  going to  balance the  budget if  it did  not like  the                                                                    
governor's  proposals.  The  list  of  tools  available  was                                                                    
unchanged  -  reserves   could  be  used  but   it  was  not                                                                    
sustainable,  new  revenue  (broad-based tax)  may  not  get                                                                    
through  the legislature  and may  not survive  a governor's                                                                    
veto,  further   cuts  to   agency  expenditures   would  be                                                                    
difficult,  cuts  could be  made  to  statewide items,  some                                                                    
changes could be made to  retirement amortization but not by                                                                    
shifting costs  onto municipalities,  and there may  be some                                                                    
room in  tax credits but  not enough to balance  the budget.                                                                    
The  remaining option  was cutting  the PFD,  which had  its                                                                    
tradeoffs. He elaborated that  dividends competed with other                                                                    
government  expenditures, which  did not  make the  decision                                                                    
about reducing the PFD to eliminate the deficit any easier.                                                                     
                                                                                                                                
2:54:06 PM                                                                                                                    
                                                                                                                                
Mr.  Teal   continued  that  for   the  governor   and  some                                                                    
legislators, a  PFD of less  than $3,000 was not  an option.                                                                    
He stated  that options  were very limited  if that  was the                                                                    
case. He pointed out that at  the other end of the spectrum,                                                                    
some  people  would  note  there   would  be  a  surplus  if                                                                    
dividends  were not  paid. He  explained the  situation left                                                                    
people to  conclude there  was not a  fiscal problem,  but a                                                                    
political  problem. He  noted that  however the  problem was                                                                    
defined, there were tough  decisions facing the legislature.                                                                    
He   believed    decisions   required    strong   supporting                                                                    
justification.  He   hoped  the  legislature   received  the                                                                    
justification for the  [administration's] proposals soon. He                                                                    
shared that  his first reaction  to the proposed  budget was                                                                    
to question where the supporting  documentation was and what                                                                    
the purpose of all of the  proposals was. He asked if it was                                                                    
just a  design to  throw the legislature  into chaos  due to                                                                    
the  vast   number  of  proposals.  He   questioned  if  the                                                                    
administration's goal  was to  present the  legislature with                                                                    
so many  proposals that  it would not  have time  to analyze                                                                    
them all and  it would accept the governor's  budget. He did                                                                    
not know. He continued that it  could also be looked at as a                                                                    
clever  way  of  forcing  a  public  conversation  that  was                                                                    
necessary  to move  forward.  He  questioned whether  people                                                                    
would  look  at the  budget  proposals  and plead  with  the                                                                    
governor  and legislature  to  reduce the  PFD  in order  to                                                                    
avoid  the  proposed   cuts.  He  did  not   know  what  the                                                                    
governor's intentions were or how people felt about it.                                                                         
                                                                                                                                
2:56:18 PM                                                                                                                    
                                                                                                                                
Mr. Teal  turned to slide 8  and noted that he  did not know                                                                    
how much people knew about  the state's fiscal situation and                                                                    
budget.  He questioned  whether people  knew that  dividends                                                                    
consumed  37 percent  of the  revenue  and expenditures.  He                                                                    
wondered if people  knew that the FY 20 UGF  budget was only                                                                    
$123 million (2 percent) less than  the FY 19 UGF budget. He                                                                    
thought  people believed  there were  much bigger  cuts than                                                                    
there were. He asked if  people understood the reductions to                                                                    
agency operating budgets only  addressed $650 million of the                                                                    
$1.6 billion deficit. He considered  whether people knew the                                                                    
remainder of  the deficit  was filled  by shifting  costs to                                                                    
local government  or draining reserves.  He asked  if people                                                                    
understood  that  reductions  to  agency  operating  budgets                                                                    
addressed only $650 million of the $1.6 billion deficit.                                                                        
                                                                                                                                
Mr. Teal wondered if people  knew the impact of the proposed                                                                    
cuts  to  the operating  budget  was  greater than  the  350                                                                    
positions shown in  the OMB overview. He  explained that the                                                                    
number  did  not  include the  AMHS  positions  because  the                                                                    
shutdown would  not occur until  October. He  elaborated the                                                                    
cuts  to  positions  should include  600  AMHS  jobs,  1,300                                                                    
University jobs,  and 3,000 school district  employees (that                                                                    
would  result if  $300  million was  cut  for schools).  The                                                                    
total job  loss would be  5,000 positions or more.  He noted                                                                    
that  the  job losses  were  not  all  state jobs  -  school                                                                    
district  jobs were  not state  jobs, but  they were  state-                                                                    
supported and  the reduction  in positions  would be  due to                                                                    
the loss  of state  support. He was  not pretending  to know                                                                    
what the citizens or the  legislature wanted - his point was                                                                    
he did not know what people knew.                                                                                               
                                                                                                                                
Mr. Teal  did not know  how flexible the governor  was going                                                                    
to be on  the $3,000 PFD. He noted the  governor appeared to                                                                    
be pretty  flexible on maintaining  reserves and on  the tax                                                                    
issue.  He  asked  if  the governor  was  also  flexible  on                                                                    
dividends.  He  noted that  there  were  at least  16  bills                                                                    
coming from  the governor  - he wondered  if a  priority was                                                                    
known.  He remarked  that  the bills'  content  was not  yet                                                                    
known.  He stated  it was  a  big workload  for the  finance                                                                    
committees  to  consider  and  get  through  during  regular                                                                    
session.   He   reported  that   LFD   still   had  a   weak                                                                    
understanding of  the governor's  plan and intent.  He hoped                                                                    
the understanding improved in coming weeks.                                                                                     
                                                                                                                                
3:00:45 PM                                                                                                                    
                                                                                                                                
Vice-Chair Johnston  thought her  question may  pertain more                                                                    
to the  Alaska Retirement Management Board  (ARMB) but noted                                                                    
it was still part of  the budget discussion, especially when                                                                    
considering some  of the job  loss. She elaborated  that the                                                                    
University  and  school  districts would  likely  face  some                                                                    
rather large termination  studies. Additionally, there would                                                                    
be  a decline  in state  employees. She  considered how  the                                                                    
situation  would  impact "our  payment  and  how it  affects                                                                    
actually  the  tail for  the  municipal  governments at  the                                                                    
end."  She detailed  that municipal  governments would  take                                                                    
the lion's  share with the  extra amortization. She  had not                                                                    
seen the issue addressed anywhere.                                                                                              
                                                                                                                                
Mr. Teal stated it was an  excellent point. He stated it was                                                                    
another example of  "what would the impact  be?" There would                                                                    
be costs,  which would appear as  increased retirement rates                                                                    
(contribution and  employer rates). He used  Anchorage as an                                                                    
example and explained there would  be fewer employees to pay                                                                    
contributions  on,   yet  the  unfunded  liability   of  the                                                                    
retirement systems was a dollar  amount that was required to                                                                    
be paid annually. He detailed  that if the amount was spread                                                                    
over  12,000  employees  versus 15,000  the  rate  would  be                                                                    
higher. He  explained that  the Municipality  of Anchorage's                                                                    
contribution  rate was  capped at  22 percent;  if the  rate                                                                    
increased, the  state would absorb all  costs for retirement                                                                    
for  all  municipalities  and school  districts.  Retirement                                                                    
cost rates  would go up  and the state would  be responsible                                                                    
for  the payments  above  22 percent  or  12.56 percent  [to                                                                    
Public  Employees' Retirement  System  (PERS) and  Teachers'                                                                    
Retirement  System  (TRS)  respectively]. The  only  way  to                                                                    
figure out the  amount would be to  determine positions lost                                                                    
and   provide  the   information   to   the  actuaries   for                                                                    
projections.   He   concluded   the  cost   would   not   be                                                                    
insignificant.                                                                                                                  
                                                                                                                                
Representative  LeBon  addressed  item  4 on  slide  8:  The                                                                    
remainder  of the  deficit is  filled by  shifting costs  to                                                                    
local government  or draining reserves. He  pointed out that                                                                    
diverting  property tax  collected from  TAPS going  through                                                                    
Fairbanks to  the state would  be an annual event.  He added                                                                    
that it  would not  be possible  to continue  using reserves                                                                    
from AIDEA or the SBR on an annual basis.                                                                                       
                                                                                                                                
3:04:15 PM                                                                                                                    
                                                                                                                                
Mr. Teal  agreed. He  thought the  administration's proposal                                                                    
would take  a substantial amount  from AIDEA. He  noted that                                                                    
AIDEA had  additional funds, but  it was a policy  call that                                                                    
would affect  future development. The  SBR had a  balance of                                                                    
$172 million, which would be  used in its entirety under the                                                                    
governor's proposal.  The proposal represented  another one-                                                                    
time fix.                                                                                                                       
                                                                                                                                
Representative  Tilton asked  Mr.  Teal to  define what  the                                                                    
reserves were.                                                                                                                  
                                                                                                                                
Mr.  Teal   reviewed  the  state's  reserve   accounts.  The                                                                    
Constitutional Budget  Reserve (CBR) currently had  about $2                                                                    
billion  remaining and  required a  supermajority to  access                                                                    
(the fund  used to contain  about $15 billion); the  CBR had                                                                    
been the  source (up  to $3  billion per  year) used  by the                                                                    
legislature to  balance the budget.  He elaborated  that the                                                                    
CBR was no longer an option  to balance the budget - perhaps                                                                    
it could  be used for  one more year before  being depleted.                                                                    
The SBR currently contained $172  million and could be spent                                                                    
by  a simple  majority; the  account  was designed  to be  a                                                                    
shock absorber.  He explained that the  account provided the                                                                    
legislature with a  funding source to balance  the budget in                                                                    
the event oil prices were  lower than projected, meaning the                                                                    
legislature  did  not  have  to  reconvene  to  rewrite  the                                                                    
budget.                                                                                                                         
                                                                                                                                
Mr. Teal continued to review  state reserves. Other reserves                                                                    
that were often not counted  as reserves were those of state                                                                    
corporations including AIDEA and  the Alaska Housing Finance                                                                    
Corporation  (AHFC).  Additionally,   there  were  endowment                                                                    
reserves  such as  the PCE  that had  a balance  of over  $1                                                                    
billion. He noted that some  people would argue that PCE was                                                                    
not a reserve  fund. He elaborated that PCE was  a deal that                                                                    
had  been  devised  years  earlier  due  to  power  inequity                                                                    
between  rural and  urban regions.  He explained  that urban                                                                    
areas  of  the  state  were  provided  with  hydropower  and                                                                    
subsidized  gas production  from  Cook  Inlet. He  furthered                                                                    
there  was  no  good   subsidy  option  for  rural  regions;                                                                    
therefore,  PCE  had  been implemented  to  subsidize  their                                                                    
rates.  He  reasoned  that  someone  could  argue  the  fund                                                                    
generated more  money than it needed.  Additionally, someone                                                                    
could choose  to ignore  the previous deal  and use  the PCE                                                                    
funds  for something  else. The  Higher  Education Fund  was                                                                    
another  endowment  fund  with  a balance  of  $330  million                                                                    
intended  for  scholarships  and grants.  He  detailed  that                                                                    
those funds could be taken as well.                                                                                             
                                                                                                                                
Mr.  Teal explained  the remaining  reserves  were in  small                                                                    
pools of money.  He highlighted the loan  funds. In addition                                                                    
to the  governor's proposal  to eliminate  the PCE  Fund and                                                                    
the Higher  Education Fund,  he was  proposing to  close the                                                                    
loan programs (totaling about  $31 million) and transferring                                                                    
assets to the General Fund.  If the governor's proposal went                                                                    
through it would deplete reserves  other than the CBR, which                                                                    
required a supermajority [vote to access].                                                                                      
                                                                                                                                
3:09:50 PM                                                                                                                    
                                                                                                                                
Representative  Josephson referenced  the supermajority  and                                                                    
the CBR. He  asked for verification that the  budget did not                                                                    
reverse sweep funds back into  the accounts as had been done                                                                    
in recent years.  He believed the budget  captured the funds                                                                    
and  restored the  other accounts  to the  CBR, which  would                                                                    
require the legislature to recast a supermajority vote.                                                                         
                                                                                                                                
Mr. Teal noted  that the term reverse sweep was  a term used                                                                    
by the  legislature that applied  to the CBR.  He elaborated                                                                    
that the  constitution required the  legislature to  pay the                                                                    
money back  to the CBR  when it was  used as a  fund source.                                                                    
The money  was paid back  via the "sweep." He  detailed that                                                                    
on June  30 of every year,  the balance of the  General Fund                                                                    
and  all sub-funds  were  swept into  the  CBR. The  reverse                                                                    
sweep  referred to  traditional  budget language  specifying                                                                    
that the  money swept from  subaccounts of the  General Fund                                                                    
all went back where it  came from. Subaccount funds included                                                                    
[but  were not  limited  to] the  Worker's  Safety Fund  and                                                                    
funds  created   with  alcohol   and  cigarette   taxes.  He                                                                    
explained that  if the  sweep was not  reversed, all  of the                                                                    
money would  go to  the CBR and  remain there.  He expounded                                                                    
that a nightmare  of accounting problems would  occur if the                                                                    
reverse sweep did not take place.                                                                                               
                                                                                                                                
Mr.  Teal  reported  there  had  been  one  year  since  the                                                                    
creation of the  CBR without a reverse  sweep. The situation                                                                    
had caused "crazy" accounting  problems because agencies did                                                                    
not have cash to do what  they were supposed to do; agencies                                                                    
ended up  booking things at  different times  and correcting                                                                    
books.  He characterized  the  situation  as an  unnecessary                                                                    
mess.  The  reverse sweep  had  historically  been a  fairly                                                                    
noncontroversial  supermajority vote;  it did  not cost  any                                                                    
more money,  but not  doing it  made agency  accounting more                                                                    
difficult.                                                                                                                      
                                                                                                                                
Mr. Teal highlighted  that the CBR language  was missing the                                                                    
reference to  access to  the CBR  in case  of a  deficit. He                                                                    
noted  that someone  may  argue that  the  language was  not                                                                    
needed  for  the  proposed  budget   because  there  was  no                                                                    
deficit.  He  considered  that   there  was  a  $20  million                                                                    
surplus, but if oil prices fell  by $0.50 the state would be                                                                    
in a deficit.  At that point the legislature  would be faced                                                                    
with determining what to cut.  He underscored the importance                                                                    
of  some  type  of  automatic  deficit  filler  due  to  the                                                                    
volatility of  the state's revenue.  It was not  possible to                                                                    
know whether a  revenue forecast would be $0.50  high or low                                                                    
or $5.00 high  or low. He recommended  including language in                                                                    
the  budget  because  the  governor   did  not  include  any                                                                    
automatic deficit filler language.                                                                                              
                                                                                                                                
3:14:18 PM                                                                                                                    
                                                                                                                                
Representative Josephson  thought it  sounded like  Mr. Teal                                                                    
was talking about  two different things -  the reverse sweep                                                                    
to  the various  accounts and  the right  for the  executive                                                                    
branch to  access some  number above the  amount in  the CBR                                                                    
without the legislature being required to reconvene.                                                                            
                                                                                                                                
Mr. Teal  replied in the  affirmative. He explained  the two                                                                    
pieces of  access to the  CBR. The language in  recent years                                                                    
had  been  that  anytime  revenue was  less  than  what  was                                                                    
appropriated,  the  gap  could  be filled  by  drawing  from                                                                    
reserves. He  questioned where the  incentive was  to reduce                                                                    
the budget  from the perspective  of a  fiscal conservative.                                                                    
He elaborated under the scenario  a person could reason that                                                                    
it  did not  matter how  much  revenue there  was, and  they                                                                    
could spend  whatever they wanted  and the  difference would                                                                    
be made up  from reserves without anyone  really knowing. He                                                                    
stated  it did  not matter  what  the oil  forecast was.  He                                                                    
continued that the public, for  years, has had a deficit. He                                                                    
wondered   how  anyone   in  the   public  would   know  the                                                                    
consequences  of a  deficit  were when  they  never saw  it;                                                                    
every year the  deficit was filled with  reserves, which the                                                                    
public did not see and did  not know about. He stated it was                                                                    
a dangerous way  to budget. In recent  years the legislature                                                                    
had changed  the method  to some  extent because  the second                                                                    
part of access  to the CBR had been drawing  what was needed                                                                    
to  fill the  deficit with  the understanding  there may  be                                                                    
supplemental needs  for something  like fire  suppression or                                                                    
Medicaid  and that  draw  was limited  to  $100 million  (or                                                                    
whatever amount  the legislature  set). There were  a number                                                                    
of triggers  and ways  to handle  the situation.  He thought                                                                    
the  legislature wanted  to include  some sort  of automatic                                                                    
deficit fill, but with a cap.                                                                                                   
                                                                                                                                
3:17:12 PM                                                                                                                    
                                                                                                                                
Mr. Teal  concluded with a  table on  slide 9 that  showed a                                                                    
comparison of the  FY 19 budget with  the governor's amended                                                                    
FY 20  budget request  (UGF only).  The total  reduction was                                                                    
$123 million or  2 percent. He pointed out  that even though                                                                    
about $1 billion of the  deficit was filled with reserves or                                                                    
new  revenue, there  was  still $650  million  in cuts.  The                                                                    
slide  showed where  the proposed  cuts fell.  He referenced                                                                    
his  statement  from a  fiscal  overview  that the  governor                                                                    
would have  a difficult  time finding  cuts in  agencies. He                                                                    
noted that if  the governor was going to make  big cuts they                                                                    
would be achieved in K-12 and the dividend.                                                                                     
                                                                                                                                
Mr. Teal  explained that  the majority  of agencies  did not                                                                    
have  large  cuts. He  would  expect  to get  bigger  dollar                                                                    
amounts  from the  larger dollar  programs, but  he did  not                                                                    
expect to see bigger percentage  cuts as well. He pointed to                                                                    
a  25 percent  cut to  K-12 with  a 90  percent increase  in                                                                    
dividends.  He highlighted  other  large  cuts including  38                                                                    
percent  to   Medicaid,  33   percent  in   statewide  funds                                                                    
(primarily due to school debt  reimbursement), 18 percent to                                                                    
DHSS (outside  of Medicaid), 41  percent to  the University.                                                                    
He  emphasized there  were much  bigger hits  in the  bigger                                                                    
programs. He  noted it  could be argued  that the  big money                                                                    
programs  were  the  state's  core  programs  if  they  were                                                                    
defined as programs impacting the majority of Alaskans.                                                                         
                                                                                                                                
3:20:04 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster  returned to  slide  7  and referenced  Mr.                                                                    
Teal's point that many people  were under the impression the                                                                    
budget  had been  cut  by  $1.6 billion,  but  that was  not                                                                    
necessarily  true. He  continued  that  the budget  included                                                                    
cost shifting of state services,  the use of $350 million in                                                                    
reserves,   and  the   elimination  of   some  December   15                                                                    
increments. He  furthered the chart  table showed  that $650                                                                    
million  was the  major part  of  the $1.6  billion cut.  He                                                                    
turned to item  2 on slide 8: the proposed  FY 20 UGF budget                                                                    
is  $123 million  (2 percent)  below  the FY  19 budget.  He                                                                    
asked  for  verification  that the  difference  was  due  to                                                                    
spending more on PFDs.                                                                                                          
                                                                                                                                
Mr.  Teal  replied in  the  affirmative;  the increased  PFD                                                                    
resulted in a  $1.9 billion expenditure. He  looked at slide                                                                    
7 and  elaborated that property  taxes resulted  in revenue,                                                                    
but  school debt  reimbursement  was  a reduced  expenditure                                                                    
(paid by  the state).  He had included  the items  under the                                                                    
cost  shift from  state government  category,  but he  noted                                                                    
that someone  else may  think the  reduction in  school debt                                                                    
reimbursement   belonged  in   the   reductions  in   agency                                                                    
operations section of the table. He  moved back to item 2 on                                                                    
slide 8  and explained it  did not pertain to  the operating                                                                    
budget,  but  pertained  to the  capital  budget,  statewide                                                                    
items, fund transfers, and  fund capitalizations (the entire                                                                    
budget).                                                                                                                        
                                                                                                                                
3:22:59 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster stated  that of the $1.6  billion there were                                                                    
$650  million in  operation cuts,  but when  considering the                                                                    
entire budget,  it was  really only  $123 million  less than                                                                    
the prior year.                                                                                                                 
                                                                                                                                
Mr.  Teal agreed.  He  stated that  Co-Chair  Foster was  on                                                                    
track  when he  had asked  "how  can that  possibly be?"  He                                                                    
explained  there were  cuts, shifts,  and  other things.  He                                                                    
elaborated the  budget was only  $123 million less  than the                                                                    
FY 19 budget that because it  spent $900 million more on the                                                                    
PFD.                                                                                                                            
                                                                                                                                
Co-Chair Foster recognized  Representative Sharon Jackson in                                                                    
the audience.                                                                                                                   
                                                                                                                                
Vice-Chair Ortiz  asked about school debt  reimbursement. He                                                                    
imagined  the financial  impact  of the  cut varied  greatly                                                                    
across the state's  54 school districts. He  noted that some                                                                    
districts  had   more  bond  debt   than  others   and  were                                                                    
reimbursed more.                                                                                                                
                                                                                                                                
Mr.  Teal  replied  in  the  affirmative.  He  reminded  the                                                                    
committee  that all  Regional  Educational Attendance  Areas                                                                    
(REAA) had  no school  debt reimbursement because  the state                                                                    
paid for  their construction cost directly.  The school debt                                                                    
varied greatly  across all non-REAA districts.  For example,                                                                    
Mat-Su had built more schools  than Juneau due to population                                                                    
growth. He reported there was  a sheet showing the impact of                                                                    
the change in school debt reimbursement by community.                                                                           
                                                                                                                                
3:25:11 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz asked  if it  was reasonable  to say  that                                                                    
every $1  a school district  did not receive in  school debt                                                                    
reimbursement  meant  schools  had   to  look  for  ways  to                                                                    
compensate for the 23 percent  reduction to the Base Student                                                                    
Allocation (BSA) and overcome  the lack of reimbursement for                                                                    
school bond debt.                                                                                                               
                                                                                                                                
Mr.  Teal  agreed  but clarified  that  schools  and  school                                                                    
districts did  not owe the  debt. Municipalities  had issued                                                                    
the  debt  to  build  the  schools. If  the  state  did  not                                                                    
reimburse the schools' debt service  costs, the district had                                                                    
less  money  available and  may  or  may not  reduce  school                                                                    
funding because of that reduction.                                                                                              
                                                                                                                                
Co-Chair Foster  thanked Mr. Teal  for his  presentation. He                                                                    
reviewed the schedule for the following day.                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:26:56 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:26 p.m.                                                                                          

Document Name Date/Time Subjects
2 26 19 HFC FY20 Overview round 2.pdf HFIN 2/26/2019 1:30:00 PM
HFIN LFD Fiscal Overview