Legislature(2019 - 2020)ADAMS 519

03/03/2020 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 121 REPEAL STATE AGENCY PERFORMANCE AUDITS TELECONFERENCED
Heard & Held
-- Public Testimony --
*+ HB 209 ESTABLISH DEP'T OF MANAGEMENT AND BUDGET TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 3, 2020                                                                                            
                         9:03 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:03:48 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Johnston called the House Finance Committee                                                                            
meeting to order at 9:03 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Jennifer Johnston, Co-Chair                                                                                      
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Andy Josephson                                                                                                   
Representative Gary Knopp                                                                                                       
Representative Bart LeBon                                                                                                       
Representative Kelly Merrick                                                                                                    
Representative Colleen Sullivan-Leonard                                                                                         
Representative Cathy Tilton                                                                                                     
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Ben Carpenter                                                                                                    
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative   Steve  Thompson,   Sponsor;  Kris   Curtis,                                                                    
Legislative Auditor,  Alaska Division of  Legislative Audit;                                                                    
Crystal  Koeneman,  Staff,  Representative  Steve  Thompson;                                                                    
Sylvan  Robb,  Policy  Analyst,  Office  of  Management  and                                                                    
Budget, Office of the Governor.                                                                                                 
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 121    REPEAL STATE AGENCY PERFORMANCE AUDITS                                                                                
                                                                                                                                
          HB 121 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 209    ESTABLISH DEP'T OF MANAGEMENT AND BUDGET                                                                              
                                                                                                                                
          HB 209 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Johnston reviewed the agenda for the morning.                                                                          
                                                                                                                                
HOUSE BILL NO. 121                                                                                                            
                                                                                                                                
     "An Act  relating to performance reviews  and audits of                                                                    
     state  agencies,  the  University of  Alaska,  and  the                                                                    
     Alaska  Court System;  and providing  for an  effective                                                                    
     date."                                                                                                                     
                                                                                                                                
9:04:32 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   STEVE   THOMPSON,  SPONSOR,   thanked   the                                                                    
committee  for  hearing  the  bill  that  would  repeal  the                                                                    
statutory requirement  for state agency  performance audits.                                                                    
He read from a prepared statement:                                                                                              
                                                                                                                                
    House Bill 121 repeals the statutory obligation for                                                                      
     performance review audits.                                                                                                 
    In 2013, the House and Senate passed HB 30 that set                                                                      
     out to audit all agencies                                                                                                  
    4 audits have been completed (3 Agencies):                                                                               
        o Corrections                                                                                                           
        o Education                                                                                                             
        o Commission on Post-Secondary Education                                                                                
        o Health & Social Services                                                                                              
    15 Agencies Audits remain on the books until the                                                                         
     program is set to end in 2023                                                                                              
    Funding requests have been denied for the last 4                                                                         
     fiscal years                                                                                                               
    This takes it out of the statutes                                                                                        
                                                                                                                                
Representative  Thompson  elaborated  that  the  bill  would                                                                    
remove  the statutory  obligation  because it  had not  been                                                                    
used. The change  would mean the statute would  be taken out                                                                    
of the books and removed  from the budget. He introduced his                                                                    
staff Crystal Koeneman who was available for questions.                                                                         
                                                                                                                                
9:06:21 AM                                                                                                                    
                                                                                                                                
Representative  Josephson agreed  that if  the work  was not                                                                    
being done, it was not being  done. He asked if anything had                                                                    
been learned with  the audits that had  been completed since                                                                    
the passage of the statute in 2016.                                                                                             
                                                                                                                                
Representative Thompson  replied that the  completed reviews                                                                    
mentioned  had  received  recommendations  from  an  auditor                                                                    
located in  the Lower  48. He  explained that  the auditor's                                                                    
recommendations  did not  fit with  Alaska and  none of  the                                                                    
recommendations had  been acted  upon. He explained  that it                                                                    
had  been determined  that  the state  could  not afford  to                                                                    
continue the  reviews without  receiving results  that could                                                                    
be utilized.                                                                                                                    
                                                                                                                                
Representative  Wool   asked  if  the  audits   were  always                                                                    
intended to be outsourced to  an outside agency. He wondered                                                                    
if  there  had   been  intent  for  the  work   to  be  done                                                                    
internally.                                                                                                                     
                                                                                                                                
Representative Thompson  replied that  he was  uncertain. He                                                                    
deferred  to Ms.  Curtis with  the  Division of  Legislative                                                                    
Audit.                                                                                                                          
                                                                                                                                
Representative   Wool   surmised   that  the   Division   of                                                                    
Legislative  Audit  was  busy   doing  its  own  audits.  He                                                                    
believed auditing  an agency like  the Department  of Health                                                                    
and Social Services would be a heavy lift.                                                                                      
                                                                                                                                
9:08:07 AM                                                                                                                    
                                                                                                                                
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE  AUDIT,  clarified  that the  reviews  were  not                                                                    
audits, but performance reviews.  She elaborated that audits                                                                    
communicated  a  level  of   assurance  in  accordance  with                                                                    
criteria. The  performance reviews  had been  facilitated by                                                                    
the Division of Legislative Audit  and had been conducted by                                                                    
consultants who  were experts in  the field. The  intent had                                                                    
been  to  review  all  state  departments  over  a  ten-year                                                                    
period.  She  reported  that   three  departments  had  been                                                                    
reviewed.  The  intent  of  the  reviews  was  to  determine                                                                    
whether agencies  were performing well and  to identify what                                                                    
they could  do better. She  believed there  was a bit  of an                                                                    
expectation  gap  that the  reviews  would  be the  mode  to                                                                    
reduce the budget, in anticipation  that in the future there                                                                    
would be serious budget cuts.                                                                                                   
                                                                                                                                
Ms. Curtis  continued that the statute  effective date began                                                                    
on  July  1,  2013  before the  budget  had  decreased.  She                                                                    
explained  that the  reviews  were not  structured  to be  a                                                                    
mechanism to  reduce the budget.  She detailed that  as part                                                                    
of the reviews, agencies were  required to provide a list of                                                                    
10 percent  budget cuts. She  expounded that as part  of the                                                                    
review, the  consultant was tasked with  determining whether                                                                    
the list  of cuts was  reasonable in line with  their review                                                                    
of the  department. There  was a  budget implication  to the                                                                    
process,  but  it  was  primarily   to  determine  what  the                                                                    
departments could do in order to do their job better.                                                                           
                                                                                                                                
Ms. Curtis  elaborated that the  reports for  the Department                                                                    
of  Corrections (DOC)  and the  Department of  Education and                                                                    
Early Development  (DEED) had been  fairly well  received by                                                                    
the  Legislative  Budget  and Audit  Committee  (LB&A).  The                                                                    
reports  were available  on the  web and  were an  excellent                                                                    
tool for  reviewing a department,  especially DOC  and DEED.                                                                    
The Department of Health and  Social Services (DHSS) was the                                                                    
other review that had been  conducted and she agreed that it                                                                    
had been a  big lift. The Division of  Legislative Audit had                                                                    
been  responsible for  helping to  create the  scope of  the                                                                    
performance  reviews  and  for hiring  the  contractor.  She                                                                    
reported that the contractor had  come out in strong support                                                                    
of Medicaid expansion,  which had not been  well received by                                                                    
the committee.                                                                                                                  
                                                                                                                                
Ms.  Curtis  reported that  the  reviews  had been  defunded                                                                    
effective  FY 16.  She  believed it  was  very difficult  to                                                                    
review departments  when there was so  much change underway.                                                                    
She explained that  by the time a review was  started to the                                                                    
time  it was  completed  "you'd be  looking  at a  different                                                                    
animal." She believed it was  likely not the best climate to                                                                    
conduct the reviews until there was some stability.                                                                             
                                                                                                                                
9:11:07 AM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz asked  if the reviews were  called for with                                                                    
the realization  that the Division of  Legislative Audit had                                                                    
its hands  full and  the reviews  would need  to be  done by                                                                    
someone else to dig more deeply into things.                                                                                    
                                                                                                                                
Ms. Curtis relayed that the  concept of the reviews had been                                                                    
underway for years  and the legislation was  passed when she                                                                    
had started her current position.  She believed the idea was                                                                    
modeled after the  Texas Sunset Commission - that  it was an                                                                    
important function of government  to examine itself and make                                                                    
sure  it was  operating  as efficiently  and effectively  as                                                                    
possible. She explained  that it took experts  in the field.                                                                    
She detailed that even if the  work was done by the Division                                                                    
of Legislative Audit, the agency  would have to hire experts                                                                    
in the  correctional industry  or education  to do  the deep                                                                    
dive.                                                                                                                           
                                                                                                                                
Representative Wool  thought it sounded like  there was some                                                                    
value  to  the reviews,  especially  in  determining how  an                                                                    
agency was performing.  He knew there had  been studies done                                                                    
for  the University  to  identify where  it  could be  doing                                                                    
better and  where it was  spending too much money.  He asked                                                                    
if the reviews  had not been done primarily due  to cost. He                                                                    
asked  if it  had always  been the  intent to  outsource the                                                                    
reviews and  if the Division  of Legislative Audit  had been                                                                    
supportive of the concept.                                                                                                      
                                                                                                                                
Ms. Curtis replied  that she was willing to  do whatever the                                                                    
legislature  directed.  She  highlighted  that  the  reviews                                                                    
required significant procurement  and three additional staff                                                                    
that  had nothing  to do  with the  audit function.  She had                                                                    
carved the  staff out  to the side  and had  interacted with                                                                    
the leader  of the group.  She relayed that it  had resulted                                                                    
in a  lot of extra  work on  her shoulders; however,  it was                                                                    
her perspective that if the  legislature wanted the Division                                                                    
of Legislative Audit to do  performance reviews, it would do                                                                    
them.                                                                                                                           
                                                                                                                                
Ms. Curtis  highlighted that how  the reviews would  be used                                                                    
had not been well thought out  and needed to be tweaked. She                                                                    
pointed out that if people  did not know whether the reviews                                                                    
had been done and they  had not been utilized, something was                                                                    
wrong with the  process. She had been asked in  the past how                                                                    
the process  could be  improved, and she  had notes  on what                                                                    
could be improved from four  years back when the process had                                                                    
stopped. She  believed there would  have to be a  rewrite of                                                                    
the process  to make it effective.  She recommended starting                                                                    
from  scratch. She  was always  supportive  of reviews,  and                                                                    
whether it  was on the  legislature's priority list  of what                                                                    
it  wanted to  spend  funds  on was  a  question for  policy                                                                    
makers.                                                                                                                         
                                                                                                                                
9:15:07 AM                                                                                                                    
                                                                                                                                
Representative LeBon thought back  to his "banking days." He                                                                    
explained  that  banks  were  subject  to  numerous  audits,                                                                    
examinations, and  reviews. In the banking  world there were                                                                    
internal  reviews  of  programs,  the  most  common  was  in                                                                    
lending in  order for the  bank to  know it was  making good                                                                    
credit  decisions.  Banks  also had  internal  and  external                                                                    
audit  functions. Additionally,  the  FDIC [Federal  Deposit                                                                    
Insurance Corporation] visited banks  to do examinations. He                                                                    
elaborated that the FDIC looked  at reviews and internal and                                                                    
external audits to  arrive at a conclusion  on the soundness                                                                    
of  the bank  and  its  operations. He  asked  if the  state                                                                    
auditors   looked  at   performance  reviews   and  made   a                                                                    
conclusion about their work when they did an audit.                                                                             
                                                                                                                                
Ms.  Curtis  replied  that  the  reviews  were  not  exactly                                                                    
helpful  for the  purposes of  the  Division of  Legislative                                                                    
Audit.   She   explained   that   the   division   was   the                                                                    
external/independent   financial   auditor.  The   executive                                                                    
branch had  an internal audit function  for approximately 15                                                                    
years.  She did  not know  how many  states had  no internal                                                                    
audit function. She clarified that  the focus of the reviews                                                                    
did  not have  much  to  do with  the  financial audit.  She                                                                    
elaborated that if the reviews  were available, the division                                                                    
would  look  to  them  as  a source  when  it  did  periodic                                                                    
performance audits.                                                                                                             
                                                                                                                                
9:16:53 AM                                                                                                                    
                                                                                                                                
Representative Josephson asked if  the state used to provide                                                                    
or pay  for an executive  internal audit function.  He asked                                                                    
if  the work  would be  redundant to  work performed  by the                                                                    
Division of Legislative Audit.                                                                                                  
                                                                                                                                
Ms. Curtis  replied that  there had  been an  internal audit                                                                    
function under  the governor's office,  and she  believed it                                                                    
had    been   eliminated    under    the   former    Knowles                                                                    
administration. She believed there  had been eight positions                                                                    
and some of the functions had  been moved to the Division of                                                                    
Finance.   There  was   an  existing   state  single   audit                                                                    
requirement function.  She believed  they had  done internal                                                                    
reviews on a whole range of topics.                                                                                             
                                                                                                                                
Representative  Wool remarked  on the  fact that  an outside                                                                    
group had  been paid to  review the department and  had made                                                                    
recommendations,  which  had  not  been  well  received.  He                                                                    
surmised  the recommendations  had not  gone along  with the                                                                    
presumption  of  the  group, yet  [Medicaid  expansion]  had                                                                    
taken place.                                                                                                                    
                                                                                                                                
Ms.  Curtis replied  that  one of  the  requirements of  the                                                                    
performance  reviews was  quantifying  their fiscal  impact.                                                                    
The DHSS review  produced over $2 million in  net savings to                                                                    
the state. She noted it was  the only one. She reported that                                                                    
the review had  cost over $1 million to  conduct. She stated                                                                    
that  hired  consultants  typically  recommended  additional                                                                    
studies.  She stated  it was  necessary  to keep  an eye  on                                                                    
consultants  who  were  usually very  passionate  about  the                                                                    
field they were in and  were most likely supportive of "that                                                                    
type of thing."  It was her opinion that the  review had not                                                                    
been well  received by the  committee or legislature  at the                                                                    
time.                                                                                                                           
                                                                                                                                
9:19:27 AM                                                                                                                    
                                                                                                                                
Co-Chair  Johnston referenced  performance  measures in  the                                                                    
budget.  She  asked if  the  performance  measures had  been                                                                    
evaluated as part of the process.                                                                                               
                                                                                                                                
Ms. Curtis  replied that obtaining the  performance measures                                                                    
had been  part of the process.  She had not seen  much value                                                                    
in the  performance measures, and  they had not been  key to                                                                    
any of the reviews.                                                                                                             
                                                                                                                                
Co-Chair Johnston noted  that she had a good  friend who had                                                                    
been one of the initiators of the performance measures.                                                                         
                                                                                                                                
Ms. Curtis  replied that in  theory it was great  thing, but                                                                    
she had not seen any impact.                                                                                                    
                                                                                                                                
Representative  Josephson referenced  Ms. Curtis'  statement                                                                    
that the state  had saved money through the  DHSS review. He                                                                    
asked if  it was due  to SB 74 [Medicaid  reform legislation                                                                    
passed  in 2016].  He asked  how the  $2 million  in savings                                                                    
materialized.                                                                                                                   
                                                                                                                                
Ms. Curtis would have to  double check, but she believed the                                                                    
savings had to  do with recommendations under  the Office of                                                                    
Children's Services  (OCS). The savings had  something to do                                                                    
with  the federal  reimbursement.  She  elaborated that  OCS                                                                    
could  change  its  procedures related  to  documenting  and                                                                    
timing   and   possibly   qualify  for   increased   federal                                                                    
reimbursement.                                                                                                                  
                                                                                                                                
9:20:44 AM                                                                                                                    
                                                                                                                                
Representative Knopp looked at line  1 of paragraph 2 in the                                                                    
sponsor  statement.  He  noted that  the  sponsor  statement                                                                    
specified that four  audits had been completed,  but it only                                                                    
listed  three   departments.  He   asked  what   the  fourth                                                                    
department was.                                                                                                                 
                                                                                                                                
Ms. Curtis replied that there  had been two reviews for DEED                                                                    
- one  had been done  on the department  as a whole  and the                                                                    
other   had  been   done  on   the   Alaska  Commission   on                                                                    
Postsecondary Education (ACPE).                                                                                                 
                                                                                                                                
Co-Chair Johnston requested to hear the sectional analysis.                                                                     
                                                                                                                                
CRYSTAL  KOENEMAN,  STAFF,  REPRESENTATIVE  STEVE  THOMPSON,                                                                    
complied. She  highlighted a list of  repealers in committee                                                                    
members' packets (copy on file).  She noted that because the                                                                    
bill only  listed repealers, she  believed it would  be more                                                                    
advantageous to provide  the list of repealers  instead of a                                                                    
sectional    analysis.   Sections    24.20.231(7),   Section                                                                    
24.20.271(2), and  Section 24.20.311(b) were  all conforming                                                                    
language changes that removed  references to the performance                                                                    
reviews.  Section 44.66.020  included  agency programs  that                                                                    
set  out the  agency performance  audits. Section  44.66.040                                                                    
included  the extensive  list of  the duties  of the  review                                                                    
team. Section 44.66.070(2) defined the review team.                                                                             
                                                                                                                                
Representative Josephson stated that  when he arrived in the                                                                    
legislature in  2013, he would have  thought the legislature                                                                    
funded things it  said it was going to fund.  He asked if in                                                                    
around  2016 the  item  had been  in  the budget's  adjusted                                                                    
base, but it had been removed.                                                                                                  
                                                                                                                                
Ms. Koeneman  replied that the  budget request had  been put                                                                    
forward  by  LB&A.  When Legislative  Council  reviewed  the                                                                    
budgets, it had  made the determination to  not move forward                                                                    
with that.  There had  been partial funding  in 2016  for FY                                                                    
17, but Legislative  Council had denied the  increment in FY                                                                    
18 through FY 21.                                                                                                               
                                                                                                                                
Representative  Josephson  referenced  the  language  "every                                                                    
year, the legislative audit  division shall ensure..." [Sec.                                                                    
44.66.020(a)].  He  was  thinking   of  the  Permanent  Fund                                                                    
Dividend debate  and the senior  deduction and  other things                                                                    
discussed  by  Representative  Jonathan  Kreiss-Tomkins.  He                                                                    
highlighted  that  the  legislature  was  the  appropriating                                                                    
body.                                                                                                                           
                                                                                                                                
Ms.  Curtis  clarified  that  Legislative  Council  did  not                                                                    
review the LB&A budget.  She explained the appropriation was                                                                    
separate. She detailed that the  funding had been cut in the                                                                    
House Finance  Committee process.  She relayed  that because                                                                    
the item  was in her  statutes, she was required  to request                                                                    
an  increment annually.  She reported  that the  request was                                                                    
$1.8  million  in the  current  year.  She  noted it  was  a                                                                    
substantial amount of funding.                                                                                                  
                                                                                                                                
9:24:28 AM                                                                                                                    
                                                                                                                                
Representative Wool looked at  the list of agencies outlined                                                                    
in statute  that were to  be reviewed in specific  years. He                                                                    
observed that  the first three  departments on the  list had                                                                    
been  completed and  then  the reviews  had  stopped at  the                                                                    
Office   of  the   Governor,  agencies   of  the   executive                                                                    
[legislative]  branch,  and the  Court  System  in 2017.  He                                                                    
asked for  verification that $1.8 million  [the figure cited                                                                    
for  FY  21 by  Ms.  Curtis]  would  pay  for one  year.  He                                                                    
surmised  it would  depend  on the  year.  He observed  that                                                                    
based on the  statutory list it would be one,  two, or three                                                                    
audits  depending on  what was  called for  in a  particular                                                                    
calendar year.                                                                                                                  
                                                                                                                                
Ms. Curtis agreed.                                                                                                              
                                                                                                                                
Representative Sullivan-Leonard asked  about the anticipated                                                                    
savings  from the  legislation  that  would discontinue  the                                                                    
performance reviews.                                                                                                            
                                                                                                                                
Representative Thompson replied that  the budget request was                                                                    
$1.8 million in  FY 21. The increment had  been removed from                                                                    
the  budget, the  same  as it  had been  in  the past  three                                                                    
years.  He  highlighted  that the  increment  had  not  been                                                                    
funded  for  four years.  He  questioned  why it  should  be                                                                    
included in statute and annually listed in the budget.                                                                          
                                                                                                                                
Representative Wool appreciated  Ms. Curtis's statement that                                                                    
a new  approach should  be made. He  thought there  was some                                                                    
value in conducting reviews of  agencies that were receiving                                                                    
$300  million per  year. He  speculated that  if it  cost $1                                                                    
million  to $2  million,  the  state may  end  up saving  $5                                                                    
million. He  continued there were  definitely savings  to be                                                                    
had and  people want  to cut  budgets all  of the  time, but                                                                    
there  were ways  to cut  and ways  to take  a deep  dive to                                                                    
discover how  to operate more efficiently.  He remarked that                                                                    
sometimes it was necessary to  spend money to save money. He                                                                    
thought a new approach sounded reasonable.                                                                                      
                                                                                                                                
9:27:10 AM                                                                                                                    
                                                                                                                                
Co-Chair Johnston OPENED and CLOSED public testimony.                                                                           
                                                                                                                                
HB  121  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 209                                                                                                            
                                                                                                                                
     "An  Act  relating  to  public  finance;  creating  the                                                                    
     Department of  Management and Budget;  transferring the                                                                    
     duties of  the office of  management and budget  to the                                                                    
     Department of Management and  Budget; and providing for                                                                    
     an effective date."                                                                                                        
                                                                                                                                
9:27:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   STEVE   THOMPSON,  SPONSOR,   thanked   the                                                                    
committee  for hearing  the bill  and  reviewed its  purpose                                                                    
with a prepared statement:                                                                                                      
                                                                                                                                
    House Bill 209 transfers the Office of Management and                                                                    
     Budget to a freestanding budget agency.                                                                                    
    Currently OMB is located within the Governor's office                                                                    
    As an agency within the executive branch, the                                                                            
     commissioner  of  the   Department  of  Management  and                                                                    
     Budget will be subject  to legislative confirmation and                                                                    
     their   salary   determined   by  the   State   Officer                                                                    
     Compensation Commission.                                                                                                   
    This will also allow for additional legislative                                                                          
     oversight during the budgetary process                                                                                     
    There are 11 other states that require legislative                                                                       
    confirmation for the state's chief budget official                                                                          
    12 other states that have a freestanding budget agency                                                                   
    Since FY11 the annual salary of the Director has                                                                         
     increased from $136.4 to $194.7                                                                                            
    Total UGF spend is from $192.5 to $277.2 with benefits                                                                   
                                                                                                                                
Representative Thompson explained that  the bill was lengthy                                                                    
because it  had to  hit so  many agencies  on the  books. He                                                                    
detailed  that the  bill basically  just  changed the  words                                                                    
Office  of  Management and  Budget  (OMB)  to Department  of                                                                    
Management  and  Budget.  He   shared  that  his  staff  was                                                                    
available for any questions.                                                                                                    
                                                                                                                                
9:29:51 AM                                                                                                                    
                                                                                                                                
Representative  LeBon  referenced Representative  Thompson's                                                                    
mention of  significant history and  background information.                                                                    
He asked  if the  idea had been  churning in  the background                                                                    
for a while.                                                                                                                    
                                                                                                                                
Representative   Thompson  replied   in  the   negative.  He                                                                    
explained that  the idea  had arisen  from the  situation in                                                                    
the previous  year. The bill  originated from the  idea that                                                                    
the legislature should have more  oversight and knowledge of                                                                    
who was coming into the OMB [director] position.                                                                                
                                                                                                                                
Representative  Wool asked  if there  were hurdles  or costs                                                                    
associated  with establishing  a new  department aside  from                                                                    
the salary considerations and confirmation [of a director].                                                                     
                                                                                                                                
CRYSTAL  KOENEMAN,  STAFF,  REPRESENTATIVE  STEVE  THOMPSON,                                                                    
replied  that  there  were  about   eight  fiscal  notes  in                                                                    
committee  members'   bill  packets  (copy  on   file).  She                                                                    
confirmed  there were  additional  minimal costs  associated                                                                    
with  setting  up  an independent  agency  including  shared                                                                    
services,  procurement,  and   information  technology.  She                                                                    
would provide additional information  when fiscal notes were                                                                    
reviewed.                                                                                                                       
                                                                                                                                
Representative Knopp was interested  in the fiscal notes. He                                                                    
remarked  that  there  were numerous  notes  that  were  all                                                                    
substantial. He hoped to hear an  in depth review of each of                                                                    
the fiscal notes.                                                                                                               
                                                                                                                                
Co-Chair Johnston  shared her intention to  hear a sectional                                                                    
analysis followed by a review of the fiscal notes.                                                                              
                                                                                                                                
9:32:37 AM                                                                                                                    
                                                                                                                                
Vice-Chair Ortiz asked if the  costs would be ongoing or one                                                                    
time only.                                                                                                                      
                                                                                                                                
Ms.  Koeneman replied  that the  hope was  once things  were                                                                    
underway  the change  would be  budget neutral,  meaning the                                                                    
current costs  associated with OMB  under the Office  of the                                                                    
Governor  would   be  those  costs   moving  forward   as  a                                                                    
standalone  agency. She  noted  that  the legislature  would                                                                    
have that power through the budgetary process.                                                                                  
                                                                                                                                
Representative Tilton  asked whether  the bill  would result                                                                    
in any diminishment of the  separation of powers between the                                                                    
executive and legislative branches.                                                                                             
                                                                                                                                
Ms. Koeneman  answered that the  bill did not change  any of                                                                    
OMB's  powers and  duties. The  statutes currently  in place                                                                    
were contained  in the legislation, the  only difference was                                                                    
the change from  the word "office" to  "department" and from                                                                    
"director"  to "commissioner."  The  services OMB  currently                                                                    
provided would remain the same.                                                                                                 
                                                                                                                                
9:34:17 AM                                                                                                                    
                                                                                                                                
Co-Chair Johnston requested to hear the sectional analysis.                                                                     
                                                                                                                                
Ms.  Koeneman  complied.  Sections  1  through  30  included                                                                    
conforming language  changing the  Office of  Management and                                                                    
Budget  to   the  Department   of  Management   and  Budget.                                                                    
Additionally,  the sections  updated the  words "office"  to                                                                    
"department"  and  "director"  to "commissioner."  She  read                                                                    
from the sectional (copy on file):                                                                                              
                                                                                                                                
     Section  31: AS  44.17.005. Offices  and departments                                                                       
     Adding  the "Department  of Management  and Budget"  to                                                                    
     the list of principal offices and departments.                                                                             
     Section 32: Proposed new Chapter AS 44.22.010.                                                                             
     Chapter  22. Department  of Management  and Budget  (p.                                                                    
     33)                                                                                                                        
                                                                                                                                
     Sec. 44.22.010.  Commissioner of management  and budget                                                                    
       Establishes  the principal  executive officer  of the                                                                    
     Department   of   Management    and   Budget   is   the                                                                    
     commissioner of management and budget.                                                                                     
                                                                                                                                
     Sec. 44.22.020. Powers and  duties of the commissioner.                                                                    
     Outlines the  duties of the commissioner  of management                                                                    
     and budget.  (Identical language to current  powers and                                                                    
     duties of the director under AS 44.19.144)                                                                                 
                                                                                                                                
Ms. Koeneman  noted that Section  44.22.020 was  included in                                                                    
the  sections being  repealed at  the end  of the  bill. She                                                                    
remarked  the  language  was conforming.  She  continued  to                                                                    
review the sectional analysis:                                                                                                  
                                                                                                                                
     Sec. 44.22.030.  Powers and  duties of  the department.                                                                    
     Outlines  the duties  of the  department of  management                                                                    
     and budget.  (Identical language to current  powers and                                                                    
     duties of the department under AS 44.19.145)                                                                               
                                                                                                                                
     Sec.  44.22.040. Internal  audit records.  Requires the                                                                    
     department to  keep a complete  file of  audit reports.                                                                    
     (Identical language  to current internal  audit records                                                                    
     under AS 44.19.147)                                                                                                        
                                                                                                                                
     Sec. 44.22.050. Definitions.  Provides a definition for                                                                    
     the  commissioner  and  department  of  management  and                                                                    
     budget.                                                                                                                    
                                                                                                                                
     Section 33-35: Conforming  language changing the office                                                                    
     of  management   and  budget   to  the   Department  of                                                                    
     Management  and   Budget;  and  updating   "office"  to                                                                    
     "department".                                                                                                              
                                                                                                                                
     Section 36:  Repeals statutes  related to  the "office"                                                                    
     of management and budget.                                                                                                  
                                                                                                                                
     Section 37:  Transitional language that allows  for the                                                                    
     transfer of information and  documents from the "office                                                                    
     to the "department".                                                                                                       
                                                                                                                                
Ms. Koeneman explained that if  there were any current suits                                                                    
against OMB, they would continue  until they were worked out                                                                    
through   the  transition.   She  concluded   the  sectional                                                                    
analysis:                                                                                                                       
                                                                                                                                
    Section 38: Provides a July 1, 2020 effective date.                                                                         
                                                                                                                                
9:37:16 AM                                                                                                                    
                                                                                                                                
Representative Merrick asked if OMB  had taken a position on                                                                    
the legislation.                                                                                                                
                                                                                                                                
Ms. Koeneman replied that she did not believe so.                                                                               
                                                                                                                                
Representative Knopp  looked at Section  32 and asked  if it                                                                    
was the intent  that the commissioner would also  be the OMB                                                                    
director.  Alternatively, he  wondered if  there would  be a                                                                    
commissioner and director.                                                                                                      
                                                                                                                                
Ms. Koeneman  answered that the intention  was the positions                                                                    
currently  with  OMB  - the  director  and  staff  currently                                                                    
listed in OMB's personal service  expenditure - would be the                                                                    
staff for  the office.  She remarked  that the  fiscal notes                                                                    
had  additional positions  listed,  but  the bill  sponsor's                                                                    
intention was to  transfer the office as  it currently stood                                                                    
to  a standalone  department. She  relayed it  had been  her                                                                    
hope to only  modify the language in  statute; however, with                                                                    
the constitution, it had not been so easy.                                                                                      
                                                                                                                                
Representative  Wool  asked  if the  sponsor  foresaw  there                                                                    
being a  deputy commissioner. He pointed  out that typically                                                                    
there  was   at  least  one  deputy   commissioner  position                                                                    
alongside a commissioner position.  He asked if the parallel                                                                    
position existed,  such as  assistant director.  He wondered                                                                    
if there would be a straight transfer over.                                                                                     
                                                                                                                                
Ms. Koeneman  responded not  necessarily. She  detailed that                                                                    
in   name  the   position   would  probably   be  a   deputy                                                                    
commissioner but  depending on how  a governor set  up their                                                                    
OMB there was sometimes a  deputy director. She clarified it                                                                    
was  the  sponsor's  intention  that  the  comparable  level                                                                    
position would be the deputy.                                                                                                   
                                                                                                                                
9:39:49 AM                                                                                                                    
                                                                                                                                
Co-Chair  Johnston asked  to  hear a  review  of the  fiscal                                                                    
notes.                                                                                                                          
                                                                                                                                
SYLVAN  ROBB,  POLICY  ANALYST,  OFFICE  OF  MANAGEMENT  AND                                                                    
BUDGET, OFFICE  OF THE  GOVERNOR, began  by noting  that the                                                                    
State of Alaska had not  created a new department from whole                                                                    
cloth since  prior to 1975. She  noted that OMB had  run out                                                                    
of time  to continue  the historical research.  She reviewed                                                                    
the  eight  fiscal  notes.  There  were  not  OMB  component                                                                    
numbers to  use as  reference because the  component numbers                                                                    
did  not   exist.  She  detailed   that  the   proposed  new                                                                    
Department of  Management and Budget  would be  comprised of                                                                    
four  appropriations  with   seven  allocations.  The  first                                                                    
fiscal  note [Identifier  HB209-GOV-DIA-03-01-20] created  a                                                                    
division  of internal  audit. She  noted the  item had  been                                                                    
defunded for  many years; however, because  it was contained                                                                    
in  the statute  of the  bill,  OMB had  operated under  the                                                                    
assumption  there  would  be   interest  in  restarting  the                                                                    
function. She shared that the  last time a position had been                                                                    
filled was  in 2012  when there had  been one  position. She                                                                    
relayed that  the position  had been taken  off the  books a                                                                    
number of  years ago  as part  of a cleanup  as it  had been                                                                    
unfilled for many years.                                                                                                        
                                                                                                                                
9:42:03 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Ortiz wanted  to ensure  he was  looking at  the                                                                    
right  fiscal  note.  He  asked  Ms.  Robb  to  provide  the                                                                    
identifier at the top [left] of the fiscal note.                                                                                
                                                                                                                                
Ms. Robb replied that the identifier was HB209-GOV-DIA-03-                                                                      
02-20.                                                                                                                          
                                                                                                                                
Representative Knopp  believed Ms.  Curtis and Ms.  Robb had                                                                    
both  stated  that  the  internal  audit  program  had  been                                                                    
discontinued. He  asked for verification  that Ms.  Robb had                                                                    
stated  that OMB  had  included the  program  in the  fiscal                                                                    
notes because  it was specified  in statute and  OMB assumed                                                                    
the legislature wanted to go back to the program.                                                                               
                                                                                                                                
Ms. Robb  replied that the  statute was contained in  HB 209                                                                    
and it  was the  assumption that  the bill  sponsor intended                                                                    
the functions to resume.                                                                                                        
                                                                                                                                
Representative  Knopp  asked  for  verification  there  were                                                                    
currently no  other internal  auditors in  any of  the state                                                                    
departments.                                                                                                                    
                                                                                                                                
Ms.   Robb   answered   that  within   the   Department   of                                                                    
Administration  the  Division  of Finance  performed  single                                                                    
audit work.  She added  that OMB  no longer  performed audit                                                                    
work.                                                                                                                           
                                                                                                                                
9:43:38 AM                                                                                                                    
                                                                                                                                
Representative LeBon  asked if any bargaining  units touched                                                                    
OMB  staffing  wise.  Alternatively,  he asked  if  OMB  was                                                                    
completely outside the bargaining unit influence.                                                                               
                                                                                                                                
Ms.  Robb answered  that under  the current  structure where                                                                    
OMB  was under  the governor's  office, all  staff positions                                                                    
were  fully  exempt.   If  the  office  was   changed  to  a                                                                    
department some of the positions may change to classified.                                                                      
                                                                                                                                
9:44:27 AM                                                                                                                    
                                                                                                                                
Ms. Robb  moved to the  next fiscal note,  Identifier HB209-                                                                    
GOV-DBA-03-02-20.  She  noted  the  note  pertained  to  the                                                                    
Department of  Management and  Budget, budget  analysis. She                                                                    
detailed that  the division represented the  majority of OMB                                                                    
as it  currently existed. The  note included  current budget                                                                    
analysts, a  chief budget  analyst, and  the addition  of an                                                                    
assistant (a position OMB had until recently).                                                                                  
                                                                                                                                
9:45:12 AM                                                                                                                    
                                                                                                                                
Ms. Robb looked at the  third fiscal note for Administrative                                                                    
Services,  Identifier  GOV-DAS-03-02-20. Currently  OMB  was                                                                    
part  of  the  governor's   office  and  the  administrative                                                                    
services covered  by the fiscal note  were services provided                                                                    
to OMB  as part of  the governor's office. For  example, OMB                                                                    
was able to take  advantage of governor's office procurement                                                                    
staff, human  resources staff, and  the finance  officer and                                                                    
administrative  services directors.  She  explained that  if                                                                    
OMB was turned  into a department, the  positions would need                                                                    
to  be created  in  order  to provide  the  services to  the                                                                    
department.                                                                                                                     
                                                                                                                                
Representative   Wool  asked   for  verification   the  note                                                                    
included all new positions.                                                                                                     
                                                                                                                                
Ms. Robb  agreed. She explained that  currently OMB received                                                                    
the services from the governor's office.                                                                                        
                                                                                                                                
Vice-Chair  Ortiz asked  for  a breakdown  of  the types  of                                                                    
services she was  referring to. He asked  for further detail                                                                    
on the five positions.                                                                                                          
                                                                                                                                
Ms. Robb answered that the  positions would provide services                                                                    
currently   received  from   the   governor's  office.   She                                                                    
elaborated  that the  positions  included an  administrative                                                                    
services  director  (as  in other  departments),  a  finance                                                                    
officer (it was  always necessary to have two  people in the                                                                    
financial  positions  because  people  cannot  certify  each                                                                    
other's work),  a budget manager, a  procurement specialist,                                                                    
and   a  human   resources  consultant.   She  noted   OMB's                                                                    
anticipation  that  in the  outyears  one  of the  positions                                                                    
would  no  longer be  needed  as  the current  consolidation                                                                    
efforts  for   procurement  and  human  resources   came  to                                                                    
fruition.                                                                                                                       
                                                                                                                                
9:47:45 AM                                                                                                                    
                                                                                                                                
Co-Chair  Johnston asked  members  to  hold their  questions                                                                    
until  the  end of  the  fiscal  note review.  She  reminded                                                                    
members that floor session began at 10:00 a.m.                                                                                  
                                                                                                                                
Ms. Robb  continued with the fourth  fiscal note, Identifier                                                                    
HB209-GOV-CO   for    administrative   services    and   the                                                                    
commissioner's office. She explained  that the creation of a                                                                    
new department  would require  a commissioner's  office. She                                                                    
detailed that  three of the  staff shown on the  fiscal note                                                                    
were existing staff. She referenced  an earlier question and                                                                    
relayed that there  was a deputy director at OMB  and it was                                                                    
the  assumption   that  person   would  become   the  deputy                                                                    
commissioner  for  the  new department.  She  detailed  that                                                                    
current Director Neil Steininger  had an assistant who would                                                                    
continue and  there would be  a special assistant to  act as                                                                    
the legislative  liaison and perform duties  normally filled                                                                    
by that role.                                                                                                                   
                                                                                                                                
Ms. Robb moved  to the fifth fiscal  note, Identifier HB209-                                                                    
GOV-PP  for policy  and planning.  The  note included  three                                                                    
existing OMB policy positions that  would continue under the                                                                    
new department.                                                                                                                 
                                                                                                                                
9:49:19 AM                                                                                                                    
                                                                                                                                
Ms. Robb  reviewed the sixth fiscal  note, Identifier HB209-                                                                    
GOV-SDC   for   policy    and   planning,   statewide   data                                                                    
clearinghouse.   The   note   reflected  the   current   OMB                                                                    
programmer  who maintained  the Alaska  Budget System  where                                                                    
all  budgeting  for  the  state   occurred.  The  note  also                                                                    
included the addition of a  research analyst in anticipation                                                                    
of the internal audit and  the collection of additional data                                                                    
(in order to make the best use of the data).                                                                                    
                                                                                                                                
9:50:09 AM                                                                                                                    
                                                                                                                                
Ms.  Robb  turned to  the  seventh  fiscal note,  Identifier                                                                    
HB209-GOV-ASD  for  policy   and  planning  and  centralized                                                                    
administrative services directors. The  note did not reflect                                                                    
a change.  She highlighted that the  administrative services                                                                    
directors had  been moved  into OMB  by Executive  Order 307                                                                    
[in  2019 under  the  Dunleavy  administration]. The  fiscal                                                                    
note reflected  the administrative services  directors would                                                                    
continue to be a part of the new department.                                                                                    
                                                                                                                                
Ms. Robb  turned to  the eighth  fiscal note,  OMB Component                                                                    
Number  1244. The  note represented  the removal  of funding                                                                    
for OMB.                                                                                                                        
                                                                                                                                
Co-Chair Johnston OPENED and CLOSED public testimony.                                                                           
                                                                                                                                
9:51:45 AM                                                                                                                    
                                                                                                                                
Representative   Wool  referenced   the   salaries  of   the                                                                    
commissioner   determined   by   the   salary   compensation                                                                    
commission. He noted the policy  planner position was listed                                                                    
as a salary range 27  at $229,000. He asked for verification                                                                    
the  salary was  considerably more  than the  commissioner's                                                                    
salary. He asked if the numbers were standard.                                                                                  
                                                                                                                                
Ms.  Koeneman replied  that  it was  not  uncommon in  other                                                                    
departments  to  have  the   commissioner's  topped  out  at                                                                    
$135,000 set  by the Salary  Compensation Commission  and to                                                                    
have  a  director   level  position  at  a   range  27  with                                                                    
additional pay  steps to outrank  the commissioner  in terms                                                                    
of pay.                                                                                                                         
                                                                                                                                
Representative Knopp  asked for  verification that  Ms. Robb                                                                    
had  reported  that a  new  state  department had  not  been                                                                    
created since 1974.                                                                                                             
                                                                                                                                
Ms. Robb replied  that OMB had struggled to  locate the last                                                                    
time  a department  had been  created.  They had  researched                                                                    
back to 1975 before running out of time.                                                                                        
                                                                                                                                
Representative   Knopp  thought   it   was  an   interesting                                                                    
conversation. He  believed it clearly  showed how  the state                                                                    
managed and  staffed its  departments. He  thought it  was a                                                                    
great  review and  opportunity to  talk  about the  internal                                                                    
audits  that were  not done  and the  research analysis  for                                                                    
internal auditors. He  opined it was a  good conversation to                                                                    
consider  how business  was being  conducted in  the state's                                                                    
departments.                                                                                                                    
                                                                                                                                
HB  209  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Johnston reviewed the schedule for the afternoon.                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
9:54:03 AM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 9:54 a.m.                                                                                          

Document Name Date/Time Subjects
HB 121 Repealer List 2.4.2020.pdf HFIN 3/3/2020 9:00:00 AM
HB 121
HB 121 Sponsor Statement 2.4.2020.pdf HFIN 3/3/2020 9:00:00 AM
HB 121
HB 209 Budget Processes in the States - Spring 2015 Tables 2-5-20.pdf HFIN 3/3/2020 9:00:00 AM
HB 209
HB 209 FY11-20 OMB PS ED 2-5-20.pdf HFIN 3/3/2020 9:00:00 AM
HB 209
HB 209 Sectional Analysis v. M 1.28.2020.pdf HFIN 3/3/2020 9:00:00 AM
HB 209
HB 209 Sponsor Statement 1.28.2020.pdf HFIN 3/3/2020 9:00:00 AM
HB 209