Legislature(2011 - 2012)HOUSE FINANCE 519
02/21/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB284 | |
| Ncsl Presentation: the Federal Budget Control Act & Its Possible Economic Impacts on Alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 284 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 21, 2012
1:38 p.m.
1:38:54 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
Representative Les Gara
ALSO PRESENT
Michael Bird, Senior Federal Affairs Counsel, National
Conference of State Legislatures.
SUMMARY
HB 284 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 284 was HEARD and HELD in committee for
further consideration.
NCSL Presentation:
The Federal Budget Control Act and its Possible
Economic Impacts on Alaska
1:39:07 PM
HOUSE BILL NO. 284
"An Act making appropriations for the operating
and loan program expenses of state government and
for certain programs, capitalizing funds,
amending appropriations, and making
reappropriations; and providing for an effective
date."
Co-Chair Stoltze handed the gavel to Co-Chair Thomas.
Co-Chair Thomas referred to and set aside HB 284.
HB 284 was HEARD and HELD in committee for further
consideration.
Co-Chair Thomas disclosed that after attending the National
Congress of State Legislature Conference in Florida, he
recognized the possible huge impact on Alaska. Co-Chair
Stoltze added that there is a short term false sense of
security with the amount of money Alaska has now in
reserve, due to the declining oil resource reserves and the
expansion of new entitlements. Co-Chair Thomas agreed that
Alaska, unlike most states, presently has a budget surplus,
but in the long term, there is still the need for fiscal
restraint.
^NCSL PRESENTATION: THE FEDERAL BUDGET CONTROL ACT & ITS
POSSIBLE ECONOMIC IMPACTS ON ALASKA
MICHAEL BIRD, SENIOR FEDERAL AFFAIRS COUNSEL, NATIONAL
CONFERENCE OF STATE LEGISLATURES, communicated his task to
inform state legislatures about the federal budget, deficit
reductions and the potential long and short term effects.
He stressed that he does not present a policy preference,
but his role is to share information and insights into what
is going on the Washington D.C. regarding the imminent
federal funding reduction to states and local governments.
He noted his intention to break the PowerPoint presentation
into a four parts: "The BCA's of Federal Funding, National
Conference of State Legislatures," February 21, 2012 (copy
on file). He referred to Slide 4, "Total Budgets
Surplus/Deficit." He explained that in following the red
and blue line, the blue line reflects President Obama's
budget. The projected deficit is very steep. The current
proposals are reflected in the black straight line moving
down to the right. The federal government remains in
deficient mode which will conclude FY12 at $1.2 to $1.3
trillion. The problem will be persistent with no foreseen
resolution at this time. He moved to Slide 5, "Budget
Outlook." He pointed out that the deficits from FY13 to
FY16 go from 900 down to 612 (numbers are not reflected in
the Slide). The important number to watch is the bottom
percentage GDP (Gross Domestic Product) that the debt
limits is subject. He pointed out that the numbers are
going up. It is on a track for the next decade to go into
the mid-20s if nothing is done. There is no consensus in
Washington as to what to do about the problem.
Representative Neuman questioned how the debt numbers are
related to other numbers in the slide. Mr. Bird explained
that presently for every dollar spent, 60 cents is brought
in and the rest of the 40 cents is borrowed. In order to
make spending work, the debt limit needs to be increased in
order to borrow more money, otherwise the government
defaults. The numbers are primarily driven by entitlement
programs and the present tax codes. He suggested that both
need to be revised.
1:50:00 PM
Mr. Bird continued with Slide 6: "Federal Debt Held by the
Public Under Two Budget Scenarios." He explained that
current law, the green line, is where spending is heading
into the future. The current law will take spending as a
percent of the GDP. He pointed out that the reality is
reflected in the red dotted line that swings upward. He
explained that the red dotted line reflects President
Bush's tax cuts of 2001 and 2003 (with the extension in
2010), the alternative minimum tax, military overseas
operations, and reimbursements to Medicare physicians. The
Alternative Fiscal scenario "reality" is what the present
and past administrations have not been able to resolve in
the tax and spending policies. There has also not been a
resolution of health driven entitlements, such as Medicare
and Medicaid at the federal level. The obligation to spend
continues in a very high arc if nothing is done. Slide 7:
"Federal Spending Projected for 2020." Regarding deficit
reduction, federal policy makers have only been able to
discuss and decide upon what is reflected in the lower blue
square under Discretionary Spending. One thing not
reflected is spending generated through the tax code.
Representative Doogan noted on Slide 7, where it shows net
interest at 14 percent, and asked if the deficit continues
to climb and more money is borrowed, he assumed the net
interest will increase. Mr. Bird responded, not
necessarily. The number is suppressed because the federal
government also borrows from itself at a low interest. The
number may go up, but is dependent on what happens in the
other squares. The Federal Reserve could decide to turn off
the low interest rates then the net interest number would
change. The number is artificially is low at this time.
Representative Doogan questioned if any increase in the
other squares would have a corresponding reduction in the
last blue square. Mr. Bird agreed.
1:55:11 PM
Vice-chair Fairclough pointed out that 50 percent of all
spending in the United States is on Social Security and
health care. Mr. Bird indicated that was correct.
Co-Chair Stoltze asked about the Net Interest of 14 percent
being artificially suppressed, if it was called the Debt
Service would it remain the same percentage. Mr. Bird
agreed.
Mr. Bird continued with Slide 8: "Nondefense Discretionary
Spending." This Slide breaks down the blue square from the
previous slide. For FY 13, everything listed on this slide
is subject to reduction, except for the 15 percent for
transportation and some of the veteran's benefits. He
cautioned that these cuts alone would not balance the
federal budget. The slide reflects were the money is
appropriated at the federal level.
1:57:59 PM
Vice-chair Fairclough pointed out that some health care
costs are also imbedded in other areas, such as Tri-Care in
Defense. Mr. Bird agreed. He referred to the 10 percent
reflected in the pie as the non-Medicaid world.
1:58:57 PM
Mr. Bird continued with the next part of the presentation,
Slide 9: "A Brief History of Deficit Reductions Studies,
Reports and Negotiations" and Slide 10: "Recent Reports to
Curb the Federal Deficit and Potentially Re-craft the
State-Federal Fiscal Partnership." Mr. Bird explained that
the National Commission on Fiscal Responsibility and Reform
was President Obama's study commission chaired by former U.
S. Senator Alan Simpson and former Chief of Staff Erskine
Bowles, the Bipartisan Policy Committee and the rest of the
commissions listed came to a variety of conclusions. The
"Several Others" listed at the bottom included the
President, Vice-President, Congress, Gang of Six (now 42+
in the Senate and 100+ in the House) who arrived at the
conclusion that in order to get the federal deficit and
national debt under control both spending and revenue
reform needed to be on the table. In Slide 11: "Common
Features Among Recent Reports," he noted that the missing
ingredient in all the federal reports is the impact on the
state and locals government. The cuts will present a real
challenge to the states.
Representative Costello asked Mr. Bird if he was aware of
other states efforts to understand and prepare for the
impact. Mr. Bird responded that it depends on where the
state is fiscally. He noted that last year, eight states
enacted "just-in-case" funds to put aside in preparation if
the federal government reduces appropriations to state and
federal programs. Numerous states are trying to understand
the possible impact from Washington DC. He noted that
states often have subdued discussions on federal funds. He
noted Alaska is number one in the nation receiving federal
funds. Co-Chair Thomas asked if that will make Alaska a
number one target in reduction. Mr. Bird agreed that it
could affect the state hard.
2:04:28 PM
Co-Chair Thomas commented that the electric power used by
the entire state of Alaska is less than Seattle Light
produces daily.
Representative Wilson asked when "federal receipts" is seen
in the budget, not "federal funds," would it be better not
to have that in the budget. Mr. Bird asked why the state
would not want to be aware of those federal funds.
Representative Wilson replied that if the state gives the
federal government a chance to go looking for the money
versus actual money being here, then Alaska might have to
go through another process to accept federal money.
Mr. Bird remarked that the federal government has talented
people tracking all expenditures made in a variety of
categories to all states, communities, counties and
regions, and even to individuals. All of the information is
included in reports entitled, "The Consolidated Federal
Funds Report" or the "Federal Aid to States Report" which
derive from the Department of Commerce. Unfortunately, the
reports are no longer in the budget to continue.
2:07:31 PM
Mr. Bird moved to Slide 12: "Major Areas Addressed in
Reports with Potential Repercussions for State-Federal
Fiscal Partnerships." He stressed that all the items listed
need to be looked at for reduction. He opined that although
the administration and legislators agree reduction needs to
be done across the board, partisan politics often stand in
the way of reform.
Mr. Bird continued to Slide 13: "What happened? Why Should
I care?" He referred to the Budget Control Act (BCA),
legislation passed in August 2011, which sets the table for
deficit reduction in both discretionary and defense
spending for the next ten years. Slide 14: "Overview: BCA
of 2011" sets up three components with the potential to
affect future funding for state grant programs. Caps on
discretionary spending were accomplished, but the Joint
Select Committee on Deficit Reduction failed. He signified
that now brings about a sequestration process which is
mandatory across-the-board cuts. The states will be heading
in the reduction direction over the next decade.
2:11:09 PM
Mr. Bird moved to Slide 15: "BCA Deficit Savings"
explaining that there was a deal to increase the Debt
Ceiling by $2.1 trillion in exchange for two pockets of
reductions. The debt ceiling can now go up to $16.4
trillion. One reduction consisted of $917 billion in
discretionary spending over the next ten years. An
artificial spending ceiling was also set up. Slide 16:
"Super Failure." An opportunity for reduction was to set up
a Super Committee to find another $1.2 trillion in cuts
over a nine year period. The Super Committee failed which
triggered automatic cuts for FY 13-FY 21. He explained that
the sequestration is about to happen at the beginning of
calendar year 2013 or right after the federal fiscal year
2013. He stated that over nine years there is a mandatory
cut of $492 billion in domestic discretionary spending
reductions and $492 billion in defense discretionary
spending reductions. The President introduced his own
deficit plan that is under siege by opponents. President
Bush's introduction of Medicare Part D and the escalations
of the military operations in Iraq and Afghanistan were not
paid for and the money was borrowed. The tax cuts in 2001
and 2003 which were extended again in 2010 meant there was
not enough revenue to make up for the loss revenue.
2:17:13 PM
Mr. Bird pointed out in Slide 18: "What We Can Say about a
Sequester- "Thing Two" (non-defense)." Sequester covers all
mandatory and discretionary programs and 8 out of every 10
dollars are exempt from being cut which is 82 percent. When
the federal government is looking over cuts for next year
for $45 to $50 billion in cuts it will only be in the red
"Covered" section. Slide 19: "What We can Say about A
Sequester - "Thing Two" (defense)." On the defense side,
100 percent is covered. Mr. Bird pointed out the programs
exempt listed on Slide 20: "Selection of Programs Exempt
from Sequestration" and on Slide 21: "Programs Not Exempt
from Sequestration." He noted the program cuts from the
nonexempt section would have greatest effect on state
budgets.
2:20:20 PM
Mr. Bird commented on Slide 22: "What We Can Guess About a
Sequester." In FY 11, state federal grant money was reduced
by 4.6 percent to cuts of 15.6 percent in FY 13. This is
the easiest place for the Administration and Congress to go
for cuts. Co-Chair Stoltze asked if it was the easiest
place to get the money because of more money being there.
Mr. Bird commented the area has the least available money,
but politically the softest and easiest place to go.
2:22:29 PM
Mr. Bird disclosed in Slide 23: "Impact of BCA on Alaska -
nondefense "Thing Two" (in thousands.)" Hypothetically over
the next nine years Alaska could be subject to
sequestration $553 million, or for FY 13, $48 million. Co-
Chair Thomas asked if the number reflects what would be cut
overall. Mr. Bird indicated that it will come from the 18
percent of the pie. He advised that many groups will be
affected unless the law changes. Co-Chair Thomas reported
that the state already has the fear of base closures in
Alaska.
2:24:04 PM
Representative Wilson asked if education cuts would also
involve federally mandated requirements. Mr. Bird responded
that was a good question. He believed the government might
look at the laws and see if more flexibility and
administrative relief is possible for the state, but that
approach requires some serious give and take. He suspected
though that there would be basic reductions. He noted that
the program No Child Left Behind is a non-exempt program on
the table as well as special education grants.
Vice-chair Fairclough asked if the government was looking
at trade agreements in order to compete in global markets
and increasing exports. Mr. Bird opined that discussions
between the Administration and the majority of Republicans
in the House and Senate involved more about tax policy than
about trade agreements. Three new trade agreements were
enacted into law last year. Vice-chair Fairclough commented
that if there was balance trade for Americans much of the 9
percent decline would go away immediately because of
competition in a capitalistic market. She emphasized that
restricting trade opportunities for individual states
requires states to work within narrow confines.
2:27:22 PM
Representative Doogan asked if the 9 percent was an average
rather than a prediction. Mr. Bird replied that it was a
consensus number. He thought the states should be prepared
in case there is a larger cut, instead of a smaller one.
Representative Doogan indicated he was trying to make the
distinction that the 9 percent is a target. He asked if it
was possible that one state could be hit at a higher
percentage than another. Mr. Bird replied that the 9
percent is a hard number that represents $45-$48 million in
state grants. He did add that for states that are less
dependent on federal grant money, but highly dependent on
defense or procurement activities, then the percentage may
not be the same across the board. He noted a survey of
legislative leadership around the country and the issue of
defense cuts came in the "Top Five" concerns.
2:30:37 PM
Mr. Bird reviewed Slide 24: "Thing Two (24)-Examples of
Program Subject to Sequestration" that included a variety
of funds, grants and programs.
Co-Chair Thomas remarked that LIHEAP was cut last year. Mr.
Bird remarked that when the economy was high, the states
looked to the federal government to backfill some state and
local programs. The numbers have changed. He mentioned that
states like Nevada and Rhode Island have a General Fund
Budget that is one third to fifty percent lower than a few
years ago, triggering serious cutting.
Mr. Bird referred to Slide 25: "Federal Deficit/Other
Concerns" which summarizes some other financial concerns.
He noted that many things will not get resolved until after
the November 2012 federal elections. He continued to Slide
26: "Certainty" for FFY 2013" that referred to further
discretionary spending reductions in Education, Energy,
Environment, Health, Human Services, Housing, Justice, and
Labor/Employment. There will also be Defense Reductions
imminent if sequester holds.
Mr. Bird moved to Slide 27: "The Looming 'Crash' of '12."
He signified that one of the largest discussions after the
elections will be whether or not to extend the 2001, 2003,
and 2010 tax cuts. The Debt Ceiling reaches $16.4 trillion
around November or December 2012 and another credit
downgrade is possible.
2:36:01 PM
Slide 28 and 29: "Highlights of President Obama's FY2013
Budget" and Slide 30: "Likely Component - House Budget
Resolution." The three slides list President Obama's budget
proposals and the Majority House budget proposals. The
President's budget eliminates sequestration with a Deficit
Reduction Plan. It also ends tax cuts on high income
individuals and has Medicare Savings of $370 billion. There
is also savings from winding down overseas military
operations, as well as the termination in oil and tax
preferences. He summarized that because the President's
Budget eliminates sequestration, domestic discretionary
spending and defense spending rise. The House bill
overhauls Entitlement Programs, no tax increases anywhere,
major Medicare reform, cuts in domestic discretionary
spending below BCA Cap, and corporate tax reform.
2:40:49 PM
Mr. Bird presented Slide 31: "Federal Government
Expenditures Per Capita A by State, by Major Object
Category, Fiscal Year 2010" including Retirement and
Disability, other Direct Payments, Grants, Procurements and
Salaries and Wages. The slide lists federal government
expenditures per capita and, by state, Alaska tops the list
at $18,000, with the U. S. average at around $10,000. He
emphasized that is something for Alaska to be concerned
about. Vice-chair Fairclough wondered if there was any
insight of where the $18,000 number was coming from. She
indicated a third of Alaska's budget is based on military
expenses. Mr. Bird referred to the next Slide 32: "State
Rankings for Per Capita Amounts of Federal Government
Expenditures: FY2010." He pointed out that a lot of federal
money goes to Alaska for salaries, wages, procurement, and
grants. He emphasized that those items were within the
sequestration area for possible funding reduction.
2:43:17 PM
Representative Wilson asked how proportionate is the
information to the fact that the federal government owns
half the state. She mentioned that if the federal
government would give back the state's resources, the state
would come out ahead.
Vice-chair Fairclough indicated that, in looking at salary
and wages. She wondered if that meant there were more
federal employees in Alaska compared to other states. Mr.
Bird responded that there was a significant federal
presence. Vice-chair Fairclough mentioned that the
population and how it is divided moves Alaska to the top.
She wondered if it was looking at a ratio of federal
employees versus the population in the state. Mr. Bird
indicated he did not have that information with him, but
could provide it later to Vice-chair Fairclough. Co-Chair
Thomas agreed that would be helpful information.
2:44:52 PM
Representative Guttenberg agreed that the "Salary and
Wages" portion was interesting and wanted to know if it was
higher because federal employees were paid more in Alaska
due to the Cost-of Living Adjustment (COLA.) Mr. Bird
agreed that would be part of it, but there are more factors
in that equation. The most vulnerable thing for Alaska is
the risk of federal funding cuts. Vice-chair Fairclough
said as the state sets salary scales and tries to remain
competitive, the number of federal employees in the state
is important to how the state responds. It is hard for the
state government to retain the same level of expertise when
federal pay is so much higher. Mr. Bird suggested the
information needs to be impressed on Alaska's congressional
delegation. Representative Neuman asked for Mr. Bird's
perspective noting that, although Alaska has funding
reserves, the oil money from the pipeline is declining
while the cost of government continues to rise. He
emphasized that the state's economy is not very diversified
and wondered what recommendations Mr. Bird would give to
the state.
2:49:17 PM
Mr. Bird divulged some bad practices he had witnessed in
another oil state. He pointed out that the state did not
take any action to conserve when money was flush. He also
mentioned that Alaska lacks a State Income Tax and Sales
Tax which may need to change as less money becomes
available. He believed planning is important for the state
while it is still sitting on so much money. He also
recommended exchanging ideas and information with other
states. Representative Neuman acknowledged that the co-
Chair has taken a lead in fiscal policy restraint and
creating base line information to be better prepared for
the future. Mr. Bird mentioned that there are some states
that do not even appropriate federal money so the cut-backs
will not affect them as deeply as Alaska.
2:54:41 PM
Co-Chair Thomas pointed out that Alaska receives $2.4
billion from the federal government.
Representative Joule commented on gridlock in Congress and
wondered what this costs the nation globally. Mr. Bird
responded that some senators (now 43) are trying to arrive
at some consensus, but the extreme far left and far right
are not in that consensus group. The same exists in the
House of Representatives where the majority party has all
the votes. The entitlement programs and tax codes need the
greatest overhaul.
2:58:47 PM
Representative Guttenberg mentioned that there are lots of
other relevant lines besides "Salaries and Wages" that are
unique to Alaska.
Representative Edgmon agreed that Alaska has many unique
characteristics from other states. He mentioned that Alaska
is 70 percent owned by the federal government which
translates to a large portion of federal employees and
infrastructure. He commented on Alaska's large coastline,
world class fisheries, military bases, tribal interests,
and mining. He wondered if any of that sets Alaska aside as
more unique than other states. Mr. Bird stated that western
states do have a large federal land presence. Many programs
under same title may be very different in each state.
Representative Edgmon said the premise is that the amount
of money coming to Alaska is going to decrease, but
understanding where the money is attached makes it hard to
compare Alaska with other states. He indicated the need for
having a better look at the numbers and their meaning.
3:05:49 PM
Representative Costello wondered whether there had been any
guiding principles with regard to the list open for cuts.
She mentioned the need for making up for the loss of
federal funds for childhood immunizations. She asked
whether there had been a decision to determine what the
states could shoulder related to preventing childhood
diseases from resurgence. Mr. Bird replied that the
decision to exempt, or not, certain programs is traceable
to the late 80s and early 90s when spending was reigned in
before the economy took off in the later 90s. The decisions
makers went back to the old reduction laws from the 80s.
Vice-chair Fairclough commented that as NCSL provided
opportunities to reflect on what is pending before the
states, there is a tendency to explain what our state
should not be cut. She wondered whether it would behoove
the state to set 10 percent aside in preparation of the
loss of federal funding. She noted that the state would
have a surplus in the upcoming year and wondered whether
the state should respond in order to provide the state's
communities with the appropriate time to respond. She
expounded that the issue was on top of price and production
that had been discussed previously. Co-Chair Thomas
indicated that the issue between what can be appropriated
and what the people of Alaska want. There is always new
legislation wanting more money.
3:10:58 PM
Mr. Bird pointed to the end of the presentation where there
are five pages identifying what programs are covered and
which ones are exempt. He emphasized that not every federal
program is being cut. He agreed that regarding some federal
programs and grants, the state must act on it and if some
program or grant money is not spent, the money returns to
the federal government. Vice-chair Fairclough suggested
saving some of Alaska's own General Funds dollars in case
the federal government withdrew support, which would give
the state two years to respond to the situation. Mr. Bird
recommended that legislative staff speak with members in
Vermont, a state that has done the best job in setting
money aside and planning.
Co-Chair Thomas explained that when the stimulus money was
offered, the legislature told departments not to hire
additional people or create any new programs.
Representative Doogan asked if he heard correctly that the
9 percent reduction would be applied to cuts for FY 13, but
after that point there was no limit.
3:14:30 PM
Mr. Bird replied that after FY 13, it is all discretionary
money in one pot. The cuts could come from one section or
from both. If the reductions take place, sequester will be
applied to the whole program. If a program has six accounts
inside, then every account goes down, not just the overall
spending number.
Co-Chair Thomas asked about federal formula programs that
the state may have to financially support and wondered if
the state can make the decision not to fund it.
Co-Chair Thomas thanked Mr. Bird for his information. He
indicated that only seventy five people write operating
budgets for the states. Only thirty states were represented
at the Florida NCSL conference because rest could not
afford to go.
ADJOURNMENT
3:20:42 PM
The meeting was adjourned at 3:20 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HFIN Presentation NCSL BCA Final 2.21.12-pdf.pdf |
HFIN 2/21/2012 1:30:00 PM |
|
| NCSL-HFIN Presentation 2.21.12 Document.Sequester coverage of Nondefense programs.pdf |
HFIN 2/21/2012 1:30:00 PM |