Legislature(2017 - 2018)HOUSE FINANCE 519
01/20/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Fy 18 Governor's Budget and Fiscal Summary: Legislative Finance Division | |
| Fy 18 Governor's Fy 18 Budget Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 20, 2017
1:32 p.m.
1:32:11 PM
CALL TO ORDER
Co-Chair Seaton called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
Representative Lance Pruitt
ALSO PRESENT
David Teal, Director, Legislative Finance Division; Pat
Pitney, Director, Office of Management and Budget, Office
of the Governor.
SUMMARY
FY 18 GOVERNOR'S FY 18 BUDGET OVERVIEW: OFFICE OF
MANAGEMENT AND BUDGET
FY 18 GOVERNOR'S BUDGET AND FISCAL SUMMARY: LEGISLATIVE
FINANCE DIVISION
1:32:11 PM
Co-Chair Seaton discussed the meeting agenda.
^FY 18 GOVERNOR'S BUDGET AND FISCAL SUMMARY: LEGISLATIVE
FINANCE DIVISION
1:33:30 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
provided a PowerPoint presentation titled "Overview of the
Governor's FY18 Budget Request" dated January 20, 2017
(copy on file). He intended to point out what he believed
was the most important issue in the budget; he could not
say why it had been done, but he could explain what
happened. He encouraged questions throughout the
presentation.
1:35:45 PM
Mr. Teal believed that looking only at the fiscal summary
did not provide a perspective on where the numbers came
from and how they compared to the past. He spoke to a chart
(Figure 1) on slide 2 showing total agency operating
budgets, statewide items and capital budget (unrestricted
general funds (UGF) only). The black line represented
revenue and the bars showed expenditures. He noted that
expenditures had trended up from 2007 through 2014 and had
fallen rapidly through 2017. He highlighted that FY 18 was
indistinguishably close to FY 17. The current budget was
not significantly different than the prior year budget. He
addressed that the current year represented the sixth
consecutive year of deficits, where expenditures exceeded
revenue. The deficits were not the small-type that appeared
if revenue came in under projections and the state was a
bit light on its ability to fully fund the budget. As with
the past five budget cycles, there was a very large
structural deficit. He did not intend to address fiscal
plans or look beyond FY 18 in the current overview.
Vice-Chair Gara pointed to slide 2 and observed FY 17 and
the governor's proposed FY 18 budget was flat. He remarked
it was much lower than the budget the legislature had
passed the prior year. He detailed that the legislature had
passed a budget the previous year and the governor had
engaged in substantial vetoes because the legislature had
passed no fiscal plan. He mentioned the budget related to
education, pupil transportation, and foster care. He asked
about the difference between the budget passed by the
legislature and the governor's vetoes.
Mr. Teal estimated the vetoes added up to over $1 billion.
He detailed that a large portion was due to Permanent Fund
Dividend cut of $700 million. Oil taxes were vetoed down to
the statutory minimum of $30 million. He agreed that if the
vetoes were restored to the FY 17 budget the chart would
show a larger decline between FY 17 and FY 18.
1:40:03 PM
Mr. Teal relayed the state continued to struggle with
deficits despite the spending reductions. He pointed to
peak spending of $9.4 billion, which had dropped to $5
billion in FY 17 and FY 18. Many people were thinking the
budget was $4.3 billion; the current chart used a $5
billion budget because it included the governor's $700
million request for dividends.
1:41:01 PM
Mr. Teal stated that most Alaskans knew oil prices had
fallen and were aware of the revenue decline. However, some
people remembered when oil prices had been $9 per barrel -
those individuals reasoned that if the state had made it
under such low oil prices that it should be able to make it
under the current prices. When individuals heard about
large deficits, it was understandable why people may think
the deficits were due to constantly increasing
expenditures. Even though people heard about General Fund
expenditures dropping, they believed total expenditures
must still be going up and they did not really understand
the difference. He moved to a chart on slide 4 titled
"Figure 2: Total Operating and Capital Budgets," in
response to the notion that total spending had increased
even as UGF went down. The blue portion of the bars
reflected UGF. Designated general funds (DGF), other state
funds, and federal funds were shown stacked on top of the
UGF portion of the bars, which had been a pretty constant
$600 million. He continued that adding $600 million to the
bars resulted in the same pattern - increasing expenditures
and then reducing. He pointed to an oddity in FY 15 due to
a $3 billion expenditure from the Constitutional Budget
Reserve (CBR) for the [unfunded] retirement liability.
Mr. Teal continued that there had been a question in the
Senate about much of the cost of government going to pay
for positions.
1:43:15 PM
Mr. Teal moved to slide 5 and addressed total budgeted
positions. He detailed that budgeted positions had fallen
from about 25,000 to 22,000 (a reduction of 2,400 positions
and approximately 10 percent). He returned to Figure 1 on
slide 2 and pointed out that at the same time expenditures
fell by about $5.1 billion. He believed the easiest
explanation of how the present differed from the past was
that if the state had a $5 billion budget back in the days
of higher revenue (2007 through 2013), on average there
would have been a $3 billion surplus. Whereas, at present
there was a $3 billion deficit in FY 17 and $2.7 billion in
FY 18. The revenue decline was the component that had
really hit the state hard. He did not believe "crisis" was
too strong a word to use when describing the situation. He
addressed that the state had built massive reserves during
years of revenue surpluses. As long as the state had
reserves to fill deficits, there really was not a problem.
He continued that even the second year of low oil prices,
arguably someone may say using reserves would be fine.
Slide 6 showed what six consecutive years of deficits had
done to the state's reserve balances. The CBR and Statutory
Budget Reserve (SBR) had been up to over $16 billion [in FY
13]; deficits had chipped away at the savings rapidly -
they would only have about $2 billion left at the end of FY
18, which was insufficient to get through FY 19 if business
as usual continued. He elaborated that business as usual
meant sticking to existing revenue sources, maintaining
expenditures at the same level, and using the CBR to plug
the deficits.
1:45:56 PM
Mr. Teal noted that spending in Figure 1 (slide 2) included
spending from the [Permanent Fund] Earnings Reserve Account
(ERA) for inflation proofing and dividends. He stated that
the detail was handled differently in a presentation the
committee would receive by the Office of Management and
Budget (OMB). He continued that most of the charts in the
OMB presentation excluded dividends. He continued that it
was a way to make the proposed budget comparable to
historic budgets. The Legislative Finance Division (LFD)
opted to include the dividend because it was an overview of
what the governor did; LFD included dividends and inflation
proofing in all historic budgets as well. He explained that
there had been a major reclassification of expenditures due
to the way the governor presented the budget. He pointed to
a black dashed line representing total revenue, which
showed that under the governor's proposed budget there was
a payout from the ERA based on percent of market value
(POMV). He detailed that the amount coming into the General
Fund from the ERA was the POMV payout; the amount was
roughly $2.5 billion per year. When $700 million was
subtracted for dividends there was a net of $1.8 billion -
the pre-POMV revenue had moved up to match the post-POMV on
the slide. He pointed to the solid black line (UGF revenue)
below the dashed line (total revenue) and explained that the
fiscal gap that had been $2.7 billion was reduced to under
$1 billion after the transfer from the ERA. He considered
the transfer to be the issue in the budget. He did not
disagree with any of OMB's fiscal summary numbers. He
concluded that the differences between the LFD and OMB
presentations of the governor's proposed budget was
insignificant.
1:48:56 PM
Mr. Teal continued to address the chart on slide 2. He
noted that the FY 17 and FY 18 budgets were very close in
terms of money spent. The significant point was that the
ERA transfer was classified as UGF. To illustrate his
point, he addressed how ERA appropriations had been treated
in the past (slide 7). The slide showed a portion of the FY
16 fiscal summary, which showed that DGF (including
dividends) totaled $941 million. Below the sum, dividends
were listed as $1.4 billion. He stated that it should be
obvious that the $1.4 billion was not included in the DFG
total of $941 million; it was not included in any roll up
because since the inception of the Permanent Fund, the ERA
had been effectively "off-budget." He elaborated that
expenditures and revenue from the ERA had not been counted.
He stated it was a major switch in policy or in the way
things were classified - it had a very significant impact
on the way people may view dividends. He continued that the
ERA was now classified as UGF, dividends were UGF payments,
which was a more technical way of indicating that under the
governor's proposed budget, dividends would compete with K-
12 and all other UGF expenditures. Dividends were no longer
"off-budget."
Mr. Teal returned to Figure 1 on slide 2, which included
dividends as general funds. The chart included $2.5 billion
flowing in, less the $700 million flowing out for
dividends; dividends were included in the bars and in
revenue on the chart. He explained that FY 17 looked much
the same because the governor's operating budget included a
supplemental FY 17 appropriation from the ERA to the
General Fund for the POMV payout. He remarked that it was
not obvious in the bill that the appropriation was a
supplemental request. The governor could request anything
he wanted, but it did not necessarily mean the legislature
had to fund it. The Legislative Finance Division was
presenting the budget as submitted by the governor.
1:52:38 PM
Mr. Teal continued to address slide 2. He explained that
the ERA off-budget status had been a reporting problem
since the inception of the Permanent Fund. The courts had
clearly stated that the ERA was available for appropriation
for any purpose at any time, which would normally make the
funds UGF. He emphasized he was referring to the full
balance of the ERA, which could be spent at any time. The
discussion was about how to get the distortion out of the
reporting. He referred to FY 18 and its $2.7 billion
deficit. He detailed that if the desire was to report the
ERA balance as spendable UGF, it would mean $10 billion
could be added to the state's revenue - suddenly the state
would go from having a deficit to having revenue exceeding
$10 billion and expenditures of $5 billion, which would
mean a budget surplus in FY 18. He reasoned that thinking
the state had a surplus could impact attitudes in the
building about spending. On the contrary, being in a
deficit situation probably made people think more about
expenditures because there was not an available surplus. He
explained the format predated his time with the Legislative
Finance Division. The significant implication was the
reclassification to UGF should have been done a long time
ago. The ERA had designated spending purposes in statute,
which allowed the fund to be classified as designated. The
statutory designations were for inflation and dividends. He
relayed that the proposed budget included no inflation
proofing and the appropriation for dividends came from the
General Fund. Therefore, neither of the designated purposes
of the ERA were being met; in fact, the only purpose of the
ERA was to transfer money to the UGF. Given that fact, he
asked how the money could be classified as anything other
than UGF.
1:56:21 PM
Mr. Teal turned to the fiscal summary on slide 9. He
reviewed the four fund classifications in reduced amount of
discretion. He specified that UGF could be spent by the
legislature for any purpose, while DGF had a stated
statutory purpose (using the funds for that purpose was not
required - the funding was not dedicated, it was only
designated). Other funds were often dedicated by the Alaska
Constitution or by federal rules (e.g. Fish and Game funds
with limited purposes). Federal funds often had strict
limitations. Expenditure categories included agency
appropriations, statewide appropriations, capital
appropriations, and the ERA appropriations.
Mr. Teal pointed to agency operations in the second to the
last column, third row down - the proposed FY 18 budget
reduced FY 17 agency operations by $121.5 million. He
turned to slide 10 and addressed Figure 6: Partial View of
the Fiscal Summary. He believed OMB would provide detail on
the differences between the FY 17 and FY 18 budget. He
intended to address the management plan budget, which was
the budget the Executive Branch had started FY 17 with. He
explained that LFD had removed some items from its FY 18
budget explanation as directed by the legislature. He
furthered that the State of Alaska budget was not like some
states or governments that used pure incremental budgeting
where once something was in the budget it remained in the
base. One-time items had been added to Alaska's budget -
things that caused increments to be removed from the budget
the following year. In that vein, the governor started FY
18 with an easy removal of $63 million. Similarly, there
were other temporary increments (e.g. three to five-year
increments), which were small and not enough to worry
about.
Mr. Teal continued that the $12.4 million maintenance
increments had been put in the language during special
session the previous year as part of the negotiations to
secure the supermajority vote to gain access to the CBR the
previous session. The proposed budget included some salary
increases; it did not really mean contractual salaries as
much as it had in the past - contractual salary increases
were near zero because of the renegotiated contracts. The
increment pertained primarily to health cost increases.
There was also funding related to language and carry
forwards that was minimal.
2:00:44 PM
Mr. Teal addressed the FY 18 adjusted base on slide 10. The
governor had begun FY 18 with an automatic $30 million
reduction given by the legislature; therefore, the budget
started at about $3.8 billion. In addition to the built-in
reductions, the governor had submitted decrements of $38
million. Decrements were offset with $31 million of
increments. The largest adjustment pertained to fund
changes [$83.9 million]. He detailed that most of the fund
change increment was $70 million for motor fuel - many
people believed it was not fair because motor fuel had been
UGF revenue and expenditures in the past. The governor had
moved the funds from UGF to DGF. He elaborated that because
the change decreased DGF spending, it was possible for
someone to say that the governor's distorted UGF spending
by $70 million. He continued that it was not a significant
problem - the motor fuel taxes could have and perhaps
should have been designated the entire time. The statutes
specified the taxes were to be used for highway maintenance
at present. He elaborated that new law was not needed to
move the funds - it was merely something that had been
missed when making UGF and DGF classifications. He
explained that moving the funds did not really cost any
money; the entire proceeds of the motor fuel tax was spent,
and it helped the deficit because there was $35 million in
additional revenue. He continued that it did not really
matter whether the item was UGF or DGF. Some fund source
changes were more advantageous.
Mr. Teal pointed out that the Other spending category had
increased (slide 10). Much of the increase related to the
Department of Fish and Game. He reminded committee members
that [the cost of] hunting and fishing licenses had been
increased by the legislature, meaning that more money went
into the Fish and Game Fund (an "Other" dedicated fund). As
Fish and Game Fund expenditures increased, UGF could
decrease. There was another reduction of $30 [million] from
the base, resulting in the same $121 million shown in the
fiscal summary pertaining to agency operations. He relayed
it was defined as the day-to-day operations of government.
The fiscal summary did not show that pupil transportation
was not fully funded. He detailed that there was no change
from FY 17 to FY 18 because the governor vetoed $6.3
million from pupil transportation the previous year and did
not restore or replace the money in the proposed FY 18
budget.
2:04:24 PM
Vice-Chair Gara looked at slide 10. He spoke to the prior
year's UGF spending that was artificially lower because the
legislature had used substantial DGF to fund normal things
- things that would have normally been funded with UGF. The
situation meant it was much harder to cut the previous
year's UGF budget because it was artificially low. He asked
about the kinds of DGF spent the previous year that made
UGF spend look lower. He believed the items included Power
Cost Equalization (PCE) and higher education.
Mr. Teal suspected the governor would agree it was hard to
cut from general funds given the circumstances of using DGF
the previous year; however, the governor continued to use
some of those DGF sources in the proposed budget. He noted
that it had not occurred as much in agency operations as it
had in other areas. He turned to Figure 7 on slide 11. He
highlighted that debt service had a $27 million increase.
He noted that the increase in the debt service may be
recognized if one recalled the governor's veto of school
debt reimbursement the previous year. The proposed FY 18
budget would fully fund school debt reimbursement.
Community assistance had zero funding in FY 17 because
Figure 7 only included UGF. He explained that community
assistance had been funded the previous year with DGF (the
PCE Fund). Theoretically, PCE investments were supposed to
fund community assistance in the current year as well
(assuming there were earnings in excess of PCE's needs). He
noted the program subsidized rural energy. The hope was
that the approximately $950 million PCE Fund would spin off
enough earnings to fund the PCE program and community
assistance. He elaborated that PCE consumed $35 million to
$40 million in the current year. The state had hoped for
earnings in excess of that, but the earnings had been about
$9 million, which was not sufficient to fund even the PCE
needs. There was no money in the FY 18 budget for community
assistance. He explained the $30 million flowing out of the
program annually would flow out in FY 18, but unless the
$30 million was replaced in FY 18, the fund balance would
drop and the payout in FY 19 would drop. Instead of $30
million, the amount would be reduced to $20 million in FY
19 to be spread amongst communities (unless community
assistance was funded).
2:09:11 PM
Mr. Teal spoke to FY 17 oil and gas production tax credits
of $30 million UGF on slide 11. There had been a large
governor's veto the previous year down to the minimum
statutorily required funding. With higher oil prices, the
minimum statutory requirement was $74 million in FY 18. The
governor was stuck with a $44 million increase in that
area. He continued that because the governor vetoed
municipal debt service there had also been a reduction in
the Regional Educational Attendance Area (REAA) school fund
because the two programs were tied together. With the full
funding of municipal debt reimbursement, the REAA fund was
also fully funded (a $9 million change in UGF). Other fund
capitalizations represented a smaller increment.
Mr. Teal spoke to retirement costs and referred to Vice-
Chair Gara's comment that the Higher Education School Fund
had been used; $90 million had been a big use of higher
education funds in FY 17. The numbers from the previous
year showed that in FY 18 the state's requirement for
paying assistance to school districts, municipalities, and
the state itself, would fall by $90 million. The idea had
been to take advantage of the opportunity by using a one-
time funding source, meaning that the $90 million would not
have to be replaced in FY 18. The scenario had not played
out as desired; rates had fallen by $30 million instead of
$90 million - there was still $60 million of higher
education money being used for retirement assistance.
Higher education money continued to be used in other
programs as well - he did not believe the number exceeded
$12 million to $15 million. The money was still used in
agency operations, primarily for programs in the Department
of Education and Early Development (e.g. Washington,
Wyoming, Alaska, Montana, and Idaho (WWAMI), museums,
mentoring, and other). Judgements and claims were down from
the previous year - the Moore Settlement related to
education funding. Capital spending was up by $19 million,
which was no surprise.
2:12:21 PM
Representative Grenn asked about the investment strategy of
the PCE Fund. He wondered why the balance had been so low
in the past year and how it compared to years past.
Mr. Teal responded that the issue was not about investment
strategy. He detailed that the at one time the funds had
been invested to make a 7 percent payout (a fairly high
return) and the returns had been achieved. The returns were
based on FY 16 - the calculation lagged one year to know
how much money the fund had instead of trying to make
predictions. He continued that retirement funds lost around
0.04 percent the in FY 16. He continued that PCE had been
slightly better, but a $9 million return on a $900-plus
million fund was not very much. He did not believe the
issue was as much about investment strategy as it was about
a bad financial that had impacted the Permanent Fund,
retirement funds, and the PCE Fund; all had done relatively
poorly compared to most years.
Representative Grenn asked for verification he was
referring to 2016. Mr. Teal responded in the affirmative.
Representative Wilson referred to the motor fuel tax that
was supposed to be designated for highway maintenance. She
remarked that the funds also went to public safety, which
was not related to highway maintenance. She asked if it did
not make the point that the funds could be used for
anything, although maybe within legislation "it might
emphasize going somewhere."
Mr. Teal replied it did make that point. His office had
spoken with the Department of Public Safety (DPS) about the
issue. The department contended it was a fine use of the
funds because, for example, the department responded to
accidents on the Glenn Highway. He countered that LFD did
not buy the argument. He reasoned the service was not
classified as highway maintenance in most people's view.
However, it emphasized the fact that designated funds,
regardless of their designated purpose, could be spent by
the legislature for any purpose. There was an LFD report
his office could run that showed all non-designated uses of
designated funds.
2:15:29 PM
Representative Wilson referred to the governor's desire to
put a significant part of the ERA into the General Fund
(including the dividend). She asked about the benefit of
all the different funds, when they could be used for
whatever the legislature wanted. She surmised it would be
clearer for investors if the money was all located in one
area to have visibility of the total savings. She remarked
that expenditures on PCE, higher education, highways were
all appropriated within the General Fund. She wondered
about the benefit of having separate funds.
Mr. Teal believed the framers of the [Alaska] Constitution
would agree completely - they had tried to avoid the
situation by prohibiting dedicated revenue. The state had
veered very far from that original intent, while remaining
within the constitutional requirements. He underscored that
funds were designated, not dedicated. If the designations
were followed, there was not a large difference between a
dedication and a dedication, except legal. The designated
funds could all be used for whatever purpose the
legislature chose. He questioned why the money was not
counted as available to pay any state obligation, which was
what investors had said. He noted that the revenue forecast
included discussion on the point - Wall Street indicated
Alaska did not have as big a problem as it indicated
because it had much more revenue available than it was
reporting. For that reason, the ERA had been moved to UGF.
The issue could be taken another step by saying that all
the designated funds were simply fooling the public, while
others would say they really did want cigarette tax used
for health services or alcohol tax used for alcohol
rehabilitation. It was simply one legislature specifying
that a particular revenue source should be used for a
specific purpose; however, one legislature could not bind
the hands of future legislatures.
Representative Wilson surmised that the various revenue
sources were all invested differently than if they were all
commingled where a portion could be invested more
aggressively. She thought it would be helpful to know about
all the different funds and their amounts to get a better
understanding of how well the state's money was working -
prior to consider taking money from the people. She wanted
the ability to compare the funds' returns to the ERA, CBR,
and SBR.
2:19:53 PM
Co-Chair Seaton believed the report was available on the
LFD website.
Representative Wilson responded that the report did not
disclose how the funds were invested. She stated that some
of the funds were invested more aggressively than others.
She believed it had been pointed out with PCE that required
an aggressive investment strategy to hit its 7 percent
return target. She did not believe the detail was on the
website.
Mr. Teal agreed. He detailed that page 2 of the LFD fiscal
summary included a number of the large reserve funds;
however, the Department of Revenue's (DOR) website showed
individual funds with balances and returns. He did not know
how many were available, but the information would come
from DOR. Additionally, the Permanent Fund published
monthly projections. Information about the PCE Fund and
others should be on the DOR site.
2:21:41 PM
Vice-Chair Gara agreed with Representative Wilson. He spoke
to the prior session, which he believed was extreme related
to people trying to make UGF expenditures look smaller by
spending a substantial amount of money from DGF. He stated
that many legislators would be judged by what they had done
to the UGF budget compared to the previous year; however,
the previous year's UGF budget looked much smaller than it
would have if there had been lower DGF spending. He
believed it was a fake comparison. He wondered if there
should be a category showing the use of DGF to pay for UGF
spending. He asked if there should be a category of
combined DGF and UGF spending. He reasoned it reflected
state spending. The public wanted to know about state
spending and did not care about how it was named.
Mr. Teal answered that the fiscal summary on slide 9 showed
the information. The slide did not provide a comparison,
but the math could be done if desired. He elucidated that
DGF, other, and federal funds were fairly consistent from
year-to-year. It was not the classification of those funds
that was inconsistent; the inconsistency was the use of the
funds. He continued that it was as Vice-Chair Gara had
specified - if the designated funds (i.e. Higher Education
Fund) were drained by using $100 million to $150 million
UGF for non-designated purposes, the fund would not have
the ability to pay for its intended purpose. He elaborated
that if the Higher Education Fund was used beyond the
current year [for other items], it would not pay grants and
scholarships. One of the problems was that people compare
spending levels, which he did not believe should be done.
He specified that spending levels were easily distorted,
and it was much better to look at the deficit. He moved to
Figure 7 on slide 11. It was much easier to look at the
deficit. For example, the spending level could be cut by
$700 million or $800 million at present - all the
legislature had to do was pass a law that incoming
royalties were put into the Public Education Fund and were
to be used for education. He explained that the outcome
would be reduced UGF spending by $700 million to $800
million; the use would be classified as designated. The
action would also reduce the revenue stream by $700
million; therefore, the deficit would not have changed. He
encouraged the legislature to focus on the deficit and not
on the spending level.
2:25:34 PM
Mr. Teal moved to Figure 8 on slide 12. The capital budget
was up $19 million, which was no surprise because a number
of one-time fund sources had been used the previous year.
The proposed capital budget was the bare minimum required
to get available federal match - there was not much in the
budget that was just pure state projects. The total budget
authorization shown on the slide was $4.3 billion. He
reminded committee members that in Figure 1 he had talked
about the $5 billion budget. In the old way of doing
business, expenditures would have been specified as $4.3
billion and the deficit was $2.7 billion; however, the
current budget added the ERA.
Mr. Teal turned to slide 13 to illustrate his point with
Figure 9. The figure compared the previous way of doing
things (base) [with the governor's request]. He detailed
that the base method excluded the POMV payout ($2.5
billion) from revenue and the additional royalties under
the Permanent Fund Protection Act (PFPA). He elaborated
that it referred to changing the flow of royalty oil
[revenue] to the Permanent Fund from the constitutional 25
percent plus the existing statute's 25 percent of new
production. The PFPA would repeal the extra 25 percent from
the fields, meaning it would go to the General Fund instead
of the Permanent Fund. He continued to address the base
method. Spending would be the governor's proposed budget,
with dividends classified as DGF. There were no revisions
to what was considered traditional revenue sources - base
revenue (primarily from oil). The total authorization was
$4.292 billion. He pointed to the $2.7 billion deficit
shown at the bottom of Figure 9.
Mr. Teal continued to review Figure 9 and addressed the
governor's request [in comparison to the base method
discussed above]. Revenue was slightly higher - the Capital
Income Fund was added because it was a part of the ERA and
was considered UGF revenue under the governor's request. He
pointed to the POMV payout and extra revenue coming from
royalties ($55 million) that would be diverted from the
Permanent Fund to the General Fund. Revised revenue was
approximately $4.2 billion. The spending level was the
same, but dividends were counted as UGF. The Capital Income
Fund moved from other classifications to UGF. The
governor's request showed a $5.1 billion authorization and
an $874 million deficit. The method used in the governor's
proposed budget was a different way of looking at the
budget. He underscored that it was not possible to use the
different methods in FY 17 and FY 18 with an expectation
there could be a comparison. Even though the governor's
budget included the dividend as part of general funds, to
make things comparable OMB had presented the information by
subtracting dividends from the various expenditures. He
believed OMB would address the method during its
presentation to the committee. He hoped OMB would explain
why it had used the particular method.
2:30:04 PM
Mr. Teal turned to Figure 10 on slide 14. He addressed the
types of holes in the budget. The deficit was $870 million
to $900 million in FY 18. He explained that if the motor
fuel taxes were not reclassified, UGF expenditures would
increase by $70 million. He underscored that the money was
being spent at present, but as DGF. He stated that if the
legislature wanted to fund community assistance it may find
other fund sources or may decide to pay with UGF. The
legislature may decide it did not want to use higher
education funds to pay for retirement assistance (UGF was
used as well). The proposed budget included no school
construction or major maintenance; there was no $10 million
or $25 million for University deferred maintenance. Oil tax
credits were currently $74 million - the legislature could
choose to fund them at $974 million. The legislature was
not necessarily looking at holes, because they did not have
to be filled, but they were issues that needed to be
addressed. If the legislature chose to address the issues,
it was looking at a deficit of roughly $1 billion. He did
not want to get into how the legislature may fill the
deficit; it pertained to a fiscal plan.
2:32:20 PM
AT EASE
2:37:22 PM
RECONVENED
^FY 18 GOVERNOR'S FY 18 BUDGET OVERVIEW
2:37:22 PM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced herself and provided a
PowerPoint presentation titled "FY2018 Budget Overview:
House Finance Committee" dated January 20, 2017 (copy on
file). She agreed it had been helpful to have Mr. Teal
provide the LFD overview first. She agreed with the
construct of including UGF in total to reduce confusion.
She turned to slide 2 titled "Alaska's Budget in Household
Terms." She reasoned it was challenging to get people to
understand the large numbers and the presentation attempted
to boil the information down to common household terms. She
reviewed the slide:
Income has dropped more than 80%
· Your annual income dropped from $80,000 to
$16,000
Spending has been reduced 44%
· You have been able to reduce your rent or
mortgage, heat, food, every day travel, and
vacations. You stopped building your cabin,
stopped remodeling, and you'll keep your old car.
Expenses have been cut from $80,000 to $45,000
Savings has one year remaining
· You had $130,000 in the bank, but now only
$25,000
Investment accounts have been growing steadily
· You have $500,000 in an IRA and you need to
decide whether to use it and how much you can
prudently use
An income/spending gap remains
Ms. Pitney elaborated that the state's investment account
had to last in perpetuity.
2:40:54 PM
Ms. Pitney turned to slide 3: "Governor Walker's FY2018
Fiscal Plan":
To foster safer communities, resource development, and
economic security requires sustainable and balanced
budgets long term, and to that end the Governor's
FY2018 budget is comprised of three necessary
elements:
1. Continue to reduce state spending
2. Draw from Permanent Fund earnings to support
vital state services and protect the dividend
3. Generate more revenue
Ms. Pitney expounded that the Permanent Fund Protection Act
(PFPA) had three protections: 1) it protected the fund's
value, growing with inflation; 2) the Earnings Reserve
Account (ERA) was protected to ensure available funding;
and 3) the dividend payout of approximately $1,000 per
person was protected. She spoke generating more revenue and
relayed the administration was comfortable working with the
legislature on additional broad-based tax to fill the
budget gap. The administration believed that over time oil
would increase to $60 per barrel on average; therefore, the
necessary additional tax would be between $600 million and
$700 million (beyond what the governor's budget proposed).
Ms. Pitney relayed that the pie chart on slide 4 titled
"FY2018 Budget by All Fund Sources" provided an
illustration of all funds that came through the state. One-
third of the state budget came from federal funds (shown in
blue). The administration had looked for ways to maximize
the federal funds. She listed Medicaid expansion and
ensuring the state met matches for the Department of
Transportation and Public Facilities (DOT) and water and
sewer projects as examples. Federal funds were equally
split - one-third came from DOT highway funds, one-third
came from Medicaid, and one-third was classified as "all
other" (the University comprised a large portion of the
last segment). She reiterated the importance of federal
funds and expressed the administration's hope that the
funds increased. She explained the concept was the same as
trying to keep the military in the state. Additionally, the
budget included 7 percent Other funds, 10 percent
designated general funds (DGF), 7 percent Permanent Fund
Dividend, and 42 percent or $4.3 billion in unrestricted
general funds (UGF). Including the dividend, the UGF
portion of the budget was $5 billion.
2:44:21 PM
Ms. Pitney continued to slide 5 titled "FY2018 Unrestricted
General Fund Spending Without Dividends: $4.3 Billion." She
relayed that she preferred Mr. Teal's slide showing all
funds over time (adjusted). She addressed major spending
categories in FY 13, FY 15, and FY 18. Categories included
agencies without K-12, K-12, retirement contribution and
debt, capital, oil and gas tax credits, and dividends. She
referred to the retirement contribution and debt and
explained that if the legislature had not deposited $3
billion into the retirement account, the retirement and
debt expenditure would remain near the FY 13 level. The $3
billion had dramatically reduced the ongoing retirement
liability and had helped significantly. She noted that
capital spending had been reduced dramatically from close
to $2 billion in FY 13 to just over $100 million in the
proposed FY 18 budget. Tax credits were down to $74 million
and the dividend was $695 million. She pointed to the green
bars that represented FY 18 UGF spending and explained that
the various categories represented options where reductions
or increases could be made to increase or decrease savings.
2:46:35 PM
Ms. Pitney moved to slide 7: "FY2018 Unrestricted General
Fund Operating Spending Without Dividends: $4.2 Billion."
She reported that UGF spending had decreased from a peak $6
billion to $4.215 billion; it represented a small decrease
from FY 17. She turned to slide 8 that provided a
historical perspective of the UGF agency operating budgets.
Agency operating budgets totaled approximately $3.7 billion
at present; it was nominally the same level it had been in
FY 11 (a rollback of seven years). When only factoring in
inflation, the budget was equivalent to FY 08 levels. When
adjusting for inflation and population the budget was back
to FY 02 levels.
2:48:03 PM
Co-Chair Seaton asked whether the UGF agency operations on
slide 8 included DGF. He was interested in the total agency
expenditures. Ms. Pitney answered that slide 8 only
included UGF for agency operations. She believed she also
had the graph for DGF. Co-Chair Seaton asked Ms. Pitney to
send the information. Ms. Pitney agreed.
Ms. Pitney turned to slide 9 titled "Budget Guidance to
Agencies." The slide included questions OMB had asked
commissioners when it began developing its agency operating
budget. She was pleased the questions were similar to the
ones asked in the legislature's subcommittee process. She
shared that OMB had looked through an analysis of
constitutional and statutorily required programs and 96
percent of the budgetary components had a statutory
requirement. She clarified it did not mean every dollar
within the components was statutorily required. She
explained it meant that making further reductions, similar
to what had been done with justice reform and Medicaid
reform, in many cases it would require statutory changes.
Ms. Pitney addressed slide 10 titled "All Agencies are
Making Reductions." The graph showed reductions in UGF with
two adjustments. The right side of the graph showed the
percent reduction for each agency and the left showed the
dollar amount. She specified that the Department of
Commerce, Community and Economic Development (DCCED) and
DOT each had an adjustment. The adjustment for DCCED was
the removal of the tourism budget at the beginning and the
end to normalize for the tourism budget that had been moved
to the capital budget; DCCED had the largest reduction at
54 percent. She elaborated that DOT had been reduced by 22
percent to adjust for the motor fuel tax fund change.
2:51:23 PM
Vice-Chair Gara referred to the fund change in the motor
fuel tax. He knew the governor had proposed a motor fuel
tax increase. He asked for details about the change in
categorizing motor fuel tax revenue.
Ms. Pitney answered that a motor fuel tax bill had been
submitted by the governor. The designation was for
infrastructure (i.e. highways, airports, marine,
infrastructure, and safety). Because the classification was
DGF, she was comfortable in the concepts discussed that
things coming from General Fund could be classified as UGF
(e.g. alcohol tax, motor fuel tax, Power Cost Equalization,
Higher Education Fund, and other). She believed things the
legislature was paying directly for should remain DGF (e.g.
tuition for a student, ferry fares, business licenses). She
explained it would be a weird public policy to use tuition
fees for something like public safety. She used ferry fares
and business licenses as another example and believed the
fees were appropriately DGF. She agreed it would make the
future look more transparent. She added that OMB took its
lead on the designations from LFD with the exception of the
proposal on motor fuels.
2:54:36 PM
Vice-Chair Gara asked if the budget included the
presumption the legislature was passing the governor's
motor fuel tax. He believed that was unique and did not
fall in the normal process.
Ms. Pitney replied that typically the state was not in the
current budget situation. The previous year the
administration had proposed the Permanent Fund Protection
Act (PFPA) and nine revenue bills, it had presumed they
would all pass. The same question had been asked at that
time, but with much more consternation. She continued that
it was a proposal; a bill had been submitted for the motor
fuels tax and the PFPA. She conceded it was not
traditional, but a sixth year of deficits was unacceptable.
Co-Chair Seaton remarked that the DOT budget showed a [UGF]
reduction of 22 percent [on slide 10]. He asked if the
reduction included revenue from the motor fuel tax. He
wondered if the reduction was much greater than 22 percent
because projected revenue was included.
Ms. Pitney answered if the slide only looked at the UGF and
the reduction from FY 15 to the FY 18 proposal, it would be
closer to 45 percent. She explained that the $70 million
that had been reclassified had been normalized. The true
reduction was 22 percent; DOT's operating reduction had
been reduced by 22 percent.
Co-Chair Seaton surmised it was through FY 18 including the
designated revenue from the tax. Ms. Pitney agreed.
2:57:26 PM
Representative Ortiz referenced the cycle of consistent
reductions to agencies. He furthered that Ms. Pitney had
talked about having to determine whether services were
constitutionally required or mandated in some way. He asked
if agencies had been given an opportunity to tell the
administration how well they were able to fulfil their
mission, based on the reductions that had occurred. He
wondered if agencies had been able to say how their ability
to do their job was being hurt.
Ms. Pitney replied there had been numerous discussions. She
stated it was very difficult for the reductions to occur;
it was very hard for the agencies to continue levels of
service with significant reductions. She relayed it had
been a big part of the ongoing discussion. She continued
that then it was a reality check to determine if they
really wanted to "do this."
Representative Ortiz asked if the discussions included the
potential overall impact to the economy and other.
Ms. Pitney answered that the office was conscious and aware
there were choices; they were trying to make the best
choices, while maintaining as much of the economy as
possible. One of its main choices was to ensure the state
continued to meet its federal matches. She relayed that
losing more federal funds had a tenfold impact on the
state's economy. The administration had also considered
ways to shift funding - much of the Medicaid expansion
efforts had been to use federal funding for things that had
previously used state funds.
3:00:21 PM
Representative Wilson pointed to the Department of Health
and Social Services (DHSS) and remarked that slide 10 only
pertained to UGF. She referred to a bill sponsored by
Senator Pete Kelly that had passed, which aimed at using
waivers and federal funding. She noted that some of the UGF
that had been removed from DHSS had been replaced by
federal funds and programs were still in operation.
Ms. Pitney agreed.
Representative Wilson asked if there was a graph depicting
items that would have been funded by UGF if it were not for
federal funds or motor fuel tax funds. She remarked the
chart made it look like a bigger drop in services, whereas,
it was more of a transfer of funds to DGF or federal funds.
Ms. Pitney answered she could provide the total funds over
the timeframe.
Co-Chair Seaton would provide the information to committee
members.
Ms. Pitney continued that one of OMB's primary goals was to
capture the federal funds around Medicaid expansion ($300-
plus million into the state's economy) at a time when
substantial funding was taking place through other cuts.
3:02:07 PM
Ms. Pitney addressed a pie chart showing UGF agency
operating budget priorities on slide 11. She explained that
the chart helped reflect the priorities and where money was
pulled from. She specified that UGF funding for education,
the University, and the Alaska Vocational Technical Center
(AVTEC) was down 9 percent and accounted for 43 percent of
the state's budget. She furthered that UGF funds for
health, life, safety, and justice (the Department of
Corrections, the Department of Public Safety, DHSS, the
Office of Public Advocacy, the Public Defender Agency, and
the Court System) was down 13 percent and accounted for 44
percent of the state's budget. She relayed that UGF funding
for all other executive agencies (Alaska State Legislature,
Office of the Governor, Department of Administration,
Department of Labor and Workforce Development, Department
of Revenue, and other) was down 41 percent and accounted
for just over 10 percent of the state's budget.
Co-Chair Seaton asked if the agency operating budgets [on
slide 11] reflected grants.
Ms. Pitney answered that the slide included grants. She
elaborated that 46 percent of the operating budget
represented money directly out the door to an organization,
community, and other. Only 44 percent remained in
government. The 46 percent included all funds - including
Medicaid.
3:04:39 PM
Ms. Pitney turned to slide 12 and addressed ongoing cost
containment efforts to continue reducing spending:
· 2500 fewer state employees since FY2015
· State employee savings through eliminated pay
increases, furloughs, and healthcare cost passed
to employees
· Executive branch travel reductions
· Reduced and consolidated leases
Ms. Pitney elaborated that the governor had introduced pay
freeze legislation in the current year - prior to the
current year, cost of living allowances (COLA) had been
eliminated and all union contracts had been negotiated
during the current administration. Healthcare cost had been
passed on to employees to limit how much the state had to
cover in the employee health insurance plans. Executive
branch travel was expected to be down by 41 percent by the
end of the year. Additionally, 100,000 square feet had been
reduced in lease facilities, which amounted to $3 million.
Vice-Chair Gara stated that the Alaska Court System had
pitched something that was working successfully in terms of
cost savings. He discussed that the state used to have what
he considered "crazy" early retirement programs that had
always been controversial. The Court System had proposed to
employees who were at least three years into being eligible
to retire that they could retire early with three months'
severance pay. The negative side was losing knowledge, but
the benefit was people who were high-step employees with
high salaries would be replaced with younger workers at a
great savings. The Court System relayed that the option had
saved a substantial amount of money. He asked if other
agencies had considered the option voluntarily.
Ms. Pitney answered that many people had already elected to
retire, which was part of the 2,500 fewer paychecks (listed
on slide 12); very few of the positions were being replaced
at present. The idea of a retirement incentive program
often involved an employee that would require hiring three
people to replace them. She furthered that the option was a
consideration and would have to be done in a smart way and
would involve the unions. She stated it would also be
across the board instead of targeted as the courts had
done.
Vice-Chair Gara noted the positive side meant replacing
tenured employees with people looking for new job
opportunities entering the workforce at a cost savings.
3:09:04 PM
Ms. Pitney returned to slide 10. She pointed out that
Judiciary had received the lowest reductions; Fridays had
been reduced to half-day, which was a pay reduction to
every employee and represented about two-thirds of the
reduction. The department was "people dependent," but it
was facing a very different budget environment than the
other departments (e.g. DLWD, DCCED, DOR, or the Office of
the Governor). Very different actions were required at a 6
percent reduction versus a 25 percent reduction.
Vice-Chair Gara understood.
Representative Thompson asked how many of the 2,500 fewer
state employees had received a pink slip and had been laid
off versus old positions being eliminated.
Ms. Pitney answered the 2,500 fewer state employees were
actual employees no longer working. She detailed that in
the executive branch at the end of FY 15 there had been 37
layoffs. At the end of FY 16 another 40 employees had been
laid off. She viewed it as the fourth layoff notice. She
shared that in the coming September and October, OMB was
working with agencies on "heads up" meetings where they
would provide budget targets and so forth. The agencies
were making their budget decisions and were beginning to
talk to their divisions about what their budget reduction
recommendations to the administration would be. At that
time the agencies would give notice to their employees if
funds for their positions would be eliminated at the end of
the year. The governor's office submitted a list of PCNs
[position control numbers] for reduction on December 15;
any person in one of those PCNs would be looking for a job.
The legislature then added to program reductions often with
specific PCNs. The commissioners would tell the employees
that would be affected what was coming. She elaborated that
the administration did not issue a union-required layoff
until 30 days prior to the end of the fiscal year. She was
proud of the state for having so few, relative to the
reduction in employees over the timeframe. She stated it
was a last ditch unfortunate event, at which point the
impacted individuals were on unemployment insurance.
3:13:15 PM
Ms. Pitney turned to slide 14 showing position reductions
since FY 15. The current state employee level was
equivalent to the FY 02 level. She reported that 2,259
positions had been deleted. She noted that Mr. Teal had
reported 2,402 - the difference was that slide 14 began
with FY 15 and Mr. Teal had begun with FY 14. She stated
that positions were a number and a classification on a
list; just because a department had a position did not mean
it was budgeted. For example, the Department of Public
Safety (DPS) had positions in particular locations - if
there was a higher need in one location versus another, the
department could choose to fill the position in that
location when an employee resigns. She elaborated that for
DPS to meet its budget, it had to have 42 empty positions
every day of the year. Over the past year, DPS had a low of
29 vacant positions to a high of 60 vacant. She explained
it was a number with a classification of an employee and
characteristics that administratively meant it was
necessary to have equal pay and many things; however, in a
sense it was unbudgeted. There were PCNs that were unfilled
and unbudgeted.
Co-Chair Seaton surmised the vacancy factor would depend on
which agency they were discussing. For example, a
department with 800 employees and a 10 percent vacancy
factor meant that 80 positions would not be funded in the
budget.
Ms. Pitney replied in the affirmative.
Ms. Pitney moved to slide 15 and addressed ongoing cost
containment efforts and complex state policy
considerations. The items on the list were the "big rocks,"
the complex, difficult state policy considerations that
could have cost implications either direction. The justice
reform effort in the past year was an excellent piece of
legislation; it was not without issues and required tweaks
over time. She detailed that the justice reform brought
cost-savings in prison beds, but cost increases in pretrial
services, substance abuse, and recidivism programs. Over
time, the investment would contain the costs of prisons in
the future. The biggest fear was continuing business as
usual would require opening another prison. A prison was
roughly 300 people, which cost an average of over $100,000
per person including benefits - a cost of $300 million
(excluding costs to build the facility). She emphasized the
importance of keeping the prison population low, while
keeping society safe.
Ms. Pitney addressed healthcare and relayed there had been
several beneficial healthcare changes that had allowed the
state to contain costs; however, healthcare continued to be
the major cost driver. Medicaid expansion had allowed the
state to bring in federal funds and had saved state
dollars. The Medicaid reform bill allowed the state to try
out some things and incentivized reform efforts; there were
19 different groups currently in Medicaid reform. She
addressed redesigning healthcare employee and retiree plans
and finding providers. The healthcare authority may provide
a roadmap for all the items. Additionally, there was the
private health insurance market. All the items were driven
by the underlying cost of the state's healthcare system.
She stressed that the costs could not be maintained at the
current level without addressing the system. The
administration was working on each item individually, but
was beginning to include them under one broad umbrella. The
administration looked forward to working with the
legislature on how to address reducing costs within the
overall healthcare system. She underscored that everyone
wanted quality, affordable, and accessible healthcare. She
highlighted the importance of proceeding forward with all
involved stakeholders. She concluded that failing to
address the system meant it would "continue to move out."
3:19:40 PM
Vice-Chair Gara spoke to the high cost of medical care. He
noted the best chart had always been the increase in
Medicaid cost. The increase was not due to providing more
services, but to additional people and a higher cost of
healthcare. He had been asked if he would lead the effort
to stop the rise in medical costs to get to a more rational
medical cost system in Alaska. He did not have the
expertise. He asked if the administration was going to
undertake the lead on the issue and whether it would
happen. He remarked that the problem was daunting.
Ms. Pitney agreed that the issue was daunting. Fortunately,
there were individual departments working on each of the
healthcare items (listed on slide 15). She had been given
the task of corralling the issue and coming up with the
next step. She underscored it was not possible to come up
with the next step "unless we're all in." She looked
forward to working with the legislature on the issue. The
administration would be leading education efforts by
bringing stakeholders in and bringing each of the items
forward during the current session. The administration
believed the session would be an education opportunity to
determine the right way to address the issues. She added
that each of the items was currently being actively
addressed. She agreed that the administration would take
the issue on in earnest and hoped the legislature would
participate.
3:21:45 PM
Representative Guttenberg noted the Healthcare Taskforce
would sunset the following year. He detailed that the
taskforce had published five years of reports on ways to
improve and drive down costs. He stated that the
legislature had addressed one of many recommendations. He
surmised the legislature had basically ignored the
recommendations. He had testified on the 80-percentile rule
on out-of-network healthcare costs. He had asked
Commissioner Valerie Davidson [of the Department of Health
and Social Services] to help provide any changes she wanted
to see. He explained that it had not been functioning for
the past two years because the legislature would not fund
it. He believed it was critical for establishing a roadmap.
The legislature had not seriously addressed the
recommendations from over the years. He believed it was
necessary to start looking at work that had been done. He
was concerned that a new federal administration would
prevent everyone from having a clear view until they lay
out a plan in the future. Many of the recommendations were
very good, but they had never been addressed. It was
clearly one of the most expensive employee related costs
for the state and private sector. He stressed the enormity
of the work that had already been done by the taskforce. He
believed feedback from Commissioner Davidson would be
helpful. He concluded that the taskforce had done
significant work and the legislature had not yet taken the
issue up.
3:24:37 PM
Ms. Pitney addressed education and the system reform
process on slide 15. The administration did not anticipate
a decrease in the cost of education, but the quality of
education could increase. There had always been criticism
of the K-12 outcomes in Alaska. The administration was
looking for ongoing cost containment and increased quality.
She elaborated that Department of Education and Early
Development Commissioner Michael Johnson had set out five
goals and was establishing a process and taskforce to move
through broad systemic reform for review the following
legislative session. She noted that the taskforces would
include legislators as well. The items on slide 15
represented the largest budgetary cost increase drivers.
She emphasized the importance of tackling the issue to keep
the cost of government from rising dramatically in the
future. She noted that inflation was anticipated and with
reforms the state could anticipate long-term cost
containment.
Ms. Pitney turned to reorganization efforts on slide 17
including shared services, information technology
consolidation, and optimizing DOT project delivery. The
items on the slide did not impact the mission, but impacted
how well the mission was accomplished with the available
money. She detailed that Shared Services involved
consolidating backroom administrative functions in the
Department of Administration (DOA) and changing the process
to reduce costs. She elaborated that funding remained in
the agencies and agencies would pay DOA on a service-level
agreement. Agencies would pay a set amount for DOA to
handle accounts payable, travel and expense reporting, and
other. The administration anticipated a 10 percent savings
in the first year, a 30 percent savings in the second year,
and at maturity reductions in cost (of performing the
service) could reach 40 to 50 percent. The proposed budget
would transfer 70 PCNs from other departments into DOA for
Shared Services. She relayed that Information Technology
(IT) consolidation was a similar approach; 68 positions
would be transferred from other departments into DOA under
the proposed budget. The increase in positions for DOA
shown in the proposed budget was due to consolidation
efforts. The last major reorganization effort the
administration was working on was for the optimization of
project delivery in DOT.
3:28:52 PM
Ms. Pitney continued to address DOT project delivery. She
explained that the state had a fixed amount of federal
highway matching funds; the goal was to complete the most
highway, airport, and port projects as possible with the
money. She detailed that 76 positions associated with the
reorganization effort had been reduced within the proposed
budget. She addressed slide 18 related to statewide
obligations. She characterized the cuts as daunting and
explained they had all been taken in nonformula agency
operating budgets and had been largely offset by statewide
obligation increases. The oil and gas statutory increase
was $44 million, bringing the total to $74 million. School
debt reimbursement and Regional Educational Attendance Area
(REAA) funding had added $40 million in UGF spending. There
was not an increase in UGF for retirement payments, but she
agreed with Mr. Teal that it was the last year the state
could use the Higher Education Fund for anything other than
funding the scholarship program it was designed for.
Ms. Pitney remarked that Mr. Teal had addressed community
assistance. The last item was the private insurance market.
She explained that the $55 million had come on the previous
year and continued into FY 18; it was a piece of one of the
major budgetary cost drivers. She elaborated it was a
subsidization of the private insurance market. She
explained that it kept the rates lower for the 25,000
people who did not receive insurance through Medicaid or
their employer. She noted there were some federal
implications and significant uncertainty on the federal
side. The long-term nature of the issue would be an active
discussion during session.
3:31:19 PM
Ms. Pitney moved to slide 19 and addressed examples of
direct state funding. She referred to her earlier statement
that 46 percent of the operating budget funding went
directly to communities. The items on slide 19 all
reflected General Fund payments to communities. The chart
provided a table showing what portion of the $4.2 billion
operating budget went to payments to communities. For
example, Anchorage received a direct payment of $470
million, Mat-Su received $228 million, Kenai received $100
million, and Fairbanks received $162 million. The money
directly went directly to communities for operation and was
not state employee related. The administration had largely
tried to maintain community support areas. She reasoned
that continued reductions would get pushed into
communities.
Representative Guttenberg knew there had been a significant
push in the past to get school districts to increase pupil
transportation efficiency. He noted some districts had been
successful and others had not. He asked if the
administration had looked at pupil transportation. He
remarked it was easy to be inefficient when picking up
students. He wondered if the administration had revisited
the issue to determine if there was room to drive costs
down.
Ms. Pitney answered that the topic would be considered by
Commissioner Johnson as part of an overall education
reform. The question was about determining the right
incentives for everyone to focus on quality for the
individual student. There had been a veto of $6.3 million
in the last year's budget to pupil transportation, which
had been maintained in the current budget.
Ms. Pitney briefly highlighted slide 20, which included
revenue measures that would have their own legislation. She
moved to slide 21, which showed a bar chart of ERA draws.
The chart included UGF and DGF totals from FY 15 to FY 18.
There had been no Permanent Fund draw in FY 16 and there
had been a draw in FY 17. The governor was proposing a draw
in FY 18 as well. The chart also showed an increase in
federal and other revenue sources.
3:35:29 PM
Co-Chair Seaton asked any information provided by the
administration to be sent to his office directly. He would
disseminate the information to committee members.
ADJOURNMENT
3:36:26 PM
The meeting was adjourned at 3:36 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Condensed Budget Comparison.pdf |
HFIN 1/20/2017 1:30:00 PM |
OMB FY18 Budget Overview |
| FY18_Fiscal_Summary_Detail_12-15-16.pdf |
HFIN 1/20/2017 1:30:00 PM |
OMB FY 18 Fiscal Summary |
| House Budget Overview 1-20-17.pdf |
HFIN 1/20/2017 1:30:00 PM |
OMB |
| 1 20 17 HFC FY18 Overview.pdf |
HFIN 1/20/2017 1:30:00 PM |
LFD Budget Overview FY 18 |