Legislature(2017 - 2018)HOUSE FINANCE 519
01/24/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Fy 18 Budget Overviews: Department of Health and Social Services | |
| Fy 18 Budget Overviews: Department of Natural Resources | |
| Presentation: a Sustainable Solution for Alaska Destination Marketing Funding: a Tourism Improvement District Model | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 24, 2017
1:32 p.m.
1:32:08 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 Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Valerie Davidson, Commissioner, Department of Health and
Social Services; Shawnda O'Brien, Acting Assistant
Commissioner, Department of Health and Social Services;
Vickie Wilson, Director, Alaska Pioneer Homes, Department
of Health and Social Services; Andy Mack, Commissioner,
Department of Natural Resources; Fabienne Peter-Contesse,
Support Services Director, Department of Natural Resources;
Ed Fogels, Deputy Commissioner, Department of Natural
Resources; Mark Wiggin, Deputy Commissioner, Department of
Natural Resources; Sarah Leonard, President and Chief
Executive Officer, Alaska Travel Industry Association
(ATIA); John Lambeth, President and Chief Executive
Officer, CIVITAS; Colleen Stephens, Stan Stephens Glacier &
Wildlife Cruises and Member of the ATIA Board of Directors.
SUMMARY
FY 18 BUDGET OVERVIEWS:
DEPARTMENT OF HEALTH AND SOCIAL SERVICES
DEPARTMENT OF NATURAL RESOURCES
PRESENTATION: A SUSTAINABLE SOLUTION FOR ALASKA DESTINATION
MARKETING FUNDING: A TOURISM IMPROVEMENT DISTRICT MODEL
Co-Chair Seaton discussed the meeting agenda.
^FY 18 BUDGET OVERVIEWS: DEPARTMENT OF HEALTH AND SOCIAL
SERVICES
1:33:03 PM
Co-Chair Seaton asked members to hold questions until the
end of the presentation.
VALERIE DAVIDSON, COMMISSIONER, DEPARTMENT OF HEALTH AND
SOCIAL SERVICES (DHSS), introduced staff in the room. She
provided a PowerPoint presentation titled "Results for
Alaskans: Department of Health & Social Services House
Finance, FY2018 Department Overview" dated January 24, 2017
(copy on file). She addressed slide 2 and addressed the
department's history. She shared that the Alaska
Territorial Health Department had been established in 1919.
At the proclamation of statehood in 1959 the department's
responsibilities had been expanded to provide for the
promotion and protection of public health and welfare
(outlined in Article 7, Sections 4 and 5 of the Alaska
Constitution). The slide included links for the
department's website and other resources including the
department's constitutional authority, statutory authority
(Title 47), and the FY 18 proposed budget.
1:35:21 PM
Commissioner Davidson introduced slides prepared by the
Legislative Finance Division (LFD). She asked a colleague
to outline the slides.
SHAWNDA O'BRIEN, ACTING ASSISTANT COMMISSIONER, DEPARTMENT
OF HEALTH AND SOCIAL SERVICES, addressed slide 3 that
provided a representation of the department's total General
Funds (GF), including its designated general fund (DGF)
authority. She detailed that the department's GF growth
over the past 10 years had been $300 million. Beginning in
FY 15 the DHSS GF had begun to decline; the total
undesignated general fund (UGF) savings realized since FY
15 was $190 million. Slide 4 included all funds for the
department's operation broken out by lines of authority.
She shared that 15 percent of the cuts taken over the years
had been to direct programs. The department's budget had
grown over the past 10 years, primarily in the grants and
benefits line. Of the reductions taken by the department in
recent years, 15 percent had been to direct benefits or
programs. The grants line reflected that 77 to 78 percent
of the department's total funding was in its benefits and
program areas.
1:37:29 PM
Ms. O'Brien addressed slide 5, which showed how GF was
broken out across the department's divisions. She noted in
2010 there had been a large dip in the Medicaid Services
program, which represented [federal] American Recovery and
Reinvestment Act (ARRA) funding. Subsequently, the growth
had steadily climbed due to program area growth and the
loss of ARRA funding. The largest increase to the Medicaid
program occurred in FY 12 due to program growth. Slide 6
included all funds spread across all divisions. The
Medicaid Services accounted for most of the department's
funding (64 percent). The Medicaid program had decreased
overall in UGF funding by $112 million since 2015. However,
the department had been able to maintain services in the
area despite reductions in UGF funding.
Ms. O'Brien turned to slide 7, which showed a comparison of
all funding sources over the past 10 years. While the
department's UGF funding had continued to decrease, federal
funds had maintained its service levels. She elaborated
that many of the programs were critical safety net
programs; programs the department had reduced funding for
totaled 15 percent of its overall benefits.
1:39:56 PM
Commissioner Davidson moved to slides 8 through 19 that
included a complicated matrix with 99 rows and 12 columns
of detail as requested by the House Finance Committee. She
provided detail about the format. She explained the gray
horizontal rows showed summary information. Column 8
pertaining to the rating of effectiveness used a scale of 1
to 3 (number 1 reflected getting the job done, number 2
indicated getting the job done but with substantial
opportunity for improvement, and number 3 reflected not
getting the job done with little opportunity for
improvement). The information in the first column showed
the department total including the budget breakdown by all
funds (UGF, DGF, Federal, and Other). The total number of
employees were also included. The constitutional
requirements as outlined in Article 7, Sections 4 and 5 was
included and statutory authority was shown on the far
right.
1:41:59 PM
Ms. O'Brien explained slide 8 showing department totals and
the Division of Alaska Pioneer Homes, which was made up
primarily of staff serving residents of the homes. Most of
the staffing appeared in row 4, which also accounted for
the majority of the component's funding.
Ms. O'Brien addressed slide 9 that pertained to the
Division of Behavioral Health. She highlighted that most of
the staffing and positions for the division were located at
the Alaska Psychiatric Institute (API) and were tasked with
providing direct services to patients. Row 6 showed the
Treatment and Recovery Grant Program, which accounted for
the largest percentage of UGF in the division. Funding in
the component was primarily for grants and services for
substance abuse, disorder, prevention, and treatment). The
component also included mental health treatment services.
The UGF funds went to 16 residential treatment facilities
and 19 outpatient treatment facilities. The department
anticipated that Medicaid expansion would allow for
increased usage for providers to bill Medicaid for services
for residential and outpatient treatment services. The
administrative component was undergoing some
reorganizational changes. She turned to slide 10 related to
Children's Services. She noted that the administrative
component for the division was undergoing reorganizational
efforts.
1:44:56 PM
Ms. O'Brien moved to the Office of Children's Services
(OCS) on slide 10. The largest body of the division's
employees were in the frontline social worker component.
Rows 20 through 23 pertained to foster care and adoption
guardianship payments (the division's formula program).
Slide 11 showed Health Care Services. The medical
assistance administration component included most of the
division's employees (shown in row 28). She detailed the
individuals were responsible for paying Medicaid claims and
for SB 74 [Medicaid reform legislation passed in 2016]
Medicaid redesign work. Row 25 pertained to catastrophic
coverage. She pointed out that the numbers had been reduced
significantly over the years - over 400 Alaskans had been
served by the component in the past, the majority of which
were now served by Medicaid.
Ms. O'Brien addressed the department's Division of Juvenile
Justice on slide 12. Rows 31 through 39 indicated that most
of the division's employees were spread across the
facilities and were providing direct services to juveniles
served by the division. She relayed the division had closed
its Ketchikan facility in an effort to reduce costs and
create efficiencies due to low utilization. She shared that
the department had lost its one-time funding for the Nome
Youth Facility in the proposed FY 18 budget and was
expecting its closure in FY 18.
Ms. O'Brien moved to slides 13 and 14 pertaining to the
Division of Public Assistance. Most of the division's staff
resided in field services - staff responsible for
determining eligibility and providing direct services. The
majority of the UGF funding for the division went to adult
public assistance programs; the funding was used to satisfy
the state's maintenance of effort for Medicaid.
Co-Chair Seaton asked for the rows.
1:47:18 PM
Ms. O'Brien replied she was addressing row 45 [slide 13].
She turned to slides 15 and 16 related to the Public Health
Division. She pointed to row 60, which showed that public
health nursing accounted for most of the division's staff
who worked in public health centers. Row 70 pertained to
community health aide programs (CHAP) grants; the
department had successfully refinanced the funding for the
CHAPs grants through Medicaid Services in the current year
- the remaining funding in the component made up for what
was left of the program area. She noted that the funding
the department had secured through Medicaid financing was
100 percent federal.
Ms. O'Brien addressed slide 17 pertaining to Senior and
Disabilities Services. Row 73 reflected that most of the
division's employees were housed in the administrative
services component, which also included staff who were not
classified as administrative in nature. Most of the
employees resided in the component for efficiency of
managing the division. Row 75 pertained to community-based
grants for seniors in their homes; the programs provided
meals, transportation, and low-cost services to help
maximize independence.
1:49:29 PM
Ms. O'Brien turned to slide 18 related to the department's
Support Services Division (essentially the department's
administrative services division). Row 88 reflected the
division's information technology (IT) services
organization and accounted for most of the division's
employees. She detailed that IT staffing would move under
the new Shared Services initiative, with a centralized
information office in FY 18. There would be a dotted line
from DHSS agency to the Department of Administration (DOA)
for the services.
Ms. O'Brien advanced to slide 19 pertaining to Medicaid
Services. Row 95 was behavioral services and row 96 was
children's Medicaid services, which had been combined into
row 95. The services had traditionally been covered under
children's Medicaid services, but were largely behavioral
health related; therefore, they had been combined into one
component in FY 18. Row 97 was adult preventative dental -
the funding did not represent all the dental services
covered. Row 98 was the largest of the Medicaid Services
components and included all services that did not fall into
other specified categories. Row 99 was senior and
disabilities services.
1:51:23 PM
Representative Ortiz referred to slide 8 related to the
Pioneer Homes. He wondered what level of cutbacks the homes
had seen over the past couple of years. He asked if the
division was still able to meet its mission based on
cutbacks.
Commissioner Davidson answered that the UGF cuts to the
Alaska Pioneer Homes had been 9.8 percent or $3.678 million
since FY 15. There had been a total reduction of 23 full-
time positions (4 percent) since 2015. The division had
reduced the number of beds available for Alaskans to enter
the homes; it was in the public interest to provide quality
and safe care in the homes. As the state's population was
aging it was common to see higher level of care needs in
the home (including level 3 - the highest level of care).
It was challenging to find assisted living or skilled
nursing facilities that were able or willing to take on
individuals experiencing dementia; therefore, the Pioneer
Homes had become responsible for providing most of the
dementia care in Alaska.
Representative Ortiz asked about the ever-increasing demand
for the Pioneer Home services.
Commissioner Davidson replied that primarily there were
longer wait times. She stated it was important to get on
the Pioneer Home wait list as soon as eligible. She
elaborated that individuals had been on the waitlist for
some time. She detailed a husband may put himself on the
waitlist, but the wife may not and because they were at
different spots it became difficult later. The demand for
the waitlist continued to increase.
1:55:21 PM
Representative Grenn pointed to slide 9, rows 6 and 8. He
asked about the increase in Alaskans served in the
categories over the past few years. He asked if the
increase had been gradual or steep.
Commissioner Davidson answered that with regard to
behavioral health treatment and recovery grants, there had
been a rise in the number of Alaskans needing treatment
services. Over the past year there had been a significant
rise in the number of individuals struggling with opioid
addiction. She referred to Governor Bill Walker's State of
the State address that highlighted five things the
administration would do to target the crisis. She relayed
that the preceding year the legislature had appropriated
$11 million, which had ended up at $6 million for grants.
She detailed that the recipients had been selected and
notifications would go out in the current week.
Commissioner Davidson continued to answer the question. She
spoke to behavioral health in general. The department had
been brutally honest with itself that there were gaps in
its continuum of care. She highlighted that the department
had focused on behavioral health improvement the previous
year as part of its SB 74 efforts. The department had
worked over the past year with stakeholders throughout
Alaska looking at submitting a [federal] 1115 waiver that
would redesign the state's behavioral health system.
Generally, when states had gaps in the continuum of care,
they saw impacts in other areas. She elaborated that states
saw increases in emergency room (ER) overutilization
because it was the one place a person could legally go
where they could not be turned away. Individuals went to
the ER if there were no detox or treatment services
available. There were also corresponding increases in rates
of child maltreatment and neglect. States also experienced
corresponding encounters with police or public safety
officers in addition to an increase in the number of
inmates. Unfortunately, Alaska had record numbers in all
the categories. She recognized that a redesign of the
behavioral health system was in order.
Commissioner Davidson continued that DHSS was negotiating
with the federal Centers for Medicare and Medicaid Services
(CMS) to submit an 1115 waiver that would do five things:
1) expand the state's treatment capacity and improve access
to services; 2) integrate care among primary care and
behavioral health to prevent individuals from having to go
multiple places for treatment and offering services in
different settings that would allow the department to use
better social supports; 3) cost and outcomes reform to get
value for what the state purchased; 4) provider payment and
accountability; and 5) delivery system reform. The requests
for 1115 waivers were for five-year periods that could be
renewed. The largest benefit was that once approved by CMS,
the state could amend it to waive the IMD (Institutions for
Mental Disease) that did not allow providers of 16-bed
facilities or more to bill Medicaid for services, which had
been challenging for Alaska.
2:00:55 PM
Representative Guttenberg addressed slide 8 related to the
Division of Pioneer Homes. He spoke about a request for
proposal (RFP) for a privatization study that no one had
applied for. He asked for detail on the process.
Commissioner Davidson answered that the department had
twice issued an RFP for pharmaceutical services in the
Pioneer Homes. One applicant had responded both times, but
it did not meet the terms of the RFP. Unfortunately, thus
far there had not been any successful takers for providing
pharmaceutical services in the Pioneer Homes.
Representative Guttenberg asked what would happen. He
stated there was a statutory request to provide the
services, but no one fulfilled the requirements. He
wondered if the division had a prescription drug manager.
He asked how prescriptions were currently delivered.
Commissioner Davidson answered that there was a pharmacist
position that oversaw the entire Medicaid program.
Additionally, within the Division of Alaska Pioneer Homes
there was a pharmacist and pharmacy services that could
provide the benefit directly to the residents.
Representative Guttenberg wondered why the state had missed
out on a pharmaceutical services contract. He wondered what
was missing or if there was a deficiency in the state's
request.
Commissioner Davidson answered that providing the service
was probably not as lucrative as the state had thought. The
cost of purchasing and securing pharmaceuticals was one of
the largest increasing costs in healthcare. The state could
do bulk purchasing and to participate in rebate programs
that may not be accessible to a private company.
2:04:01 PM
Representative Tilton understood that in one of the Pioneer
Homes the janitorial and other services were put out to
contract to save money. She asked if the other homes were
considering the idea.
VICKIE WILSON, DIRECTOR, ALASKA PIONEER HOMES, DEPARTMENT
OF HEALTH AND SOCIAL SERVICES, asked for a repeat of the
question.
Representative Tilton complied.
Ms. Wilson replied that when the home had been built in the
1980s - it had been the last Pioneer Home built - it had
been decided to contract out the services to determine if
there was a savings. The employees had belonged to the
contractor and over the years there had been discussions
about how much savings there really were. The division had
considered contracting services in other Pioneer Homes and
had started to review the issue.
Commissioner Davidson elaborated that prior to privatizing
any functions currently provided by state employees
required a feasibility study by the department. She
detailed that SB 74 had included a provision to do a
privatization study of the Alaska Pioneer Homes. She
elaborated that an amendment had passed that had limited
the privatization study to pharmaceuticals. She concluded
that any change to contract services that would otherwise
be provided by a state employee required a feasibility
study first.
2:07:36 PM
Co-Chair Seaton believed the RFP had not been to provide
services but to assess the possibility of providing
services. He believed the RFP had been for a consultant to
assess the feasibility of providing services. Whereas there
had been pharmaceutical companies offering to provide the
service under the Medicaid and Medicare reimbursement rate
with no cost to the state, but it was not what the RFP had
asked for. He asked for the accuracy of his statements. He
asked for verification that no one had come forward to do
the assessment and feasibility study.
Commissioner Davidson replied in the affirmative.
Co-Chair Seaton relayed there were communications about the
cost savings and benefits and from DHSS and the
pharmaceutical company Geneva Woods. The information would
be provided to the DHSS budget subcommittee. He reminded
members that the committee was currently having a high-
level discussion. The goal was to identify important issues
for the finance subcommittee to work on.
Representative Thompson asked what kind of shape the
Pioneer Homes were in and how much deferred maintenance
existed.
Ms. Wilson answered that the buildings were aging, and the
division had been lucky to receive money it had been given.
The Pioneer Homes had dedicated maintenance crews, but the
buildings were showing their age (i.e. roof replacements,
major components, energy efficiencies, and other). The
items had all been prioritized in the division's capital
funds.
2:10:55 PM
Representative Thompson remarked that Alaska was taking on
numerous optional Medicaid programs. He asked if they were
saving the state money.
Commissioner Davidson answered that the optional services
selected did save the state money in the long-run. For
example, prescriptions were an optional service under
Medicaid. Based on the experience of other states, when a
provider prescribed medication to a patient and the patient
did not have the resources to purchase the medicine, they
were noncompliant. It took just a few Medicaid
beneficiaries (living in areas outside Anchorage,
Fairbanks, or Juneau) not taking their high blood pressure
prescriptions who then had a stroke and required Medivac
service. She detailed that emergency [medical]
transportation and corresponding in-patient stays were
mandatory services. She provided an additional example
related to home and community-based services, which was an
optional service. She specified that to be eligible for the
services (activities to help individuals with daily living
including bathing, medicine compliance, chores, and other)
and qualify for a waiver, a location had to meet the
nursing home level of care, which was a mandatory service.
It could be offered as an optional service at much less
cost or as a mandatory service at a much higher cost in a
residential facility.
2:13:17 PM
Representative Thompson asked how much state money was
spent on optional Medicaid programs. Commissioner Davidson
replied that she would follow up with the information. She
specified that the information was broken down by optional
service.
Co-Chair Seaton asked the department to provide the
information to his office for dissemination to the
committee.
Representative Kawasaki asked about the closure of the
Ketchikan and Nome Youth facilities. He asked whether
anticipated savings from the closure of the Ketchikan
facility had been met. He asked where the youths would be
moved who had been in the Nome facility.
Commissioner Davidson answered that in the Division of
Juvenile Justice the reductions had been slightly over $4
million or 7 percent since 2015. The number of full-time
position reductions since that time was 38 or 7.9 percent.
The Ketchikan Youth Facility residents had been moved to
Juneau. The department anticipated the youths in the Nome
facility would be transferred most likely to Anchorage.
Co-Chair Foster noted the subcommittee had been working on
the issue. He noted that the issue had come up the previous
year and the subcommittee wanted to revisit the potential
savings. He believed there would be studies and some
questions asked by the committee. He stated there was the
possibility the savings originally projected may not
warrant the facility's closure.
2:16:19 PM
Representative Wilson asked how the department measured the
success of grants. She asked what the providers were
required to submit and whether the department had
information on the number of people who successfully
completed the programs.
Commissioner Davidson asked if Representative Wilson was
referring to behavioral health grants.
Representative Wilson replied she was asking about all
grants. She noted that Commissioner Davidson had testified
that most of the grants went to programs (e.g. substance
and alcohol abuse). She asked what was required from
grantees. She stated it was not just about the number of
people the programs touched, but about people who had
successfully completed a program. She explained that as
decrements were made, she wanted to ensure the best
programs continued to run.
Commissioner Davidson answered that grantees were required
to submit data to the department on their expenditures, the
number of clients served, the number of clients who had
completed programs, and other. One of the reasons the
department was interested in the 1115 behavioral health
redesign was to change the dynamic to make sure the
department could improve the level of services allowed to
be provided to Alaskans.
Co-Chair Seaton asked the department to provide the charts
showing the compliance and completion rate for distribution
to committee members.
2:18:20 PM
Representative Wilson referenced the Office of Children's
Services and Medicaid expansion. She wondered about the
coverage provided under expansion for counseling, therapy,
and drug and alcohol abuse treatment programs. She stated
that before Medicaid expansion when someone lost their
children they had lost all their medical benefits because
the benefits had been tied to the children. She continued
that Medicaid expansion was basically based on income. She
asked what portion of the services were provided under
expansion that previously would have been covered by GF at
some point.
Commissioner Davidson restated her understanding of the
question. She believed the question was whether having a
child removed from a home increased the transition from a
parent needing services to Medicaid expansion.
Representative Wilson clarified that prior to Medicaid
expansion if a child was removed from a home, the cost for
medical services for the parent would be paid with GF
through OCS because Medicaid would no longer cover the
expense. She believed the parents would qualify for
coverage under Medicaid expansion. She wondered if any
savings had occurred in OCS because the counseling was now
paid through Medicaid.
Commissioner Davidson replied the department could provide
the information to the committee.
Vice-Chair Gara referred to slide 9. He wondered which
programs had such long waiting lists for treatment services
that people fell off the list and did not receive
treatment. He gave an example of an alcoholic waiting
months for treatment who later decided they did not want
treatment. He recalled a past children's conference in
Alaska where a woman had spoken about losing her child
because she could not care for the child. The woman had
waited over six months to get into a treatment program.
During that time the state paid $30 per day for the child
to be in foster care. He relayed that the woman had
ultimately made it through treatment after about one year
and had gotten her child back. He wondered if the
circumstances still existed.
Commissioner Davidson answered that there were a number of
Alaskans on waitlists. There was not a comprehensive list.
She addressed areas with the greatest need including opioid
abuse. Generally, the state could do detox, but some
communities had no detox facilities. Once in detox it kept
individuals from immediate danger of overdosing on opioids
or alcohol, but the question was where people went after
detoxing. There was necessarily a treatment bed accessible,
which was a problem.
Co-Chair Seaton interjected the question would have to be
addressed during the subcommittee. He mentioned other
issues to be addressed during the subcommittee process. He
stated that earlier in the week he had provided DHSS with a
2016 study on Canada showing a potential savings of $21.5
billion via preventative medicine. He acknowledged there
were 35 million people in Canada and about 750,000 in
Alaska, which equated to a potential savings in Alaska of
about $458 million. He had asked the department to develop
a plan to address the issue. He had also asked for a plan
to address the high rates of autism and preventable cases.
He wondered about the costs identified in other studies
that could be saved by changing the methodology of how
things were done. He appreciated the format of the
presentation.
2:24:37 PM
Commissioner Davidson added there had been a couple of
other feasibility studies that DHSS had been tasked with
over the interim. The first, mentioned earlier by Co-Chair
Foster, was the Department of Juvenile Justice facility
privatization study. The second was the API privatization
study. She relayed that both reports would be released on
the coming Friday. The department looked forward to working
with the subcommittee on its budget in more detail.
Co-Chair Seaton believed subcommittees would be looking to
determine if there were local matches for grants and at any
other ways of generating fees from private industry or
matching locals to offset costs. He relayed that the
subcommittee process was being done with the committee of
jurisdiction; any statutory changes the department believed
would bring efficiencies and reduce costs would go to the
subcommittee and then to the standing committee for
potential introduction of legislation.
2:26:55 PM
AT EASE
2:32:18 PM
RECONVENED
^FY 18 BUDGET OVERVIEWS: DEPARTMENT OF NATURAL RESOURCES
Co-Chair Seaton invited the Department of Natural Resources
(DNR) to the table.
2:32:38 PM
ANDY MACK, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
introduced his staff. He addressed a PowerPoint
presentation titled "State of Alaska Department of Natural
Resources House Finance Overview" (copy on file). The
department's mission statement was to develop, conserve and
maximize the use of Alaska's natural resources consistent
with the public interest. The department had four core
services and division measures: 1) Foster responsible
commercial development and use of state land and natural
resources, consistent with the public interest, for
longterm wealth and employment (42 percent of the DNR
budget); 2) mitigate threat to the public from natural
hazards by providing comprehensive fire protection services
on state, private and municipal lands, and through
identifying significant geologic hazards (27 percent of the
DNR budget); 3) provide access to state lands for public
and private use, settlement, and recreation (19 percent of
the DNR budget); and 4) ensure sufficient data acquisition
and assessment of land and resources to foster responsible
resource and community development and public safety (11
percent of the DNR budget). The slide included links to the
department's constitutional authority (Article VIII). The
full budget was located on the Office of Management and
Budget (OMB) website.
2:35:34 PM
FABIENNE PETER-CONTESSE, SUPPORT SERVICES DIRECTOR,
DEPARTMENT OF NATURAL RESOURCES, addressed slides generated
by the Legislative Finance Division (LFD) beginning on
slide 3 titled "Department of Natural Resources Share of
Total Agency Operations: GF Only." She noted that GF
included both unrestricted general funds (UGF) and
designated general funds (DGF). The department had a
significant amount of DGF resulting from fees brought in
for material sales, public use cabins, Recorder's Office
fees, coal and mining leases, and more. The department's GF
budget had increased by $5.5 million over the past 10
years, but it had also experienced a UGF decrease of
approximately $5.1 million over the same period. She noted
that DHSS had mentioned its high budget in FY 15 - many
agencies realized they had large budgets during that time
when the state had money. There had been significant
decreases in the past three years - since FY 15, DNR had
decreased its UGF budget by $18.17 million or 24 percent.
Ms. Peter-Contesse continued to address slide 3 and pointed
to a $10 million drop between FY 15 and FY 16. She detailed
that AKLNG [Alaska Liquid Natural Gas project] had been
categorized as UGF in FY 15 and "Other" or Instate Pipeline
Fund in FY 16. The DNR budget accounted for about 1.94
percent of the state's overall GF budget. However, for
every UGF dollar appropriated to DNR, the revenue generated
by the department to the state's UGF was about $32 ($2.4
billion annually on average for the past 10 years from
activities DNR helped facilitate).
2:38:12 PM
Ms. Peter-Contesse reviewed the chart on slide 4 showing
DNR line items (all funds). She noted line items included
personal services, travel, contractual, commodities, and
more. She reported that the largest agency expense was
personal services and accounted for 55 to 56 percent of the
DNR budget. She detailed that if the cost of living
contractual obligations over the last 10 years were
removed, the personal services budget had decreased by
approximately $12 million. In 2008 DNR had 1,114 employees
with an average cost of $67,000 per person. The proposed
budget included 905 employees (209 fewer) with an average
cost of $96,000. Most of the increase was due to an
increase in cost of living and benefits. She detailed that
the issue was not that state employees had necessarily been
working that long, but by attrition it would average out.
Ms. Peter-Contesse highlighted that the cost of employment
- having employees do the work - was increasing. The other
large driver was contractual services for things like
aircraft charters for surveys, firefighting, leases and
chargeback, litigation support with the Department of Law,
contracts for appraisal services in the Division of Mining,
Land and Water, and other. Travel expenses represented a
small slice of the budget, but with a focus on decreasing
travel, DNR had decreased actual travel dollars between FY
14 and FY 16 by about 32 percent.
2:40:54 PM
Ms. Peter-Contesse spoke to slide 5 titled "Appropriations
within the Department of Natural Resources (GF Only)." The
chart was broken out by RDU (results delivery unit). The
first RDU was fire suppression, land and water resources,
which included the Division of Forestry; Division of
Mining, Land and Water; and the Division of Geological and
Geophysical Surveys. There had been an increase in FY 12/FY
13 because of increased funding from the legislature to
decrease the permitting backlog. She highlighted a large
bump in the oil and gas line on the chart [shown in bright
pink], which reflected funding DNR had received for the
Alaska Gasline Inducement Act (AGIA). She pointed to an FY
15 increase in the administration and support line [shown
in navy] for AKLNG. She detailed that in FY 15 AKLNG had
been budgeted as UGF, but it had been moved to the "Other"
funding category, which resulted in a large drop in the GF
line shown on slide 5. The lower line [shown in aqua]
representing agriculture showed a drop in FY 18 of about $2
million for the Mount McKinley Meat and Sausage Plant.
Ms. Peter-Contesse moved to slide 6, which showed
appropriations within DNR (all funds). The top line, the
fire suppression, land and water resources RDU [shown in
green] included an increase in federal dollars in the FY 17
and FY 18 budgets - most of the dollars were being received
by the Division of Forestry, Forest Management for Tongass
young growth cost-share agreements, and forest inventory
and analysis.
Co-Chair Seaton asked which line Ms. Peter-Contesse was
referring to. Ms. Peter-Contesse pointed to the green line
at the top of the chart on slide 6 and specified she was
speaking to FY 17 and FY 18.
Ms. Peter-Contesse moved on to slide 7 titled "Department
of Natural Resources Total Funding Comparison by Fund Group
(All Funds)." The department had reduced its UGF by
approximately $5.1 million since FY 08 and about $18.7
million since FY 15. There had been an increase in DGF of
about $10.6 million over the past 10 years. She explained
that DNR had tried to increase reliance on the fees it
generated and revenue it collected and to decrease its
reliance on UGF. In some cases, it meant there had been a
fund source change (a one-for-one between UGF and DGF) and
in other cases it had been an increase in fees in various
areas. had been an increase in fees in various areas. There
was about $6 million in fund source changes since 2016;
about $1 million of the amount was from new fees and about
$5 million was from existing fees collected by the
department beyond what DNR was authorized.
2:44:49 PM
Vice-Chair Gara asked about fees. He stated the
constitution specified the state should receive the maximum
benefit for its resources. He noted that there was debate
on whether the state was doing that on oil and mining. He
remarked that the state taxed those things. He thought the
state may not be doing anything other than covering costs
on many resources. He spoke to timber as an example, which
was not a high profit margin area and represented a
shrinking industry. He asked if the state charged
permitting fees on timber that exceeded the state's costs.
Ms. Peter-Contesse deferred the question to a colleague.
ED FOGELS, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, answered all the revenue generated off the
timber sales went into a timber sale account, which was
used by the division to staff people to continue the
program. He elaborated that timber sale receipts maintained
and kept the program going. The real economic benefit to
the timber sales was to the 30 or so businesses in Alaska
that utilized timber for the private sector.
Vice-Chair Gara clarified he was not implying there should
be a higher fee, he did not know. He noted that the state
had oil, gas, and mining that it hopefully made excess over
its costs. He asked if there were other resources managed
by the state where the state received its costs back, but
no additional revenue.
Mr. Fogels answered that even within the Division of
Mining, Land and Water, substantial revenues were brought
in from a large variety of sectors. He detailed that
material sales brought in significant revenue, part of
which went back to managing the program and a portion went
into GF. He thought laying out the different revenue
streams within DNR, where they went, and how much came back
to the department, would be a good topic for the finance
subcommittee.
2:47:53 PM
Representative Ortiz asked for detail about the term
"material sales."
Mr. Fogels replied that material sales included sand and
gravel, rock, and aggregate sales (anything mining the
surface of the state, not the subsurface minerals).
Representative Grenn referenced the department's mention of
increases to a number of fees. He asked if there were
places the department anticipated increasing fees in the
next year.
Commissioner Mack answered that the department had been
developing a comprehensive regulation fee package; it was
currently looking at all fees charged by DNR and had put
substantial resources into the development of the package.
The department believed it updated and brought into focus
what constituted a reasonable fee. In many cases brackets
were being established - there would be a regulation
specifying the minimum and maximum fee for a service or
product. He referenced an earlier question by Vice-Chair
Gara and relayed that the department also managed fresh
water. The comprehensive package was in draft form and
would be out for public comment soon.
Co-Chair Seaton asked if any of the fees would require
statutory change. Commissioner Mack answered that it was
possible. He detailed it was currently a regulation fee
package.
Co-Chair Seaton communicated that the department should
take the issue up with the subcommittee if there were
statutory fees needing adjustment.
2:50:19 PM
Representative Tilton referred to the permit backlog. She
asked for a status update on the backlog and guessed it
pertained to leased lands.
Commissioner Mack answered that several years earlier there
had been a backlog of up to 2,500 permits in the Division
of Mining, Land and Water. Money had been appropriated by
the legislature to help update, modify, and modernize the
system. Subsequently, the backlog had been reduced to the
850 to 900 range. The department wanted to continue to
reduce the number.
Mr. Fogels added the backlog had been reduced by over 1,700
or 64 percent since it had started the backlog project. The
department was slowing its work on the backlog a bit due to
budget cuts, but it was also gaining efficiencies. They
would address a unified permitting project in the division
that he would speak to later in the presentation, which had
helped dramatically.
Representative Kawasaki referred to the permitting backlog.
He stated it was not only about the number of backlogged
permits, but the length of time the permit existed within
the queue. He asked the department to include the detail in
its report to the subcommittee.
2:52:36 PM
Mr. Fogels reported that DNR had a total of 68 programs
within all its divisions. He noted that the department had
spent significant time on including data for the number of
Alaskans served and the efficiencies; the information
included in the tables [slides 8 through 16] was a starting
point for discussion. He explained it was difficult to nail
the numbers down - the department looked forward to working
with the subcommittee to further hone the metrics. The
department was also preparing a program guide for the
subcommittee that would list every program, its cost, the
number of staff, and other.
Mr. Fogels addressed slide 8 related to the Division of
Agriculture. The division had a total of eight programs
with a total budget of $4.8 million ($2.67 million UGF) and
34 staff. He detailed that the division had a plant
materials center [in Palmer] that produced foundational
seed for the state. The division also had inspection,
marketing, and land sales components. The governor's FY 18
budget included a proposal to cut one position for a total
of $132,000. He relayed the plant materials center had
received a one-time increment of $335,000 the previous
fiscal year with instructions to see if DNR could raise
fees to cover the costs of seed production. The department
was asking for the restoration of the one-time increment
because after consideration it did not believe a fee
increase was feasible in the program. He offered to address
the issue in further detail with the subcommittee.
Mr. Fogels moved to slide 9 and addressed the Division of
Mining, Land and Water. The division had a total of 14
programs with a total budget of $27.28 million ($6.11
million UGF) and 207 staff; it was the department's
foundational division, which was responsible for getting
the statehood land entitlement for the federal government,
managing the land, managing all waters, and reclamation of
mines on all lands. Cuts in the governor's proposed FY 18
budget totaled $535,000. The department planned to cut back
on some active management of state lands in the Denali
block area, consolidate some leases, consolidate mapping
staff (DNR was looking at an initiative to increase the
efficiency of its mapping functions), and to reduce the
municipal entitlements program by one staff person.
Mr. Fogels discussed that additionally, DNR would request a
change related to the [permit] backlog project. He detailed
the department's unified permitting project with the goal
of automating permitting had been very successful (a series
of capital requests had been appropriated by the
legislature over the years). The department wanted to
transition the project to an operational base - it had
automated some of the key authorizations done by DNR and
there was much more to automate. The division performed
dozens upon dozens of different authorizations that needed
to be addressed separately. Therefore, the department would
be asking for a switch from capital funds to DGF.
2:57:37 PM
Mr. Fogels discussed the Division of Forestry on slide 10.
The division had a total of nine programs with a total
budget of $45.68 million ($24.23 million UGF) and 238
staff. The budget was the largest of any division,
primarily due to wildland firefighting. The firefighting
costs from the previous summer, which had been a low fire
year at about half a million acres, cost approximately $26
million (the department was still cross billing the federal
government). The other division function was forest
management, which accounted for a very small portion of the
budget. There were no proposed cuts to the division in the
governor's FY 18 budget.
Mr. Fogels addressed the Office of Project Management and
Permitting on slide 11. The office had five programs with a
total budget of $7.07 million ($840,000 UGF) and 14 staff.
The primary function of the office was to coordinate the
permitting of large resource development projects, which
created its own funding stream and program receipts from
project applicants that reimbursed all state agency
permitting costs (i.e. Department of Fish and Game,
Department of Environmental Conservation, Department of
Health and Social Services, Department of Transportation
and Public Facilities, and Department of Law). There were
no proposed cuts to the office in the governor's FY 18
budget.
Mr. Fogels moved to slide 12 and spoke to the Division of
Parks and Outdoor Recreation. The division had six programs
with a total budget of $15.79 million ($2.41 million UGF)
and 165 staff. The lion's share of the budget went to
maintaining parks and keeping them safe for the public. The
governor's proposed FY 18 budget would cut $328,000, which
would mean some parks would be placed in passive management
including Delta Junction and Donnelly Dome. The division
was actively seeking to reduce its dependence on UGF; with
another fee increase it should be about half fee-based for
the entire parks operations. He referred to legislation
passed the previous year that allowed the department to
sell retail items in parks - the profit would go back into
parks. He believed it would be very successful, and the
department hoped to close the rest of the gap to get parks
totally off GF at some point in the future.
3:00:46 PM
Co-Chair Seaton mentioned recovered fees. He asked DNR to
provide the subcommittee with estimated percentages the
department anticipated recovering in the regulation
package.
Ms. Peter-Contesse addressed the Division of Support
Services on slide 13. The division included information
technology (IT), which was responsible for desktop support
and infrastructure, in addition to managing state lands
records and providing GIS mapping services for DNR and many
other agencies. The division also housed the Recorder's
Office uniform commercial code, provided recording services
for the state and held the official public record of the
state. The final component was the administrative services
group responsible for budget, accounting, and revenue
management for DNR. The governor's proposed FY 18 budget
reduced the Recorder's Office by $750,000, which would
eliminate four positions, but would not result in office
closures. She relayed that services to the public would be
maintained and revenue would not be reduced. She noted the
department was continuing a consolidation of the Recorder's
Offices around the state. She concluded that the reduction
would not negatively impact UGF.
Mr. Fogels briefly highlighted other department wide
components on slide 14 including the Commissioner's Office,
the Public Information Center, and the Mental Health Trust
Land Office. There were no cuts proposed to any of the
programs in the governor's FY 18 budget.
Representative Guttenberg noted the Mental Health Trust
Land Office put out an RFP that would be explored during
the subcommittee process.
3:03:47 PM
MARK WIGGIN, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, spoke to the Division of Oil and Gas on slide
15. The division had nine sections with a total budget of
approximately $20.9 million and 101 staff. He relayed the
division was responsible for the day-to-day management of
lease operations for oil and gas and geothermal assets
throughout the state. There was a proposed FY 18 reduction
of six PCNs (position control number) for a total savings
of $870,000 reduction (10 percent).
Mr. Wiggin addressed the Division of Geological and
Geophysical Surveys on slide 16. The division provided
science, studies, and fieldwork to support oil, gas, and
mineral exploration throughout Alaska; it provided the
feedstock for industry to develop oil and gas and other
resources. The division had a total UGF budget of $8.3
million and approximately 47 positions. The budget proposed
a reduction of two PCNs in FY 18 for a total of $486,000
(11 percent). There were seven sections within the
division. He referred to discussion about the fee
structures. The division also managed the Geologic
Materials Center in Anchorage that handled the core, oil,
and mining samples. The division would also be part of the
distribution of seismic data that would be released as part
of the capital credit system. The division would put the
infrastructure computer servers at the center for handling.
The fees would be part of the regulation package and there
may also be statutory changes required.
3:06:39 PM
Representative Ortiz referred to the Division of Oil and
Gas on slide 15 and asked about the function of the nine
audit positions.
Mr. Wiggin answered that audits were on royalty submittals
paid by the industry through DNR.
Representative Kawasaki wondered how it differed from the
tax audits performed by the Department of Revenue (DOR).
Mr. Wiggin did not know how the process differed - one was
tax, and another was royalties. He deferred to the
commissioner for further detail.
Commissioner Mack answered that severance and production
tax was collected by DOR, while royalty was calculated as a
function of each of the individual leases. The revenue
sources were handled separately, and royalty calculations
were handled by DNR. Ultimately, if someone had a dispute
it was appealed to the commissioner's office and could
eventually end up in court if not solved.
Representative Kawasaki would follow up later. He pointed
to slide 12 related to the Division of Parks and Outdoor
Recreation. He spoke about the Office of History and
Archaeology and believed many of the functions were
supported by other agencies. He did not know a significant
amount about the office.
Co-Chair Seaton noted there could be follow up during
subcommittee later.
Vice-Chair Gara stated that DOR calculated taxes on oil on
sometimes on the gross and sometimes on net. He remarked
that DNR calculated royalty on gross. He wondered if there
was efficiency in combining the functions. He speculated
that the same people calculating the gross on the
production tax could calculate it on the royalty.
3:09:48 PM
Commissioner Mack answered there may be. He would follow up
with an answer. He detailed that the royalty was a function
of the lease terms. He continued that sometimes other
issues involved business expenses and other issues not
necessarily taken up by DNR.
Vice-Chair Gara asked the department to provide the
information to the subcommittee chair.
^PRESENTATION: A SUSTAINABLE SOLUTION FOR ALASKA
DESTINATION MARKETING FUNDING: A TOURISM IMPROVEMENT
DISTRICT MODEL
3:11:11 PM
SARAH LEONARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ALASKA TRAVEL INDUSTRY ASSOCIATION (ATIA), introduced
herself.
COLLEEN STEPHENS, STAN STEPHENS GLACIER & WILDLIFE CRUISES
AND MEMBER OF THE ATIA BOARD OF DIRECTORS, introduced
herself.
JOHN LAMBETH, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
CIVITAS, introduced himself and relayed Civitas specialized
in working with destinations on stable tourism promotion
funding.
Ms. Leonard provided a PowerPoint presentation titled
"Alaska House Finance Committee: A Sustainable Solution for
Alaska Destination Marketing Funding: A Tourism Improvement
District Model" dated January 24, 2017 (copy on file). She
read from a prepared statement:
I'm here to share with you a tourism improvement
district model for statewide tourism promotion - a
concept ATIA, along with the Alaska Tourism Marketing
Board, the guiding board for Alaska's destination
marketing program - is sharing with industry and
legislative leaders.
We've come to Juneau many times seeking the state's
investment in tourism marketing and today we recognize
a new reality as we along with every Alaskan know you
are facing very difficult decisions in this fiscal
environment.
Ms. Leonard relayed her intent to briefly speak to the
status of the marketing program. She would turn it over to
Mr. Lambeth to speak in more detail about the tourism
improvement district model.
Co-Chair Seaton noted Representative Pruitt had joined the
meeting.
Ms. Leonard continued to read from a statement:
During the last legislative session and following the
governor's vetoes, the tourism marketing funding from
the state was reduced from $4.5 million to $1.5
million. As legislative leaders you also included
language in the budget requiring the tourism industry
to come back to you with a plan to reduce reliance on
state general funds.
Ms. Leonard pointed to slide 2 that showed the intent
language from the budget the previous year. She briefly
highlighted slide 3 that included a graph showing the
decrease in state investment in tourism marketing funding
from 2013 to 2017. She turned to a bubble chart on slide 4
related to economic impacts. The chart showed a circle of
benefits illustrating why the tourism marketing industry
believed tourism marketing investment worked. She read from
a prepared statement:
With smart investments industry is attracting millions
of visitors to Alaska, they are spending almost $2
billion with local businesses and in communities. This
is creating opportunities for business growth and
adding jobs and visitors are generating revenue
through various taxes and fees, which support local
and borough budgets to the tune of over $80 million
supporting community services and to the state General
Fund in over $100 million.
This positive circle has produced health results as we
have seen your past support for tourism marketing
dollars. The economic impacts in Alaska have been
tremendous, producing jobs, over $4 billion in overall
economic activity, and millions of dollars to the
state's General Fund, as well as revenue to city and
borough budgets.
3:14:41 PM
Ms. Leonard turned to slide 5 and 6 and read from a
statement:
When visitors come to Alaska they're also spending on
various businesses and activities from transportation
to gifts and souvenirs.
The $1.5 million appropriation for this fiscal year -
and there's $3 million currently in the capital budget
- are significant declines from years past when
marketing funding levels reached into the $10, $16,
$18 million range. This graph shows that our funding
today falls well below states like Arizona, Virginia,
Arkansas, as well as destination in Canada. The light
green graph also shows that as our competitor
destinations are increasing their tourism promotion
budgets, Alaska's budget is decreasing.
While we compete with many other U.S. states, Alaska
also competes on an international scale as a long-haul
exotic and safe destination. Alaska's marketing
strategies have focused on these attributes. It takes
a couple of years in the marketplace for these
marketing strategies to bring returns and to realize
the economic benefits I just talked about.
As we experienced reduced destination marketing
dollars we fear we will start to see the impact of
fewer visitor numbers, less spending, less economic
impact in 2018, 2019, and beyond.
3:16:03 PM
Ms. Leonard addressed slides 7 through 11 and continued to
address prepared remarks:
This year we are implementing a $1.5 million marketing
program, a very basic program on page 7. I'm just
going to mention briefly what we aren't able to do
anymore with those limited resources. We've had to
shut down five overseas offices and for the first time
in 27 years we do not have representation in German
speaking Europe, one of our top international visitor
markets.
The national advertising program has essentially been
eliminated. To put it in perspective, in years past
we've had $5 million worth of advertising in the
marketplace. With only a fraction of that available to
us now we can no longer afford any print advertising.
There are zero ads in magazines and we have no more
direct mail program. These were both highly effective
ways of getting people to choose Alaska and request
the state vacation planner (on page 9).
For the first time in 40 years Alaska will not have
its own trip planning publication full of Alaska
business ads. Last year we distributed over 400,000
planners. People won't just be seeing other
destination guides - almost every other state in the
United States has a printed vacation planner as a main
printed tool to attract visitors to their destination.
We also don't have any television advertising. For me
and many of you this is a great inspirational tool
around the world to attract people to your
destination. What we are doing is trying to be very
efficient and effective with the $1.5 million budget
and implementing a program focused on digital media
strategies, public relations, and a core travel trade
program.
One of the many questions we have heard and have often
asked ourselves: what is the value of a statewide
tourism destination program? [page 11]. We started
looking around the country at case studies - what
happens in other destinations when governments have
reduced or eliminated their statewide tourism
marketing funding. In 1993 Colorado repealed their
tourism funding and within two years lost 30 percent
of its U.S. visitor market share. Conversely, during a
recession, Michigan doubled their state tourism
marketing funding, and from 2006 to 2014 - those of us
in the tourism industry recognize it was an award
winning pure-Michigan campaign to attract visitors -
generated $6.6 billion in visitor spending.
3:18:35 PM
Ms. Leonard addressed slides 12 and 13 and continued to
address prepared remarks:
In 2010, Connecticut eliminated their entire tourism
marketing budget and their travel-related tax revenue
growth slowed to half the pace during slow economic
times of 2009 and 2010. In 2011, Washington shut down
their tourism office. They saw competing states like
Montana increase tourism promotion budgets and capture
increased visitor spending. The state of
Pennsylvania's tourism funding declined 77 percent
from 2008 to 2015 (page 13). They projected a loss of
$600 million in state and local tax revenue that
travelers would have generated. In 2013, the City of
San Diego held off on tourism promotion funding.
During that time, they held off on allocating their
promotion funding, they projected a loss of $560
million in lost visitor spending and $24 million in
reduced tax revenues.
Ms. Leonard spoke to slide 14 with prepared remarks:
The ATIA board of directors held several meetings
since March (the last legislative session),
researching and discussing different revenue options
as we worked to meet the legislative mandate, so we
could come back to you with a plan for sustainable
tourism marketing funding as you asked. They kept
these principles in mind - any new funding solution
must be broad-based and not reliant on one industry or
funding source. Revenue should focus primarily on
visitor activity with less impact on Alaskans. Any
successful plan would be a package of new revenue
assessing tourism related businesses, assessing our
own industry, and packaged with the existing vehicle
rental car tax collected, which can be allocated to
tourism promotion dollars - there's language in that
existing statute.
These conversations gravitated to the concept of
tourism improvement districts. Tourism improvement
districts (TIDs) have occurred around the country, at
local or regional levels, and most recently in
California at a statewide level.
3:20:37 PM
Ms. Leonard turned the presentation over to Mr. Lambeth to
provide more detail on TIDs.
Vice-Chair Gara thanked Ms. Leonard for providing
information whenever he had requested it. He noted that
tourism funding from the state had decreased over the
years. He asked if visitors to the state had decreased as
well. Alternatively, he wondered if tourism had remained
stable or increased.
Ms. Leonard answered the state was seeing past results of
healthy tourism budgets. The state was seeing positive
economic benefit and increased tourism in 2016 and 2015 had
been a record year. However, the agency was worried about
being the next case study. The association did not know
when reductions would begin to impact the number of
tourists visiting Alaska and money coming into the state.
Vice-Chair Gara discussed the state's corporate tax for C
corporations (a publicly traded corporation) and a vehicle
rental tax, but tourism companies that did not fit in
either of the categories did not pay any state revenue. He
asked if he was accurate.
Ms. Leonard replied that the visitor industry paid bed
taxes in different communities, but the tax was not
statewide. The agency attributed visitor activity impacting
fees like Department of Fish and Game licenses, hunting
fees, the Alaska Marine Highway System, state park fees,
and other things that attracted visitors.
3:22:46 PM
Mr. Lambeth addressed a PowerPoint presentation titled
"Alaska Travel and Tourism Marketing Act" dated January 24,
2017 (copy on file) [note: the presentation was
incorporated with the ATIA presentation and began on slide
15]. He intended to speak about the importance of
destination marketing to Alaska and the nation, the history
of TIDs, and the specific industry proposal. He started on
slide 16 and stated that from an economic perspective,
travel and tourism was an incredibly important industry to
the country. One in nine jobs in the country came from the
travel and tourism industry; the industry generated $158
billion in taxes, which was enough to pay for every
firefighter and police officer in the nation. Travel and
tourism was in the top 10 industries in 49 states and
contributed over $100 million annually to Alaska's General
Fund.
Mr. Lambeth stressed that the industry needed promotion to
sustain a healthy tourism environment. He turned to slide
17 and addressed the virtuous cycle of destination
promotion. He explained that investing in travel marketing
and promotion created demand, from that demand visitor
spending was generated, which in turn created new tax
revenues and jobs to allow investment back into tourism
promotion efforts.
Mr. Lambeth highlighted that destination marketing
addressed two issues the industry had. First, when a person
decides where to travel, their primary choice was usually
the experience of the destination. The destination is the
trip motivator, not usually an attraction, lodging, or
facility. Consequently, it was important to get together on
a destination-wide basis to do marketing to promote the
destination. The second issue was scale. No individual
business had enough resources to market the State of
Alaska, businesses did their own individual marketing, but
marketing the destination required businesses to get
together to do marketing overall.
Mr. Lambeth explained that many destinations had turned to
the concept of a tourism improvement district [slides 19
through 21]. He detailed it was an evolution of special
benefit assessment districts. The TID built on the theme of
special assessment districts and business improvement
districts in Alaska. The TID involved the tourism industry
coming together to assess itself, collect the assessment,
and spend the money to promote the industry. He detailed
that hotels and other tourism businesses paid an
assessment, which could be collected by the state
government (some places delegated it to private entities),
and it was managed by the destination marketing
organization (DMO). The concept was first created in 1989
in West Hollywood; it was slow in growth in the first few
years and in the past decade there had been an explosion of
the districts - there were currently 160 districts across
11 states. There were at least 10 states currently
considering the model for their tourism promotion efforts.
At present, TIDs were raising over $300 million annually
for destination marketing activities across the country.
3:26:55 PM
Mr. Lambeth addressed slide 22 related to national district
statistics. The 160 districts ranged marketing efforts of
$30,000 per year to $120 million per year. He moved to
slide 23 and provided California as an example. He detailed
California was a different state, with different issues and
a different tourism industry, but the model was the
important component. He stressed that the model had been
incredibly successful for California. He specified that
industry had approved the TID for continuation four times
since 1997. Over the last three years California had moved
from 28th to 2nd among state tourism marketing budgets due
to increases in its TID. He relayed that California had
achieved overwhelming success by using the model without
seeking other taxes. He stated the concept was important in
Alaska. The Alaskan tourism industry did not want to ask
the legislature to tax other industries or things like car
rentals, lodging, or attractions. The concept was an
industry self-assessment.
Mr. Lambeth moved to slide 24 and addressed the industry's
proposal for putting together new legislation. He detailed
that the Alaska Seafood Marketing Institute (ASMI) statute
was a good model already in state law to start with. The
legislation could utilize some of the best concepts from
other laws around the country as it related to the models
and would craft it to be specific to the Alaska travel and
tourism industry. He stated that the industry had done an
incredible job. Civitas had been working with industry over
the past year, and the industry had come together. He noted
it was no easy feat for the industry to come forward and
assess itself. He continued that the industry knew it
wanted and needed a vibrant destination promotion program.
Mr. Lambeth turned to slide 25 and discussed that an
important part of the program was a partnership with the
state, which was common with other districts. The industry
had asked for the vehicle rental tax (about $9.7 million
per year) be matched with the money from the TID to create
a partnership between the industry and the state. The
industry was not merely coming to the legislature with a
request for more money as had been done in the past. The
industry was committing to raise more money and to partner
with the state.
3:30:04 PM
Mr. Lambeth relayed that the industry understood the
legislature had difficult decisions to make and it
appreciated that declining revenue was a significant
problem. The industry wanted to be part of the solution.
Ms. Stephens, presented a TID model on slide 25. The
proposal would bring new money to the table and existing
funds. The proposal included a 1 percent assessment, which
would be the new funds that would be assessed to
accommodations, tours, and attractions, resulting in about
$7.5 million to a marketing program for the state. The
proposal involved accessing some existing funds. She
referred to vehicle rental tax of $9.7 million - language
stated that the funds may be used for tourism marketing.
The package would result in a robust marketing program of
$17.2 million, level with the marketing budget four years
earlier. A robust program was very important to smaller
businesses compared to larger ones.
Ms. Stephens provided the cruise lines as an example and
explained that the cruise industry would guarantee its
assets were filled; they had deeper pockets to pull from to
make sure ship seats and berths were filled. Whereas
smaller businesses relied more on the state marketing
program to help leverage their individual business funds to
recruit guests and ensure the guest was aware of their
business. She stressed the critical nature of the program
that restore funding to a good level and would result in a
strong tourism marketing program. The industry was asking
the legislature to help write the enabling language to
provide a self-assessment for the tourism industry to fund
marketing; it was a tool the industry needed the
legislature's help to be able to leverage its funds.
Co-Chair Seaton noted the tool was modeled after ASMI. He
asked what percentage ASMI assessed on industry.
Additionally, he asked for the match amount. Ms. Stephens
replied she would follow up.
Mr. Lambeth added that the statute included a range of
assessments. He did not know the current number.
Co-Chair Foster asked what kind of buy-in the organization
had received from industry. He asked if they had started
gathering letters from small to large operators.
3:33:42 PM
Ms. Leonard answered that they had begun outreach to
industry the previous March. They were just starting to ask
organizations and businesses for letters of support. The
feedback she had received had been generally positive. She
detailed that no one wanted to add more fees onto the
business, but industry valued a statewide destination
marketing program and wanted to partner with the
legislature. She had the support of the ATIA board of
directors to move forward with the concept because of
industry feedback.
Mr. Lambeth added that the legislation would be enabling,
which would specify what the industry had to go through if
it wanted to establish a TID. The concept would still have
to go through a vote by the industry before implementation.
Representative Guttenberg referred to slide 2 and noted he
had seen the concept of an industry working on becoming
self-sufficient many times. He remarked that it never
seemed to work. He reasoned that the industry could vote to
self-assess, but businesses may not pay the fee. He
observed that people would not participate at a certain
level. He moved to slide 25 that included the vehicle
rental tax, and observed that the tax was already targeted
to other programs. He was concerned the proposal may
shortchange someone if the funds were diverted. He believed
the proposed idea was to turn the marketing over to an
outside marketing group. He thought once the money was
collected it would become designated general funds (DGF).
He asked if the money would be taken in and designated for
a specific program, but subject to appropriation.
3:37:12 PM
Mr. Lambeth answered that the collection processes had been
successful; it was not a voluntary assessment. He detailed
it was voluntary from the standpoint of the industry taking
advantage of the statute. He elaborated that if the
legislature chose to put the statute in place establishing
the rules under which the TID could be created, the
industry could choose on a group basis whether to go
forward - a majority vote would be required. Once the TID
was in place, it would be compulsory. Generally, because
the assessments were passed on to the customer the
collection rates had been high. Additionally, if a business
collected the fee from customers but failed to pay it,
there could be criminal sanctions associated. The other 160
districts around the country had not experienced problems
with collections.
Ms. Leonard replied that was on the industry if the
legislature provided the tool and the industry chose not to
vote. If the industry neglected to vote, it would not have
a marketing program it valued. She believed the last thing
the industry wanted to do was come forward with proposed
legislation and not be successful around unifying itself to
support statewide tourism marketing.
Representative Guttenberg commented on a bed tax in other
locations. He did not have a problem with the tax because
it went to the marketing and he did not understand why a
tax had not been implemented in Alaska.
Representative Wilson assumed there would have to be
definitions for tour activities and attractions because
there were none currently. She wondered if it would be the
entire state versus an Anchorage zone, Fairbanks zone, and
others. She noted that unlike California where all
residents paid taxes, some areas in Alaska did not. She
wondered if there had been an analysis on the subject and
how it would impact the effectiveness of a program.
Ms. Leonard answered that it would be statewide. She agreed
and stated that the organization wanted to work with the
legislature and industry to flush out the details around
identifying or defining tour activities and attractions.
They thought to look at business license codes as a
resource - businesses could self-identify and be detailed.
The terms would have to be defined.
Mr. Lambeth added it was common to have different tax rates
for different kinds of businesses in different locations,
especially related to bed tax. He elaborated that different
jurisdictions in California had different bed taxes - those
were on a local basis for local destination marketing
efforts. The state effort is a blanket percentage across
the entire state, which worked well.
3:41:04 PM
Co-Chair Seaton asked about the current funding the state
provided to tourism marketing. Ms. Leonard replied the
marketing program was currently $1.5 million along with a
capital grant of slightly over $600,000 to implement a
research program.
Co-Chair Seaton asked for clarification. Ms. Leonard
answered that the funding received was in the form of state
grants to ATIA to implement the marketing elements.
Co-Chair Seaton asked about the total tourism marketing
budget. Ms. Leonard responded that the total tourism
marketing budget with the $1.5 million was slightly over $2
million including industry's contribution.
Co-Chair Seaton surmised the request was for the
legislature to divert $9.7 million and increase tourism
marketing by three times with state matching funds to match
a contribution by the industry.
Ms. Leonard stated the industry realized it was the
beginning of a conversation. Industry wanted to move
forward with a partnership with the administration. The
organization would like to use existing revenue generated
by visitors along with new revenue assessed from the
industry.
Co-Chair Seaton remarked that tripling the budget would be
difficult during the current budget environment.
Representative Pruitt stated he had written the language on
slide 2 of the presentation; he was aware of the
conversation. Part of the problem was that the legislature
had told industry the vehicle rental tax would all go to
tourism. He stressed that none of the tax went to tourism.
He stated that part of the problem with industry coming to
the table with a proposal had been that the legislature had
broken their trust. He commended ATIA for coming forward
with a proposal that included a tax on industry. He stated
that it was different than a tax on fish, which was easy
compared to a tax across the entire state. He commended the
industry for coming to the legislature, but it was up to
the legislature to follow through. He remarked that ATIA
understood there was no state money involved, the
organization merely needed the mechanism that ASMI
currently had to formulate something that would enable the
industry to conduct the marketing. He wanted to clarify
that the model did not specify it needed state money; it
was a model asking the legislature for assistance in
formulating something, so it could use the industry to help
pay for what it needed.
3:44:31 PM
Mr. Lambeth answered the industry was looking for a
partnership. The partnership would include the industry
creating a self-assessment and having their customers pay
more, in addition to returning some of the vehicle rental
tax that had been used to try to fill the current budget
deficit.
Representative Pruitt recognized it would not happen
immediately. He believed it was on the legislature to
recognize it had made a promise initially and that it
needed to think about how it fulfilled its promise. He
remarked that the industry would not receive $9.7 million
the next day; however, it was on the legislature to
consider it had told the industry the vehicle rental tax
had been intended to go to tourism. He believed former
Representative Pete Kott had referred to the tax as the
Andrew Halcro tax [also a former Alaska representative]. He
elaborated that the past year the entire tax had gone to
something else. He believed it was on the legislature to
correct its errors.
Mr. Lambeth answered in the affirmative.
Co-Chair Foster stated the intent language from the past
year was that AITA would phase out reliance on UGF money
and look for ways to be self-sustaining. He surmised the
organization's proposal was to come up with a self-
sustaining system using TIDs, so a 1 percent tax could be
imposed on hotels and tour activity and attraction
operators. Additionally, the organization was requesting a
match or partnership with the state - the industry's tax
would raise about $7.5 million and ATIA was asking for
slightly over that amount as a match from the state. He
understood it would increase the tourism marketing budget
back to its 2013 level of about $16 million. He noted the
proposal would raise approximately $17 million. He surmised
the proposal included two components.
Ms. Leonard replied in the affirmative.
ADJOURNMENT
3:47:26 PM
The meeting was adjourned at 3:47 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Alaska TID concept House Finance Committee.pdf |
HFIN 1/24/2017 1:30:00 PM |
ATIA Presentation HFIN |
| Department of Health & Social Services for House Finance 1-24-17.pdf |
HFIN 1/24/2017 1:30:00 PM |
DHSS Budget Overview HFIN |
| SLA2017 HFin Budget Overview.pdf |
HFIN 1/24/2017 1:30:00 PM |
DNR Budget Overview HFIN |
| DHSS Response Log 4703-- Multi-Division - House Finance Meeting 1-24-17.pdf |
HFIN 1/24/2017 1:30:00 PM |
DHSS Overview Response |
| DHSS Response FY2016 Medicaid Optional Service Spend Data.pdf |
HFIN 1/24/2017 1:30:00 PM |
DHSS Overview Response |
| DHSS Response AK Child Family Program Outcomes.pdf |
HFIN 1/24/2017 1:30:00 PM |
DHSS Overview Response |