Legislature(2017 - 2018)HOUSE FINANCE 519
02/28/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB57 || HB59 | |
| Non-agency: Fund Capitalization Amendments | |
| Non-agency: Fund Transfer Amendments | |
| Non-agency: State Retirement Payments Amendments | |
| Non-agency: Special Appropriations Amendments | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 57 | TELECONFERENCED | |
| += | HB 59 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 28, 2017
1:35 p.m.
1:35:37 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:35 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Mark Neuman, Alternate
Representative Dan Ortiz
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
Representative Lance Pruitt
ALSO PRESENT
Alexei Painter, Fiscal Analyst, Legislative Finance
Division; David Teal, Director, Legislative Finance
Division; Angela Rodell, Executive Director, Alaska
Permanent Fund Corporation; Pat Pitney, Director, Office of
Management and Budget, Office of the Governor;
Representative Dan Saddler; Representative Justin Parish.
PRESENT VIA TELECONFERENCE
Megan Wallace, Attorney, Legislative Legal Services.
SUMMARY
HB 57 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 57 was HEARD and HELD in committee for further
consideration.
HB 59 APPROP: MENTAL HEALTH BUDGET
HB 59 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster addressed the meeting agenda. He indicated
the committee would be taking up language amendments in
fund capitalizations, fund transfers, state assistance to
retirements, and special appropriations.
HOUSE BILL NO. 57
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; repealing appropriations; making
supplemental appropriations and reappropriations, and
making appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for
an effective date."
HOUSE BILL NO. 59
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:36:45 PM
^NON-AGENCY: FUND CAPITALIZATION AMENDMENTS
1:36:45 PM
Co-Chair Seaton MOVED to ADOPT L H FND 1 (copy on file):
Fund Capitalization (no approps out)
Oil and Gas Tax Credit Fund FND 1 - Reduce deposit to
the Oil and Gas Tax Credit Fund by 50% (from $74
million to $37 million)
Offered by Representative Seaton
See 30-GH1855J.12, Wallace, 1-31-17.
This amends sec. 21(f) in HB 57, version J.
Due to budget constraints, the Governor's requested
deposit of an estimated $74 million unrestricted
general fund is reduced by 50% to $37 million.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson understood there was a formula that
determined the amount going into the fund.
Co-Chair Seaton responded there was a current formula.
Representative Wilson asked how much would be deposited
into the fund if the formula were used.
Co-Chair Seaton responded that if the formula were correct
the amount would be $74 million.
Representative Wilson asked about the arrival of the
formula. She wondered if the formula was in statute. If so,
she queried whether the state had not abided by the statute
in previous times.
Co-Chair Seaton responded that it removed an amount equal
to 15 percent of all revenue from taxes levied by AS
43.55.011 that was not required to be deposited in the
Constitutional Budget Reserve (CBR). He also referred to
the Alaska Constitution, Article 9, Section 17a. The
constitution contained "estimated to be" language. A fixed
amount of $37 million was appropriated presently.
Representative Wilson did not feel like her question was
answered. She indicated that there was a statute that had a
formula that determined an amount per barrel that went into
the fund. The legislature had instituted tax credits that
would benefit the state with royalty oil. A fund was
established to pay out tax credits. She did not want to
have a debate on the amount. However, it appeared to her
that the amendment would break statute.
Co-Chair Seaton responded that funds appropriated were
subject to appropriation by the legislature. He suggested
having someone from the Legislative Finance Division (LFD)
provide additional information.
Representative Wilson agreed. She was already aware that
the legislature could use all funds. She asked if there was
currently statute in place designating what went into the
fund. If the answer was affirmative, she wanted to know if
there had been another time the legislature decided not to
follow statute having to do with the fund.
1:41:02 PM
ALEXEI PAINTER, FISCAL ANALYST, LEGISLATIVE FINANCE
DIVISION, responded that statute AS 43.55.028 set out the
calculation. The legislature had not always followed the
statute. He reported that for several years the legislature
appropriated the amount necessary to pay all the credits
that were redeemed in a particular year. In some years, the
amount was less than the statutory deposit.
Representative Wilson remarked that although the
legislature did not put as much into the fund as specified
in statute, the state met its obligations. Therefore, the
state would have had money in the fund unused. Whereas, the
legislature would have unpaid credits outstanding, if the
proposed amendment was adopted. She wondered what the
balance would be if the state only paid $37 million towards
outstanding tax credits.
Mr. Painter thought it was about $800 million. However, he
would have to get the exact amount later.
Representative Wilson noted that the state's tax credit
obligations could be paid off. She noted the Higher
Education Fund and the Power Cost Equalization Fund. She
disagreed with the state being in debt to such an extent.
Companies had done what the state had asked them to do. In
the previous few years, the state had indicated that it did
not have to pay its obligations according to statute. She
thought it was a hard reality. Currently, the state was not
going pay its obligations because it was short money. She
relayed that if the state moved all its funds into the
general fund the balance would be more than $1 billion. She
was not including the Permanent Fund corpus or earnings.
She did not agree with having a debt obligation, having the
money to pay for it, but wanting to use the money for
something else. She was disappointed.
1:44:35 PM
Co-Chair Seaton clarified that the state did not have a
debt and the payments were not specifically owed. The state
was required to issue a certificate based on a credit
amount that could be written off against future production
tax liability. There was an additional provision that if
the state had the money, it could buy back credits with
cash subject to an appropriation. The item being discussed
was the amount the legislature would appropriate for paying
credits. The credits were not a debt to the state and no
interest was owed on them. He continued that it was a
secondary method of redeeming tax credits. The state was
not obligated to fund them at any certain time. The
obligation was truly satisfied by issuing a credit, which
could be used against future production taxes. He spoke to
having done things in the past when the state had excess
money. Past legislatures had established a fund to make
deposits and payments. The obligation of the current
legislature was to appropriate funds in the best interest
of the state. The amendment was offered with a 50 percent
reduction to the amount. It equaled the 50 percent
reduction the legislature voted on regarding
municipalities' bond debt reimbursement. It was very
difficult to tell the school districts that the state was
only going to provide 50 percent of the bond debt
reimbursement. He noted that the state would be providing
100 percent of the amount to the 028 fund. The reductions
were equivalent.
1:47:15 PM
Representative Neuman objected to the amendment. He
commented that a portion of the credits pertained to the
Cook Inlet Recovery Act. The program was effective due to
the resulting information about having 12 years of known
reserves in Cook Inlet. The credits assisted companies in
finding additional oil. He reported that the formula was
based on the amount of oil coming down the pipeline and oil
prices. One component gave the proportion due in statute.
He recalled that last year the legislature used $430
million left over from the FY 15 budget. The state received
$500 million of appropriation authority to pull from the
CBR for oil and gas related issues. The state thought it
was headed into some gas pipeline discussions and was aware
that the oil and gas tax credits existed. In the spring at
the Legislative Information Office in Anchorage, the
committee knew there would not be time to address the
credits issue. Members wanted to make sure that the state
had the money that would be due. The committee used $430
million out of $500 million; the rest went to the oil and
gas fund ($57 million) for the gas pipeline and other
related issues. He continued that the $430 million was
vetoed by Governor Walker in the prior year, which brought
up the total debt on the credits to over $1 billion. He
believed the amount of outstanding tax credits was a debt
owed by the State of Alaska. He was adamantly opposed to
the amendment. He believed the state was in its current
fiscal situation because the government's primary source of
revenue came from oil. He spoke to the necessity of
diversifying the economy. He believed the business climate
of Alaska was due to regulations. He thought certain policy
decisions discouraged investments, such as the one being
discussed. He thought it was important to send the message
that Alaska was open for business. He believed it was
important for the state to stand behind its obligations. He
opined that the state breaking its agreements with investor
companies did not help create jobs in the state. He
reiterated his strong opposition to the amendment.
1:51:09 PM
Vice-Chair Gara commented that the amendment raised the
bigger issue of who should get in line and the state having
the ability to fund the things it needed to fund. He
respected the previous speaker's comments that the state
should fund oil and gas tax credits. He wondered if oil
companies should come before children or seniors in need.
Until there was a fiscal plan in place, people would have
to get in line. It was unusual for the state to ask the oil
and gas industry to get in line. He suggested that almost
everything was being cut. He thought that if the tax credit
system paid out more than the state received in production
taxes, there would be a problem. If the state was going to
start funding things, including oil and gas tax credits
that were owed, the state needed to come up with a fiscal
plan. He was concerned about how long the recession would
last.
Co-Chair Foster acknowledged Representative Saddler in the
audience.
Representative Thompson viewed the amendment as job
killing. He expressed his concerns about stifling
investments to get oil in the line. The tax credits were
given out to incentivize investment. He recognized that the
tax credits were a large investment, but the returns would
be worth it in the future. He did not favor the amendment.
1:54:41 PM
Representative Wilson remarked that the formula was a
little different. It was put together when the incentives
went out to the companies. The legislature was not asking
for more undesignated general funds (UGF), which had been
done in the past. During the rough patches, companies had
come back to the state in the prior year asking the state
to make good on its promises. The state's response was that
there was a formula in statute and to expect anything over
the formula was the fault of the companies. The money was
used to incentivize further investment. She emphasized that
oil investment was the reason the state had the services it
had. She was concerned that the legislature was not going
to follow statute. The majority of what Alaska had was
because people believed in the State of Alaska.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Guttenberg, Kawasaki, Ortiz, Foster,
Seaton.
OPPOSED: Thompson, Tilton, Wilson, Grenn, Newman
The MOTION PASSED (6/5).
Amendment L H FND 1 was ADOPTED.
1:58:22 PM
Co-Chair Seaton MOVED to ADOPT L H FND 2 (copy on file):
Fund Capitalization (no approps out)
Regional Education Attendance Area School Fund 1222
L H FND 2 - Reduce deposit into the REAA Fund from
$40.64 million to $23.58 million
Offered by Representative Seaton
See 30-GH1855J.27, Wallace, 2-7-17.
The deposit into the REAA Fund is reduced by 42% from
$40,640.0 to $23,579.4, the same percentage reduction
that is proposed for the school debt reimbursement
program.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson did not believe it was the same.
Although the percentage was the same, the impact to the
districts was different. She elaborated that what had been
passed earlier caused boroughs to have to pay more money to
fulfill the obligations of the communities. She wanted to
clarify that with a 42 percent reduction certain upgrades
would not be met. However, district communities would not
incur additional obligations. She asked if she was correct.
Co-Chair Seaton responded in the affirmative. The Regional
Educational Attendance Area (REAA) funds were state funds.
The formula was set to balance the school debt
reimbursement with the REAA fund deposit, which would allow
the completion of the next school on the list - Shishmaref.
The renovation and addition cost were estimated at a little
over $16 million and would leave approximately $4 million
in the fund.
Representative Wilson asked how many students were enrolled
in the school and about any upgrades that would not be
completed without the money being available.
Co-Chair Seaton did not have the details on the school.
There was a list of schools, Shishmaref being at the top.
There was money in the account to complete the project with
$4 million left in the fund.
Representative Wilson MOVED to ADOPT Amendment to Amendment
L H FND 2 changing the amount to $40,640,000.
Vice-Chair Gara OBJECTED for discussion.
Representative Wilson argued that the money was not going
to be paid back. In Fairbanks, a bond was passed in the
previous year. The community was paying back 100 percent of
the money. The state would be paying 100 percent of the
project. She did not believe it was a fair comparison. She
supposed that if the legislature was not going to allow the
districts to bond then no one else should be allowed to
receive a percentage.
Co-Chair Seaton asked LFD to come to the table.
2:03:52 PM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
explained that the amendment was essentially a conforming
amendment. The statutes required a certain amount of money
(determined with a long and complicated formula) to be
deposited into the REAA Fund. The formula included the
amount of debt service reimbursement that was paid to
municipalities. He continued that it would be very
difficult to reduce the amount to zero because the case was
affected not only by the statutory guidelines but was also
associated with the Kasayulie case. The case stated that
Alaska would build five rural schools and would contribute
to the REAA fund in accordance with what the legislature
chose to pay for debt service. The amount was determined by
the reduction and debt service. He could not say, for
certain, that the state would be sued if it reduced the
amount to zero, but the lawsuit could be reopened.
Vice-Chair Gara asked if he was correct that the state's
funding of rural schools was based on the state's funding
of school debt reimbursement.
Mr. Teal responded affirmatively.
Vice-Chair Gara clarified that by passing the previous
amendment, the state would deposit $17 million less into
the REAA Fund.
Mr. Teal responded that he was correct.
Vice-Chair Gara asked about the ramifications of a full
reduction. He understood the effects of a $23 million
reduction. He wanted to know the consequences of a $40
million reduction.
Mr. Teal explained that it was not to fund anything in
particular. It was a fund for the construction of rural
schools and was done to keep parody between urban and rural
school construction. The urban schools received the debt
service reimbursement, whereas, rural schools had no
ability to issue debt. Therefore, the state paid the full
cost of construction of rural schools. He noted three
schools were in line for funding. The amount would provide
sufficient funding for one of the school and portions of a
second school. The following year's funding would continue
to fund the schools currently in line. The state had no way
of knowing what additional schools would be placed on the
list in the future.
Co-Chair Foster relayed that Shishmaref was eligible to
receive $16.5 million. The second school on the list was in
the Lower Kuskokwim area eligible for $44 million, and the
third on the list was another school in the Lower Kuskokwim
area for $31 million. There were approximately 15 schools
on the list.
2:08:29 PM
Vice-Chair Gara opposed the amendment. He relayed that when
he moved to Alaska he believed he was moving to a great
place. He was aware that there had been people in Alaska
10,000 years prior. In many of the communities, there was
not much of a tax base or a way to build and maintain
schools. Under the state constitution, Alaska had a unified
school system and an obligation to all schools. He opposed
taking more money away from school districts where there
was very little tax base to help urban school districts
with a larger tax base. He opposed the amendment to
eliminate $23.5 million.
Representative Wilson indicated she would be withdrawing
her amendment to the amendment. However, she asked about
the impact of the sunset clause on the amount of money
going towards schools. She thought Mr. Teal was saying that
the statute was based on debt level. She wondered if it
would go down to zero if the state decided not to fund the
debt level for municipalities all together.
Mr. Teal responded that it would, but it would take about
15 years. He elaborated that school debt was usually issued
for a 20-year period. There was a 5-year moratorium in
place, but the state continued to make deposits into the
REAA Fund. The Regional Educational Attendance Area Fund
was not based on the urban school that was built in a
certain year. Rather, it was based on the amount of debt
service being reimbursed. The debt services payment would
continue over 15 years.
Representative Wilson emphasized that it would take 20
years or 30 years to reach zero. It was based on the debt
rather than when a school was built. She remarked that it
was interesting that the committee was talking about not
breaking statute when it had broken it previously during
the meeting.
Representative Wilson WITHDREW her AMENDMENT to Amendment L
H FND 2.
Vice-Chair Gara asked if the amendment could be rolled.
2:12:21 PM
AT EASE
2:14:29 PM
RECONVENED
Co-Chair Foster brought the meeting to order.
Representative Wilson WITHDREW her OBJECTION.
Vice-Chair Gara OBJECTED. He suggested that the amendment
might be appropriate; he had not seen it in the online
system. He might revisit it later.
Vice-Chair Gara WITHDREW his OBJECTION.
There being NO OBJECTION Amendment L H FND 2 was ADOPTED.
2:15:35 PM
AT EASE
2:16:26 PM
RECONVENED
^NON-AGENCY: FUND TRANSFER AMENDMENTS
2:16:26 PM
Co-Chair Foster indicated the committee would be addressing
the fund transfer amendment packet.
Co-Chair Seaton MOVED to ADOPT L H XFR 1 (copy on file):
OpSys DGF Transfers (non-add)
Civil Legal Services Fund
H XFR 1 - FY18 capitalization of the Civil Legal
Services Fund
Offered by Representative Seaton
See 30-GH1855J.42, Wallace, 2-16-17.
This amends sec. 22 in HB 57, version J, by
adding a new subsection to capitalize the Civil
Legal Services Fund with an amount equal to 50%
of punitive damages deposited into the general
fund during FY17 (per AS 09.17.020(j).
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Neuman asked if there was a reason for the
amendment.
Co-Chair Seaton responded that an amount was to be
transferred to capitalize the Civil Legal Services Fund.
Often the funds were variable and every few years needed to
be pulled forward. He furthered that when the committee
took up the supplemental bill he anticipated an amendment
to capitalize the fund with the FY 14 to FY 16 punitive
damages awards in the amount of approximately $10,000.
Representative Neuman asked whether the fund was
underutilized or there were draws on the fund that exceeded
its balance.
Co-Chair Seaton asked LFD to come forward.
Mr. Teal relayed that the action did not have to be carried
out. It was a fund created ten years prior by Senator
McGuire. No money was put into the fund until FY 12. All
Civil penalties per AS 09.17.020(j) from FY 08 through FY
11 were scooped into the fund in FY 12. He noted another
provision that took FY 13 through FY 17 money and deposited
it into the fund. The amount of money was 50 percent of
punitive damages ranging from zero to a few thousand
dollars per year. It had not been viewed as necessary to
implement every year. However, it was something that could
or should go in statute each year. He explained that the
money went from the general fund into the Civil Legal
Services Fund, which then made grants for low-income legal
services civil cases.
Representative Neuman wondered if there was a need for
additional funds in the account.
Mr. Teal answered that a grant of $1,000 would not
necessarily make a lot of difference. However, to someone
that needed legal services, it could make a big difference.
He did not want to say anything definitively.
2:21:43 PM
Representative Wilson asked if Legal Services was funded
through a general fund appropriation.
Mr. Teal responded that the state funded Legal Services
from the Office of the public Defender to the Office of
Public Advocacy in many ways. The amendment was a different
proposal: It was a way to take punitive damages and issue
grants to an entity that offered legal services to low-
income people. He could not recall the name of the entity.
He continued that they were typically awarded the grant.
There were at least three ways Legal Services was funded.
Representative Wilson commented that another fund would be
started because the state did not have enough. The general
fund money would be taken away from somewhere else. She
thought the state had enough funds. She suggested that if
the state wanted to fund the grants or the entity the state
should just fund it rather than creating another fund. She
was not in favor of starting another fund.
Mr. Teal clarified that the amendment was not creating a
new fund, as the fund was created several years prior. It
was the appropriation following the funding mechanism.
Vice-Chair Gara guaranteed there would not be a huge amount
of money going into Alaska Legal Services. The state used
to fund Alaska Legal Services, civil legal services for
people in abusive relationships and other civil cases. The
state used to support Alaska Legal Services Corporation
substantially. It barely supported it anymore. There had
been attempts in the past to put 50 percent of punitive
damages into a state fund that would go to Legal Services.
However, when lawyers settle cases to avoid the 50 percent
rule, they settled the cases stating that all the damages
were compensatory rather than punitive damages. As a
result, there was no money to go to Legal Services and
other entities. He supposed there would have to be a way to
fund Legal Services.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Ortiz, Seaton, Foster
OPPOSED: Tilton, Wilson Neuman, Thompson
The MOTION PASSED (6/4).
Amendment L H XFR 1 was ADOPTED.
2:26:09 PM
Co-Chair Seaton MOVED to ADOPT L H XFR 2 (copy on file):
OpSys DGF Transfers (non-add)
Oil and Hazardous Substance Release Prevention Account
H XFR 2 - Amend year and amount of surcharge deposited
into the oil and haz. waste prevention account
Offered by Representative Seaton
See 30-GH188J55, Wallace, 2-18-17.
This is a Governor's amendment to sec. 22(c)(3) to
base the deposit into the oil and hazardous waste
prevention account in the oil and hazardous waste
prevention and response fund from the surcharge levied
under AS 43.40.005 on actual collections instead of
prospective estimates.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson suggested not transferring the money
at present and utilizing it for UGF, since the amendment
reflected general funds and the state was short of money.
It was her understanding that the fund was doing quite
well, and it was not necessary to fulfill its mission at
the current time.
Co-Chair Seaton informed members that the amount was going
to actual collections instead of prospective estimates. It
reflected a realistic dollar deposit instead of an
estimate.
Representative Wilson remarked that the legislature could
keep the money if it wanted to. She understood the payment
was an exact amount. The money could be put towards schools
or other programs. The legislature was not obligated to put
the money into the fund. She asked if she was accurate.
Co-Chair Seaton relayed that the surcharge was a per dollar
surcharge with a designated deposit into the fund. He
thought LFD could give further clarification.
Representative Wilson did not need to hear from LFD. She
argued that the amendment was no different from the
previous fund discussed for tax credits. She suggested that
during the current meeting the committee had already
established that the legislature could do anything it
wanted with state money. She reported that $400,000 could
be used for an attorney discussed by Representative Grenn.
She continued that the money could go towards other
programs where TVEP funding was no longer available. She
understood the money was collected based on clean-up fees.
She continued to provide examples of money set aside in
funds. She thought it would be better to put the money
towards the state's deficit.
2:30:13 PM
Representative Neuman wanted to hear from LFD. He asked who
the beneficiary was of the $400,000. He wondered if the
money went to the Department of Environmental Conservation
(DEC). He thought the money was funded with 1 cent or 2
cents collected on every barrel of oil. He was confused
about the fund source.
Mr. Painter answered that the money went to the spill
response fund, which funded the division of the same name
within DEC. The fund was solely funded by the surcharge on
oil until 2 years prior when the legislature passed a bill
that placed a 95-cent tax on motor fuels. The amendment
helped to create a time lag so that there would be
certainty in the amount. The fund went to the Spill
Prevention and Response Division in DEC.
Representative Neuman believed the answer was yes that the
funds went to DEC.
Representative Kawasaki was unclear why it looked like it
was UGF. He thought that if the funds were meant for spill
prevention and response they should be designated as DGF.
Mr. Painter relayed that, by the constitution, taxes were
UGF. In other words, the money came in as UGF and then
deposited into a fund, which then was spent as DGF.
Representative Wilson MAINTAINED her OBJECTION. She thought
the $400,000 could be spent elsewhere.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Kawasaki, Foster, Seaton
OPPOSED: Wilson, Ortiz, Neuman, Thompson, Tilton
The MOTION PASSED (6/5).
2:33:27 PM
AT EASE
2:45:40 PM
RECONVENED
^NON-AGENCY: STATE RETIREMENT PAYMENTS AMENDMENTS
2:45:40 PM
Co-Chair Seaton MOVED to ADOPT L H SAR 1 and L H SAR 2
(copies on file):
PERS State Assistance
All Other PERS
H SAR 1 - Eliminate use of the Alaska
Higher Education Investment Fund for retirement
assistance and replace it with UGF
Offered by Representative Seaton
See 30-GH1855J.15, Wallace, 1-31-17.
The use of the Alaska Higher Education Investment Fund
in the FY17 budget for retirement assistance was
expected to be a one-time item. This amendment
eliminates the use of the Alaska Higher Education
Investment Fund and replaces it with UGF for
retirement assistance in FY18.
TRS State Assistance
School District TRS
H SAR 2 - Eliminate use of the Alaska
Higher Education Investment Fund for retirement
assistance and replace it with UGF
Offered by Representative Seaton
See 30-HG1855J.16, Wallace, 1-31-17
The use of the Alaska Higher Education Investment Fund
in the FY17 budget for retirement assistance was
expected to be a one-time item. This amendment
eliminates the use of the Alaska Higher Education
Investment Fund and replaces it with UGF for
retirement assistance in FY18.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendments (see above). He
indicated that the first amendment affected PERS and
replaced $37,852,900 appropriated from the Alaska Higher
Education Investment Fund. The second affected TRS and
replaced $20,434,100 appropriated from the Alaska Higher
Education Fund.
Representative Neuman asked if there was an objection.
Co-Chair Foster confirmed there was an objection.
Representative Wilson asked how much was currently in the
fund. She also inquired about how much money was made in
interest.
Co-Chair Seaton responded that the total UGF appropriation
was $111,757,000.
Representative Wilson asked if she was correct in saying
that there was $111,757,000 million in the Higher Education
Fund prior to the amendment.
Co-Chair Seaton requested that LFD respond to
Representative Wilson's question.
Mr. Teal informed the committee that the FY 17 ending
balance was $349 million.
Representative Wilson asked if the amount took into account
what was used in the Department of Education and Early
Development (DEED). The legislature used funds to replace
general funds.
Mr. Teal answered that he had provided the FY 17 ending
balance. The FY 18 appropriations from the fund included;
about $12 million for scholarships; $6 million for grants;
$6 million for museums, libraries, OWL programs, and
various other programs; and $58 million for the current
appropriation being discussed [PERS/TRS State Assistance]
for a total of about $82 million.
Representative Wilson wondered about an interest amount
made in the previous year. She noted that the fund had
$400,000,000 before the legislature dipped into the fund.
Mr. Teal relayed that interest earnings on the fund were a
little less than $3 million in FY 16. In FY 17, they were
expected to be about $23 million. Interests varied. He
added that the interest earnings for FY 18 was projected to
be about $19 million.
2:51:04 PM
Representative Wilson wondered about the interest
projections if the budget passed in its current form. She
asked about the basis of the projection. Mr. Teal answered
that the starting balance for FY 18 was about $350 million.
At the end of FY 18 the balance would be approximately $286
million - an anticipated $82 million of expenditures
including the $58 million and about $19 million in interest
earnings.
Vice-Chair Gara asked whether the numbers were
approximately the same as the amount appropriated out of
the Higher Education Fund to pay for the retirement debt in
FY 17.
Mr. Teal responded that they were not the same. He
explained that in FY 17 the state paid approximately $90
million. In the previous year, the money used was based on
projections provided by the state's actuaries. It was
determined that the FY 18 contributions would fall by about
$90 million which was the reason it was presented as a one-
time use of money. In FY 18, the legislature planned to
return to using general fund monies. The projections
changed. The state did not get a reduction of $90 million
as the legislature had been told. In June, just a few
months after the projection was received, the valuation
came out showing that the reduction was about $30 million
rather than $90 million. Therefore, about $60 million
remained in the budget from the Higher Education Fund. The
appropriation was expected to be a one-time appropriation.
Under the circumstances, with several parties trying to cut
the budget, there was an unexpected $60 million increase in
UGF spending. The governor turned in the budget indicating
he did not want to absorb the reduction, instead he
suggested continuing to use the Higher Education Fund in FY
18. He thought the chairman stated that the legislature
needed to true-up the circumstance even though it could not
continue this course in the future. It was better to true
it up presently. However, he thought it was up to the
chairman to explain the situation.
Vice-Chair Gara supported the amendment. He remarked that
for some things the legislature was using UGF, and for some
expenditures that were normally UGF it was using DGF. He
thought it would be best to combine all general fund
spending to compare FY 17 to FY 18. In his view, it would
keep people from making false comparisons between budget
years. He opined that the expenditures should go back to
UGF. In the meantime, he thought the legislature should be
comparing all general expenditures, whether UGF or DGF,
from one year to the next. He thought it would be closer to
transparent budgeting.
2:55:56 PM
Representative Neuman asked about the year-end balance in
the previous year.
Mr. Teal responded, "About $350 million."
Representative Neuman wondered how the fund performed in
the current year.
Mr. Teal replied that in FY 17 he expected about $23
million in investment returns.
Representative Neuman remarked that the fund containing
$360 million was performing well and had produced an
additional $23 million. The state had $19 million from the
$11 million requested for the Higher Education Fund. He
thought it would be better to use funds from some of the
funds that performed well. He wondered why the state would
take money out of the CBR when it had funds that were
performing well, meeting their constitutional obligations
with funds left over. He thought it would be prudent to
increase the balance of the funds with the leftover funds
or use them to pay the state's debts instead of borrowing
additional money from the CBR. He thought it made more
sense. The fund had been doing okay, as it could hold its
own and added to revenue that could be put towards state
services. He mentioned the time value of the dollar. He
provided a hypothetical scenario about re-roofing his home.
2:58:26 PM
Representative Ortiz asked when and why the fund was
started.
Mr. Teal responded that the fund was a priority of Governor
Sean Parnell. He had worked on the legislation for several
years with it eventually passing in 2014 or 2015. The fund
was a $400 million endowment established to pay for grants
and scholarships for Alaska high school graduates to attend
universities. The fund was expected to produce larger
payouts than it had. He reported that a $30 million or $40
million return was expected per year. The fund had only
produced about a $20 million in payouts annually. The $400
million balance was more than required to make the grant
and scholarship payments. He suggested that if the
legislature was to fund retirement funding in the current
year it would drop the balance to about $280 million, which
was sufficient to spin off investment revenue of about $18
million per year; roughly equal to the grants and
scholarships combined. However, the legislature was also
using about $6 million per year from the fund to pay for
other educational items. He reiterated that if the
legislature was to use the fund in the current year, grants
and scholarships could be funded on an endowment basis. He
reported that there was a small negative cash flow
expected. He suggested that the legislature could reduce $6
million or backfill it with UGF. The program could fund
itself if the committee accepted the amendment. The
governor submitted the budget using these funds. However,
the governor's Office of Management and Budget (OMB) was
clear that it would have to be the last year for using the
funding, as there would not be investment returns
sufficient to pay for even the scholarships and grants if
the amount was used in FY 19.
Co-Chair Seaton added that the Alaska Performance
Scholarship Fund was one of the basic initiatives to give a
draw through middle school and high school to have kids
take higher education classes and more math classes. It was
one of the few very successful programs that had changed
student behavior in high schools across the state. He
expressed his concern about continuing to deplete the fund
for non-designated uses and sending the message to students
that there might not be funds available in 4 or 5 years. He
thought it was important for students to understand that
the legislature was fully committed to making sure there
were scholarships available to students who took certain
actions and performed well. He relayed that the
scholarships could be used for certification programs in
workforce development. He thought the fund was very
valuable to maintain long-term and did not want to send the
wrong message to students. He wanted to keep UGF draws
down, so the budget looked better. He thought the payment
for the retirement fund should come from UGF rather than
the education fund, as it would be more truthful in the
budgeting process. By using UGF funds to pay retirement
obligations a strong Alaska Performance Scholarship Fund
would be maintained as well.
3:04:48 PM
Representative Neuman asked if the Higher Education Fund
was used to fund anything other than higher education. He
specifically asked if it had been used to fund Online with
Libraries (OWL).
Co-Chair Seaton replied that there were a few other
education programs paid for with the fund but not for
funding PERS and TRS or anything that was a general
government expense.
Representative Neuman thought he heard an affirmative
response from the Co-Chair. He asked Co-Chair Seaton if he
was saying it was okay to use the Higher Education Fund to
fund OWL and other grant programs in the amount of $6
million but not okay to use excess funds to reduce the UGF
draw. He asked if he heard incorrectly.
Representative Ortiz referred to his last years of
teaching. He remembered the AK Performance Scholarship Fund
being a powerful program for his students. He supported the
amendment.
Representative Wilson MAINTAINED her OBJECTION.
Representative Neuman clarified that members would be
voting on both amendments.
Co-Chair Foster responded in the positive.
A roll call vote was taken on the motion.
IN FAVOR: Grenn, Guttenberg, Kawasaki, Ortiz, Gara, Seaton,
Foster
OPPOSED: Neuman, Tilton, Wilson
The MOTION PASSED (7/3).
Amendment L H SAR 1 and Amendment L H SAR 2 were ADOPTED.
3:08:28 PM
Co-Chair Seaton MOVED to ADOPT L H SAR 3 (copy on file):
Unlicensed Vessel Personnel Annuity Retirement Plan
H SAR 3 - Reduce estimated cost for the Unlicensed
Vessel Personnel Annuity Retirement Plan
Offered by Representative Seaton
See 30-GH1855J.19, Wallace, 1-31-17.
This new language reduces the $25.0 cost to an
estimate of zero. The Department of Administration,
Division of Retirement and Benefits is searching for
eligible participants.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson asked about having to search for
someone.
Co-Chair Seaton responded that state had been depositing
$25,000 into a retirement fund account. Currently, no one
was still eligible for the benefit. It was a retirement
plan that would be taken to zero.
Representative Wilson asked how much was in the fund.
Co-Chair Seaton answered that there was zero in the fund
presently. The amendment would put $25,000 in the fund in
case someone was found eligible.
Representative Wilson asked if it was a subtraction rather
than an addition. She wanted to verify that nothing was in
the fund.
Co-Chair Foster invited LFD to the table.
Mr. Teal informed the committee that it was a very small
retirement program, which functioned like military
retirement. There was no balance in the fund. Rather,
benefits were paid when due. The governor requested $25,000
be placed in the fund in case the administration found
someone eligible for the small payment. The amendment
clarified that the money did not need to be appropriated.
If the administration found an eligible party, the funds
would be available. He continued that the $25,000 that was
appropriated did not need to be appropriated. The amendment
reversed the appropriation.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION Amendment L H SAR 3 was ADOPTED.
3:12:32 PM
AT EASE
3:15:43 PM
RECONVENED
^NON-AGENCY: SPECIAL APPROPRIATIONS AMENDMENTS
3:15:43 PM
Co-Chair Foster indicated the committee would be addressing
the special appropriations amendment packet.
Co-Chair Seaton MOVED to ADOPT L H SAP 1 (copy on file):
Language Amendments
L H SAP 1 - Add intent language regarding supplemental
requests
Offered by Representative Seaton
See 30-GH1855J.1, Wallace, 1-30-17.
This amends sec. 4 in HB57, version J.
The amendment expands the section title (from "cost of
job reclassifications") and restores typical intent
language relating to supplemental budget requests.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Neuman asked why the amendment was
necessary.
Mr. Teal answered that the committee did not have to offer
the amendment. He elaborated that the amendment contained
intent language that had been in the budget for several
years. It conveyed to the executive branch what the
legislature expected the administration to spend. The
legislature did not expect the administration to come back
with a supplemental request unless there were truly
unforeseen circumstances. It was intent language and
unenforceable. It directed the administration to manage the
money appropriated by the legislature.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION Amendment H SAP 1 was ADOPTED.
3:18:12 PM
Co-Chair Seaton MOVED to ADOPT H SAP 2 (copy on file):
Language Amendments
L H SAP 2 - The FY18 AHFC Dividend (net of debt issued
on behalf of the State) is deposited into the General
Fund
Offered by Representative Seaton
See 30-GH1855J.2, Wallace, 1-30-17.
This amendment changes the lead-in language of sec.
6(b) and (c) in HB 57, version J.
The amendment effectively deactivates the AHFC
dividend fund code (1139, which is classified as UGF)
so the net dividend is spent as UGF (code 1004). There
is no impact on UGF spending and no loss of
information caused by this amendment.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Kawasaki read the related text. He asked LFD
if any information would be lost.
Mr. Teal responded that the bill stated the amount of the
dividend. The state had records of the dividends paid by
Alaska Housing Finance Corporation (AHFC) and Alaska
Industrial Development and Export Authority (AIDEA). He
continued that the amount of money that was spent was
somewhat confusing because, in the case of AHFC, they
retained some of their dividend for debt they had issued on
behalf of the state. The remaining funds were typically
spent in the capital budget with the dividend codes noted.
There was also a provision that looped back around that
stated whatever was not spent in the capital budget went
somewhere else. He explained that a dividend code was not
necessary because it was a UGF code. It made no difference
which code was used because they were both in the UGF
group. There was no loss of information. All that would
likely happen would be that the capital budget would use
the UGF code rather than the AFHC or AIDEA dividend code.
Representative Wilson WITHDREW his OBJECTION.
There being NO OBJECTION Amendment L H SAP 2 was ADOPTED.
3:21:40 PM
Co-Chair Seaton MOVED to ADOPT H SAP 3 (copy on file):
Language Amendments
L H SAP 3 - The FY18 AIDEA Dividend is increased and
is deposited into the General Fund
Offered by Representative Seaton
See 30-GH1855J56, Wallace, 2-20-17.
This amends sec. 8 in HB 57, version J.
This amendment increases the estimated amount of the
AIDEA dividend from $9.5 million to $12,883,000 and
also deactivates the AIDEA dividend fund code (1140,
which is classified as UGF) so the dividend is spent
as UGF (code 1004). There is no impact on UGF spending
and no loss of information caused by this amendment.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment description.
Representative Neuman asked if the AIDEA Board decided the
amount of the dividend.
Co-Chair Seaton redirected the question to LFD.
Mr. Teal responded that they did. He relayed that the AHFC
board, the AIDEA board, and the student loan board all paid
dividends in 2018. The AIDEA and AHFC boards determined the
amount based on a statutory formula tied to profit. The
dividend changed substantially from year-to-year. The
dividends had been relatively low in recent years. There
was a time when the AHFC dividend was $100 million.
Presently, it was less than $20 million. The boards
determined the dividend amounts.
Representative Neuman wondered about the discrepancy in the
payout numbers for AIDEA.
Mr. Teal responded that there was a governor's amendment
truing up the amount. The amendment did not set the
dividend in anyway. It simply stated that whatever dividend
AIDEA declared would be deposited straight into the general
fund. It would then be spent as code 1004, the generic UGF
code, instead of the code for dividends, which did not need
to be tracked.
Representative Neuman did not have a problem with the fund
code. He thought he had heard two different answers about
the board deciding how much money they could afford after
expenses. He wondered if the board determined the amount
was $9.5 million or $12.8 million.
Mr. Teal was unsure the reason for the governor's
amendment. The board decided that the dividend was $12.8
million. There was a bill in which AIDEA had requested a
change in the way they computed their dividends. There was
a zero-impact fiscal note associated with it. A statue
change was required to change the way it was calculated. He
suggested Representative Neuman direct the question to Pat
Pitney from OMB.
3:26:21 PM
Representative Neuman thought if there was legislation, the
amendment would have to specify that it was subject to the
passing of legislation. He did not see such language. He
asked if the amendment was an increase or whether it was
addressing authority pending a piece of legislation.
Mr. Teal reported that it was not legislation. No
legislation was needed. The appropriation bill simply
stated that whatever dividend was declared by AIDEA would
be deposited into the general fund. It was an estimated
amount. Technically, it did not matter if the amount was
$9.5 million or $12.8 million. Either amount would be
deposited. The amendment tried to get the right amount of
money in the estimate. The amount was just an estimate.
Representative Neuman asked for clarification. He relayed,
"This is an estimate on the appropriation authority based
on the dividend that is approved by AIDEA's board."
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION Amendment H SAP 3 was ADOPTED.
3:28:07 PM
Co-Chair Seaton MOVED to ADOPT H SAP 4 (copy on file):
Language Amendments
L H SAP 4 - Appropriations involving the Permanent
Fund, the ERA, the PEF, the Dividend Fund and the
general fund
Offered by Representative Seaton
See 30-GH1855J70, Wallace, 2-21-17.
See supporting documentation offering an explanation
of appropriations related to the permanent fund
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above). He invited
Mr. Teal to walk through the amendment.
Representative Wilson thought the amendment was really a
bill. She thought most of the amendment was already in a
bill. She queried the reason it was being included in the
budget.
Co-Chair Seaton responded that the language corresponded
with the bill currently in finance. The budget bill was
proceeding at its own speed and the other bill was
proceeding at its own speed. The committee would proceed
with both.
Representative Wilson asked if it was like the motor fuel
surcharge in that the legislature would be putting
something in the budget anticipating that a bill would
pass.
Co-Chair Seaton answered that the committee was putting
direction lines of where deposits were made.
3:30:01 PM
Representative Wilson wondered whether the language would
change in the budget bill if any other related bills did
not pass.
Co-Chair Seaton asked her to repeat her question.
Representative Wilson asked if the amendment would be
impacted if the amendment passed and the bill did not.
Co-Chair Seaton responded, "No."
Mr. Teal directed the committee's attention to the
supporting documents for ASAP 4, page 1 of 5. The document
provided an explanation of the amendment, which had seven
parts. He pointed out a "typo" on page 2, line 1. The
amount shown was $1.69 million and should have been $1.69
billion. Another typo on page 1, line 2 was $2.41 million
and should have been $2.41 billion. He also pointed to the
amount $1.62 million listed under Part 5, which should have
been $1.62 billion. He suggested looking at the Legal
Services version of the amendment on page 4 or 5. He
advised members to follow the chart that began the
explanation. He pointed to Part 1 of the amendment, which
reduced the royalty payments that currently went into the
Permanent Fund - 25 percent minimum mandated by the
constitution. There was a law that put in another 25
percent of royalties from new fields (fields put into
production after 1980) into the Permanent Fund. Currently
the amount was about $55 million per year. The 25 percent
coming from the legacy fields was about $244 million per
year. The amendment would leave money in the general fund
rather than placing it in the Permanent fund in the amount
of $55 million in the current year. The amount would go up
to about $70 million based on the revenue projection over
the following 6 years. The second part of the amendment
replaced the $55 million that would stay in the general
fund with annual inflation proofing from the earnings
reserve account (ERA). The inflation proofing calculation
was .25 percent of the average 5-year balance. It amounted
to about $120 million in the current year. He pointed to
page 3 of the amendment, which showed a chart that provided
the average balance of the Permanent Fund, an explanation
of the computations, and the actual amended amounts. He
explained that when he stated $1.69 billion, the actual
carried out to more decimal places. He added that in Part 1
and 2, the principal of the Permanent Fund got more
inflation proofing than it did presently.
3:35:23 PM
Representative Wilson asked about inflation proofing in the
past 5 years. She asked if the amount was lower than $120
million for inflation proofing.
Mr. Teal responded, "Typically not." He elaborated that the
full inflation proofing, based on the Consumer Price Index
(CPI) and the current balance had been, on occasion, about
$900 million. The legislature did not inflation proof in FY
16 or FY 17. There was no CPI based inflation proofing in
the bill for FY 18. The amendment was the inflation
proofing for FY 18. He reported that the bill in front of
members had additional inflation proofing that would
unlikely take effect in FY 19. It would come later.
Representative Wilson suggested that when Mr. Teal stated
it was more than the legislature had been doing, it was
because they had been doing nothing. She asked if it would
go back to 5 years and the dividend. Part of it was
inflation proofing. She suggested that the methodology
generating $120 million was very different than the one set
at approximately $900 million.
Mr. Teal responded, "Absolutely." He elaborated that in the
past the Permanent Fund was fully inflation proofed. Some
people thought it had been over-inflation proofed. The
current CPI or anticipated inflation rate was about 2.25
percent. The amendment used .25 percent or one-eighth
inflation proofing.
Mr. Teal explained that Part 3 was an FY 17 deposit to the
Public Education Fund. The amount was determined by taking
the balances between FY 11 and FY 15, a 5.25 percent
payout, and reducing that amount by the dividends that were
paid out leaving a $1.69 billion to $1.7 billion deposit.
In the governor's bill, that money would go to the general
fund. In the current bill, the amount would go to the
Public Education Fund.
Representative Wilson asked to confirm both were general
fund monies, whether deposited into the general fund or the
Public Education Fund.
Mr. Teal replied, "That's correct." He noted that by
putting it in the Public Education Fund Part 4 would be
allowed. Part 4 deleted the FY 18 deposit of about $1.25
billion that, in the governor's bill, flowed into the
Public Education Fund to fund K-12 in FY 18. The
legislature would not need to do so because there would be
$1.7 billion in the account sufficient to fund pupil
transportation and the foundation formula for FY 18. There
would be a balance of about $400 million in the fund.
Mr. Teal discussed the FY 18 payout in Part 5, which was
based on a 5-year average. A payout of 5 percent would
provide $1.6 billion from the ERA to the general fund. He
relayed that the state's deficit was roughly $2.9 billion.
Between the payout of $1.6 billion and $1.3 billion not
placed into the Public Education Fund, the FY 18 deficit
would be eliminated. It also depended on oil prices, and
additions to and subtractions from the budget. The state
would be close to balancing the budget in FY 18.
3:40:35 PM
Representative Wilson asked for clarification. She
suggested that the state would be taking a $1.6 billion
payout. She wondered if a second amount would be taken from
the ERA.
Mr. Teal replied in the affirmative. He detailed that the
legislature would be taking a payout for FY 17. The
governor implemented a portion of the bill that did not
pass in the previous year by vetoing dividends. He then
came back in the FY 18 bill and effectively implemented the
other major piece of the prior year's Permanent Fund
Protection Act, which was to pay money out in FY 17. It did
not happen. Presently, the governor was implementing it in
his budget with a supplemental payout. He recapped that
there was a FY 17 payout of $1.7 billion and an FY 18
payout of $1.6 billion. The FY 18 payout went to the
general fund rather than the Public Education Fund.
Representative Wilson spoke to the $1.6 billion that would
go to the Public Education Fund. She surmised that the
legislature was forward funding education. She asked if the
second $1.6 would go into the general fund.
Mr. Teal replied in the affirmative.
Representative Wilson believed that the state had $3.2
billion coming out of the ERA. She asked if she was
correct.
Mr. Teal answered in the affirmative.
Representative Wilson asked about the impact of $3.2
billion being taken out of the ERA. She thought it was a
substantial amount of money to take out in one year.
3:43:20 PM
Representative Thompson was trying to determine the
numbers. According to his addition, it looked like there
would be a $4.2 billion draw from the ERA in the current
year. He wondered if he was accurate.
Mr. Teal answered that inflation proofing was not
considered a draw - it was a transfer within a fund. The
payout from the ERA was $1.7 billion plus $1.6 billion. The
dividend was another $790 million. Adding all the items
equaled over $4 billion. The amount that would go to the
general fund would be $3.3 billion. It depended on what to
include or exclude from the calculation.
Co-Chair Seaton clarified that the $1.7 was a draw in FY 17
and deposited in the education fund. It was not a draw in
FY 18. He asked if he was correct.
Mr. Teal replied in the affirmative.
Representative Neuman did not know how to look at the
amendment, besides observing the changes were very
substantive. He had not heard anything about the use of the
ERA to fund any of the items yet. He believed the amendment
represented a huge policy change. He asked about a draw on
the CBR.
Mr. Teal replied that it depended on oil prices and what
actions the legislature decided to take on the budget. He
reviewed the rough estimates. He relayed a deficit of $2.9
billion being filled with a $1.6 billion payout and a
deletion of $1.3 billion FY 18 would lead to a balanced
budget. A balanced budget would not require a CBR draw or a
super majority vote associated with it.
Representative Neuman thought that avoiding the discussion
might be a big reason for the amendment. He heard the
committee talking about clarity in the budget. He
guaranteed the public did not know anything about the
amendment. He did not support the process. He thought that
there would be a funding source already allocated. He did
not believe it was good policy.
3:48:08 PM
Representative Ortiz asked if the impact of the $1.7
billion for FY 17 lessened the draw for FY 18 to below the
$4 billion mark.
Mr. Teal replied, "That's correct."
Vice-Chair Gara asked about remaining funds in the CBR and
Statutory Budget Reserve (SBR). He inquired what would be
left in savings at the end of FY 18 if the state paid for
its projected deficit out of the SBR and the CBR.
Mr. Teal replied there would be $2.5 billion or so
remaining at the end of FY 18, which could possibly get the
state through FY 19 at which time the CBR would be gone.
Vice-Chair Gara asked if the savings accounts would be
empty by FY 19.
Mr. Teal replied the CBR would be empty. The Statutory
Budget Reserve balance would depend on oil prices and the
budget. The amount was about $300 million. It would provide
some headroom in terms of budget deficits. The
Constitutional Budget Reserve and Statutory Budget Reserve
were referred to as the reserve accounts. The earnings
reserve account was not a true reserve account but was far
larger at $10 billion.
Vice-Chair Gara wondered what would be left at the end of
FY 19 if the legislature funded the budget with those two
savings accounts.
Mr. Teal answered that he did not recall the number
specifically. The balance would depend on which bill was
used - whether the legislature drew from the ERA or the CBR
to fill the deficit. He suggested that there was about $10
billion in earnings reserves that continually replenished
itself by about $3 billion annually. It was difficult to
provide a figure without looking at his model.
Vice-Chair Gara asked that assuming the state continued
just drawing [Representative Wilson interjected].
Representative Wilson called for a point of order. She
thought the discussion was going way beyond the amendment.
Vice-Chair Gara responded that he was trying to figure out
the impacts of drawing on the CBR and the SBR as the
legislature had done without the amendment [Representative
Wilson interrupted Vice-Chair Gara].
Representative Wilson countered the conversation was about
the current amendment and its effects on the budget.
Vice-Chair Gara believed he was entitled to understand what
would happen if the committee did not adopt the amendment
and spent from the remaining budget reserves.
3:52:48 PM
AT EASE
3:53:15 PM
RECONVENED
Vice-Chair Gara restated his question to Mr. Teal. He
suggested that if the state continued to fund its budget by
using the CBR and SBR the state would have about $2.7
billion left at the end of the following fiscal year
[Representative Wilson interjected].
Representative Wilson requested an "At Ease."
3:53:40 PM
AT EASE
3:54:16 PM
RECONVENED
Vice-Chair Gara commented that the state would be out of
savings in two years if the legislature did not make a
change the way it did things.
Co-Chair Seaton referred to a question posed by
Representative Neuman about the structure of the bill and
the distribution. He pointed out that the governor had the
exact structure in his version of the budget. There was a
5.25 percent draw to be deposited directly into the general
fund. One of the problems was that the governor did not
subtract the dividends paid in 2017. The amendment had a
draw of 5.25 percent and subtracted the actual dividend
payment that was made which provided $1.7 billion into the
Public Education Fund. Although depositing $1.7 Billion
into the Public Education Fund, a general fund account, the
reduction made in the amendment was sounder than double
pulling the amount of the dividend for FY 17 from the ERA.
Representative Thompson wanted to return to the subject of
inflation proofing. He was uncomfortable with the inflation
proofing percentage of 2.5 percent. In reviewing the 2014
actual value of the Permanent Fund compared to its value in
2016 after not having inflation proofed for two years, it
had gone from $45 billion down to $44.4 billion. He
furthered that 2.5 percent was not an adequate amount for
inflation proofing. He thought it made the Permanent Fund
into a semi-permanent fund. He emphasized that the
legislature would be cheating Alaska's children in the
future. He wanted to ensure the growth of the fund. The
value would not grow without inflation proofing the fund.
Inflation would otherwise eat up the fund's spendable
value. He referred to legislators with children. He was
concerned for his son's future. He highlighted the
importance of keeping up with inflation by properly
inflation proofing the Permanent Fund to maintain its
growth. Currently, the legislature was taking money out of
the ERA, which would potentially decrease future dividends.
The legislature was taking $4.2 billion out of the ERA
presently and would reduce the Percent of Market Value
(POMV) in the future. He asked Mr. Teal to address his
statements.
Mr. Teal responded that inflation proofing simply
transferred money from the ERA to the principle. He
continued that the Permanent Fund's [Corporation's] view of
safety was having the money in the principle of the fund.
The job of the board was to protect the fund. Mr. Teal's
job was different. He was trying to protect the treasury,
which to him meant that it was not a bad idea to leave the
money in the ERA. If the money was in the corpus of the
fund, it could not be spent. He was concerned the ERA would
be gone, the payout to the general fund would not be
available because it was in the corpus, and there would be
no other reserves available. He would rather see the funds
left in the ERA. The corpus and the ERA made up the
Permanent Fund. He indicated that whether an actual
inflation proofing transfer was made mattered in the
political sense and spending-wise. It was a matter of
deciding whether the money should be in the principle of
the fund and unavailable for spending, or available by
having it in the ERA as a safety to the treasury. It was a
political and philosophical question.
4:00:47 PM
Representative Neuman asked if the ERA was available to use
for expenditures. Mr. Teal responded in the affirmative. He
specified that a simple majority vote of the legislature
was necessary.
Representative Neuman asked if there was about $10.5
billion in reserves. Mr. Teal replied, "That's correct."
Representative Neuman asked if there was $3.5 billion in
the CBR. Mr. Teal responded positively.
Representative Neuman suggested that there was over $14
billion in reserves presently between the CBR and the ERA.
He opined that the state was not in crisis, as its deficits
were running $3 billion and the legislature had the ability
to use the ERA for appropriations. He suggested that the
amendment made significant changes to how the state funded
its budget. He thought it was inaccurate to say that the
state would run out of money in the following year because
it did not have money in reserves. The legislature knew
that the ERA could be spent. He continued that the
complexity of the amendment and the fund source changes,
without the opportunity to weigh in on the process, would
cause a huge backlash. He suggested that it was a ploy to
make it so the Majority would not have to negotiate with
the Minority in the House. He adamantly opposed the
amendment.
Co-Chair Seaton relayed that the committee had already had
several presentations including economic presentations,
fiscal analysis, POMV calculation presentations, and
several others. He was sorry Representative Neuman had not
been present for the presentations. However, he felt that
the issues had been broadly discussed in the committee. The
amendment came after public testimony on issues involving
POMV distributions. It was not as if the committee had not
been dealing with the issue from the start of session. The
amendment was strictly in the budgetary context not in a
separate ongoing law. If the amendment was adopted, the
public would have an opportunity to comment on the
following Thursday, Friday, and Saturday. All the
supporting documents could be found online. He did not want
the statement left hanging that the issue had not been
discussed in committee.
4:05:33 PM
Mr. Teal explained item 6, payment of dividends, on the
supporting documentation. In the appropriation bill, it did
not mention precisely how the amount was computed but was
based on market value and a percentage payout. Instead, it
was a generic $794 million appropriated to dividends, which
corresponded to the 30 percent split of a 5 percent POMV
payout.
Co-Chair Seaton clarified that it was 33 percent. Mr. Teal
agreed. In the appropriation bill, it stated $794 million
was appropriated for dividends from the ERA to the dividend
fund.
Mr. Teal continued that in Part 7 it stated that it was
deleted, unlike the governor's bill that appropriated some
royalty proceeds to the dividend. The dividends would be
comprised of only the appropriations from the ERA to the
dividend fund.
Vice-Chair Gara asked if it was accurate that instead of
last year's dividend in the amount of $1020, the current
provision would allow for a dividend of about $1150. Mr.
Teal replied in the affirmative.
Representative Wilson wanted to bring Ms. Rodell to the
table for questions regarding the impacts of a draw.
4:07:50 PM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, responded that $120 million going from the ERA
to the corpus only required an accounting entry. There were
no changes to the investment strategy regarding that
portion. She continued that about $4.09 billion would be
drawn. The Permanent Fund Corporation (PFC) had the
capacity to create the liquidity and to make the
adjustments for that type of draw. The corporation would
not adjust any of its long-term investment strategies. The
corporation would start to plan for liquidity. The
corporation would work with the Department of Revenue (DOR)
and the Division of Finance within the Department of
Administration (DOA) as to the timing of when the full
$4.09 million would be needed. Generally, there was a cash
management plan in place as to how it would roll out. It
was unlikely that one check on July 1st would be needed. It
was more likely there would be a series of transfers to the
state general fund for cash purposes, which would allow the
corporation to manage the liquidity more effectively.
Representative Wilson asked if the state would take $1.6
billion out and place it into the Public Education Fund.
She asked if it would be done immediately. Ms. Rodell
responded that it was possible that the reimbursement for
FY 17, $1.7 billion, would be done first, which would not
be a problem. It would be similar to when PFC made a
dividend transfer. The transfer to the dividend fund was
made in August. The corporation started planning it out in
conjunction with DOR as to how it would take place. She
continued that the following $1.6 billion for UGF for FY 18
might have more flexibility with a longer period to
transfer the funds.
Representative Wilson asked which fund made more money: the
ERA or the CBR. Ms. Rodell explained that the CBR was
restricted on the type and duration of investments. The
Earnings Reserve Account had a higher return than the CBR.
Representative Wilson was aware that the $120.7 million for
inflation proofing was just a fund source change except
that it protected the fund in the long run unless the
realized earnings came out depleting the fund. She wondered
about the impact of lowering the amount from over $900
million to $120 million.
Ms. Rodell responded that it would not have the same impact
as if the statutory formula for inflation proofing was
being funded in its entirety. She clarified that the 2016
amount that was zeroed out was estimated to be about $900
million based on an inflation rate of 2.25 percent. The
actual inflation rate and the amount that would have gone
in, had the language and appropriation remained, would have
been $47 million because inflation was flat. Currently, for
FY 17 the inflation-proofing amount would be just over $450
million. The rate was at about 1.6 percent to 1.7 percent.
Historically, inflation moved around from high inflation to
low inflation. She thought the $120 million recognized that
the statutory formula was still in place and that there was
at least some appropriation towards the formula.
Representative Wilson commented that it was a huge thing to
expect people to understand. She suggested that the
committee would be hearing 2-minute testimonies from the
public on Thursday, Friday, and Saturday on the entirety of
the bill including the current amendment. The amendment
would take $1.7 billion from the ERA and put it into the
Public Education Fund and another $1.6 billion would be
placed into the general fund. She thought another $400
would be withdraw but was unclear of its use. The amendment
would also set the dividend at $1150 for 1 year taking a
total of $4 million out of the fund. There had been a
similar piece of legislation introduced a couple of years
prior. However, she remembered a group of people opposing
the legislation wanting to put the issue to a vote of the
people. She was trying to figure out what had changed in
two years. She also did not understand why the legislature
would take from the highest earning pool of funds. She
suggested taking out only what was needed. She did not see
what revenue would be lost by transferring money into a
fund that did not make as much money. There was no way she
could support the bill. It was not fair to the public. She
hoped that people were taking good notes. She asked if any
of the other bills would be needed if the transfer was
made. The only difference she could see was the amendment
would only apply for one year. She thought the ERA would be
placed in jeopardy.
4:18:18 PM
Co-Chair Seaton referred to the $794 million for dividends
for FY 18. He wondered when the funds were transferred from
the corporation. Ms. Rodell responded that the dividend
requirement was typically moved in August in advance of
September. The payout came out of the dividend fund in the
first week of October.
Co-Chair Seaton asked if she would anticipate any changes
with the adoption of the amendment. Ms. Rodell indicated it
would not change.
Representative Thompson asked Co-Chair Seaton about the
removal of the draw limit. He squired how volatility of
revenues would be addressed if the state suddenly were to
bring in large oil revenues. He asked if the annual draw on
the ERA would be reduced. Co-Chair Seaton stated that the
amendment only applied to FY 17 and FY 18. He explained
that the draw of $1.7 billion applied to FY 17. The other
draw would apply to FY 18. The first would be drawn in FY
17 and the second would be drawn in FY 18 rather than one
draw at one time.
Mr. Teal wanted to address concerns about cash flow. He
explained that $1.7 billion would be paid from the ERA on
June 30, 2017. In August, the dividends would be paid out
from the ERA. During the year, the other $1.6 billion would
be borrowed from the CBR on a short-term basis throughout
the year. The Permanent Fund Corporation would make
payments throughout the year to repay money to the CBR. He
clarified that the CBR would be used to ensure that PF
investment decisions were affected. He suggested that if a
draw was taken all at once in FY 18 the PFC might be forced
to sell investments at an inopportune time. It provided PFC
a full year to repay $1.6 billion.
Mr. Teal addressed Representative Thompson's question about
the volatility of oil revenue. The current bill was an
appropriation. However, the bill affecting the PF had a
revenue limit that would reduce the draw. Such language
could be added to the appropriation bill. It was not added
to keep things as simple as possible. Under HB 115 there
might not be a $1.6 billion payout in FY 18 if oil prices
were over $70 per barrel - the POMV draw would be reduced.
Representative Tilton was very concerned with the ability
of the public to understand the amendment. She was aware
that the amendment was posted on Basis on the previous day
and that there was an opportunity for people to look at it.
The committee had had the opportunity to look at modeling.
Even with that opportunity, she thought the amendment was
very involved and difficult to follow. She was not
comfortable supporting it.
4:24:20 PM
Representative Neuman remarked that he was uncertain about
the legality of the intent language. The amendment would be
setting the value of the PFD using a POMV. He wondered if
substantive changes could be added that was essentially a
piece of legislation as an amendment in a budget bill. He
wanted to see a legal opinion on the issue. He suggested
that several members had asked about the process.
Co-Chair Foster thought the committee might need to talk
with Legislative Legal Services.
Mr. Teal referred to page 4 of the supporting documents,
which was the Legislative Legal Services amendment that had
been prepared. It did not mention the term POMV, count
years, or indicate a percent. Instead, it stated that the
sum of "X" was appropriated. It did not change substantive
law.
Representative Neuman read from page 1 of the supporting
documents:
Part 2 of this amendment adds a new subsection that
appropriates $120.27 million (.25% of the average
five-year market value of the permanent fund) from the
earnings reserve account to inflation proof the
permanent fund. In terms of inflation-proofing
permanent fund principal, this annual appropriation
more than offsets the impact of redirecting royalty
revenue from the permanent fund to the general fund as
is done in part 1 of this amendment.
Representative Neuman did not feel he had received an
answer to his question. Mr. Teal responded that there was
an explanation included in the description of how the
number was derived. The bill did not mention 5.25 percent
and .25 percent. It only stated that the sum of $120.27
billion was appropriated from the ERA to the principle.
There was no mention of how the amount was calculated. He
clarified that the information regarding the POMV, the rate
that was applied, and how the market value was computed was
only information, not part of the appropriation bill.
Representative Neuman interjected that in the explanation
of the amendment it clearly stated the intent of the
amendment.
Co-Chair Foster suggested that the alternative would be to
get someone from Legislative Legal Services to respond. He
conveyed that Megan Wallace would be online shortly.
4:28:42 PM
AT EASE
4:43:55 PM
RECONVENED
Co-Chair Foster indicated that Meagan Wallace was online
from Legislative Legal to answer questions.
MEGAN WALLACE, ATTORNEY, LEGISLATIVE LEGAL SERVICES (via
teleconference), asked that the question be repeated.
Representative Neuman restated his question concerning the
legality of the substantive changes in the amendment. Ms.
Wallace responded that the proposed appropriation in the
amendment (J.7) from the ERA to the various funds including
the Public Education Fund, the general fund, and the
dividend fund, did not present a consignment clause issue,
in in her opinion. She continued to explain that the ERA
was always available for appropriation by the legislature.
She relayed that from the Hickel vs. Cooper case the
Supreme Court stated that the ERA was available for
appropriation to the legislature. There were substantive
provisions in Title 37 and Title 37.13, which stated that
the ERA was to be used for specific purposes. The state's
prohibition against dedicated funds meant that essentially
those substantive provisions were always subject to
appropriation. Therefore, if the legislature or the
committee decided they wanted to transfer the funds outside
of the ERA to the other funds mentioned, as long as it was
for a public purpose, there was no legal prohibition from
the legislature doing so. She reiterated that in her
opinion, the amendment did not prevent a consignment clause
issue.
4:47:35 PM
Representative Neuman asked about forward funding education
by an additional year. Ms. Wallace reported having forward
funded education in prior years from the general fund or
other funds. The money in the Public Education Fund did not
lapse. The substantive provision governing the Public
Education Fund dictated how the funds could be spent. She
did not see any legal issue with depositing the money from
the ERA into the Public Education Fund so long as it was
spent in accordance with the provisions in AS.14.17.300.
Representative Neuman was unfamiliar with the provisions in
statute. Ms. Wallace clarified she had referenced the
statute that governs the Public Education Fund which
dictated that the money in the Public Education Fund was to
be spent on state aide for public schools and
transportation.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Guttenberg, Kawasaki, Ortiz, Gara, Grenn, Foster,
Seaton
OPPOSED: Neuman, Thompson, Tilton, Wilson
The MOTION PASSED (7/4).
Amendment L H SAP 4 was ADOPTED.
4:50:06 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 5:
Language Amendments
L H SAP 5 - Increase the amount that may be scooped
from lapsing balances to the Group Health and Life
Benefit Fund
Offered by Representative Seaton
See 30-GH1855J.21, Wallace, 1-31-17.
This amends sec. 9(d) in HB 57, version J.
The Governor's budget requested up to a $5 million
unobligated balance in the Group Health and Life
Benefits Fund after scooping lapsing appropriations at
the end of FY18.
This amendment increases the potential unobligated
balance to $10 million. The Governor requested an FY17
deposit of $20 million. The legislature appropriated
$7.5 million. The fund pays health claim costs for
state employees and has a balance that is low by
historical standards.
The fund pays about $130 million in claims annually.
This amendment provides roughly one month of reserves.
Using lapsing balances to fill the fund avoids general
fund appropriations and stabilizes contribution rates.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Neuman understood the state did not have
enough funding to cover the same item in the previous year.
He thought there were left over funds. He wondered if he
was accurate.
Co-Chair Seaton deferred to OMB.
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, reported that in the previous year
the administration had requested a $15 million amendment to
cover FY 17 because the reserve balance was low. The
administration had presented its request in 2 ways. The
first was a cash deposit into the reserve fund or funding
for a rate increase. Half of it was funded in the reserve
fund. The other half, the general fund portion, was not
funded. In May of the prior year, the administration had
communicated that without the remaining funding it
anticipated a supplemental request. Subsequently, it
submitted a supplemental request for FY 17 because the low
reserve balance in the health fund. In conjunction with the
rate increase and the supplemental request, they would
allow the administration to backfill the reserve. It would
also allow the department to moderate any future increases
by using a lapse balance.
Representative Neuman recalled the discussion from the
previous year. He reported that there had been an increase
in the cost of insurance. Some members thought that the
increase in insurance costs should be passed on to the
insurance recipients rather than the state. The increase to
the reserve fund would be used to cover the costs of
increases to health insurance for state employees rather
than passing on the costs. Ms. Pitney noted that the
administration was also passing on some of the costs to
employees. It would be increasing in FY 17 and FY 18.
Representative Neuman thought the answer was a "Yes" to
subsidizing increased payments. Ms. Pitney responded,
"Yes."
Representative Neuman asked how fair it was to appropriate
the additional money. He opined that everyone should have
to share in the burden. He recalled conversations with DOA
about union contracts being held to zero increases for the
following 3 years. Last year the department had committed
to reducing the cost to the state. Presently, the
legislature was being asked to put general fund dollars
back in to cover insurance costs. He opposed the amendment.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Kawasaki, Ortiz, Gara, Grenn, Guttenberg, Seaton,
Foster
OPPOSED: Neuman, Thompson, Tilton, Wilson
The MOTION PASSED (7/4).
Amendment L H SAP 5 was ADOPTED.
4:57:26 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 6:
Language Amendments
L H SAP 6 - FY17 lapse balance to be used in FY18 to
eliminate backlog in DHSS, public assistance field
services
Offered by Representative Seaton
See 30-GH1855J68, Wallace, 2-20-17.
This amendment appropriates to the Department of
Health and Social Services up to $500,000 of any FY17
lapsing funds for use in FY18 in the Division of
Public Assistance, Public Assistance Field Services to
eliminate the backlog in eligibility determinations.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above). He further
explained that in FY 16 the Division of Public Assistance
was cut by $1.1 million in UGF. It was a combination of
reduced funding and positions, which eliminated the ability
to fund overtime. An increased caseload had resulted in
Public Assistance experiencing a significant backlog in
eligibility determinations. Although the office was able to
keep up with new cases, it was struggling to address the
backlog. The one-time funding would be matched with
approximately $500 thousand in federal funds and would help
with addressing the backlog. There was sufficient federal
receipt authority in the existing budget.
Representative Wilson asked how many vacancies there were
in the division.
Co-Chair Seaton deferred to Vice-Chair Gara.
Vice-Chair Gara responded that the amendment came out of
the Health and Social Services Finance Subcommittee. The
division planned on using overtime. If overtime did not
cover the need, part-time workers would be used but would
not be retained for more than 1 year. There was a major
backlog of food stamp applicants and other public benefit
applicants. If a person qualified for food stamps, which
were fully federally funded, it took a month or more for
those who qualified to receive an interview. An application
approval took additional time. The committee saw the
timeline as a problem for families that were living on the
edge. A way to try to fix the issue without increasing the
budget was the amendment. It stated that if the traditional
amount of money lapsed at the end of the year, up to $500
thousand could be used as a one-time increment. The
department believed that it only needed a one-time
appropriation to get through the backlog.
5:01:20 PM
Representative Wilson asked how many vacancies existed in
the division. Vice-Chair Gara responded that the department
testified that they did not have the funding to add more
positions and could not clear the backlog.
Representative Wilson asked how many PCN's were open in the
division. Vice-Chair Gara responded they did not have any
funded vacancies at present.
Representative Wilson asked how often recipients had to
renew their application. Vice-Chair Gara replied that the
eligibility staff tended to work on more than one kind of
public benefit. For instance, those folks who applied for
food stamps also applied for other benefits. He was
uncertain of the rules for each of the benefit programs in
terms of recipients having to prove eligibility.
Representative Wilson was aware that for some programs the
state had a tedious method for recipients to prove that
their income had not changed. She remarked that the
amendment would add to the budget. She was concerned with
another backlog occurring based on the inefficiencies of
the system. She knew of several people that had been
affected by the backlog. She would not be supporting the
amendment without knowing how the backlog came to be.
Representative Neuman asked where the lapse in funds came
from. Vice-Chair Gara answered that the amendment did not
change or increase the FY 18 budget. If there were lapsing
funds within DHSS and only in the non-Medicaid portion at
the end of FY 17, they would be able to use up to $500,000.
5:05:33 PM
Representative Neuman asked where the lapse in funds came
from. He asked what money was left unspent. Vice-Chair Gara
was unsure if there would be any lapsing funds by the end
of FY 17 (June 30, 2017). If there were lapsing funds, up
to $500.000 could be used to reduce the backlog for people
who were qualified for food stamps and other benefits,
rather than the money going back into the general fund.
Representative Neuman wondered which appropriations would
unlikely be spent. He remarked that the commissioner could
move the funds around. He wanted to hear from the
department. He suggested that it was possible the
department would intentionally not spend certain funds so
that they could be moved to OCS. He was confused. Vice-
Chair Gara thought Representative Neuman had a good
question. He did not think the department would take the
action without legislative approval. They would not move
money over from FY 17 to FY 18 without legislative approval
to spend it in the following fiscal year. Certainly, within
one fiscal year a department could move funds around. If
there were no left-over funds, the amendment would have no
effect.
Representative Neuman wanted to have a report of any
unspent funds in each department.
5:09:28 PM
Representative Tilton believed the department divisions had
testified they were all in need of funding. She reported
there were excess funds of $3.6 million in Adult Public
Assistance that was moved over to OCS. She thought the
divisions would have identified funds that could be moved
around. The commissioner had the ability to move funds
around with certain guidelines in place. Some of the
reasons for the backlog was because of people not being
able to come to their appointments due to their work
obligations or because of a lack of childcare. Therefore,
the backlog was not entirely because of a lack of staffing
but because of commitments made by the people requesting
the funds.
Representative Grenn asked for clarification regarding a
federal match. Vice-Chair Gara responded that many of the
benefits qualified for a federal match. The department
estimated that the funds would bring in about $530 million
in federal matching dollars. He confirmed that there was
enough receipt authority in the budget for that amount.
Representative Wilson MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Ortiz, Gara, Grenn, Guttenberg, Kawasaki, Foster,
Seaton
OPPOSED: Neuman, Thompson, Tilton, Wilson
The MOTION PASSED (7/4).
Amendment L H SAP 6 was ADOPTED.
5:12:17 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 7, L H SAP 8, and L
H SAP 9:
Language Amendments
L H SAP 7 - Reduce appropriation to the Crime Victim
Compensation Fund by $400.0
Offered by Representative Seaton
See 30-GH1855J.47, Wallace, 2-15-17.
This amends sec. 21(p) by reducing the capitalization
of the crime victim compensation fund from $1,422.5 to
$1,022.5 with the PFD Crime funds.
Another amendment will reduce unrestricted general
funds in the Department of Corrections by $400.0 and
increase the PFD Crime funds by $400.0.
Another amendment will decrease the authorization of
the Violent Crime Compensation Board in the Department
of Administration by $400.0 from the crime victim
compensation fund.
Language Amendments
L H SAP 8 - Reduce appropriation from the Crime Victim
Compensation Fund to $1,022.5
Offered by Representative Seaton
PF felon funds (code 1171) are typically appropriated
to the CVCF. With the reduction in FY17 PFD amount,
the amount of PF felon funds was reduced by
approximately 50%. A language amendment reduces the
deposit to the CVCF by approximately 30%--from
$1,422.5 to $1,022.5. This amendment reduces the
appropriation from the CVCF to the Board by a
corresponding amount.
Language Amendments
L H SAP 9 - Reduce use of UGF in DOC and replace with
PF Crime Fund
Offered by Representative Seaton
Another amendment reduces the $1,422.5 PFD Crime
deposit into the crime victim compensation fund by
$400.0.
This amendment reduces the use of unrestricted general
funds in the Department of Corrections and increases
the appropriation of PFD Crime by that same $400.0.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton explained that the amendments were linked.
He read the amendments.
Representative Wilson asked about the $400 thousand being
taken out of L H SAP 7 and L H SAP 8. She wondered if the
funds were not available because of the cut to the
dividend.
Co-Chair Seaton invited Mr. Teal to respond.
Mr. Teal explained that it was not that the funds were not
available. The funds available through the PFD Felon Funds
- dividends that would have otherwise gone to felons - was
reduced by 50 percent because the dividend was reduced 50
percent. There was much less money available. The money was
typically split between the Department of Corrections (DOC)
and the Crime Victim Compensation Fund (CVCF). Rather than
giving them both a 50 percent reduction in PFD criminal
funding, the chairman wanted to reduce the CVCF by about 30
percent instead of 50 percent and have DOC absorb the rest.
Representative Wilson asked about the $400 thousand
decrement in both amendments. Mr. Teal replied that the PFD
criminal funds were deposited into the CVCF. It was created
in such a way because the money did not lapse. The money
was then appropriated from the CVCF to the board, which
made grant awards to victims of crimes. Less money would be
placed into the fund and less money would be transferred
from the fund over to DOA. He suggested that by depositing
less money ($400,000) into the fund it made the money
available to DOC, offsetting UGF.
5:16:55 PM
Representative Wilson suggested that Amendment L H SAP 9
reflected another $400,000 transfer where general fund
money was being replaced with money from the PF Felon Fund.
She wondered if the extra $400,000 was available because of
the subtractions taken from the other two organizations,
which allowed the other $400,000 to be transferred for
general funds. Mr. Teal responded, "Through the chair,
that's correct."
Representative Neuman asked if all three amendments would
be voted on together in one vote. Co-Chair Foster stated
that they would be voted on as they were moved by the maker
of the motion.
Representative Neuman wondered if it was because the same
$400,000 was affected. He asked if when the governor
reduced the amount of the PFD it automatically reduced the
amount going into the compensation fund. He remarked that
the inmates' dividend was already reduced.
Co-Chair Seaton responded that the linked deposits were
compensation for the reduction. He invited Mr. Teal to
comment.
Mr. Teal added that there was no automatic reduction. There
was $1.4 million appropriated in FY 17. The amount was
about the same in FY 16. However, there was no automatic
reduction for them, as they had to be adjusted manually
each year. That is the purpose of the amendment.
Representative Wilson WITHDREW her OBJECTION.
Representative Neuman OBJECTED. He thought if there was
$400,000 left, it should be used to reduce the budget
overall.
A roll call vote was taken on the motion.
IN FAVOR: Thompson, Wilson, Gara, Grenn, Guttenberg, Ortiz,
Seaton, Foster
OPPOSED: Neuman, Tilton
The MOTION PASSED (8/2).
Representative Kawasaki was absent from the vote.
Amendments L H SAP 7, L H SAP 8, and L H SAP 9 were
ADOPTED.
5:20:03 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 10:
Language Amendments
L H SAP 10 - Remove reference to the Alaska Aerospace
Corporation from the Federal and Other Receipts
section
Offered by Representative Seaton
See 30-GH1855J.22, Wallace, 1-31-17.
This amends sec. 20(a) in HB 57, version J, by
deleting the reference to the receipts of the Alaska
Aerospace Corporation because the language is
redundant. Sec. 5 in HB 57, version J, appropriates
unanticipated federal and other corporate receipts
directly to the Corporation.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment L H SAP 10 was ADOPTED.
5:20:57 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 11:
Language Amendments
H SAP 11 - Reverse Governor's Unallocated Reduction
for Merit Freeze Legislation
Offered by Representative Seaton
This amendment reverses an unallocated reduction
submitted as a placeholder for savings associated with
legislation regarding an Executive Branch Exempt and
Partially Exempt Pay Freeze. The projected savings
should be reflected in a fiscal note.
This amendment directs Legislative Finance Division to
reverse the entire unallocated appropriation as
submitted by the Governor's Office.
$1,817.9 TOTAL
$1,005.2 UGF
$157.0 DGF
$612.4 Other
$43.3 Fed
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson asked why the amendment was different
from other amendments that were attached to other pieces of
legislation. Co-Chair Seaton explained that the amendment
reversed an unallocated reduction submitted as a
placeholder. She was free to disagree with the amendment.
Disregarding other amendments, the amendment stood on its
own.
Representative Wilson requested an "at ease."
5:22:58 PM
AT EASE
5:24:58 PM
RECONVENED
Representative Wilson wanted to make sure she understood
the amendment. She wondered exactly what the amendment did.
Co-Chair Seaton responded that the amendment was asking LFD
to reverse the unallocated appropriations as submitted. It
was unallocated and was in a bill coming before the
committee. It would reverse the appropriations because he
did not like them where they were.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment L H SAP 11 was ADOPTED.
5:26:19 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 12:
Language Amendments
L H SAP 12 - Contingency related to HB 60, Motor Fuel
Taxes
Offered by Representative Seaton
See 30-GH1855J.48, Wallace, 2-17-17.
The Governor's budget redirects $64.8 million of motor
fuel tax receipts from the unrestricted general fund
(UGF) to the new Transportation Maintenance Fund that
would be created by the passage of HB 60. HB 60
reclassifies motor fuel tax receipts as designated
general funds (DGF) and appropriations from the fund
would be DGF as well.
Similarly, HB 60 would reclassify $4.5 million of
Aviation Fuel Tax receipts as DGF.
If HB 60 is not enacted into law, this amendment
changes the DGF appropriations of motor fuel and
aviation fuel tax receipts to UGF code 1004.
Without this amendment, failure to adopt HB 60 would
leave DOT&PF with $70 million of appropriations from a
fund source that does not exist.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Vice-Chair Gara commented that Representative Wilson used a
new phrase that he liked that he hoped to use also, which
was, "I take my objection back."
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment L H SAP 12 was ADOPTED.
5:28:06 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 13:
Language Amendments
H SAP 13 - Technical and vocational education program
(TVEP) funding contingency
Offered by Representative Seaton
See 30-GH1855J50, Wallace, 2-18-17.
The TVEP funding distribution formula expires June 30,
2017. The Governor's FY18 budget contains TVEP
funding. This amendment makes that budgeted TVEP
funding contingent upon passage of legislation
extending the distribution formula beyond June 30,
2017.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson asked if all the corrections that had
been made to the TVEP funding was in anticipation of what
would be going into the fund. She thought the amendment was
saying that it would not matter if the bill did not pass.
She suggested that the figures would not change but if
there were not a bill, the amounts would be zeroed. She
asked if she was correct. Co-Chair Seaton responded in the
affirmative.
Representative Neuman asked why the amendment was needed.
Co-Chair Seaton responded that there were amounts
throughout the budget. He wanted to make sure, that if the
bill did not pass a contingency would be in place to
reverse them.
Representative Neuman further queried about the TVEP
funding and a sunset clause. Co-Chair Seaton explained that
the legislature had to authorize the spending, which was
authorized in the bill. If the bill sunsetted,
authorization would not continue. The amendment provided
contingency language removing the amounts if the bill did
not pass.
Representative Neuman wanted to make sure that point was
very clear.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendment L H SAP 13 was ADOPTED.
5:31:33 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 14 and L H SAP 15:
Language Amendments
L H SAP 14 - Add bargaining units to Salary and
Benefits section 8 in HB 59
Offered by Representative Seaton See 30-GH1856D1,
Wallace, 2-20-17
The Governor submitted the amendment to add the names
of seven bargaining units to the listing in section 8
of the Mental Health budget bill.
Language Amendments
L H SAP 15 - Add bargaining units to the Salary and
Benefits section 24 in HB 57
Offered by Representative Seaton
See 30-GH1855J51, Wallace, 2-18-17.
This amends section 24, Salary and Benefits, in HB 57
by adding the names of seven bargaining units as
requested by the Governor.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendments.
Representative Wilson asked if the groups were out for the
current year. If so, she wondered if the state anticipated
bringing the contracts back during the current session for
comparison purposes.
Co-Chair Seaton asked Ms. Pitney to come forward with a
response.
Ms. Pitney requested that the question be restated.
Co-Chair Seaton responded that the committee was reviewing
Amendment L H SAP 14 and Amendment L H SAP 15 on page 6.
Representative Wilson referred to page 6 that listed all
the bargaining units. She asked if Ms. Pitney anticipated
the negotiations to be done while the legislature was in
session. If so, she wondered if she would bring them back
to the legislature to compare them to the previous year's
negotiations. Ms. Pitney replied that the ones added in the
amendment were only those where negotiations were
completed. If there were additional units that completed
negotiations prior to the end of session the information
would be brought to the legislature. Otherwise, they would
not be added to the language.
Vice-Chair Gara asked how the bargaining contracts agreed
upon after the end of session were funded. Ms. Pitney
replied, "Through the supplemental process."
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Amendments L H SAP 14 and L H SAP
15 were ADOPTED.
5:34:57 PM
Co-Chair Seaton MOVED to ADOPT L H SAP 16:
Language Amendments
L H SAP 16 - Remove CBR section related to filling the
FY18 budget deficit
Offered by Representative Seaton See 30-GH1855J41,
Wallace, 2-15-17
This deletes sec. 27(b) which would fund the FY18
deficit from the CBR.
Representative Wilson OBJECTED for discussion.
Co-Chair Seaton read the amendment (see above).
Representative Wilson was disappointed that the CBR was the
fund that was being proposed to fill the budget gap. She
believed that in the present day the committee had taken
its most valuable asset and moved it into accounts that
would not be making much money. She thought the motive
behind the amendment had to do with avoiding a CBR vote.
She thought the action sent a strong message to the public
that the legislature was maintaining or enlarging the size
of government rather than reducing it. She would be
maintaining her objection.
Representative Neuman asked if the option to fund the
budget with the CBR was off the table.
Co-Chair Seaton deferred to LFD.
5:37:08 PM
Mr. Teal would not say the amendment was taking the option
of using the CBR off the table. There would be other
opportunities to put the language back in either in the
Senate or in the capital bill. The amendment took the
option out of the operating bill in the House.
Representative Neuman clarified that he heard an
affirmative response. It was his impression that everything
was on the table. He supposed that the amendment was taking
the use of the CBR off the table. He suspected that the
reason for doing so was to keep the House minority from
having the ability to negotiate on the budget. He asked
what he was missing.
Co-Chair Seaton thought the point Representative Neuman
missed was that with the amendments adopted and the plan
going forward the budget was fully funded. Therefore, a CBR
was not needed.
Representative Neuman thought it was a heck of a statement
to make at the current point in the process. He was left
without words as to why things would be handled in such a
way. He thought the legislature was a long way from a
balanced budget. He thought all options as to how to fund
state government should stay on the table. He adamantly
opposed the amendment.
Representative Tilton was deeply disappointed in the
process. She commented that her constituents and others had
not had the opportunity to have a voice on the budget. She
believed that the public felt there would be more
transparency and that their voices would be heard. She did
not believe there was transparency in the process and
strongly objected to the amendment.
Co-Chair Seaton thought the process had been the most
transparent process he had seen. Every amendment that had
been put forward to change the governor's budget had been
brought forward as an amendment and voted on by the full
House Finance Committee. The public would see the budget as
it was proposed and would have an opportunity to comment.
If members of the public decided to comment and did not
want the state to have a balanced budget requiring a CBR
vote, the legislature would have the option to put it back
in during the second round of amendments. He reiterated
that every amendment was put forward and voted up or down
in the House Finance Committee. He noted that all the
subcommittee meetings were broadcast and recorded on web
television. He could not quite understand how someone could
argue that the process was not transparent.
5:42:49 PM
Representative Wilson assumed that the SBR was still in
play. She asked about all the available accounts. She
indicated that the budget was not balanced because it was
being paid for, in part, with savings. Co-Chair Seaton
responded that the CBR would need a three-quarter vote.
Representative Wilson wondered if taking the CBR off the
table had any impact because without having a three-quarter
vote on a specific amount, it would not have been used
anyway. Co-Chair Seaton responded in the affirmative.
Vice-Chair Gara commented that a few years prior the state
had roughly $17 billion in savings. Through the previous
year, the legislature had spent most of it. By the end of
the current fiscal year, if the legislature kept using the
savings account, the balance would be $2.7 billion. The
remainder of savings would be gone by the subtenant year.
He did not want to be at the point where the legislature
was rearranging the chairs on the Titanic. He supposed the
legislature could decide to keep spending out of the
savings account until it was gone. He also pointed out that
he did not know how the new subcommittee and finance
process would work. He thought it was worth a try because
the old method had not worked.
Representative Neuman called for a point of order asking
that the amendment be discussed. Vice-Chair Gara explained
that he was addressing a point that had been made.
Co-Chair Foster asked Vice-Chair Gara to address the
amendment. Vice-Chair Gara commented that the process had
been the most transparent that he had been through.
Representative Wilson commented that the state was draining
its savings. She MAINTAINED her OBJECTION.
A roll call vote was taken on the motion.
IN FAVOR: Gara, Grenn, Guttenberg, Ortiz, Foster, Seaton
OPPOSED: Thompson, Tilton, Wilson, Neuman
The MOTION PASSED (6/4).
Representative Kawasaki was absent from the vote.
Amendment L H SAP 16 was ADOPTED.
Co-Chair Seaton reported that Legislative Legal Services
and LFD would be preparing the new committee substitutes
for HB 57 and HB 59.
Co-Chair Foster MOVED to give Legislative Legal Services
and the Legislative Finance Division the ability to make
conforming and technical corrections to HB 57.
There being NO OBJECTION, it was so ordered.
Co-Chair Foster MOVED to give Legislative Legal Services
and the Legislative Finance Division the ability to make
conforming and technical corrections to HB 59.
There being NO OBJECTION, it was so ordered.
Co-Chair Foster reviewed the agenda for the following day.
ADJOURNMENT
5:49:06 PM
The meeting was adjourned at 5:49 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DNR-Subcommittee Packet HFIN.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |
| DBT Service-Subcommittee Packet.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |
| FND Capitilization-Subcommittee Packet.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |
| Fund Tansfer-Subc Packet.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |
| SP Approp Amendments-Subc Packet.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |
| State Retirement Amendments-Subcommittee Packet.pdf |
HFIN 2/28/2017 1:30:00 PM |
HB 57 |