Legislature(2017 - 2018)HOUSE FINANCE 519
05/04/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Overview: the Economy and Fiscal Policy: | |
| SB28 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 28 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
May 4, 2017
1:33 p.m.
1:33:22 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Mark Neuman, Alternate
Representative Lance Pruitt
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative Cathy Tilton
ALSO PRESENT
Randall Hoffbeck, Commissioner, Department of Revenue; Pat
Pitney, Director, Office of Management and Budget, Office
of the Governor; Brian Fechter, Policy Analyst, Office of
Management and Budget, Office of the Governor; Senator Bert
Stedman, Sponsor; Representative Jonathan Kreiss-Tomkins;
Melissa Kookesh, Staff, Senator Bert Stedman; Liz Cabrera,
Community and Economic Development, Petersburg; Speaker
Bryce Edgmon.
PRESENT VIA TELECONFERENCE
Marty Parsons, Deputy Director - Mining, Land, and Water
Division, Department of Natural Resources, Anchorage.
SUMMARY
SB 28 MUNICIPAL LAND SELECTIONS: PETERSBURG
SB 28 was HEARD and HELD in committee for further
consideration.
OVERVIEW: THE ECONOMY and FISCAL POLICY:
COMMISSIONER RANDALL HOFFBECK, DEPARTMENT OF REVENUE
OVERVIEW: THE ECONOMY and FISCAL POLICY:
PAT PITNEY, DIRECTOR, OMB, OFFICE OF THE GOVERNOR
1:33:22 PM
Co-Chair Seaton called the meeting to order. He reviewed
the agenda for the day. He indicated Representative Neuman
was filling for Representative Tilton. The committee would
be hearing an introduction to SB 28. He noted Speaker
Edgmon was in the audience.
^OVERVIEW: THE ECONOMY and FISCAL POLICY:
COMMISSIONER RANDALL HOFFBECK, DEPT. OF REVENUE
1:34:52 PM
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
introduced the PowerPoint Presentation: "Overview: The
Economy and Fiscal Policy." He would be focusing his
presentation based on administering policy long-term from
the commissioner's perspective.
Commissioner Hoffbeck began with slide 3: "State Revenue:
Alaska Department of Revenue":
The Department of Revenue mission is to collect,
distribute, and invest funds for public purposes.
Commissioner Hoffbeck continued that that he would be
looking at the implications of the legislation.
Commissioner Hoffbeck continued to slide 4: "State
Revenue":
Permanent Fund Restructure
New Revenues
Expenditure Reductions
Commissioner Hoffbeck noted there were three components of
a fiscal plan: Permanent Fund Dividend (PFD), new revenues,
and expenditure reductions.
Commissioner Hoffbeck relayed slide 6: "Impact on State
Revenue of a Narrow Revenue Base: Economics of Taxation":
Throughout history, every organized society had some
form of government. In free societies, the goals of
government have been to protect individual freedoms
and to promote the well-being of society as a whole.
Governments pay for these services through revenue
obtained by taxing three economic bases: income,
consumption and wealth. The Federal Government taxes
income as its main source of revenue. State
governments use taxes on income and consumption, while
local governments rely almost entirely on taxing
property and wealth. More specifically the Federal
Government relies mainly on income taxes for its
revenue. State governments depend on both income and
sales taxes. Most county and city governments use
property taxes to raise their revenue.
U.S. Department of Treasury Resource Center
Vice-Chair Gara asked if questions would be taken at the
end.
Co-Chair Seaton asked members to hold questions until the
end of the presentation.
1:39:37 PM
Commissioner Hoffbeck discussed slide 7: "Impact on State
Revenue of a Narrow Revenue Base: How Volatility of Tax
Revenue Compares":
Alaska had the highest overall volatility score-34.4-
meaning the state's total tax revenue showed wide
variability from year to year, typically fluctuating
within 34.4 percentage points above or below its
overall growth trend. The next most volatile tax
revenue streams were in Wyoming (12.1) and in North
Dakota and Vermont (both 11.6).
Representative Grenn asked if there was a score in mind to
achieve.
Vice-Chair Gara asked the score was a rating. He was
uncertain the meaning of the score.
Commissioner Hoffbeck responded that the 34.4 percent was
the measure of the average fluctuation. He stated that it
was the expected revenue in any given year.
1:42:43 PM
Representative Wilson noted that Illinois wondered whether
the 34.4 percent was related to revenue only, or whether
the number reflected the debt.
Commissioner Hoffbeck replied that the number related to
the revenue portion of the equation.
Commissioner Hoffbeck advanced to slide 8: "Impact on State
Revenue of a Narrow Revenue Base":
States that showed the largest severance tax revenue
decreases in were all major oil producers.
Alaska
Severance Taxes: Decreased of 95.7 percent
Total Tax Collections: Decreased of 74.6
percent
Texas
Severance Taxes: Decreased of 33.4 percent
Total Tax Collections: Decreased of 0.1
percent
North Dakota
Severance Taxes: Decreased of 13.5 percent
Total Tax Collections: Decreased of 6.2
percent
1:45:15 PM
Representative Ortiz asked if Texas and North Dakota had a
gross tax system.
Commissioner Hoffbeck responded in the affirmative.
Commissioner Hoffbeck continued to slide 9: "Impact on
State Revenue of a Narrow Revenue Base." He noted the
spikes in 2007 and 2012.
Commissioner Hoffbeck scrolled to slide 10: "Impact on
State Revenue of a Narrow Revenue Base." He remarked that
petroleum failed to provide stable revenue for funding
government services., and failed to react to adjustments in
the economic changes. He remarked that the robust oil and
gas revenues have masked its inability to adjust to
economic conditions.
Representative Wilson asked wondered whether the 2017
number reflected the forecast or actual numbers.
Commissioner Hoffbeck answered that it was the fall
forecast numbers.
Representative Wilson requested a slide that reflected the
spring forecast numbers.
Commissioner Hoffbeck advanced to slide 11: "Impact on
State Revenue of a Narrow Revenue Base":
The Commodities Roller Coaster -
The International Monetary Fund studied 85 economies
over 3 decades
Government spending in commodity- based economies
tends to move up and down with commodity revenue
Pro-cyclical government spending stunts economic
growth
Stabilizing fiscal policy has the inverse effect,
increasing GDP growth by 0.3 percent annually
Commissioner Hoffbeck reviewed slide 13: "Benefits to State
Revenue of a Broader Revenue Base":
1. Close the Fiscal Gap (Revenue)
2. Spread the Impact of the Fiscal Solution
(Fairness)
3. Stabilize the Budget (Certainty)
4. Adjusts Revenues based on Economic Growth
(Durability)
Commissioner Hoffbeck detailed slide 14: "Close The Fiscal
Gap." He reviewed the numbers on the slide. He remarked
that the legislature would not be in the room discussing
the subject. He also wanted to expand on subject other that
just increasing revenues.
1:50:51 PM
Commissioner Hoffbeck turned to slide 15: "Spread the
Impact of the Solution." He relayed that the slide showed
many options for coming up with a solution. He pointed out
that it did not matter the revenue source, it was an issue
of generating revenues and determining the right source
such as a sales tax or income tax.
Representative Ortiz asked if it was the commissioner who
thought it was correct that there would be impacts to any
of the revenue options.
Commissioner Hoffbeck replied in the affirmative. He hoped
to stay focused on the narrow topic of what the revenues
mean to the state.
Vice-Chair Gara felt like the chart was a year old. He
thought that the number reflected because of the decrease
in the dividend.
Co-Chair Seaton urged members to hold their policy
discussion to the end.
1:54:36 PM
Commissioner Hoffbeck explained slide 16: "Stabilize the
Budget: Draw Limit with $1.2 B Threshold. The benefit to
having a revenue structure was dependability. It showed
that the underlying taxes or fees created a stable economy,
however, they did not fill the fiscal gap on their own.
Currently the administration was using the constitutional
budget reserve (CBR), however, eventually savings would run
out.
Co-Chair Seaton clarified other new unrestricted general
fund (UGF) revenues and the CBR would fund government as
long as there was new revenue, resulting in eliminating the
percentage of market value (POMV) draw would be eliminated.
Commissioner Hoffbeck responded that he was attempting to
clarify that all the other new revenue sources were only
the CBR.
Representative Wilson wondered why there was not a steady
income reflected in the model.
Commissioner Hoffbeck replied that the model reflected a
volatile calculation to show the impact of the POMV draw
limit on a highly volatile system. He stated that the top
blue represented the total revenue source, and underneath
showed the various interactions between the POMV and the
oil and gas tax. He stressed that there would still be
spikes and low points.
Co-Chair Seaton recognized Representative Stutes and
Representative LeDoux in the audience.
2:00:14 PM
Representative Ortiz suggested that the potential
volatility would be the result of potential differences in
performances of the investment in funds.
Commissioner Hoffbeck responded in the negative. He
stressed that the volatility was driven by oil and gas tax
royalties and tax revenues. The POMV draw adjusts to
account for the volatility in oil price. He stated that the
POMV draw was assumed to be stable, and only drawn as much
as necessary.
Commissioner Hoffbeck slide 17: "Stabilize the Budget:
Combined SBR and CBR Balances." He stressed that the state
had relied on the reserves to balance the budget. The
reserves started at $16.3 billion in 2013, and with no
solution by FY 19 the CBR would be out of money.
Representative Wilson pointed out that there was currently
$4.7 billion in the CBR.
Commissioner Hoffbeck replied that with no POMV, the CBR
would be at $2.1 billion.
Representative Wilson stressed that neither budget
currently had a draw from the CBR.
Commissioner Hoffbeck reviewed slide 18: "Adjusts Revenues
Based on Economic Growth":
· $5 million a year in additional borough sales
taxes
· $27.5 million a year in increased school funding
· $20 million a year in borough and service area
property taxes on homes
· $10 million a year in borough and service area
property taxes on widget factory investment
Commissioner Hoffbeck moved to slide 19: "Adjusts Revenues
Based on Economic Growth - Continued":
· $10 million a year in higher expenses for
troopers, highways, courts, prisons, Medicaid,
childcare assistance, etc.
· $45 million a year in increased school funding
costs
Commissioner Hoffbeck scrolled to slide 20: "Adjusts
Revenues Based on Economic Growth - Continued." He stressed
that the state's only ability to capture economic growth
was associated with the oil and gas industry.
2:05:09 PM
Commissioner Hoffbeck suggested there were other available
options. He stated that there was an idea that expenditure
reductions was the preferred solution: reduce the size of
government to better fit the revenue profile.
Commissioner Hoffbeck advanced to slide 22: "Expenditure
Reductions to Date." He stressed that substantial cuts had
already been made. He reviewed the numbers on the slide. He
offered that there was no cut within the Department of
Revenue (DOR) that would be good business. He suggested
that he could cut a dollar but lose 3 in federal funding.
Currently, there was not much left to reduce in the budget
in DOR.
2:10:09 PM
Commissioner Hoffbeck discussed slide 23: "Expenditure
Reductions to Date: Unrestricted General Fund Reduction by
Agency FY 15 Management Plan to FY 18 Governor." The slide
reflected the areas that had been cut.
Commissioner Hoffbeck continued to slide 24: "Expenditure
Reductions to Date: 2,500 October 2014 through October 2016
State Employee Job Losses." He indicated that this slide
also reflected job losses in the state.
Commissioner Hoffbeck turned to slide 25: "Expenditure
Analysis: Special Alaskan Circumstances." He explained that
the analysis reflects an extra cost of about $4000 per
person.
Commissioner Hoffbeck explained slide 26: "Expenditure
Analysis: National Comparison":
National Comparison:
Alaska per capita spend: $9,096.80
Less special circumstances: ($3,940.86)
Adjusted Comparison: $5,155.94 per person (Within
7.2 percent of US average of $4,808.40)
Vice-Chair Gara referred to slide 25. He wondered whether
the $100 per person to pay for oil and gas tax credits was
based on the annual average of what was owed, spending, or
what was accruing in each year.
Commissioner Hoffbeck responded that the number reflected
the 700,000 times $100 was approximately $70 million, so it
was the statutory rate for payments on the credits.
Vice-Chair Gara suggested that if the state owed about 41
billion it would be equal to about $1000 per person.
Representative Ortiz asked about the fisheries tax
reflected on the same slide.
Commissioner Hoffbeck continued to speak about the
instability in the economy.
2:15:42 PM
Representative Wilson did not understand the instability if
it was left up to the municipalities.
Commissioner Hoffbeck responded that if the $750 million in
cuts targeted amounts had been submitted without the
details of how to meet the target amount. The hard
decisions had not been made yet.
Representative Wilson thought the discussions should be
occurring presently to understand how the municipalities
would cover the programs.
Commissioner Hoffbeck had a slide that discussed the issue.
Commissioner Hoffbeck reviewed slide 28: "Impacts of Not
Having a Broader Revenue Base":
1. Requires reliance on accurate forecasting of
volatile revenues (Uncertainty)
2. Leaves a Structural Deficit (Depletes savings
and creates uncertainty)
3. Concentrates the Impact of the Fiscal Solution
(Less pay More)
4. Destabilizes the Budget (ERA at Risk)
Representative Guttenberg mentioned that the commissioner
had mentioned instability frequently. He remarked that the
there was no replenishing of the reserves, so there was
destabilizing the future.
Commissioner Hoffbeck agreed. He stated that the structural
deficit in the budget must be fixed, otherwise the savings
would continue to deplete. He stressed that once the
savings was gone, the state was "at the mercy" of volatile
revenue sources.
2:20:27 PM
Representative Guttenberg asked about addressing the
deficit no matter how volatile the economy. He thought the
issue went beyond volatility.
Commissioner Hoffbeck replied that there must be an
additional revenue source.
Commissioner Hoffbeck advanced to slide 29: "Requires
Accurate Forecasting of Volatile Revenues." He reported
that the slide showed the accuracy of the state's
forecasts.
2:24:05 PM
Commissioner Hoffbeck turned to slide 30: "Leaves a
Structural Deficit: S and P Global Outlook":
The negative outlook reflects our view of the large
structural budget deficit in Alaska's unrestricted
general fund. Currently, the state is able to finance
its operating deficits by withdrawing funds from its
budgetary reserves. Alaska had built up large budget
reserves that thus far have shielded the state's
credit quality from the degradation that the large
deficits would inflict on most states' credit quality.
However, the magnitude of the fiscal deficits, even
with the governor's vetoes for fiscal 2017, makes the
arrangement unsustainable and, unless corrected,
inconsistent with the current rating. On their current
trajectory, the state's deficit financial operations
would eventually deplete its budget reserves.
Therefore, without structural fiscal reform in the
2017 legislative session, we would likely lower the
state debt ratings.
If lawmakers succeed in putting the state on what we
view as a glide path to a sustainable fiscal
structure, with its strong reserve balances intact, we
could revise the outlook to stable.
Representative Guttenberg noted the governor had traveled
back east to discuss bond ratings. He wondered about the
bond rating agencies and their perspective as to the
structural deficit.
Commissioner Hoffbeck responded that he had traveled to New
York to meet with the agencies. He stressed that he always
painted the best possible picture to the bond rating
agencies, with the hope that it would reflect in a better
bond rating.
Representative Guttenberg queried the response from the
bond rating agency, should they understand that the state
would was in a negative budget situation.
Commissioner Hoffbeck thought the question was difficult to
answer. The first was that they would review testimony from
hearings.
2:30:07 PM
Representative Neuman wondered whether the state was
planning any bond sales.
Commissioner Hoffbeck was unaware of any bond sales
scheduled, and agreed to consider that issue.
Vice-Chair Gara asked for a point of order. He noted that
the co-chair had asked that questions be held to the end.
Co-Chair Foster felt that the questions were being asked,
so the questions would continue.
Representative Neuman felt that Alaska would be negotiated
at the time of the request.
Commissioner Hoffbeck responded that the bonds would be
available for sale, but the question was the price of the
bond. He remarked that the greater concern about the long-
term ability to pay off the bonds, the higher the cost of
debt.
Representative Neuman asked if it was a big difference at
present.
Commissioner Hoffbeck replied that it made a difference.
Representative Pruitt asked about using the statement from
S and P and whether it was an argument against using any
structural deficit. He believed that the senate's initial
goal was a "glide path." He wondered whether S and P was
demanding that the state fill the deficit in the current
year, or whether they were saying that there needed to be a
plan to move in the direction to fill the deficit.
Commissioner Hoffbeck responded that S and P encouraged a
glide path, but also demanded strong reserve balances
intact.
2:35:42 PM
Representative Pruitt noted that the budget did not have a
reserves draw. He remarked that there was a reduction, but
not to the extent of the required reduction. He felt that
most states' emergency funds were at 3.1 percent. He
remarked that $5 billion as two years' worth of deficits.
He remarked that the senate's budget had a growth in the
Permanent Fund. He felt that there was substantial reserves
and a plan in place, so the S and P statement was merely
speculation.
Commissioner Hoffbeck answered that whatever the
legislature did the department would respond to and work
with. The administration was hoping for a comprehensive
fiscal plan.
2:39:17 PM
Representative Wilson noted that the CBR and earnings
reserve were both savings accounts. She remarked that the
slides did not factor in the new spring forecast from the
department. She stated the difference was not bringing new
revenue in.
Commissioner Hoffbeck replied that it did not matter which
account the money came from. Another revenue source was
needed. The structural issue needed a solution. He stated
that the CBR earned less than the Permanent Fund, and the
CBR would be invested much more heavily and returns would
improve.
Representative Wilson noted that the spring forecast showed
the deficit being filled by $300 million to $350 million by
current prices with a conservative amount of oil in the
pipeline. She remarked that the senate's decreases of
approximately $185 million combined with the forecast
helped to solve the problem.
Commissioner Hoffbeck replied that the numbers were "double
counted" in the spring forecast. He shared that the slides
from David Teal, Director, Legislative Finance Division,
had the spring forecast, but did not have the last
increment of production of approximately $50 million about
the solution. He stressed that there was only a gain of $50
million. He stated that drawing down savings made it more
important to accurately forecasts the revenues.
Representative Wilson asked for exact amounts of revenue
collected at present.
2:44:45 PM
Commissioner Hoffbeck continued to address slide 30. He
spoke to the concept of using savings now. He felt that
deficit required a long-term structural change in the
amount of collected revenue.
Representative Guttenberg wondered how the change in market
would affect the budget.
Commissioner Hoffbeck responded that the state was not as
susceptible to the market because of the state's investment
diversity.
Commissioner Hoffbeck indicated that the next slide
addressed Representative Wilson's previous question. He
reviewed slide 31: "Concentrates the Impacts":
· Just because the State stops funding a program or
service does not mean that the needs for that
service go away. However, the Federal funding
match often does go away causing severe
collateral damage to the programs, services and
the economy.
· Cuts flow downhill. If the State stops funding a
program or service the burden often falls to the
local governments and then to non-profits, the
private sector, or finally to the individual.
· State expenditure cuts that do not recognize on
going needs are a "pass through" solution. The
expense does not go away it just shifts to an
ever-smaller pool of resources.
· A statewide solution, such as a broad-based sales
or income tax, broadens the funding for the
delivery of programs and services by capturing
revenues from out of state workers and visitors.
2:51:57 PM
Vice-Chair Gara noted the drastic cuts in various agencies.
He asked for explanation of a flat budget.
Commissioner Hoffbeck explained that someone was picking up
costs that grow.
Vice-Chair Gara thought something would be lost. He asked
the commissioner to indicate where the department would
find $300 million in cuts.
Commissioner Hoffbeck deferred to Ms. Pitney.
2:55:09 PM
Commissioner Hoffbeck scrolled to slide 32: "Destabilizes
the Budget":
Provides no funding source for timely payment of close
to $1 Billion in oil and gas cashable credits. It
would take 10-20 years at the statutory rate. (Results
in the immediate loss of some of the smaller
companies)
Provides no funding source to deal with nearly $2
Billion in deferred maintenance or to support a level
of capital spending that is necessary for a healthy
construction industry in the state (results in
construction job loss, business failures and higher
maintenance costs in the future)
Representative Wilson wondered why maintenance was not
included in the operating budget.
Commissioner Hoffbeck deferred to Ms. Pitney for
information about the difference between the operating
budget and capital budget. He stressed that the money would
be from either budget.
Representative Wilson thought it was interested that the
maintenance was not in the line item in the operating
budget.
2:59:03 PM
Representative Neuman remarked that in the previous year
the legislature had approved $430 million from the prior
year's budget out of the draw from the CBR, but the
governor vetoed that appropriation. The result was now
owing over $1 billion. He queried the affect on the
economy, should those vetoes not have occurred.
Commissioner Hoffbeck commented that it would have helped
some of those small companies. He noted that there would be
$450 million less in the CBR.
Representative Neuman he stressed that the state would pay
back the credits as written in statute. He felt that not
paying the bills had a tremendous destabilizing effect on
the budget.
Commissioner Hoffbeck stated that the government was not
required to pay the credits. The only requirement was that
the businesses could use them to offset the taxes for
future productions. The state gave several options to
monetize the credits earlier.
3:05:16 PM
Representative Neuman disagreed with the statement of the
commissioner that the state did not have an obligation to
pay the credits. He felt that the state had a moral
obligation to pay those credits.
Co-Chair Seaton announced that he wanted to stay away from
a debate about oil taxes. He remarked that there was a fund
that received 15 percent of all the production tax when the
price of oil was under $60 per barrel. That fund paid the
tax credits automatically. He stated that the legislature
could appropriate money into that fund.
Commissioner Hoffbeck stressed that the state paid exactly
the statutory amount. He explained that the state was
paying substantially more than the statute, so there was an
expectation for additional appropriation.
Representative Thompson asked that the commissioner be
allowed to finish his presentation before more questions
were allowed.
3:08:08 PM
Commissioner Hoffbeck discussed slide 33: "Destabilizes the
Budget, Continued":
No ability to deal with increased annual PERS/TRS on
behalf payments due to an FY 18 experience review of
mortality, salary base and return assumptions.
(3 thousand less employees and reduced salary
inflation means fewer revenues into the retirement
system, likely to reduce target returns below 8
percent, and a switch to generational mortality will
likely increase assumed benefit years)
Does not account for formula program growth. (Requires
legislative action to permanently reduce these
payments)
Does not account for health care cost escalation in
excess of inflation.
Has no buffer to deal with cuts at the federal level
that trickle down to the state.
3:10:30 PM
Representative Pruitt had more questions.
Co-Chair Foster wanted to complete the presentation before
questions.
Commissioner Hoffbeck concluded with slide 34:
"Destabilizes the Budget Era at Risk." He remarked that
there was there would be a dramatic effect on the budget,
should the state not meet its targets.
Representative Thompson mentioned that all week the
committee had been talking about taxes. He had not heard
anything about new revenues. He had heard a lot about
redistributing money. He wanted to know about more
revenues. He noted several projects including Conoco
Phillips and Armstrong oil. He asked if the administration
was working with these producers.
Commissioner Hoffbeck replied that there was not the
ability to provide cash incentives, because there was no
cash. He stated that there were conversations regarding
different ways to incentivize the producers.
Representative Thompson wanted to hear from industries
about incentivization.
3:17:16 PM
Representative Pruitt queried the different dynamics that
would make the change. He wondered whether the four-year
review was before or after the $3 billion infusion. He
wanted to understand why 3000 employees would create a $200
million issue.
Commissioner Hoffbeck replied that it was above the $200
million for the following year. He explained that the
number was largely related to low investment returns over a
two-year period. He remarked that not meeting the targets
resulting in a greater unfunded liability.
Representative Pruitt noted that the first nine months of
the current fiscal year in the Alaska Permanent Fund there
was 8.96 percent growth. He wondered whether the ARM Board
was in the same vicinity.
Commissioner Hoffbeck replied that the returns were
similar.
Co-Chair Foster asked members and testifiers to speak into
their mics.
3:21:21 PM
Representative Pruitt if they were using the same
actuarial.
Commissioner Hoffbeck responded that they were not using
the same actuarial. He could provide the information.
Vice-Chair Gara felt that there was a moral obligation to
pay for children, but there were members in the legislature
who had voted to put less money in education than was
outlined in statute.
Representative Neuman called a point of order. He stated
that he never said that he would not pay for children.
Vice-Chair Gara asked the amount paid in oil tax credits in
the current year.
Commissioner Hoffbeck replied that the estimate was $1
billion.
Vice-Chair Gara queried the annual credit cost, should the
legislature develop a plan to pay the credits off in ten
years.
Commissioner Hoffbeck responded that it would be $100
million a year, should the credits be cut off at the end of
the calendar year.
3:24:27 PM
Vice-Chair Gara asked for an explanation of why
corporations pay no corporate tax, other than the sea
corporations and native corporations.
Commissioner Hoffbeck responded that subchapter S, or LLCs,
had income flowing to the individual owners of the company.
Therefore, the tax was paid on their personal income tax
rather than a corporate income tax. He stated that the
state did not have a personal income tax, so there was no
structure to collect at a corporate level, therefore there
was no mechanism to collect the tax.
Vice-Chair Gara assumed that every business cost the state
money, because there was only a $100 license fee.
Commissioner Hoffbeck responded that he was correct.
3:26:08 PM
Representative Wilson stressed that the Higher Education
Fund was used to offset the UGF, and there was no longer
money to offset that the UGF. She expressed concern about
the Public Employees' Retirement System (PERS) change from
$72 million to $158 million. She noted that the Teachers
Retirement System (TRS) changed from $111 million to $140
million. She stressed that it was an over $300 million for
UGF the following year.
Representative Wilson noted that Pennsylvania and
Connecticut felt that taxes would fix the budget gap, but
people and businesses moved from the states. She wondered
if there was an examination of the mistakes from other
states.
Commissioner Hoffbeck responded that it was difficult to
track down the cause and effect of economic issues. He
stated that the Minnesota governor had raised the rates on
the highest two tax brackets to fix education and deferred
maintenance problem. The state was "booming." He felt that
there was more at play than the tax rates.
Representative Wilson wondered whether the government was
the top driver in Minnesota.
Commissioner Hoffbeck replied in the negative. He stated
that Minnesota had a broad industrial base, and were one of
the highest tax states in the country. He remarked that
quality of life and good schools kept people in the state.
Representative Wilson wondered how Minnesota's cost of
living was similar to Alaska.
3:30:48 PM
Commissioner Hoffbeck did not have the data. He stated that
Alaska did have the highest cost of living in the country.
He stressed that Alaska had the highest costs for providing
state services, and there was no revenue stream to provide
those services.
Representative Wilson thought the legislature should be
careful about considering whether taxes would fix the
economy. She felt that government was too expensive because
it was overutilized.
Co-Chair Seaton referred to slide 28. He thought the
committee had discussed destabilizing future budgets. He
wondered whether the proposed cuts would destabilize the
current budgets.
Commissioner Hoffbeck responded in the affirmative.
3:34:21 PM
Representative Guttenberg stated that Kansas had
drastically cut taxes, and they were in a budget crisis.
He stressed that every state's circumstances were
different. He remarked that putting the Permanent Fund
Earnings into government would not require taxes and could
pay back the credits. He remarked that the problem was
related to volatility and a stable economy in the state.
Commissioner Hoffbeck replied that a comprehensive solution
was the goal that had to be reached.
Co-Chair Foster thanked Commissioner Hoffbeck for his
presentation.
^OVERVIEW: THE ECONOMY and FISCAL POLICY:
PAT PITNEY, DIRECTOR, OMB, OFFICE OF THE GOVERNOR
3:39:14 PM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced the PowerPoint
Presentation: "State Budget and the Economy."
Co-Chair Foster asked committee members to hold questions
until the end of the presentation.
Ms. Pitney addressed slides 2: "Expenditure Reductions to
Date" and slide 3: "Expenditure Reductions to Date." She
stated that expenditures had been cut 44 percent or $3.5
billion since FY 13.
Representative Wilson spoke to the $1.6 billion to $2.5
billion in operating funds on slide 3.
Ms. Pitney replied it was from the peak budget of 2013 and
included things like Public Employees' Retirement System
(PERS) and Teachers' Retirement System (TRS) payments. It
was across from the peak in 2013 to the 2018 proposal.
Representative Wilson asked if she could look at the
management plan or actuals in 2013.
Ms. Pitney replied in affirmative.
Representative Wilson asked for confirmation it was the
management plan.
Ms. Pitney replied in affirmative.
Representative Pruitt asked if there was a change from UGF
to DGF included.
Ms. Pitney replied that slide 3 was the only table that
showed UGF.
Representative Pruitt asked if some of the reduction had
been moved from UGF to DGF.
Ms. Pitney answered that a small amount - but it was not
significant.
3:44:51 PM
Representative Pruitt asked for a follow up on the
information.
Ms. Pitney turned to slide 4: "Expenditure Reductions to
Date." The chart showed a percentage reduction in the
current budget by agency. The colors on the left showed
reductions from FY 15 to FY 16, FY 16 to FY 17, and FY 17
to FY 18. The amount was much smaller in the FY 18 budget;
once the reductions had been taken, they were not available
to cut in the following year. The Department of Commerce,
Community and Economic Development (DCCED) was down to $20
million.
Ms. Pitney advanced to slide 5: "Expenditure Reductions to
Date: Closed State Facilities" that showed a map of Alaska
and demonstrated the impact of the budget cuts throughout
the state.
Ms. Pitney relayed that her colleague would address per
capita spending on slide 6.
BRIAN FECHTER, POLICY ANALYST, OFFICE OF MANAGEMENT AND
BUDGET, OFFICE OF THE GOVERNOR, addressed slide 6: "Per
Capita Spending: Factors Influencing Alaska's Per Capita
Spending":
· PFDs
· County Programs
· Unique Alaskan Programs
· Health Insurance
· Education
· Fuel/Energy
· Oil and Gas Credits
· Travel
Mr. Fechter elaborated that Alaska was the only state that
paid a dividend to residents.
3:51:50 PM
Vice-Chair Gara asked about slide 6. He was trying to
determine what it would look like without the PFD. He
wondered whether the $1022 was reflected in the chart.
Mr. Fechter replied in the affirmative. He turned to slide
7: "Right Size of Government":
· After adjusting for Alaska-specific conditions, per-
capita spending is within 7.2 percent of the national
average.
· Alaska excels at leveraging federal dollars. Dollars
not serving as match typically reside in life/safety
functions such as public safety, road maintenance,
corrections, etc.
· Further reductions pose a challenge. Many cost drivers
represent valuable programs.
· Need smart reform to bend the cost curve.
o Health Care
o Education
o Energy Efficiency
Ms. Pitney moved to slide 8: "Senate FY2018 Reductions
compared to GOV Amend." The slide provided a comparison of
the governor's proposed budget and the proposed Senate
reductions. The K-12 budget was $71 million below the
governor's proposal. She listed other differences. The
difference was a total of $202 million less in the Senate
budget. It was a 13 percent reduction to DEED, 67 percent
to DOT, and other.
3:55:04 PM
Vice-Chair Gara referred to slide 8. He spoke to the $39
million cut to Department of Health and Social Services
(DHSS). He asked if it included the DHSS cut.
Ms. Pitney replied it was inclusive. She detailed that the
cuts were largely made up of the four agencies.
Vice-Chair Gara pointed to agency operating. He asked about
the number used.
Ms. Pitney responded that she had been asked to show the
Senate version of the reductions.
Representative Wilson asked if it showed management plan or
actuals.
Ms. Pitney replied it was the management plan.
Representative Wilson asked if it was all funds.
Ms. Pitney replied it was only UGF.
Ms. Pitney addressed slide 9: "Senate Assigned Personnel
Reductions Sec. 4 Page 54-56." The administration viewed
the concept as a year-end emergency situation only.
Co-Chair Seaton asked for clarification - OMB intended to
leave them as the legislature intended.
Ms. Pitney answered that when there was flexibility
language it was viewed as a year-end emergency fund.
4:00:25 PM
Ms. Pitney continued to address personnel reductions on
slide 9. She explained there was discretion, but it was
hard to determine where to take the cuts.
Representative Wilson believed the legislature could not
tell the University where to take the cuts.
Ms. Pitney replied that the University had a different
construct than the rest of the executive branch.
Representative Wilson asked whether PCNs were removed.
Ms. Pitney answered that it was a dollar amount.
Representative Wilson asked about the allocation and
whether the amount was in it.
Ms. Pitney answered that it was within the appropriation.
4:03:13 PM
Representative Wilson asked if there was room for the
departments to decide how to use the money.
Co-Chair Seaton explained that the discretion was limited
to the appropriation of personal services.
Ms. Pitney, in response to a question from Representative
Ortiz, stated that there was no clarification to assign the
money to something else.
Representative Ortiz clarified that the budget had not
increased.
Ms. Pitney agreed.
4:05:20 PM
Ms. Pitney detailed slide 10: "Spend Not accounted For in
UGF senate version FY2018." She stated that the list
represented what was not accounted for in the senate
version.
In response to a question from Co-Chair Seaton Ms. Pitney
answered that the administration anticipated the
supplemental request. She noted that reforms had been taken
advantage of as well.
Representative Wilson asked Ms. Pitney to compare her
information with David Teal's.
4:11:24 PM
Ms. Pitney moved to slide 11: "A Possible $750M Reduction
Scenario An additional 17 percent reduction." There would
be 100 percent reduction in PERS/TRS, but it did not count
the $300 million noted in the prior slide. The agency
operations would be operating at 2005 or 2011 totals.
Representative Wilson asked if she used the revenue
forecast for comparisons of if she had used the FY 15
management plan numbers.
Ms. Pitney replied that the slide represented a $750
million reduction to the budget.
4:14:59 PM
Representative Wilson wanted to clarify that the state was
not looking at any additional revenues.
Ms. Pitney responded, "That is correct."
Co-Chair Seaton added that the slide represented
expenditures.
Ms. Pitney agreed.
4:15:55 PM
Ms. Pitney continued to slide 12: "Additional Expenditure
Reduction Impact Scenarios: Current Level of Direct Payment
to Municipalities." She clarified that the amounts
represented the checks written to municipalities. She read
the numbers on the slide.
Ms. Pitney turned to slide 13: "Additional Expenditure
Reduction Impact Scenarios: Reduction in Direct Payment to
Municipalities." She explained that the slide reflected the
cuts and how they would impact the municipalities.
4:19:12 PM
Vice-Chair Gara asked how the Mat-Su received the most
money in the state.
Ms. Pitney indicated there was a formula error, and agreed
to provide that information.
Representative Wilson surmised that there was actually a
cut of $1.1 billion. She felt that there should be a $750
million difference between slides 12 and 13.
Ms. Pitney shared there were errors, but there was a typo
in the Mat-Su.
Representative Wilson surmised that the result should be
$750 million.
Ms. Pitney replied that there was only $450 million of the
$750 million that was represented in the chart.
Ms. Pitney moved to slide 14: "PERS/TRS Estimates Variable,
Growth Exceeds Inflation." She explained the slide.
Ms. Pitney slide 15: "Additional Expenditure Reduction
Impact Scenarios." She shared that the chart showed the
property tax increase at the community level.
4:25:42 PM
Ms. Pitney advanced to slide 16: "Reduction Impact
Scenarios Medicaid: Direct Medicaid Payments to Providers."
She remarked that the second column removed the $50 million
in UGF, and its impact on the communities.
Ms. Pitney scrolled to slide 17: "Additional Expenditure
Reduction Impact Scenarios: Direct Payment to Recipient
Programs":
· Housing Programs
· AK Temporary Assistance
· Child Care Benefits
· Community Developmental Disability Grants
· Behavioral Health
Prevention/Intervention/Treatment/Recovery Grants
· Adult Public Assistance
· General Relief Assistance
· Food Stamps
· Pioneer Home
· Senior Benefits
· WIC
· Foster Care
· Subsidized Adoptions
· Energy Assistance
Ms. Pitney turned to slide 18: " Additional Expenditure
Reduction Impact Scenarios: State Facilities Operating in
Communities":
· Prisons
· Courts
· Pioneer Homes
· DMV
· Public Health Centers
· DOT Maintenance Stations
· Child Support Offices
· University Campuses
· State Parks and Campgrounds
· Job Centers
· Trooper Posts
· Juvenile Justice
· Ferry Terminals
· Airports
Ms. Pitney continued to slide 19: " Additional Expenditure
Reduction Impact Scenarios: Known Needs":
· Opioid Crisis
· Behavioral Health and Substance Abuse Treatment
· Capital Project Funding
· Deferred Maintenance
· Oil and Gas Credit Liability
· Health Care Cost Due to Aging Population
· Increases for Population Growth
Ms. Pitney suggested there were things that could not be
addressed in the form of a capital budget. //. She read the
list.
4:29:29 PM
Ms. Pitney slide 20: "Additional Expenditure Reduction
Impact Scenarios":
· Capital Program Spending is already at an
unsustainably low level and will likely need to be
increased in the very near future.
· Agency Operations Spending has already been reduced 28
percent. Although additional reductions are planned
through transitioning to shared services and
consolidating program delivery, there is little
additional savings that can be achieved without the
reduction or elimination of the programs and services
that these expenditures support.
· Indirect Expenditures are currently being reviewed for
modification or elimination. The largest of which is
the oil and gas tax credit program, which is already
constrained to the statutory annual payout formula but
has significant accrued liability that eventually will
need to be paid through direct payment or reduced
revenues.
· Direct Payments to municipalities and to program
participants represent over 46 percent of the total
state budget. This represents cash out the door to
support programs and services statewide.
Ms. Pitney scrolled to slide 21: "Additional Expenditure
Reduction Impact Scenarios Continued":
· Just because the State stops funding a program or
service doesn't mean that the needs for that service
go away. However, the Federal funding match often does
go away causing severe collateral damage to the
programs, services and the economy.
· Cuts flow downhill. If the State stops funding a
program or service the burden often falls to the local
governments and then to non-profits, the private
sector, or finally to the individual.
· State expenditure cuts that do not recognize on going
needs are a "pass through" solution. The expense does
not go away it just shifts to an ever-smaller pool of
resources.
· A statewide solution, such as a broad-based sales or
income tax, broadens the funding for the delivery of
programs and services by capturing revenues from out
of state workers and visitors.
Ms. Pitney did not go through the last slide, as it had
been discussed in Commissioner Hoffbeck's presentation.
4:31:51 PM
Representative Pruitt felt that there were other states
that had unique programs or fisheries costs. He wondered
whether there was an examination of other states compared
to Alaska.
Mr. Fechter answered that much of the administration's
approach was using a "basket of states" approach. He stated
that there was an examination of other states that have
some significant fisheries economies. He remarked that
those states were large, like Alaska, but Alaska had a
smaller population. He stated that there would be a much
deeper analysis in determining the uniqueness of each
state.
4:34:37 PM
Representative Pruitt felt that it was not appropriate to
compare to other states, if the other states did not have
the same applied metrics.
Co-Chair Seaton asked if Representative Pruitt was
suggesting that every state should be looked at in detail,
or that there should be no examination of other states.
Representative Pruitt shared that there were other states
with expensive unique programs. He wanted to compare the
unique programs with other state's unique programs.
Ms. Pitney relayed that the precision of the report was not
the intent of its use. She stressed that the report
provided context.
Vice-Chair Gara remarked that there were many recurring
cuts. He looked at the cuts to Medicaid, and did not feel
that those cuts would reduce the budget.
Ms. Pitney replied that $151 million was required to cover
the budget under the senate version, $58 million plus $15
million under the governor's version, and $$17 million.
4:40:25 PM
Vice-Chair Gara asked what cuts by the Senate would show up
as a supplemental budget in the following year. He wondered
whether Medicaid would be in the supplemental budget.
Ms. Pitney replied in the affirmative. She stated that
Medicaid; Alaska Marine Highway System (AMHS); K-12
Funding; and PERS and TRS would need funding in future
budgets. She stressed that the two Medicaid items would
appear in the supplemental budget.
Vice-Chair Gara wondered whether the added items would look
like a budget increase, even though it would not be a
budget increase.
Ms. Pitney responded in the affirmative.
Co-Chair Seaton stated that Section 4 in the senate bill
could be taken against other line items.
Representative Wilson referred to slide 12. She surmised
that the slide had incorrect totals.
Ms. Pitney indicated she would have the correct version in
15 minutes.
Representative Wilson gave kudos to the governor who listed
the line items with the amounts. She wondered why DGF and
UGF would included in the per capita costs for unique
programs.
Mr. Fechter all state source dollars must be used in
comparing with other states.
4:45:12 PM
Representative Wilson assumed that PCE would not be
utilized without the fund.
Ms. Pitney responded that the purpose of the report was to
review the spending.
Representative Wilson did not feel that the per capita
amounts were not fair to asses with the special
circumstances.
Ms. Pitney responded that it was the amount of spend on a
per capita basis, but did not address revenue sources.
Representative Wilson wondered why the management numbers
would be used as opposed to actuals if they were available.
Ms. Pitney replied that it was intended to have
consistency.
Representative Wilson remarked that she appreciated the
notion of consistency.
4:50:52 PM
AT EASE
4:50:56 PM
RECONVENED
Representative Ortiz looked at the right size of government
slide. He noted that the Fisheries showed a cost of $165.04
per capita. He wondered whether that factored in before or
after the commercial fish landing taxes, entry commission
fees, and other licenses.
Mr. Fechter answered that the figure would include other
fund sources.
Representative Ortiz clarified that the cost per citizen
would be a lesser number.
Mr. Fechter agreed.
4:52:42 PM
AT EASE
4:55:18 PM
RECONVENED
Co-Chair Foster handed the gavel to Representative
Guttenberg.
SENATE BILL NO. 28
"An Act relating to the general grant land entitlement
for the Petersburg Borough; and providing for an
effective date."
4:55:22 PM
SENATOR BERT STEDMAN, SPONSOR, introduced himself. He was
going to turn it over to his trusted aide.
REPRESENTATIVE JONATHAN KREISS-TOMKINS, introduced himself.
MELISSA KOOKESH, STAFF, SENATOR BERT STEDMAN, introduced
herself. She read the sponsor statement:
Senate Bill 28 will set the total general land
entitlement for the Petersburg Borough (Borough) at
14,666 acres. This is an increase of 12,770 acres from
its current level of entitlement, and would bring the
Borough's land entitlement to a level similar to the
other organized boroughs in the state. SB 28 will
address the long-term economic sustainability of a
recently formed borough.
When the Borough formed in 2013, it received a general
land grant entitlement from the state of 1,896 acres.
Of the 1,896 acres, 457.47 acres had already been
given to the City of Petersburg. A substantial part of
the 457.47 acres is restricted to public, charitable,
or recreational use.
After deducting the 457.47 acres that went to the
City, the Borough's land entitlement is 1,438.53 acres
which is an area roughly 1/3rd the size of the
Anchorage International Airport. 1,438.53 acres simply
does not provide enough land to support economic
development such as rock and sand material sites for
roads, airports, waterfront land for tourism
development, or residential homes.
The Borough would select the additional 12,770 acres
from seven different areas around the Borough. All
selections would be made from vacant, unappropriated,
and unreserved state lands. No selections would
interfere with existing State, University, or Alaska
Mental Health Trust lands, including the Southeast
State Forest, or private ownership.
The Petersburg Borough recognizes we are in difficult
budget times. An increased land base is critical for
the Petersburg Borough to become more self-sufficient.
4:59:55 PM
Representative Wilson asked who currently owned the land.
Senator Stedman responded that "the state" owned the land.
Representative Wilson asked if the state was selling the
land to the borough.
Senator Stedman explained that during the creation of the
Statehood Act, it was decided that the state should be
split into boroughs. He remarked that some of the larger
areas were immediately "borough-ized", and other areas had
not officially become boroughs in the state. He shared that
the legislature had requested more flexibility in creating
the boroughs, because initially Petersburg and Wrangell
were one borough. He shared that the constraints had
relaxed ten years prior, allowing the communities to adjust
how they felt the boundaries should be drawn. He remarked
that the subject of the legislation was the expansion of
the Petersburg expansion. He remarked that in trying to
meet the obligation of the constitution, no boroughs had
been required to purchase the land from the state. He
stressed that all boroughs were treated the same. He
understood that there were some areas that would not be
capable of supporting a borough. He felt that the proposed
expansion would support the borough. He surmised that the
communities would not create boroughs, if they were
required to purchase the land.
5:02:29 PM
Representative Wilson surmised that the bill would allow
for the creation of "Petersburg services.
Senator Stedman replied that Petersburg had platting
authority. He stated that the Petersburg Borough would
control the development through their zoning ordinances, to
facilitate commercial or recreation development. He
remarked that there was a parcel that had previously held a
post office.
Representative Wilson wondered whether the bill followed
the model that granted other boroughs a certain number of
acres that would be privatized, or whether the acreage fit
the need in the specific area.
Senator Stedman replied that the bill aligned the
Petersburg Borough with other boroughs throughout the
state. He shared that most of the land was federal forest.
He stressed that the borough size might be large, but there
was very little private property within the federal forest.
5:04:58 PM
Representative Kawasaki asked whether it was a second-class
borough.
Senator Stedman responded that it was a full borough.
Representative Kawasaki wondered whether the borough
originally anticipating that they would ask for a future
larger entitlement.
Senator Stedman deferred to Ms. Cabrera.
Representative Kawasaki asked whether there was a
requirement that the land entitlements be contiguous or
within a certain area centered on the current Petersburg
Borough. He felt that there were selections that were far
away from the actual core area.
Senator Stedman replied that the selections were around
Petersburg. He stressed that there was no community between
Juneau and Petersburg, and the nearest southern community
was Wrangell. He pointed out that much of the unselected
space was the Juneau Borough.
Representative Kawasaki noted that the Haines Borough had
3200 acres; the Fairbanks North Star Borough had 122,000
acres. He wondered whether 15,000 acres was a manageable
size.
Senator Stedman responded that it was the goal to have the
entire Southeast region divided into boroughs.
Representative Kawasaki hoped that the land become
contiguous in the boroughs. He wondered how Alaska Mental
Health Trust Authority (AMHTA) land, tribal land, and
federal land would be incorporated in the borough.
Senator Stedman replied that it was ideal to have
contiguous borough boundaries.
Representative Pruitt wondered how the initial entitlement
amount was determined.
Representative Kreiss-Tompkins thanked the committee and
indicated his support of the bill. He had to return to
House State Affairs.
5:11:46 PM
LIZ CABRERA, COMMUNITY AND ECONOMIC DEVELOPMENT,
PETERSBERG, introduced herself.
Representative Pruitt wondered how the number of 12,770
acres was determined. He understood the initial formula.
Ms. Cabrera responded that the number was a simple
addition. She took the average of acreage of the existing
boroughs and their selection process.
Representative Pruitt asked if she was looking for total
acreage. He wondered if the size of the borough or a parody
in sheer acreage.
Ms. Cabrera used Sitka as an example which was a ratio and
the average of the ratio.
Representative Guttenberg asked if Marty Parson's was
online. He wondered about the original allocations and the
constitutional allocations.
5:15:19 PM
MARTY PARSONS, DEPUTY DIRECTOR - MINING, LAND, AND WATER
DIVISION, DEPARTMENT OF NATURAL RESOURCES, ANCHORAGE (via
teleconference), responded that the legislature would
identify the number of acres and provide the number to the
borough for selection. He stated that it had been changed
under AS 29.65.020, a formula was generated to take 10
percent of the vacant unappropriated unreserved land within
the borough.
Representative Wilson wondered whether there was a
requirement to put into private land.
Mr. Parson responded that once the land was conveyed to the
borough, the land use was at the borough's discretion.
Representative Wilson wondered whether the borough
determined the private investment.
Mr. Parsons replied that there was not requirement to
convey the land into private ownership.
Representative Kawasaki wondered whether the state could
keep the land.
Mr. Parsons informed the committee that the statute
required the state to show that the land was of
significance importance to the state, before it would
convey it to the borough.
Representative Kawasaki wondered there was an allowance for
boroughs to pick their land.
Mr. Parsons answered that there was not a restriction on
making the selections contiguous.
5:20:03 PM
Representative Ortiz wondered whether other boroughs in
Southeast had a home rule status.
Ms. Cabrera indicated Wrangell was home rule status. She
did not know about Ketchikan.
Representative Ortiz queried the differences between the
types of boroughs.
Ms. Cabrera replied that home rule boroughs could do
anything that was not prohibited by state law. There was a
charter to establish the borough's powers and authorities.
Representative Wilson thought Ms. Cabrera had more to say.
Ms. Cabrera indicated she did. She read a prepared
statement:
Co-Chair Foster and members of the committee. Thank
you for the opportunity to address you today regarding
SB 28 an act related to the general land entitlement
of the Petersburg Borough.
SB 28 sets the general land entitlement of Alaska's
newest borough, Petersburg, to be comparable to the
land entitlement received by all other boroughs in the
state. An amount equal to approximately
.79 percent of a borough's land mass, which in
Petersburg's case is 14,666 acres.
For those of you who are unfamiliar with our
community, the Petersburg Borough is located in
central Southeast Alaska and encompasses an area of
3,800 square miles of land and sea. The borough's
population center is located on the northern tip of
Mitkof Island, which is home to a diverse and prolific
commercial fishing fleet and three major seafood-
processing facilities. In 2013, the residents of
Petersburg voted to form a borough - for a number of
reasons, including having a greater say on land use
decisions in our surrounding area, having an
opportunity to Increase our municipal land base, and
many also felt it was Important for all area residents
to support our school system through local taxes.
About 12 months after borough formation, Petersburg
received a general land grant entitlement
certification from the state indicating we were
entitled to 1,896 acres under AS 29.65.010. However,
this amount was reduced by the 457 .47 acres already
received by the City of Petersburg, even though
certain tracts of the City's 457.47 acres is
restricted from development and only available for
public, charitable, or recreational use. After
deducting the 457.47 acres, the Borough's land
entitlement was 1,438.53 acres. To put this into
context, this is approximately an area roughly 1/3rd
the size of the Anchorage International Airport.
In making this calculation, DNR uses a statutory
formula - a municipality is entitled to 10 percent of
VUU land within its boundaries.
The lands available for selection are designated as
VUU or "vacant, unappropriated and unreserved" land by
the State of Alaska. These lands are either
"unclassified" or classified as "agricultural,
grazing, materials, public recreation, settlement, and
resource management'' but for the most part no
development has occurred on any of the VUU lands.
You may wonder why we received such a small land
entitlement to begin with. The majority of land within
the borough, over 96 percent, is managed by the
federal government as the Tongass National Forest. Of
the non-federal lands within the borough, 1.73 percent
is owned by the Goldbelt Corporation, 1.34 percent by
the State of Alaska, and .4 percent by the Alaska
Mental Health Trust and University of Alaska. Only .3
percent is in private ownership and a mere .04 percent
is owned by the municipality. When DNR applied the
land entitlement formula to the Petersburg Borough,
only a very small amount of land remained in VUU
status.
As we began to evaluate our potential selection, we
realized that our entitlement was not adequate for
what we were hoping to accomplish and that other
boroughs also received small land entitlements
initially and then were able to increase these through
the legislature. The most recent example was in 2010
when both Wrangell and Haines received additional
acreage, and in the late 1990's the Lake and Peninsula
Borough and Yakutat Borough also had their land
entitlement set through legislation.
Why is this Important to Petersburg specifically? As I
mentioned previously, just over 96 percent of our land
base is federally managed and of our non-federal lands
the major landholder are Goldbelt Corporation and the
State of Alaska. In short, while the borough itself is
relatively large, the majority of land is not and will
never be Included In the local tax base and most is
not available to generate economic return for our
residents or the State of Alaska.
The Petersburg Borough would like the opportunity to
move some these lands into private ownership and add
them to our tax base as residential or commercial
developments. We would like the opportunity to secure
new sources of rock for construction and maintenance
of our roads and other projects. In general, we would
like the opportunity to be more economically self-
sufficient. 1,400 acres simply does not provide
sufficient developable land to support these goals.
In our discussions with the Department of Natural
Resources, they explained that the agency generally
does not voice support for this type of legislation,
but neither does the agency oppose Petersburg's
request. We provided a general outline of the lands we
would select under SB 28 and DNR did not express any
concerns about these potential selections.
Lastly, the members of this committee know better than
most that these are difficult times. In our own small
way, we, in Petersburg, want to be part of the
solution, not a casualty of crisis. An Increased land
base is a key component to the long-term
sustainability of our municipality.
We respectfully ask for your support to move SB 28 out
of Senate Resources.
Thank you for the opportunity to speak to you today
and I would be happy to answer any questions you may
have.
Representative Wilson indicated that by becoming a borough
they would be able to provide local police and other
community programs.
Representative Pruitt wondered if the money came directly
to Petersburg.
Ms. Cabrera replied that it was a payment that the federal
government gave to the borough. The payment was received
directly, and was calculated in a formula.
Acting Chair Guttenberg reported that amendments for the
bill were due by 5:00 p.m., Wednesday, May 10, 2017. He
reviewed the agenda for the following meeting.
SB 28 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
5:27:31 PM
The meeting was adjourned at 5:27 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 28 Letters of Support 4.11.17.pdf |
HFIN 5/4/2017 1:30:00 PM |
SB 28 |
| SB 28 Maps Land Selection Areas 4.11.17.pdf |
HFIN 5/4/2017 1:30:00 PM |
SB 28 |
| SB 28 Sponsor Statement 4.11.17.pdf |
HFIN 5/4/2017 1:30:00 PM |
SB 28 |
| SB 28 Sectional Analysis 4.11.17.pdf |
HFIN 5/4/2017 1:30:00 PM |
SB 28 |
| Analysis_of_Alaskas_Per_Capita_Budget.pdf |
HFIN 5/4/2017 1:30:00 PM |
HFIN Fiscal ploicy |
| House Finance Presentation- State Budget and the Economy 05.04.2017.pdf |
HFIN 5/4/2017 1:30:00 PM |
HFIN Fiscal Policy |
| House Finance Presentation- State Budget and the Economy 05.04.2017.pdf |
HFIN 5/4/2017 1:30:00 PM |
HFIN Fiscal Policy |
| Revenue Overview - House Finance - 5.4.17.pdf |
HFIN 5/4/2017 1:30:00 PM |
HFIN Fiscal Policy |
| SB 28 Testimony Liz Cabrera Petersburg Borough.pdf |
HFIN 5/4/2017 1:30:00 PM |
SB 28 |