Legislature(2017 - 2018)HOUSE FINANCE 519
01/18/2018 01:30 PM House FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Fy 19 Budget Overview: Office of Management and Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
HOUSE FINANCE COMMITTEE
January 18, 2018
1:31 p.m.
1:31:33 PM
CALL TO ORDER
Co-Chair Seaton called the House Finance Committee meeting
to order at 1:31 p.m.
MEMBERS PRESENT
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
Representative Neil Foster, Co-Chair
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; Neil Steininger, Chief Budget
Analyst, Office of Management and Budget, Office of the
Governor.
SUMMARY
FY 19 BUDGET OVERVIEW: OFFICE OF MANAGEMENT AND BUDGET
Co-Chair Seaton reviewed the meeting agenda.
^FY 19 BUDGET OVERVIEW: OFFICE OF MANAGEMENT AND BUDGET
1:32:38 PM
Co-Chair Seaton asked if Ms. Pitney would prefer questions
throughout the presentation or at the end.
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, replied that asking questions
throughout the presentation was preferable.
NEIL STEININGER, CHIEF BUDGET ANALYST, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR, provided a PowerPoint
presentation titled "State of Alaska FY2019 Budget
Overview" dated January 18, 2018 (copy on file). He began
on slide 2 and addressed key budget items beginning with
public safety investments totaling $34 million and 18
positions. The funding was allocated to enhanced trooper
and prosecutor presence in rural Alaska, substance abuse
treatment grants, Department of Corrections (DOC) prison
operations, a statewide drug prosecutor, support positions
to free up trooper time, additional public defender
support, and prosecutor and investigator positions in
Anchorage. The proposed budget would fully fund the
Medicaid budget based on the Office of Management and
Budget (OMB) FY 19 projections. The budget included health
care funds for continued work towards the health care
authority to try to arrest some of the rising costs of
health care in Alaska.
1:35:09 PM
Vice-Chair Gara asked if the public safety information
would only be addressed at the current time. Mr. Steininger
responded affirmatively.
Vice-Chair Gara remarked on the lack of state troopers,
which he believed was dangerous. He stated the budget had
included authority to hire additional troopers; however,
the state had not been able to hire the troopers for
numerous reasons. He asked about the approach in the
proposed budget to address the issue. He reasoned that
adding more positions would not result in additional
troopers.
Ms. Pitney replied there was funding in the trooper budget
for trooper recruitment and hire. The items in the budget
[on slide 2] included two drug investigators collocated
with prosecutors. The administration did not want the items
to compete with current troopers and it wanted added
capacity. The intent was to fill the available trooper
positions that were funded and available. Funding would be
short once the positions were filled if the funding was not
requested in the budget. Given limited trooper time, the
desire was to have staff positions to get the report turned
around in a 48-hour period. She detailed that troopers were
addressing such a high number of crime incidents there was
a time lag in the reporting. The $600,000 would go to
hiring staff to enable the reports to be filed within 48-
hours. She relayed that hiring the support positions and
additional troopers would mean funding would be short. The
administration continued to aggressively use available
funds to recruit as many troopers as possible to get fully
staffed. The funding would also be utilized for trooper
retention to retain as many troopers as possible.
Representative Wilson asked what the statement on slide 2
meant by "Medicaid fully funded." She asked for the total
funding and the number of individuals currently in the
Medicaid program.
1:38:27 PM
Mr. Steininger replied that fully funding Medicaid would be
about $691 million undesignated general funds (UGF), which
was an increase of about $127 million over the FY 18
management plan. There was a slide later in the
presentation showing the total projections. Factoring in
the supplementals, the proposed budget included about $27
million over what OMB projected to actually spend in FY 18.
The projections were based on modest continued increase in
the Medicaid population. The population had increased
significantly, but OMB anticipated the increase to somewhat
plateau. He added there was a slide later in the
presentation showing the total population projections.
Representative Wilson pointed to the $18 million for
substance abuse treatment grants (slide 2). She asked how
the grants were monitored. She remarked that behavioral
grants and others had been prior to Medicaid expansion. She
thought that it appeared there were the same number of
grants. She asked who was serviced by the $18 million for
substance abuse treatment grants.
Ms. Pitney replied that Attorney General Lindemuth and all
agencies had come together to develop a public safety
action plan, which had been released in October. She stated
it had been primarily related to the criminal justice
population. There were many people going into prison and
most of what they needed was substance abuse treatment. The
increment was focused on the population coming into the
state's court and legal systems. The intent of the
increment was to determine - prior to putting an individual
in jail - if their issue was only related to substance
abuse, which could be treated and enable the person to have
a productive contribution.
1:41:29 PM
Representative Wilson was concerned they were not using
community centers/halfway houses. She stated that under
Medicaid expansion, if a person was on electronic
monitoring or in a halfway house, the federal government
would pay. However, there had been a decrease in the usage
of the options. She asked if there was anything in the
works by DOC that would enable a large portion of the $18
million to fall under Medicaid or Medicaid expansion.
Ms. Pitney responded that the state had a lack of substance
abuse treatment operations. Part of the grant would go
towards ensuring the state had a place for people to go for
substance abuse treatment. The operating dollars, to the
extent possible, would be covered by Medicaid.
Representative Ortiz asked if the $34 million for public
safety reflected a direct increase from the Department of
Public Safety (DPS) FY 18 budget or replacement money. He
asked how the increment compared to FY 18.
Mr. Steininger replied that the $18 million in substance
abuse treatment grants was a multi-year supplemental. The
remainder of the items in the public safety action plan
would add to the FY 19 operating budget.
Representative Ortiz asked if the FY 19 operating budget
had been flat funded or increased from FY 18. Mr.
Steininger replied that the increment reflected an increase
from FY 18.
Ms. Pitney added that the DOC increment was an increase
over the supplemental included for DOC health care.
1:44:28 PM
Representative Guttenberg referred to the $2.9 million for
enhanced trooper and prosecutor presence. He asked if the
increment included Village Public Safety Officers (VPSO).
Ms. Pitney replied in the negative.
Representative Guttenberg remarked that the VPSO grant
recipients had greater restrictions on grants than troopers
had when they received appropriations. He detailed that
there was not the same ability available to hire VPSOs as
there was for hiring troopers. He wondered if there was
anything in the works to make VPSO hire more efficient
instead of merely giving troopers more money in rural
Alaska. He reasoned that hiring the correct number of VPSOs
would be less expensive and more effective than troopers.
Ms. Pitney suggested speaking with DPS Commissioner Walt
Monegan about the issue. She relayed that the commissioner
was well prepared for the conversation. The
administration's interest was a broader presence in the
public safety arena, first utilizing the dollars available
in the budget.
Representative Guttenberg asked if the increase in Medicaid
cost was due to an increase in Medicaid recipients or an
increase in health care cost.
Ms. Pitney replied that the number of Medicaid recipients
was growing; the total was currently just under 200,000.
The increase over the past few years had been split equally
between Medicaid expansion and traditional Medicaid. The
administration was projecting the same expenditure for FY
19 from a state perspective as there had been in FY 15. The
number of recipients was about 30 percent more at present
than in FY 15 and the administration anticipated about 34
percent more for FY 19. She mentioned holding down state
cost while serving 75,000 additional people (about half
were Medicaid expansion); OMB believed the increase was
exacerbated by the recession.
Representative Guttenberg asked for more detail about the
$1 million for continued work towards health care authority
[slide 2].
1:47:45 PM
Ms. Pitney replied that $750,000 of the $1 million would go
to working towards implementation on health care authority
and $250,000 was a broader legislative administration
provider stakeholder effort to begin looking at the broader
cost of health care in the state. She relayed that the
public comment period on the feasibility study for the
health care authority had concluded and the administration
was currently engaging with public employer's union trusts
on how to move forward on a win-win basis. The $750,000
would largely be for additional analysis (comparing a union
trust package with an AlaskaCare package and University of
Alaska package) and review of actuarials to determine how
to combine public employers appropriately and what the
structure would look like from a governance perspective.
Employees wanted a voice and assurance they were somewhat
in control of their healthcare. Through the health care
authority studies, best practices had been witnessed at the
union health trust and good practices had been seen at the
University and in AlaskaCare. The goal was to look at all
of the best practices for use going forward. She considered
the governance structure for considering all of the groups
combined; the $750,000 began to address the right plan and
how everyone had a voice in the plan moving forward.
1:50:02 PM
Co-Chair Seaton recognized Representatives Geran Tarr and
Dan Saddler in the audience. He reminded committee members
that the current presentation was a budget overview. He
asked members to consider that detailed questions could be
answered by individual departments. He communicated that he
was not trying to stifle questions.
Representative Grenn would hold his question for the
department at a later date.
Representative Kawasaki asked if someone would present on
the Public Safety Action Plan specifically at a later time.
Co-Chair Seaton replied that the committee would hear a
presentation as a unit.
Representative Kawasaki would hold his questions until that
time.
Vice-Chair Gara spoke to the Medicaid funding increase. He
remarked that during recessions Medicaid spending went up
and when the economy was good Medicaid spending stabilized.
He asked if the Medicaid increase pertained to additional
services, the number of recipients, or a combination.
Ms. Pitney replied that the increase was due to new
Medicaid recipients. She elaborated that the state had
reduced its reimbursement rates the previous year to drive
costs down. Additionally, the state had reduced hours of
time for certain categories of disability day care and it
had discontinued payment of new codes. The state was paying
less and for the third consecutive year it had offered no
inflationary cost increases on rates. Much had been done to
drive the service cost down; the increase was primarily
driven by the increased number of recipients.
1:54:03 PM
Co-Chair Seaton recognized Representative Andy Josephson in
the audience.
Mr. Steininger advanced to slide 3 and addressed additional
key budget items. He highlighted oil and gas exploration
credits. The administration had proposed debt refinancing,
which would allow small explorers the opportunity to
receive payment immediately for their oil and gas
exploration credits starting at a 10 percent discount. The
discount enabled the state to cover the financing costs
through a general obligation bond package that would cover
the upfront payment of the exploration credits.
Co-Chair Seaton asked if there would be additional detail
about the increment later on.
Ms. Pitney answered in the affirmative. She relayed the
legislation would come to the committee the following week.
The proposal was designed as a win-win opportunity for the
state and explorers. The cost of capital for small
companies could exceed 15 percent or more; the ability for
companies to get cashable credits up front was better than
waiting five to seven years to receive the statutory
minimum. She detailed that the discount would mean the
state's net present value (NPV) was neutral (no additional
cost from the Treasury) to the current year to year
payments. Cash payments would be more aligned with the
state's cash flow. There would be smaller cash payments at
present that would be a bit larger in the future. The
administration's interest was to have funding redeployed in
Alaska to the extent possible. There were numerous
opportunities on the horizon for exploration and the
administration believed paying the credits immediately
would have a better impact on jobs.
1:56:45 PM
Co-Chair Seaton referred to testimony that general
obligation bonds were generally restricted to capital
projects. He asked if the statement was generalized.
Ms. Pitney clarified that it was not a general obligation
bond, but a subject to appropriation bond. The bond would
take the liability for explorers to a debt liability to the
state.
Co-Chair Seaton stated that a 10 percent discount at 3.25
percent meant that in three years the interest rate would
eat up the entire discount and would cost the state more
for further payments. He discussed converting from a
payment based on received revenue from production tax and
reasoned that if oil prices declined again the state would
still be stuck with payment of a bond issue with very
little revenue to pay with. He wanted to ensure the
presenters covered the items when discussing the bond
issue.
Representative Pruitt wanted to understand how the subject
to appropriation bond would work. Additionally, he wondered
if there was an expectation that the administration would
come forward with a request for an increase in another way
if the legislature chose not to appropriate funds for the
bond. He remarked the $27 million included in the budget
was lower than what statute would indicate.
Ms. Pitney answered that the subject to appropriation bond
would be explained [at a later date]; the legislature would
have to pass a piece of legislation to approve the bond.
The governor's plan was that the debt refinancing was the
appropriate way to go. She furthered that if the
legislation was not passed, the legislature would have to
determine at what level to pay the tax credits. She did not
anticipate an amendment from the administration; its
proposal was the debt refinancing.
2:00:49 PM
Vice-Chair Gara stated that in the past the legislature had
passed legislation allowing the purchase of credits to
small companies at whatever BP, ConocoPhillips, and
ExxonMobil; and the small explorer agreed to. For example,
BP could purchase $1 million in tax credits; at the present
cost of $500,000 they could pay 50 percent and an explorer
could take it immediately instead of holding onto it. He
stated they could pay half or whatever was negotiated. He
about the benefit of a bill specifying that the state would
pay all of the funds without the flexibility to negotiate
with explorers or companies holding credits. He hoped it
was a policy question people would think about when
developing legislation.
Ms. Pitney pointed out that if a small producer sold $50
million to a large producer, the state would see $50
million less revenue because the producer could write it
off. The small explorer was disadvantaged, and the money
did not come back into the small explorer's capital to be
reinvested and the state was no better off because it lost
the revenue. She agreed that the company could sell its
credits to a larger producer that was paying tax, but the
state revenue would be reduced by that full amount. Without
the governor's proposal, the state would still pay the full
amount whether the explorer sold at a discount to a large
producer or not.
Vice-Chair Gara clarified that his point had been that
statute had been written so a small explorer and a large
company like BP could negotiate where BP paid 50 cents on
the dollar. He understood that the state would not get any
benefit out of the arrangement. He wondered why the state
was not given the same flexibility to negotiate a lower
price if a company wanted to be paid immediately.
Ms. Pitney understood.
Mr. Steininger continued with slide 3 related to the Alaska
Liquefied Natural Gas Pipeline project. A five-party
agreement had recently been signed and interested natural
gas buyers were coming to the table for the first time. The
administration anticipated the project would create 12,000
jobs and $2 billion in annual economic activity and a
future revenue stream for the state. The governor's budget
included the authority to accept third-party investor
funds, but no additional state funds were committed to the
project at present.
2:04:29 PM
Mr. Steininger moved to slide 4 and briefly addressed the
proposed base capital budget. He characterized the capital
budget as constrained and relayed it prioritized matching
federal funds. The budget included housing, energy,
maintenance, and key information technology investments. He
turned to slide 5 and discussed the Alaska Economic
Recovery Act. The act focused on investing in deferred
maintenance and energy projects with an emphasis on
projects that would get money out on the street quickly.
The goal was to get Alaska's economy working again. The
recovery act would commit $800 million over three years,
which included $280 million in FY 19 for capital projects.
The funding would be generated through a 1.5 percent wage
tax, which would be capped at two times the Permanent Fund
Dividend. The act would sunset in 2.5 years, at which point
it would be reassessed.
Mr. Steininger advanced to slide 6 and provided detail on
projects included in the Alaska Economic Recovery Act. The
package primarily included deferred maintenance funding for
the University, the K-12 Major Maintenance Grant Fund, and
other state items. The package also included critical
infrastructure repair projects, community needs, and the
reinstatement of some road projects. The idea was to get
Alaska working again and to get the economy back on track.
The proposed revenue package that would accompany the
recovery act was revenue neutral over three years. The
first year included $280 million in appropriations and $160
million in revenue. The idea was to include shovel-ready
projects. With cashflow on projects, they would be able to
stay within the $160 million in the first year as the
projects got rolling.
Representative Wilson stated that the plan would tax people
and she did not understand how that was revenue neutral.
Ms. Pitney surmised a better term was deficit-neutral. She
detailed that the wage tax was the same tax the
administration had proposed during special session except
it was time limited and would sunset at the end of June
2021. The revenue from the 1.5 percent payroll tax was
projected at $800 million; the recovery act was contingent
on a broad-based tax producing $800 million. The act would
require the revenue commitment in order to advance. By
investing in deferred maintenance, the contingent liability
of state and public facilities would be addressed. She
elaborated that deferred maintenance also employed local
contractors. The construction industry had been hit
particularly hard and it would require everyone pitching in
to put the individuals back to work. In three years there
were many potential construction jobs on the horizon, but
up to that point if more construction companies and workers
left the state would hinder the construction restart time
in the future. She reiterated that the plan was deficit-
neutral, and the expense would be covered by a directed
source of revenue (i.e. payroll tax).
Representative Wilson asked what model the administration
had used to determine that taxing people would enhance
economic growth into the future. She reasoned that everyone
would not be pitching in because not everyone worked. She
highlighted retired people receiving income from other
places as an example. She believed a small portion of the
state's residents would participate in the tax.
2:09:55 PM
Ms. Pitney answered that many communities used the model
for reinvesting in their facilities. She cited revenue
bonds that increased community residents' property tax
assessment. The idea for taxing for infrastructure
investment was common. She acknowledged that it was not a
perfect solution, but the tax had been proposed as a
compromise solution during special session the past fall.
The payroll tax had not been accepted, but there were many
indications that tying a payroll tax to an investment or
directing it towards something in particular, it became
more palatable. She stressed that the state had been in
recession longer than at any other point in Alaska's
history. She surmised that the recession may not be as
sharp as the one in 1988, but it had lasted longer. The
administration wanted to put Alaskans back to work
immediately to prepare for positive opportunities on the
horizon. The administration believed there was sufficient
commitment by Alaskans that a sunsetted payroll tax was a
reasonable approach.
Representative Wilson remarked that the subject would come
before the committee in the form of legislation. She would
hold her questions until the legislation was heard by the
committee.
Vice-Chair Gara agreed with Ms. Pitney that part of the
recession was a result of no fiscal plan, which was
damaging the state terribly. He found it hard to stomach
that people earning less would have to carry a heavier
burden than those earning more. He had been told the
administration was trying to find a proposal that the other
legislative body would accept. He underscored that due to
the proposed wage cap, a person earning $1 million would
pay one-seventh the tax rate of someone earning $20,000 who
was struggling to get by. He stressed that everything did
not have to hit poorer people harder than wealthy people.
He did not buy the line that wealthier people were the job
creators and the state could not ask them to contribute at
the same rate.
2:13:15 PM
Representative Thompson remarked that the citizens of the
state were skeptical about a temporary tax. He detailed
that Alaskans felt it was a way to pass a tax that would
end up being permanent and increasing. He was concerned
about the proposal and believed there would be many
reactions from state residents. He did not know many places
that had a temporary tax that did not become permanent. He
believed many questions would come forward throughout the
process.
Mr. Steininger turned to slide 7 titled "Cost Avoidance -
Efficiency." He relayed the administration had several
initiatives it had been pursuing for cost avoidance. He
detailed the administration was centralizing the Office of
Information Technology in order to better leverage
purchasing power as a single state organization rather than
having each department negotiating for IT contracts. The
centralization would also allow some central control over
IT standards and would create efficiencies. The Shared
Services Initiative had resulted in 10 percent savings in
the first year; an additional 10 percent savings in FY 19
was projected. The Facilities Consolidation Initiative
would manage all state facilities instead of managing them
by department. For example, instead of having two
electricians go out to different facilities in one town,
there would be one electrician for a centralized facilities
services division in order to generate efficiencies. A
chart at the bottom of the slide showed projected savings
for FY 19 through FY 21. He pointed out expected savings of
$12 million in the Office of Information Technology in FY
21.
2:16:20 PM
Representative Guttenberg stated that the committee saw
slides like slide 7 all of the time. He remarked the
committee never saw line items showing the cost of
delivering the state's broadband internet services. He
noted that places without sufficient broadband could not do
telemedicine, e-rate for schools, criminal justice, and
other. He explained that broadband access could allow a
person to be processed over the internet through a
teleconference with a judge and would avoid sending a
couple of troopers out to a rural area to bring someone in.
He asked if there was anyone actually working on the issue;
it was his impression the state had no policy dealing with
the issue. He spoke about the efficiencies and costs that
could be driven down through modern ways of delivering
services in rural Alaska. He asked to hear from
Commissioner Ridle on the state's plan to drive down costs
and provide affordable, reliable broadband throughout
Alaska.
Co-Chair Seaton requested additional information about
savings [inaudible].
Mr. Steininger spoke to the primary drivers of cost in the
state on slide 8. He elucidated that health care accounted
for almost $1.4 billion of state spending. Medicaid
accounted for close to half the total. Other substantial
areas were employer health plan contributions, worker's
compensation, and the University health plan. Smaller
amounts were associated with the Alaska Reinsurance Program
and inmate/juvenile justice health care.
Representative Wilson asked if the contribution of $30
million for the University health plan was in addition to
the grant allocated in the state operating budget.
Ms. Pitney answered that the amount reflected an estimate
of the general fund portion of the University's health
contribution.
Representative Wilson had heard on the news earlier in the
day that CHIP [Children's Health Insurance Program] had
still not been funded; she assumed it was Denali KidCare.
She asked what happened if the program was no longer
funded. She wondered if the state would pay for the program
and what the cost would be.
Mr. Steininger replied that in FY 18 the effect to the
state would be approximately $7 million to $7.5 million.
The effect was a result in the drop in the Federal Medical
Assistance Percentage (FMAP) from 88 percent for Denali
KidCare to 50 percent. He elaborated that in FY 19 there
would be a full year of the drop if CHIP was not
reauthorized, which would result in a cost of $14 million
to $15 million. The governor's proposed budget included two
separate supplemental items for Medicaid - one broke out
the cost to the state if CHIP was not reauthorized.
2:21:07 PM
Representative Wilson surmised that it would mean $690
million for the Medicaid program and an additional $14
million to $15 million if the CHIP reauthorization did not
occur. She estimated the state's cost for Medicaid alone
would be around $705 million.
Mr. Steininger answered in the affirmative. He added that
OMB's FY 19 estimate assumed reauthorization of the CHIP
program.
Representative Wilson commented on the high expense.
Mr. Steininger turned to slide 9 and addressed Medicaid
enrollment growth. He directed attention to a chart at the
bottom of the slide that showed unduplicated Medicaid
enrollment with expansion shown in yellow [orange]. While
expansion had grown since coming online in FY 15, there had
also been growth in the regular Medicaid program of about
32,500 people. Slightly less than half the growth in
Medicaid was related to non-expansion regular Medicaid
growth. He referenced children in the CHIP program or
disabled single parents as examples.
Mr. Steininger moved to slide 10 and discussed work the
administration was doing to avoid the cost increases. He
detailed that $25.5 million would be saved through retiree
payments through the Medicare Part-D Employee Group Waiver
Plan (EGWP). Additionally, the administration had continued
work on the individual market through HB 374 (the
reinsurance program), which achieved success in keeping
health insurance premiums down. He briefly mentioned items
for the health care authority that he had discussed
earlier. The state covered health care for 340,000 people
directly or indirectly.
2:23:52 PM
Mr. Steininger turned to slide 11 and detailed that the
current trend showed a 5.2 percent increase in spending on
health care, but the administration was setting a target to
keep to inflation at 2.25 percent. The target left a gap
that needed to be filled. He elaborated that EGWP covered a
portion of the gap at $51 million in FY 20 and $25.5
million in FY 19. The administration projected $10 million
in savings from the health care authority activities in FY
20. As the economy recovers, the administration was hoping
to see savings in Medicaid enrollment declines.
Mr. Steininger moved to slide 12 and relayed that state
government employment was below 2002 levels. There were
3,000 fewer state government employees in November 2017
than at the peak in 2014. When developing the budget, OMB
had reviewed any position that had been vacant for three
months or longer. The administration was continuing to put
pressure on state employee counts. He moved to a budget
summary on slide 13, which included FY 18 management plan
supplementals to acknowledge the enacted budget in FY 18
had underfunded things such as Medicaid and correctional
health care. To see a true comparison between FY 18 and the
FY 19 budgets it helped to include supplementals. As OMB
had developed the budget, it considered supplementals in FY
18 and had tried to incorporate those into the FY 19 budget
as well.
Vice-Chair Gara referenced loss of jobs in the public
sector on slide 12. He asked if the figure included lost
University jobs. Ms. Pitney answered that the figure
included the University.
Mr. Steininger moved to slide 14 and provided a budget
summary. The slide included the FY 19 capacity budget in
addition to some items the administration had chosen to
directly fund with appropriations out of the Constitutional
Budget Reserve (CBR). The capacity budget included items
that had more repercussions if not passed in a timely
manner. He cited pink slips going out to teachers as an
example of the type of items included in the capacity
budget. The structure allowed the passage of a capacity
budget with a simple majority. The items funded by the CBR
were no less important; it would be inconvenient for the
items to not receive funding on time, but it would not be
as disruptive.
2:28:18 PM
Co-Chair Seaton addressed slide 13. He spoke about looking
at the FY 18 management plan and adding in FY 18
supplementals and comparing it to the proposed FY 19
budget. He asked how to keep from bulking up supplementals
in order to show a good relationship to the proposed
budget. He asked if it would be a problem the legislature
could anticipate accelerating because it showed the
administration had not increased the budget much.
Ms. Pitney addressed why the administration believed
supplementals were a key part of expressing the spend
total. She explained there had been areas of known
underfunding that existed in the prior year. The
administration believed there should be scrutiny on
supplementals as there should be on all spending. She
believed supplementals should be accounted for and should
be part of the comparison and trend. She recalled that
during special session Representative Wilson had asked what
the picture looked like when including the "full view."
Since Medicaid expansion in FY 15, the legislative budget
and the governor's budget had not accounted for the federal
increase for Medicaid. Part of the transparency process
should be to include the information. In FY 17 there had
been a supplemental that allowed open-ended authority to
accept all federal funds for Medicaid; in FY 18 the amount
had not been included in the overall budget. The
administration believed the information needed to be
included. She stated that from an industry standpoint the
only place with jobs in Alaska's private economy was health
care during the recession; it was offsetting job loss in
other areas, but it was all federally funded.
Ms. Pitney continued that all of the spending needed to be
on the books. Additionally, the reconciliation between the
designated general funds (DGF) and UGF needed to be
included in the view. She explained that when looking at a
traditional report from the Legislative Finance Division
(LFD) or the OMB budget system, because of the direct
appropriation of CBR, it showed up as "other funds." Slide
13 corrected for that and classified it as UGF spend. The
goal was to get all of the spending out on the table. She
believed Co-Chair Seaton's question had been whether
showing supplementals [in the budget] would encourage
supplementals. She did not believe so. She reasoned that
ignoring supplementals meant leaving the focus off of them.
She stated, "a spend is a spend is a spend."
2:33:26 PM
Co-Chair Seaton responded that it seemed that the
supplementals from one year were built into the base for
the next year and showed a very slight difference between
the two budgets. If supplementals came in after that time,
they would not be shown until the following year. He
discussed that a budget could be bigger than the prior
year's without showing an increase. He wanted members to
look at the issue carefully.
Vice-Chair Gara referred to slide 13. He remarked it was
almost impossible to compare budgets because of situations
like adding the supplementals to a prior year budget and
comparing that budget to one that did not yet have
supplementals. The bulk of the supplementals for FY 18 were
the incorrect estimate of how many people would apply and
use Medicaid. He asked for verification that the amount was
about $100 million.
Ms. Pitney responded that the $100 million was included and
additional funds for the Alaska Marine Highway System
(AMHS).
2:35:11 PM
Representative Wilson asked how much UGF money went to
municipalities for schools, revenue sharing, and other.
Ms. Pitney scrolled to slide 25. Of the $10.6 billion all
funds, 52 percent went directly out the door. She moved to
slide 26 and listed items the funding went to including
Medicaid payments to providers, K-12 schools, retirement
payments, school debt reimbursement, oil and gas tax
credits, Permanent Fund Dividends, and other. She noted
that mostly the funds used were general funds.
Representative Wilson was uncertain how oil and gas tax
credits fit in. She was talking about the Base Student
Allocation and Public Employees' Retirement System (PERS)
reimbursement that someone else would have to pick up. She
surmised that items such as foster care and public
assistance went out to people, but she was trying to make a
split between what individuals received versus what went to
boroughs and cities. She wanted true numbers as opposed to
percentages.
Mr. Steininger explained that slides 15, 16, and 17
addressed additional detail on categories of budget
changes. The largest increase to the budget was for
Medicaid. The slides showed the total difference from
management plan, not merely the difference from the
supplementals.
Ms. Pitney explained that the slides had been included as a
reference to show all of the moving parts. The slides
showed fund changes, mental health changes, one-time items,
statewide and nonagency changes, and supplementals. The
pages replaced hundreds of change records and provided a
clean snapshot of the detailed changes.
2:38:58 PM
Mr. Steininger turned to slide 18 that showed a
reconciliation between the LFD calculated deficit and the
OMB calculated deficit. The LFD calculated deficit was
$671.7 million, and OMB calculated a $477.4 million
deficit. He detailed that LFD did not include the savings
for the EGWP program (the board approved motion did not
include actuarial estimates), but OMB included the savings.
Additionally, LFD assumed a Statutory Budget Reserve (SBR)
draw for the economic recovery plan cash flow difference.
The governor's budget included $18 million in adjustments
to dividends. There was some inadvertent double counting on
the revenue from the Alaska Capital Income Fund and a
couple of other adjustments. Adjusting for EGWP and the
economic recovery plan, OMB estimated the deficit at about
$525 million for FY 19.
Ms. Pitney returned to slide 14 and discussed the direct
appropriation to retirement. She explained there were state
"on-behalf" payments to PERS and Teachers' Retirement
System (TRS) for a portion of the unfunded liability. The
year-end 2016 actuarial had been $299 million for PERS and
TRS combined. The Alaska Retirement Management Board (ARMB)
had accepted a resolution that the on-behalf payments
should be slightly over $263 million, recognizing there had
been significant increases in market return in FY 17.
Subsequently ARMB had accepted the resolution to enter into
the employee group waiver program with an estimated cost
savings of $25 million, which was applied to the retirement
payment. Although the retirement payment was not the 2016
actuarial, it was the entire amount ARMB expected. The
retirement on-behalf payments were scheduled out annually
to 2039. The difference between the $299 million and the
governor's request for PERS and TRS on-behalf payments met
the actuarial required contribution by ARMB. Therefore, OMB
believed it fully funded the retirement on-behalf payment.
She noted that LFD believed the amount should be funded at
the old actuarial rate.
2:43:24 PM
Mr. Steininger moved to slide 19 showing a budget
reconciliation to fall estimates. There were some slight
differences between the fall estimates and the proposed FY
19 budget. Primarily, in the Medicaid program, OMB had
estimated flat growth from FY 17; however, OMB had revised
that estimate to include some enrollment growth. He noted
that AMHS had remained the same. There was a large
difference in the exploration credits fall estimate of $118
million and the governor's proposed budget due to an
exploration credit proposal that would result in a decrease
of $30 million. There was a total difference between the
fall estimate and the proposed budget of $157 million.
Mr. Steininger advanced to slide 20 and spoke about
increasing transparency in state spending; to correct for
different budget strategies and show a more accurate trend.
He listed various strategies including the reclassification
of unrestricted revenues to designated or other, offsets of
general fund spending, supplemental items,
reappropriations, and other. He detailed that OMB was
working on developing a framework to present the numbers in
a way that controlled for some of the strategies. He
communicated that OMB was not set in stone on the framework
it had developed; it wanted to work with the Legislative
Budget and Audit Committee to codify and come to a
consensus on what rules to apply.
2:45:40 PM
Mr. Steininger addressed slide 21 related to budget trends.
The agency operating budgets had increased by less than 1
percent from FY 18 after accounting for supplementals. The
increase was primarily due to investment in public safety,
increased Medicaid formula costs, and higher than
anticipated prison populations. Statewide items had
declined 12.6 percent, driven by EGWP and exploration
credit financing. Total operating and capital had been
reduced by 3.1 percent. The budget was down by 1.7 percent
or $93.1 million when the dividend was factored in.
Mr. Steininger turned to a chart on slide 22 showing the
UGF and transparent budget comparison for operating and
capital. The chart made adjustments for supplemental items
and reappropriations - UGF reclassified as DGF spending. As
the budget had declined, the difference between the
understatement of the budget had grown. It was important to
change the framework in order to show the information as
the UGF spend continued to be understated; finding a way to
have transparent reporting on total state spending was
important.
Mr. Steininger stated that slide 23 gave more detail on the
difference between FY 15, FY 18, and FY 19 in transparent
budget dollars. He pointed to the 1.7 percent decrease in
the "Total Budget with Dividend" row.
2:47:47 PM
Mr. Steininger spoke about expenditure reductions by
department in transparent dollars on slide 24. The
Department of Commerce, Community and Economic Development
had the highest percentage reduction. He noted that part of
the reduction included shifting tourism and seafood
marketing from state support to industry support.
Mr. Steininger moved to budget reform on slide 28 and
addressed tackling the consequences of an untimely budget.
He explained that an untimely budget resulted in teachers
and employees receiving layoff notices, and AMHS was unable
to publish their schedules on time resulting in foregone
revenue and inconvenience to travelers. Additionally,
agency staff within the departments spent a significant
portion of their time planning for a potential government
shutdown rather than focusing on providing services to
Alaskans.
Mr. Steininger addressed the repercussions for failure to
submit or pass a budget in a timely manner. Under budget
reform legislation, if the governor failed to submit the
budget by December 15 he/she would forego salary and per
diem. Likewise, if the legislature failed to pass a budget
by the 91st legislative day, legislators' salaries would be
withheld and per diem would be forfeited. The legislation
would shift to biennial budgeting, which would allow a two-
year budget cycle. Two budgets would be passed in the first
year of the two-year cycle. During the second session of
the two-year cycle there would be a supplemental true-up to
make small adjustments to the second budget. Biennial
budgeting would allow more time to tackle policy issues,
would avoid lengthy budget negotiations each year, and
would give more time to plan ahead for the second year.
Representative Wilson asked how it was fair to compare the
governor putting a budget out with 60 legislators putting a
budget out.
Ms. Pitney answered that it had been modeled after an
initiative in California. She elaborated that the
California legislature had been late passing a budget 25
out of 30 years, which had caused the same disruption in
state operations that had been seen in Alaska. She stated a
pink slip was one level of disruption in terms of impact on
morale. However, she pointed out that when there had been
discussion on whether or not a commercial fishing opening
would occur, it had impacted whether or not a fish
processing plant would deploy its staff and open. There
were many more repercussions. She recalled discussions on
what to do with Permanent Fund assets if the government
shut down. She explained that California had passed a
biennial budgeting provision. The first year after passage
the legislature had been 12 days late and on time ever
since. She understood the point that the governor was one
person and the legislature had 60 people. The governor's
point was that if he expected it of the legislature, he
should adhere to the same expectation himself. The point
was to stop the disruption that had existed annually in
recent years and to achieve a timely budget.
2:52:41 PM
Representative Wilson did not support comparing Alaska to
California and its problems. She believed the comparison
was unfair. She noted that the states were very different.
She elaborated that oil was one of Alaska's primary revenue
sources. She commented on Alaska's local government. She
was concerned that getting the budget done quickly seemed
to be more important than doing it right and ensuring
sustainability. She thought it seemed like a bullying
attempt. She surmised the unintended consequences could be
that the only people who could come down and afford to be a
legislator would be wealthy enough that the pay did not
matter. She believed it sounded good as a soundbite, but
she wanted to do the job right.
Representative Pruitt referenced the statement on slide 28
"if the governor fails to submit the budget by December
15th." He asked if the provision would only apply to the
governor. Alternatively, he wondered if it would include
commissioners, deputy commissioners, administrative
services directors, legislative liaisons, and other.
Ms. Pitney replied that the other individuals were not
included.
Representative Pruitt stated that his child could do the
job of getting a budget out by December 15. His concern was
about when legislators requested information from an
administration and did not get it. He thought the governor
could put the legislature in a stranglehold if information
was withheld that prevented legislators from passing a
budget. He believed December 15th was disingenuous. He
referred to 91 days in the legislature and stated that the
governor, commissioners, deputy commissioners,
administrative services directors, legislative liaisons,
and other were also included. He thought there needed to be
a conversation.
Mr. Steininger moved to slide 29 and addressed revenue for
operating and base capital. The administration's existing
revenue expectation was $2 billion. The governor was
proposing a compromise Permanent Fund Protection Act - 30
percent would go to the dividend and 70 percent would go to
the government; the 70 percent was an additional $2
billion. Other revenues totaled $40 billion. The
administration estimated $477.4 million from the CBR/SBR,
adjusted to $525 million per its reconciliation with LFD.
He detailed that narrowing the gap would reduce
uncertainty. The Alaska Economic Recovery Act would help
address the recession. He elaborated that the plan would
require reassessment when the temporary tax expired.
Savings were anticipated to be depleted by FY 25 based on
current trends. He concluded there would be a reassessment
of oil price/production levels, the success of
efficiencies, and market returns in FY 22 when the wage tax
and the economic recovery act expired.
2:56:52 PM
Vice-Chair Gara asked about the $2 billion related to the
compromise Permanent Fund Protection Act [slide 29]. He
asked if it was $2 billion for public services and a
dividend on top of that amount. He asked for the projected
dividend amount in the proposed budget. He asked if it
included a 5.25 percent draw or new actuarial
recommendations that were closer to 4 percent.
Ms. Pitney responded that the budget took SB 26 [2017
legislation] provisions passed by the House and the
provisions passed by the Senate and coming up with a
compromise. The budget used the 5.25 percent over a lagging
five-year average, which turned out to be in the range of
about 4.5 percent on the current value. One of the major
differences between the two plans was the size of the
dividend. The House plan designated 33 percent of the draw
to the dividend, while the Senate designated 25 percent of
the draw. The governor's budget proposed a compromise of 30
percent.
Vice-Chair Gara asked if the proposed dividend was about
$1,200. Ms. Pitney answered that the proposed dividend was
$1,200, which would grow to $1,500 over ten years based on
projections.
Mr. Steininger moved to a chart showing revenue sensitivity
based on price per barrel of oil on (slide 30). The chart
showed a breakeven point at $90 per barrel (without SB 26
or a similar plan). He highlighted the Senate plan,
compromise, and House plan respectively:
• 75/25 Split $2.1 billion for government/Budget
Balances just above $65/bbl
• 70/30 Split $2.0 billion for government/Budget
Balances just under $70/bbl
• 67/33 Split $1.9 billion for government/Budget
Balances at $70/bbl
Mr. Steininger used the ANS West Coast price of $69.02 per
barrel as of 1/9/17 [1/9/18] as a point of reference. He
noted that the numbers were based off of a year-long
average, meaning the price would have to average around $84
per barrel for the rest of the year in order to hit the
average of just under $70 per barrel.
Ms. Pitney added that the forecast was $56 per barrel for
FY 18 and $57 per barrel for FY 19. The year-long average
was very close to the FY 18 number. She noted that if the
price remained at $70 per barrel for the rest of the year,
the state may inch up $40 million to $45 million or so.
Mr. Steininger turned to slide 31 and discussed a ten-year
strategy. The table showed a ten-year projection. He
pointed to the reassessment time period in 2022. In order
to maintain a [minimum] balance of $1 billion [in the CBR]
it would be necessary to bring in an additional $330
million to $350 million beginning in 2023. It would be a
good time to reassess the state revenue level once the wage
tax expired and a review of what had transpired [since its
implementation] took place.
Ms. Pitney answered that the ten-year plan included all ten
years, but the slide represented an effort to fit
everything on one page. She spoke to the break between 2024
and 2027 on the slide [years 2025 through 2026 were not
shown]. She explained that with the growth of the Permanent
Fund, the budget would begin to balance in 2026 and 2027
without additional revenue. The plan also assumed the state
would receive revenue from the Alaska Liquid Natural Gas
(AKLNG) project. She detailed it was the state's share of
the production tax. The ten-year plan showed beginning to
restore the CBR at the end of that timeframe. She
referenced the $1 billion CBR balance [in 2023 and 2024]
and noted it was the lowest level the balance should go.
Ms. Pitney added that the administration did not want the
balance to drop below $2 billion, which she had testified
to when discussing a wage tax during special session. She
was not excited about going below $2 billion, but if the
balance dropped below $1 billion there was risk of going
into Permanent Fund earnings in an ad hoc manner. The
administration's interest in the Permanent Fund Protection
Act was only using earnings from the fund on a very
structured basis that preserved the real value of the fund,
so the earning power of the fund was the same in the future
as it was at present. The goal was to maintain the earning
power across generations. The House and Senate versions [of
SB 26] dropped the 5.25 percent to 5 percent in the near-
term. The CBR and the SBR were the state's savings accounts
and gave the state the ability to address any out of the
ordinary problems without using the Permanent Fund Earnings
Reserve Account on an ad hoc basis.
3:04:47 PM
Co-Chair Seaton asked for clarification. He wondered if the
plan included a continuous 5.25 percent draw [from the
Permanent Fund].
Ms. Pitney replied that the draw would drop. She detailed
that on the Senate schedule the draw would drop from 5.25
percent after two years to 5 percent on a lagging five-year
average.
Representative Guttenberg asked if budget projections
included a capital budget, major maintenance, new ferries,
and other things that had been deferred for years.
Ms. Pitney answered that the budget projection included
known changes in debt service. The budget assumed the
sunset provision on school debt reimbursement would be
extended. Additionally, it assumed a $150 million capital
budget and that any time catchup or an infrastructure
project took place the state would pay as it went like it
had done on the deferred maintenance package. She stated if
they did another deferred maintenance package shortly
thereafter, it would come with its own funding source. All
other budget items were inflation only.
3:06:33 PM
Mr. Steininger spoke to a bar chart on diversifying
revenues on slide 32. The first bar represented the past
Alaska experience where 85 percent of its revenue came from
oil and gas and 15 percent came from other sources. The
second bar showed the present where 30 percent of the
state's revenue came from oil and gas revenue, 13 percent
from non-oil and gas revenue, and 57 percent savings. The
proposal for "tomorrow" was 44 percent coming from the
Permanent Fund, 13 percent from savings, 11 percent from
non-oil and gas revenue, and 26 percent oil and gas
revenue. Going into the future as revenue streams from
AKLNG came in, the revenue would replace money coming from
savings.
Ms. Pitney added there was an increase in the "non-oil and
gas revenue" component, which could come from a broad-based
tax, or something like a user fee assessment.
Mr. Steininger concluded with a bar chart on slide 33 that
added the Permanent Fund Dividend to each of the bars.
3:08:20 PM
Representative Wilson pointed to slide 9 and asked if the
Medicaid figures only included adults. She wanted to know
whether Denali KidCare was a separate number of
individuals.
Mr. Steininger answered that the information included CHIP;
the data reflected all unduplicated Medicaid enrollees.
Ms. Pitney highlighted a scenario where an individual was
only on Medicaid one month out of a year. That person would
count as one in the count [shown on slide 9]. The data on
slide 9 counted every person who had benefitted from the
Medicaid program in a given year. Another common count on
Medicaid was the average monthly enrollment; for a
particular time that number was slightly lower. She added
that CHIP was Medicaid expansion.
Representative Wilson asked if 33 percent of Alaskans were
on Medicaid, Medicaid expansion, or Denali KidCare. Mr.
Steininger replied in the affirmative.
Representative Wilson stated there was a big issue they
needed to discuss.
Representative Guttenberg pointed to slide 11 and asked
about health care authority savings of $10 million in FY 20
and $20 million in FY 21. He asked for additional detail
later on.
Ms. Pitney nodded in agreement.
Vice-Chair Gara stated the presentation included a slide
showing that FY 19 would be balanced if a certain amount
was used from the Permanent Fund, the governor's tax
proposal was adopted, and perhaps a fuel tax proposal was
adopted. The legislature had always been told that it took
about one year to implement a statewide tax. He asked for
an explanation.
Ms. Pitney answered that the governor's plan required use
of the Permanent Fund in a structured, sustainable way. The
plan required around $500 million in continued use of the
CBR in the near-term, which was declining slightly. By 2026
the CBR would increase. The governor's proposed broad-based
tax was one-to-one connected with the economic recovery
plan. The proposal was deficit-neutral and would
appropriate funds from a 1.5 percent wage tax to
infrastructure projects to put local contractors to work
and reduce the state's liability on public facilities. She
highlighted that the committee would hear from LFD that the
legislature would be appropriating $280 million, but the
first year of revenue was only $160 million. The pace of
spend on capital projects would not outpace the revenue
collection on the tax. The tax would take effect on January
1 [2019] and would end on June 30, 2021.
3:13:23 PM
Representative Ortiz spoke to the revenue projections of
$800 million over three years [slide 5]. He asked if it
accounted for the cost of implementing the program. Ms.
Pitney replied in the affirmative.
Co-Chair Seaton referenced an earlier question by
Representative Wilson on Medicaid. He asked to receive a
chart of percentages and actual amounts for each category.
Ms. Pitney agreed. She relayed that LFD was working on
putting information together on health care costs.
Additionally, Caroline Shultz in OMB and others were
working on the executive branch for health care cost. The
current presentation only showed a snippet of the health
care cost. Others [from Department of Health and Social
Services] would address the issue as well. She stressed the
value of looking at the state's health care costs
holistically. The topic would be a constant conversation
for the foreseeable future.
Co-Chair Seaton wanted to ensure that when Department of
Health and Social Services presented to the committee they
had a list of the questions.
Co-Chair Seaton reviewed the schedule for the following
day. He relayed that subcommittee lists had been posted
online. He detailed that many subcommittee meetings would
be held in the evenings to avoid interference with standing
committee meetings. He shared that 360 North would be
airing all subcommittee meetings on television.
Representative Thompson stated that he had been informed
that the legislative television would not be airing in
Fairbanks, which was unfortunate. He noted the conversation
was continuing.
Co-Chair Seaton continued to discuss logistics about future
meetings and the schedule.
ADJOURNMENT
3:18:28 PM
The meeting was adjourned at 3:18 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Tax_Credit_Certificates_Bond_Financing_Program_Summary_12-15-17.pdf |
HFIN 1/18/2018 1:30:00 PM |
HFIN - OMB Budget Overview |
| FY2019_Budget_Summary_Support Material House Finance.pdf |
HFIN 1/18/2018 1:30:00 PM |
HFIN - OMB Budget Overview |
| FY2019 Governor Budget Overview - House Finanace.pdf |
HFIN 1/18/2018 1:30:00 PM |
HFIN - OMB Budget Overview |
| HB 286 - SOA Broadband Costs Report.pdf |
HFIN 1/18/2018 1:30:00 PM |
HB 286 |
| HB 286 OMB response to 1.18.18 HFIN Meeting.pdf |
HFIN 1/18/2018 1:30:00 PM |
|
| HB 286 Tax_Credit_Certificates_Bond_Financing_Program_Summary_12-15-17.pdf |
HFIN 1/18/2018 1:30:00 PM |
HB 286 |