Legislature(2019 - 2020)ADAMS ROOM 519
02/21/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| House Finance Committee Orientation | |
| Overview: Governor's Amended Fy 20 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
February 21, 2019
1:32 p.m.
1:32:20 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:32 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Tammie Wilson, Co-Chair
Representative Jennifer Johnston, Vice-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon (via teleconference)
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
MEMBERS ABSENT
None
ALSO PRESENT
Helen Phillips, Committee Assistant, House Finance
Committee, Legislative Finance Division; Donna Arduin,
Director, Office of Management and Budget; Lacey Sanders,
Budget Director, Office of Management and Budget; Sana
Efird, Administrative Services Director, Department of
Health and Social Services, Office of Management and
Budget; Mike Barnhill, Policy Director, Office of
Management and Budget; Representative Steve Thompson.
PRESENT VIA TELECONFERENCE
Representative Bart LeBon
SUMMARY
HOUSE FINANCE COMMITTEE ORIENTATION
OVERVIEW: GOVERNOR'S AMENDED FY 20 BUDGET
Co-Chair Foster reviewed the meeting agenda.
^HOUSE FINANCE COMMITTEE ORIENTATION
1:33:41 PM
Co-Chair Wilson provided information about committee
procedures. She highlighted that electronics including
iPads and cellphones were allowed at the committee table
for business purposes. She pointed out a hearing request
procedure memorandum dated February 19, 2019 (copy on file)
and a House Finance Committee rules memorandum (copy on
file) in members' files.
Co-Chair Foster recognized Representative Steve Thompson in
the audience. He asked members to review the documents in
the packets.
1:35:09 PM
HELEN PHILLIPS, COMMITTEE ASSISTANT, HOUSE FINANCE
COMMITTEE, LEGISLATIVE FINANCE DIVISION, introduced staff
and provided information about support provided to the
committee including hearing preparation, bill files,
minutes, supplies, and other. She noted that all policy
issues went through the co-chairs' offices. She addressed
committee protocol regarding approaching the committee
table. She asked members to speak directly into the
microphones for recording purposes and noted the mute
button on the microphones. She pointed to resources in the
committee room including statutes, governor's detail books,
and administrative codes. She relayed there were governor
subcommittee books in the 5th floor copy room. She pointed
out members' file drawers. She communicated that the use of
the room would be coordinated through Co-Chair Foster's
office.
1:39:09 PM
Co-Chair Foster reviewed the agenda for the meeting.
^OVERVIEW: GOVERNOR'S AMENDED FY 20 BUDGET
1:39:43 PM
DONNA ARDUIN, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
provided a PowerPoint presentation titled "State of Alaska
Office of Management and Budget: FY2020 Governor's Amended
Budget" dated February 21, 2019 (copy on file). She
reported the governor's budget had been compiled beginning
with his core programs. For example, public safety was a
priority of the governor's and was one of the only areas
where additional money had been requested. She highlighted
management of the state's natural resources as another high
priority and noted reductions had not been made to those
core programs. The proposed budget also focused on
preserving maintenance of the state's transportation
infrastructure as opposed to providing transportation
services.
Co-Chair Foster noted the committee would hold questions
until after the presentation.
Ms. Arduin appreciated holding questions during the
overview portion of the presentation until later. She
addressed slide 3 and relayed the budget had been
structured on the governor's guiding principles starting
with: expenditures could not exceed existing revenues. She
reported that the budget was balanced. She pointed to the
third bullet point showing the budget aimed to maintain and
protect the state's reserves. She stated that the budget
did not request a draw from the Constitutional Budget
Reserve (CBR). She continued that the budget was built on
core functions and did not take additional taxes from
Alaskans or through Permanent Fund Dividends (PFD).
Additionally, budget had to be sustainable, predictable,
and affordable. She remarked on the necessity of getting
the state's fiscal house in order, which the governor was
determined to do at present instead of pushing the problem
off into the future.
1:42:09 PM
Ms. Arduin moved to a historical lookback chart on slide 4.
The blue line represented revenues over the past 10 years
and the orange line represented expenditures. She drew
attention to the left side of the chart and noted that
normally the expectation was for revenues to exceed or
equal expenditures as in FY 13; however, for many years [FY
14 through FY 19] expenditures had exceeded revenues.
Ms. Arduin moved to a chart on slide 5 and highlighted that
the gulf between revenues and expenditures since FY 13
exceeded $16 billion. She explained that consequently the
state's reserves had been spent down. The bars reflected
the state's budget reserves, which had been drained by
about $16 billion as revenues and expenditures had been
mismatched. The governor's proposed budget would show a
balanced budget for the first time since FY 13.
Ms. Arduin moved to a chart on slide 6 and detailed that
the mismatch in revenues and expenditures had led to
economic consequences. The line chart illustrated that the
state's gross domestic product (GDP) had been exceeding the
rest of the country but had dropped below the national GDP.
She remarked that even as the nation had seen a recovery,
Alaska's GDP had been dropping.
Ms. Arduin advanced to a bar chart on slide 7 and reported
that since the state's budget had stopped being balanced,
Alaska had started losing people to other states. The bar
chart showed domestic migration from 2007 to 2016. She
highlighted that the number of people who had left Alaska
for other states exceeded the number of people coming to
Alaska.
1:44:22 PM
Ms. Arduin turned to a line chart on slide 8 and relayed
that employment numbers had continued to drop since the
state stopped balancing its budget beginning in FY 13. She
detailed that the state's employment numbers had dropped
below the national rate and had continued to fall even
while the country had recovered.
Ms. Arduin turned to slide 9 titled "Building the Budget:
Defining the Problem." She reported that when the governor
had submitted his required budget on December 15 [2018],
his office had put out a budget showing an updated revenue
schedule from the previous administration, a full PFD
payment, and the expenditures proposed by the outgoing
administration on November 30. When the amounts were added
together, the Dunleavy Administration had identified the
deficit as $1.6 billion - a deficit the administration had
resolved to fix.
1:45:47 PM
LACEY SANDERS, BUDGET DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, addressed slide 10 showing a high level fiscal
summary prepared by OMB. The left portion of the table
showed the FY 19 management plan, which included
supplemental requests put forward to the legislature;
therefore, numbers may differ slightly from the original
fiscal summary. Revenues at the top encompassed General
Fund revenues as well as fund withdrawals including the
percent of market value (POMV) draw from the Permanent Fund
Earnings Reserve Account (ERA), as well as a proposal to
use $172 million from the Statutory Budget Reserve (SBR) as
a supplemental item in the operating budget for the
Department of Health and Social Services (DHSS). The bottom
of the table included appropriations reflecting agency
operations and statewide operations such as debt service
and retirement that had passed [the legislature] the
previous session as well as supplementals proposed in the
current year. She added capital, including supplementals
were also included in the table.
Ms. Sanders reported that the total deficit for FY 19 was
$282,600,000. The deficit draw amount would currently come
from the CBR. The right side of the table showed the
governor's proposed amended budget for FY 20. The proposed
budget resulted in a surplus of $20.4 million. The slide
included an overview of the entire budget. She noted the
intent to focus primarily on operating budget items during
the meeting.
1:48:08 PM
Ms. Sanders addressed two bar charts on slide 11 showing a
statewide picture of the FY 20 operating budget. The left
chart showed the total FY 19 management plan plus
supplementals totaling $10.3 billion when accounting for
all funds. She detailed that the amount included $2.8
million in federal funding, $750 million in other funds
(including corporate receipts or funding with federal or
contractual restrictions), and $6.7 million GF (UGF and DGF
combined). She offered to provide a breakdown if members
were interested.
Ms. Sanders moved to the right bar in the chart on the left
showing a total proposed operating budget of $7.9 billion
including $2.2 billion in federal funds, $1.2 billion in
other funds, and $4.4 billion in GF. She addressed the
budget position comparison chart on the right. She noted an
error in the number of permanent part-time positions shown
in the FY 19 management plan bar and corrected that the
number should read 1,871,000 [1,871] instead of $2,871,000
[2,871]. She stressed that the number of part-time
positions had not declined by 1,000. The total number of
positions in the FY 19 management plan was 22,711 compared
to 22,337 in the governor's FY 20 amended budget.
1:50:13 PM
Co-Chair Foster recognized Representative LeBon online.
Ms. Sanders moved to slide 12 showing a comparison between
the FY 19 management plan and the governor's FY 20 amended
budget by department (UGF and DGF). The bar chart provided
a visualization of where the reductions were proposed in
the agencies' budgets. She highlighted that the Department
of Education and Early Development (DEED) and the
Department of Health and Social Services (DHSS) had the
majority of funding. She planned to highlight proposed
reductions. She turned to slide 13 to provide a high level
overview of proposed changes for several agencies.
Vice-Chair Johnston did not disagree that an unstable
government tended to have unstable economies. She looked at
slides 6 through 8 pertaining to GDP and absolute domestic
migration and observed the changes were also a result of a
severe drop in the price in oil. She remarked that the
state had been a one-revenue state and postulated that the
drop probably significantly impacted the numbers.
Ms. Sanders turned to slide 13 and addressed significant
budget changes and legislative proposals. She began with
the state's public protection agencies, starting with the
Department of Corrections (DOC). She first item was related
to a fiscal note for the crime bill repeal [SB 91 passed
the legislature in 2016]. The department estimated that
based on the governor's proposed legislation an additional
$37.6 million would be needed if adopted. She pointed out
that the associated fiscal notes were not included in the
operating appropriations bill and were attached to the
crime legislation. She elaborated that if the crime
legislation was adopted, the fiscal note would be
incorporated into an appropriations bill.
Ms. Sanders continued that the DOC budget proposed
transferring 500 inmates to an out-of-state facility with a
savings of $12.8 million GF. The transfer had been proposed
in conjunction with the proposed closure of the sentenced
wing of the Wildwood Correctional Center with a proposed
savings of $6 million GF. The Department of Law (DOL) had
one significant item related to the proposed crime bill
repeal with a fiscal note of $1.1 million [GF]. She added
that the increment was not included in the appropriations
bill but was reflected as part of the governor's total
package. The fiscal summary included a line pertaining to
fiscal notes, which were accounted for in the total budget.
1:54:46 PM
Co-Chair Wilson referenced the proposed crime bill repeal
and noted several other crime bills had passed. She asked
for verification the bill did not propose to repeal all of
SB 91.
Ms. Arduin answered that the information [on slide 13] was
reflective of the governor's anti-crime legislation package
and associated fiscal notes.
Co-Chair Wilson asked for verification that the numbers
were not based on a repeal of SB 91, but on new legislation
proposed by the governor.
Ms. Arduin replied in the affirmative.
Ms. Sanders reported that the Judiciary budget included a
$3.1 million increment with 15 new positions to reopen the
courts on Friday afternoons. She highlighted two requests
in the Department of Public Safety (DPS) budget for $9
million in federal receipt authority relating to the
Council on Domestic Violence and Sexual Assault (CDVSA) and
the High Intensity Drug Trafficking Areas Program.
1:56:09 PM
Representative Josephson noted that slide 13 indicated that
the sums were contingent on the repeal of SB 91. He asked
what would change on the PowerPoint pertaining to the DOC
and DOL budgets if the governor's bills SB 32 through 36
[35] were not passed [SB 32 through SB 35 were various
crime bills proposed by the governor during 2019
legislative session].
Ms. Sanders answered that DOC would not receive the $37
million in additional funding, it would continue moving
forward to transfer 500 inmates out of state and closing
the sentencing wing of the Wildwood Correctional Center.
She elaborated that DOL would not receive additional
funding (the funding was conditional on the passage of the
bill).
Representative Carpenter referenced a net gain to the state
of $6 million resulting from the proposed closure of the
[sentencing wing of] the Wildwood Correctional Center. He
asked if any analysis had been done on how the change would
impact the local economy.
Ms. Arduin replied the analysis done had been based on the
fiscal situation and vacancies in the entire [correctional]
system. She explained that having vacancies spread around
the system was inefficient. In order to gain savings, it
was necessary to close a building. She explained the
sentenced wing of the Wildwood Correctional Center was an
entire building that could be closed.
Co-Chair Wilson asked for detail on the addition of 15
positions to trial courts versus other positions where
hours had been cut back to a regular work week.
Ms. Sanders responded there were two pieces to the request.
First, the trial courts would need added support for
opening back up on Friday afternoons. Second, additional
pay had been required for the existing positions that had
been working extra hours. She noted the court system could
provide more details.
1:59:12 PM
Ms. Sanders turned to slide 14 and continued to address
significant budget changes and legislative proposals for
various departments. She began with the DEED budget and
highlighted a $270 million GF reduction to K-12 foundation
formula funding. She detailed it was a reduction to the
amount that would be allocated to school districts. The
budget included a proposal to repeal $30 million that had
been appropriated the past session outside of the
foundation formula. The budget would also repeal a $19.5
million appropriation for the establishment of the
Curriculum Fund with a FY 20 effective date.
Representative Josephson remarked that increments had
forward funded education in May of the previous year. He
asked if the proposed changes reflected a reappropriation.
Ms. Sanders answered that the proposal reflected a repeal
of an appropriation - the funding had not yet left the
treasury because of the FY 20 effective date.
Representative Josephson referenced litigation against the
state in the past decade for not supporting public
education as it should. He asked if OMB was concerned about
potential litigation if the substantial cuts were made.
Ms. Arduin believed the decision in the past had been based
on a directive by the governor not to fund something.
Whereas, the proposed budget asked the legislature to
appropriate the funds in the specified way. Therefore, she
did not believe there would be the same legal issue.
Representative Josephson asked Ms. Arduin to expound on her
answer.
Ms. Arduin replied that the governor's budget was a
proposal for the legislature to pass in some form. She
clarified that the administration was not directing anyone
to fund or not fund anything, it was only making proposals
to the legislature.
Vice-Chair Ortiz referenced Representative Carpenter's
earlier question about DOC. He asked if an analysis had
been done on the economic impact to communities on the loss
of teachers and other.
2:03:01 PM
Ms. Arduin answered that the governor's office was in the
middle of conducting an economic impact statewide for the
governor's proposals. She relayed OMB's chief economist
would present the analysis to the committee when completed.
Representative Knopp wondered how the proposed reductions
of $270 million to K-12 and $154 million to the University
had been selected. He asked if the numbers were arbitrary.
Ms. Arduin answered that the analysis for the University
was based on the per student expenditure. In some cases,
the amount spent per student was $17,000, while the
national average was slightly over $7,000 per student. The
proposed budget was based on about $11,000 per student.
Regarding K-12 education formula, OMB had looked at the
formula a number of ways and had determined ways they
thought perhaps districts could save money and how much.
She noted that the governor's office did not direct the
districts.
Representative Knopp remarked that the committee had not
received a number per student including the BSA, foundation
formula, and area differential. He was concerned about the
education numbers and noted the broad difference between
districts throughout the state. His district had 45
schools, some only accessible by plane, boat, or four-
wheelers. He asked if the administration's decision making
process had considered the issue or had been based on the
national per student average.
Ms. Arduin replied there was an equivalent BSA number - the
reduction was a little over $1,000 per student. She noted
that the DEED administrative services director could
provide a breakout showing how the BSA equivalent would be
distributed by district.
2:06:31 PM
Co-Chair Wilson asked if the $1,000 less took into
consideration smaller rural schools with high costs versus
larger schools in Fairbanks or Anchorage.
Ms. Arduin answered the governor was proposing a straight
reduction to the foundation formula, but not a change in
the formula.
Co-Chair Wilson stated that there was not really a straight
amount that could be taken out because there were numerous
multipliers in the BSA. She explained that taking $1,000
[per student] out of Fairbanks or Anchorage was not good
but more factors went into the $1,000 for smaller
communities, which had more costs. She asked if OMB had
looked at other states that may have similar obstacles to
Alaska when it had decided on the [reduction] of $1,000 per
student.
Ms. Arduin replied that OMB had looked at other states and
Alaska still exceeded other states significantly in costs
and travel. She detailed that OMB was concerned by the low
percentage of funding spent on instruction compared to
other states. She elaborated that about 54 percent of the
funding was spent on instruction. When OMB had looked at
ways districts could reduce expenditures, reductions were
in the administrative cost areas.
Co-Chair Wilson remarked that her following question may be
more appropriate for the budget subcommittee when the
commissioner may be present. She asked if anyone was
looking at taking regulation and things that the
legislature had put in the way that cost districts more
money. She wondered if the governor was considering making
changes to any of the items to release money to go towards
instruction.
Ms. Arduin replied the governor's office would welcome the
conversations. The DEED commissioner and administrative
services director were continuing to have the conversations
with myriad stakeholders. She referenced her recent
testimony to the Senate [Finance Committee] that the
administration saw the discussion as the beginning of a
process to get the state's fiscal house in order. There
were numerous things the administration believed could be
done to reform the state's education system.
2:09:10 PM
Vice-Chair Ortiz spoke to the proposed $1,000 per student
reduction. He asked for the total BSA amount prior to the
proposed reductions.
Ms. Arduin replied the current BSA was about $5,900 per
student. The proposal would reduce the number to $4,880.
Vice-Chair Ortiz asked if the cut included the proposed $30
million reduction [shown on slide 14].
Ms. Sanders replied that the $30 million outside the
foundation formula was a separate reduction.
Vice-Chair Ortiz asked for verification that the $1,000 per
student reduction did not include the additional $30
million reduction.
Ms. Sanders answered in the affirmative.
Vice-Chair Ortiz asked if OMB and the administration's
educational experts had considered how the reduction would
potentially impact students when it had devised the number.
Ms. Arduin stated that the conversation was straying a bit
from the budget. She relayed that looking at the budget and
the metrics compared to other states, the administration
was very concerned about the outcomes seen in Alaska. She
added that the amount of money the state had been spending
had not improved the situation.
Vice-Chair Ortiz asked if the assessment included the
concern and OMB thought the educational outcomes would be
improved by the reductions.
Ms. Arduin replied in the negative. She remarked that OMB
was responsible for developing a budget and was not the
policy team. With regard to the metrics OMB reviewed, the
outcomes in Alaska were not favorable compared to other
states or where the governor's office believed the state
should be.
2:11:51 PM
Ms. Sanders continued with slide 14 and reported that the
University of Alaska's budget reflected a reduction of $155
million and a fund source change of equal amount to DGF.
She moved to the DHSS budget and relayed the governor would
propose legislation along with the reduction of $271
million for Medicaid cost containment measures and reform.
There would be legislation proposing to repeal the Senior
Benefits Program - the associated reduction of $19.9
million was reflected in the governor's proposed budget.
She highlighted a $14.7 million reduction to Adult Public
Assistance and a $16.9 million reduction to Temporary
Assistance for Needy Families (TANF) maintenance of effort.
Co-Chair Foster referenced the proposed reduction to the
University and asked what the vision was in terms of how
the cuts would be allocated. He had heard the president of
the University say the reductions could result in the
closure of some satellite campuses. Additionally, he had
heard talk that the Fairbanks campus would be the research
hub and the Anchorage campus would be the educational hub.
Ms. Arduin replied that some of the satellite campuses were
the least expensive campuses and their closure would not be
the administration's first suggestion. The administration
saw significant opportunity to provide quality education
and access to quality education. She furthered that with
the amount of money the University had been able to spend,
it may have numerous campuses trying to provide all degrees
to all people. She thought the University may want to make
some reforms and consolidations to change what degrees were
offered in different places and to keep the lower cost
campuses open in order to be accessible to people all over
Alaska.
Representative Sullivan-Leonard remarked that the
Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI)
program had been removed from the budget. She referenced
the significant shortage of physicians in Alaska and asked
if the administration was considering another program or
avenue for recruiting and retaining doctors. She
highlighted the important role the WWAMI program had
played. She asked whether there had been consideration
given to train Alaskans to be doctors in Alaska.
Ms. Arduin replied that there had not been great successes
seen the WWAMI program. She detailed that the retention the
program set out to accomplish had not been obtained.
Representative Sullivan-Leonard asked for the data to be
provided.
Ms. Arduin agreed. She noted OMB welcomed an opportunity to
work with the legislature on the issue. She added that when
programs were failing it did not mean it was impossible to
come up with an idea for improvement.
Co-Chair Foster asked OMB to provide the data to his office
for distribution.
2:16:25 PM
Representative Josephson returned to the University
discussion. He thought he heard Ms. Arduin say that perhaps
some of the students in the larger campuses should go to
the satellite campuses. He spoke to the difficulty of that
concept and explained that urban campuses had tens of
thousands of students who were not likely to relocate to
areas that could not house or teach them. He asked whether
it was something the administration had considered.
Ms. Arduin replied it was her understanding there were
satellite campuses available. She highlighted a campus in
Fairbanks as an example. She furthered that satellite and
community campuses seemed to exist in a geographically
dispersed manner. She stated the University had an
opportunity to rethink what it could be and should be to
best serve Alaskans because the state could not afford what
it had been doing. She added that the University metrics
did not show that the University had obtained its goals.
The proposal was a conversation starter. She explained that
OMB was not suggesting the closure of campuses.
Representative Josephson noted that in the past four fiscal
years the University's grant had been cut $200 million due
to a drop in oil prices. He added that under strategic
pathways the University was constantly looking at reform.
Representative Sullivan-Leonard asked for the breakdown of
cost per student at UAA [University of Alaska-Anchorage],
UAF [University of Alaska-Fairbanks], and UAS [University
of Alaska-Southeast].
Ms. Arduin agreed to provide the information.
Co-Chair Foster recognized Representative Josh Revak in the
audience.
Vice-Chair Ortiz addressed proposed reductions to the
University. He asked if the UA Scholars Program introduced
several years earlier under the Parnell Administration had
been removed from the budget.
2:19:09 PM
Ms. Sanders answered the increment was included in the
budget under DEED. She noted there had been a funding
source change to UGF.
Co-Chair Wilson referenced the proposed reduction of $16
million to Temporary Assistance for Needy Families (TANF)
maintenance of effort under DHSS. She asked if the state
was required to put the money forward in anticipation there
was a bigger need than the state actually had. She was
trying to determine whether the $16 million represented
real dollars or something the state would have to go to
Centers for Medicare and Medicaid Services (CMS) to get
changed.
Ms. Sanders deferred the question to the department.
Co-Chair Wilson noted she did not intend to get into a full
discussion on the maintenance of effort. She wanted to know
whether the reduction would be a real dollar cut to TANF.
Alternatively, she wondered if the reduction represented a
cleanup of money CMS required the state to give that Alaska
was not necessarily utilizing.
SANA EFIRD, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT OF
HEALTH AND SOCIAL SERVICES, OFFICE OF MANAGEMENT and
BUDGET, answered that the $16 million was GF money used in
the TANF program that the state had to match for its
maintenance of effort to receive federal TANF funds. The
department had to receive permission to change the amount
the state was currently required to spend in maintenance of
effort to realize the savings.
Co-Chair Wilson noted that the funds were UGF and asked if
the state was currently utilizing the $16 million in the
TANF program.
2:21:48 PM
Ms. Efird answered in the affirmative. The funds went out
to tribal organizations that administered their TANF
programs.
Co-Chair Foster asked for verification that the maintenance
of effort increment leveraged federal funds. Ms. Efird
replied in the affirmative.
Co-Chair Foster asked how much federal funding the state
would lose if it did not maintain its maintenance of
effort.
Ms. Efird replied that if the state did not meet the total
maintenance of effort requirement it would be fined the
amount it failed to meet. If the state did not receive
permission to change its spending requirement, it would
still have to pay the $16 million in a fine to the federal
government in order to receive its federal funding.
Vice-Chair Johnston asked for verification that the funds
were used for tribal partners. Ms. Efird replied in the
affirmative.
Vice-Chair Johnston surmised that if tribal partners
discontinued payments, the state would have a
responsibility to pay or would be subject to a fine by the
federal government. She asked if the state would have to
service the funds differently than tribal entities.
Ms. Efird answered that currently tribes received their own
federal TANF funds. She confirmed that if a tribe decided
against administering the program, the state would receive
the federal dollars and would be responsible for the
administration of the program for eligible recipients.
Vice-Chair Johnston asked if the department had analyzed
the difference in the state's treatment of the program
versus tribal entities' treatment of the program.
Additionally, she asked about the difference in cost
between the two. She noted that tribal entities received
federal matching funds and had a broader scope to their
services. She continued that the state's scope would be
more limited and asked if there would be a cost the state
had to assume.
Ms. Efird responded that she would follow up with the
committee.
Vice-Chair Johnston stated that in the past the DHSS budget
had varying degrees of federal funding for most of its PCNs
[position control number] ranging from 20 to 100 percent.
She asked how the reforms would impact PCNs and the agency
as a whole. She was interested in the cost to the state.
2:25:12 PM
Ms. Efird replied that DHSS was the public assistance cost
allocation department. Many of the department's PCNs were
impacted by federal dollars because it had a large
percentage of incoming federal monies that were spread
across all of its programs.
Vice-Chair Johnston asked about [Medicaid] containment
measures and reform and wondered how much of the $270
million [proposed reduction] required changes in the
state's relationship with the federal government.
Ms. Efird replied that the department was working on a full
Medicaid plan to present during the subcommittee process
outlining initiatives it was looking at. The department had
reached out to CMS and was looking at other demonstration
projects and at all cost containment measures and
initiatives it believed could be attainable in the next
year. She relayed the department would have a more thorough
plan to present to the committee.
Vice-Chair Johnston asked if the committee may see a
revision to the proposed budget as far as what was
attainable and what may be attainable in future years.
Ms. Efird replied that the goal was to fulfill the current
budget. She relayed it was a policy decision and the
department's goal was to fulfill the budget as closely as
possible, while continuing to provide healthcare coverage
for low income Alaskans.
Ms. Sanders referenced a supplemental appropriation of $172
million from the SBR. The intent behind the appropriation
was to allow the department additional funding if there
were any delays in implementing the waivers or state
amendment plans with CMS as the department transitioned to
the full reform.
2:27:58 PM
Representative Knopp spoke to cost containment measures of
$271 million. He questioned what would not be provided and
whether reimbursement rates would be shortened. He wondered
if the information would be provided in the subcommittee
process.
Ms. Efird replied in the affirmative.
Representative Knopp asked what percentage $271 million
represented of the money currently paid out by the state.
Ms. Efird replied around 37 percent.
Representative Josephson spoke about the previous
administration's draw of $172 million from the SBR and the
current administration's willingness to use SBR if
necessary. He asked if it reflected some flexibility within
the administration to spend from reserves.
Ms. Arduin replied that the Dunleavy Administration
proposed to use the SBR as a backup for timing of
implementation of plans with CMS. The administration had no
plans or proposal to request a draw on the CBR, which was
down to a balance of about $2 billion. The administration
believed the current balance was needed as a cushion for
cashflow purposes and potential disasters.
Representative Josephson referenced a presentation earlier
in the day by Alaska's U.S. Senator Dan Sullivan where the
senator had been asked about the Federal Medical Assistance
Percentage (FMAP). He reported that Senator Sullivan had
relayed he was working incredibly hard to increase the
state's FMAP. He reasoned that although the senator's
efforts were still wanted, perhaps the senator would not
have to work as hard if the state would not try to maximize
the FMAP by leveraging the state's GF. He asked for
comment.
2:31:04 PM
Ms. Arduin replied that the department's commissioner was
having those ongoing discussions with CMS. She stated it
would be a wonderful result if the department could get it
done. The administration was not reliant on it as the only
outcome, but they would welcome it.
Ms. Sanders moved to the first bullet point on slide 15
pertaining to the Department of Transportation and Public
Facilities (DOT). She highlighted a funding reduction of
$78 million [$97.9 million] to the Alaska Marine Highway
System (AMHS), which would allow AMHS to operate from July
to the end of September [2019]. She referenced a directive
by the governor asking DOT to bring on a marine consultant
to work through the process to determine what the future of
AMHS would look like.
Vice-Chair Ortiz asked how the reduction meshed with the
intent to preserve maintenance of the state's
transportation infrastructure (slide 2). He asked if the
administration did not believe AMHS was part of the state's
infrastructure.
Ms. Arduin replied that all of the department's went
through a prioritization process, starting with their core
programs. She reported that transportation infrastructure
had been at the top of the department's list, while running
transportation systems was not. She elaborated that
maintaining highways fell in a higher priority category
than running the ferry system. The governor had directed
the department to procure a marine consultant to determine
what could be done with the ferries - if they could be
operated without losing the money they were losing at
present. She mentioned the potential for a private operator
to run the system. She continued there were changes that
could be made and the administration was waiting to see
what the results were. The administration had proposed
having the money to run some of the ferries through the
summer and had asked the department to present a plan by
August in order to determine what the future of the ferries
may be.
Vice-Chair Ortiz asked about the hiring of a consultant to
see what may transpire and replace AMHS. He wondered if the
administration was consulting current studies that had been
done in relationship to AMHS by the McDowell Group and
other.
Ms. Arduin replied the administration was aware and
familiar with the studies. She believed the direction to
the consultant would be "no more studying, let's figure out
what a plan of action is."
Vice-Chair Ortiz asked for verification that the governor's
proposal would shut down AMHS at the end of September. He
emphasized that AMHS was a highway system.
Ms. Arduin replied that the administration would work with
a consultant to determine the best possible outcome. She
reported that the state could not afford to run the system
in its current form. The administration had hope that the
system could be operated in a better, cheaper, more
efficient way. She stated it would be necessary to wait and
see.
2:36:24 PM
Co-Chair Foster remarked that the budget considered the
possible closure of some rural airports. He asked if the
administration had identified any specific rural airports
for closure.
Ms. Arduin replied that the department had identified rural
airports maintained by the state that had a very small
population of planes (some with five or less and one with
one plane). She explained that the designations would be
changed so the state would not maintain those airports with
very few people.
Co-Chair Foster remarked there were airports in numerous
villages where no one owned an airplane. He asked if an
airport would be more likely to be closed if there was not
an airplane based there.
Ms. Sanders clarified that she did not believe that was
what Ms. Arduin was indicating. She explained that DOT was
looking at airport maintenance costs associated with
maintaining runways where there were one or two people
being serviced. The department was considering whether or
not it could turn the facility maintenance costs over to
the community to maintain.
Co-Chair Foster asked if Ms. Sanders was referring to the
population of a community. Ms. Sanders replied in the
affirmative.
Co-Chair Foster could not imagine there were many of those
airports in the state. He asked if DOT was present to
answer the question. Ms. Sanders replied that OMB would ask
DOT to follow up with the information.
Co-Chair Wilson asked if the proposed budget used zero-
based budgeting.
Ms. Arduin replied that the budget used core-based
budgeting. She explained that OMB had considered core
programs that needed to be maintained - in some instances
core programs could be done more efficiently. The items on
the reduction list included things outside a department's
core programs that could be distracting, time consuming,
and/or a lower priority.
Co-Chair Wilson stated that the legislature had tried the
method many times, with little success. She gathered the
administration had asked the departments to prioritize and
also had a matrix to measure whether a program was meeting
the needs spoken about earlier.
Ms. Arduin agreed and relayed the administration had also
looked at program metrics to determine whether they were
meeting their goals.
2:39:37 PM
Co-Chair Wilson thought it was great. She had listened to
the budget meetings in the other body and thought how OMB
had arrived that the numbers had been missing from the
conversation. She wanted to better understand how something
did or did not make the grade. She asked OMB to share its
priorities for the departments. She wanted to better
understand government's role in some of the work the state
was doing. She believed numerous things had been started
because the state had received federal funds and not
because they followed a department's mission. She thought
it would be helpful to explain to constituents where the
numbers came from.
Ms. Arduin replied that OMB would provide the
prioritizations to the committee.
Representative Sullivan-Leonard remarked that earlier in
the week the Legislative Finance Division had mentioned it
had never seen real success with zero-based budgeting. She
knew it had been worked on from the local government side
and in other areas. She asked for an example of other
states that had found success with the budget method,
especially in light of limited revenue coming into Alaska
and mismatched expenditures and revenues. She believed the
method looked at a rebuilding of the departments. She asked
for an example highlighting the success of zero-based
budgeting.
2:41:31 PM
Ms. Arduin clarified that OMB was referring to the budget
method as core-based budgeting. She reported there were
states that had great success with core-based budgeting by
looking at their core programs and tying them to their
metrics. She highlighted Utah as an example.
Vice-Chair Johnston agreed with other members that the
information would be helpful. She stated that any changes
in performance measures in core areas would be helpful to
know. She requested information about how the changes
incorporated into the administration's modeling of its 10-
year fiscal plan.
Ms. Arduin responded that OMB was planning to put out a 10-
year fiscal plan to accompany the governor's amended
budget. She believed they would wait to submit the plan
until the [Department of Revenue] spring revenue forecast
had been published. The information would be available
through LFD once the forecast had changed.
Vice-Chair Ortiz returned to AMHS. He referenced Ms.
Arduin's testimony that the administration planned to hire
a consultant. He asked how much the consultant would be
paid and if a request for proposal (RFP) had gone out.
Ms. Arduin replied that an RFP had not yet gone out. She
relayed the department could provide more information
regarding the potential timing.
Representative Josephson asked if the department had
directed AMHS not to collect revenue or schedule ferries
for the coming fall. He asked if it was currently possible
for a person to book and pay for a ferry ticket for
November 1.
Ms. Arduin believed the department was not scheduling
ferries past the end of September of next year, when
proposed funding for the ferry would end.
Representative Josephson thought the proposed suspension of
AMHS would occur in 2019.
Ms. Sanders clarified that it [the suspension of the ferry
system] would take place in FY 20, October 1, 2019. Through
work with a consultant, the department would determine the
best way to move forward and whether there may be a change
after the October date.
2:45:04 PM
Vice-Chair Ortiz remarked that ultimately the conversation
was about policy. He asked if there had been an economic
analysis conducted on how the closure of AMHS would impact
coastal Alaska economies.
Ms. Arduin answered that the administration was proposing
to bring in a consultant to determine the various options
that could happen with AMHS. The administration would ask
for an economic analysis of the plan once it had been
received.
Vice-Chair Ortiz asked if there had been no economic
analysis on the impact of ending AMHS operations at the end
of September.
Ms. Arduin replied that the administration had directed DOT
to hire a consultant to determine what could or could not
be done with the system. The proposed funding went through
the fall. The administration expected to have the
consultant's results by August and would know where to plan
to go from there.
Vice-Chair Johnston asked if the economic analysis would
include the cost of not having the legislature in Juneau in
2020 because of the ferry closure. She considered that
perhaps the legislature would move fewer things.
2:47:21 PM
MIKE BARNHILL, POLICY DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, addressed statewide reductions on slide 15. He
highlighted an executive branch 50 percent travel reduction
of approximately $4.5 million GF. He reported that all
departments had come forward indicating there was certain
travel that was essential. He elaborated that OMB had spent
the past month working with each department to tailor the
reduction to accommodate the essential travel.
Mr. Barnhill spoke to the proposed repeal of the local
petroleum property tax, which was accompanied by SB 57. He
characterized the tax as coordinated and detailed it had
been enacted in 1973 and authorized municipalities with
petroleum property within their jurisdictions to assess a
tax. He explained that the state assessed the same tax of
20 mills or 2 percent. The local municipalities assessed
the tax and when petroleum property owners filed their
state tax returns, they received a credit for local tax
paid. The tax currently collected approximately $563
million total between the municipalities and the state -
the municipalities collected $440 million of the total,
leaving $123 million for the state. The bill proposed to
eliminate the municipalities' authority to collect the tax,
meaning the entire amount would go to the state.
Co-Chair Foster asked which communities would be affected.
He thought the North Slope Borough would lose $370 million
or more. He mentioned Fairbanks and Valdez and asked for
the complete list.
Mr. Barnhill answered that the North Slope Borough
collected the most tax and would lose $370 million. He
expounded that Valdez would lose $48 million and Kenai,
Fairbanks, and Anchorage also received money from the tax.
Representative Sullivan-Leonard asked where the [local
petroleum property] tax appeared in statute. She wondered
if there was a cap the state had related to how it could
change the tax structure.
Mr. Barnhill replied that the municipal component of the
coordinated tax was under AS 29.45 and the state component
was under AS 43.56. He noted that SB 57 could be viewed
online to see exactly how the bill would adjust the two
components. Statutes provided for a tax cap that limited
the amount, in certain situations, that local boroughs
could collect under the tax. The total cap was 2 percent or
20 mills (each of the municipalities receiving the tax
collected different amounts). He offered to read the
amounts if desired.
Representative Sullivan-Leonard asked Mr. Barnhill to
follow up with her at a later time to discuss details. Mr.
Barnhill agreed.
Representative Carpenter asked if there was information
showing [the repeal of the local petroleum property tax
was] a net positive for the state. He reasoned that the tax
would have to be made up by the boroughs. He understood the
change benefitted the state but not municipalities.
2:51:55 PM
Mr. Barnhill answered that the fiscal notes accompanying SB
57 showed a net benefit of revenues to the state of $398
million. The municipalities currently collected $440
million. He explained the delta between the two was an
offset because the tax was built into the foundation
formula. He elaborated that the state's contribution to
municipalities for schools under the foundation formula
would increase because their [municipalities'] contribution
would come down. He addressed the impact to municipalities
and explained in the case of the North Slope Borough, the
impact would be substantial and very disruptive.
Representative Carpenter spoke to options from Kenai's
perspective and explained there would be a loss of $15
million to the community. He wondered how the change would
be a net gain to the state if boroughs had to increase
taxes as a result. He thought companies would have to be
double taxed to make up for the loss to communities. He
wanted to see an analysis showing the proposal was positive
for the state as a whole.
Mr. Barnhill answered that the policy parameters around the
budget were the payment of full PFDs and having revenues
meet expenditures with no new revenues assessed by the
state. There were impacts to every governmental entity,
department, and Alaskan. There was no way to do the
proposed budget exercise without everyone being impacted.
2:54:14 PM
Representative Knopp asked if the oil and gas properties
were also known as the [AS] 43.56 properties. Mr. Barnhill
replied in the affirmative.
Representative Knopp asked for verification that the tax
was a flat 20 mills and local jurisdictions were reimbursed
a percent of the mill rate.
Mr. Barnhill clarified that it was not a reimbursement. He
explained that municipalities (under AS 29.45) assessed the
tax directly up to their cap and petroleum property owners
filed a report with the Department of Revenue and took a
credit against what they paid to local municipalities.
Representative Knopp discussed that local municipalities
were charged with assessing property at fair market value.
He thought it seemed ironic that the budget proposal
indicated that taxing the properties would be out of the
municipalities' jurisdiction. He asked if that was the
policy direction the administration really wanted to go.
2:55:50 PM
Mr. Barnhill responded there were some tremendously
difficult questions and choices posed by the budget. He
explained that OMB's goal had been to achieve a $1.6
billion reduction. He elaborated that to achieve the goal
entirely through cuts to existing state programs was
difficult. He addressed weighing the proposal [to repeal
local petroleum property tax] against a combination of
additional proposals such as a $400 million reduction in
Medicaid (which would functionally exit Medicaid in its
entirety), an additional $400 million reduction in
foundation formula funding, or eliminating all of the UGF
from 11 departments. All of the choices were incredibly
difficult. The administration had determined that no matter
what it did, the component of property taxes would be on
the table for discussion in terms of how the revenue was
collected, the history of the revenue, and whether it was
an optimal way of assessing, collecting, and allocating the
petroleum property tax in Alaska. The administration did
not see any way to have the discussion about $1.6 billion
without including the property taxes. He stated the
legislation was within the discretion and purview of the
legislature to determine if enacting the legislation made
policy sense.
Representative Josephson highlighted the $398 million the
state was projected to receive [from the repeal of the
local petroleum property tax]. He asked for verification
that Mr. Barnhill had testified the state would not receive
the full amount because it would pay more to make up for
lost taxation in local contribution to public schools.
Mr. Barnhill clarified that when committee members viewed
the fiscal notes, they would see the projection for FY 20
revenue was $421 million with an offset for the foundation
formula that reduced the number to $398 million.
Vice-Chair Ortiz agreed that the $1.6 billion reduction was
problematic no matter how it was viewed. He asked how much
of filling the $1.6 billion deficit was a result of paying
out a full PFD as opposed to the $1,600 PFD received last
year.
Mr. Barnhill replied that a full PFD would be a total
payout of $1.9 billion. He noted he could not do the math
quickly enough to come up with the amount when using a
$1,600 PFD.
2:59:36 PM
Vice-Chair Ortiz considered it would be a nice thing for
individuals to receive $3,000 PFDs, but he asked if an
assessment had determined the overall greater good would be
achieved by paying out a full PFD, which would require
massive cuts to education, AMHS, and other items.
Ms. Arduin replied that it was the governor's belief that
payment of the PFD was not optional and should not be part
of the budget, which was the reason he had proposed a
constitutional amendment to pay a full PFD annually. She
detailed that OMB's chief economist was doing an analysis
of the overall budget and would include dividends.
Co-Chair Wilson asked if the actual reduction was about
$1.2 billion because the proposals [on slide 15] reflected
additional revenue.
Mr. Barnhill replied in the affirmative.
Co-Chair Wilson asked for verification that the $1.2
billion was from the December 15 FY 20 budget, which
included increases that had not yet been approved by the
current legislature.
Mr. Barnhill replied in the affirmative.
Co-Chair Wilson commented it would be helpful to have
better figures based on the FY 19 budget approved by the
legislature versus a budget that was never really on the
table. She remarked they were throwing big numbers out
there and some of the numbers were not true numbers based
on the last budget.
3:01:44 PM
Ms. Arduin replied that the governor had released his
[initial] budget in December and OMB believed it was
necessary to give the legislature the information on it.
The reduction from the FY 19 management plan was about $1.1
billion.
Mr. Barnhill continued to address slide 15 beginning with
reductions to two statutory debt reimbursement programs
including with school debt reimbursement and capital
project debt reimbursement (a series of three statutes
applied to the latter program). The school debt
reimbursement program had been in statute for decades and
had provided for various levels of debt reimbursement when
municipalities engage in construction of school facilities.
Currently under state law there was a moratorium on debt
reimbursement for new projects, which was scheduled to end
in FY 20. He elaborated that new projects under current
statute could be submitted for reimbursement on a 50/50
percentage basis starting in FY 21. Legislation put forward
by the governor proposed to eliminate all debt
reimbursement for schools and removed the $100 million for
school debt reimbursement from the FY 20 budget. The repeal
would mean a shift in cost responsibility back to
municipalities that issued the debt to commence
construction of school facilities.
Vice-Chair Johnston asked if there could be a legal
challenge to the proposal.
Mr. Barnhill replied that legal challenges could be filed
for any or no reason. There was always a possibility of
litigation. His understanding that in every one of the debt
issuances by municipalities, it was a general obligation
(GO) bond issued on the basis of the credit of the
municipality, with a statement to voters that reimbursement
by the state under the school debt reimbursement program
was subject to appropriation. He furthered that in order to
issue bonds, the voters had to be apprised of the impact if
the appropriation was not made. He believed there had been
multiple instances in the past when the legislature or the
governor had not funded 100 percent of the school debt
reimbursement under the statute. However, the current
budget was the first time a proposal had been made to
eliminate 100 percent of the funds.
3:04:51 PM
Representative Josephson had been told that Anchorage Mayor
Ethan Berkowitz believed to compensate for the reduction in
the BSA, property taxes on an average home may rise by
$1,600. He observed the amount was slightly more than half
a PFD. He believed at some point there would be a tipping
point where people would start to view a PFD less favorably
than otherwise. He asked if the administration would
provide a global look at the changes to the culture of
Alaska based on the need to adhere to the payment of a full
PFD.
Ms. Arduin asked to stick to budgetary questions.
Representative Josephson thought the question was
budgetary. He understood they would discuss the issue at
another time and looked forward to talking about it.
Mr. Barnhill could not comment on cultural impacts at
present or later. He reported that OMB had spreadsheet data
on each of the GO bond issuances showing the numerics and
impacts of shifted debt service to each of the 19
communities in the program. He was happy to provide the
information.
Representative Carpenter pointed out that policy and budget
questions were intertwined and impossible to separate. He
wondered about the destination the budget was aiming for
and did not see a big picture showing that information. He
wondered whether policy was driving the budget discussion
or whether the budget discussion was driving policy. He
wanted to believe there was a goal envisioned that could be
articulated to the public. He stated that it did not seem
appropriate to not contemplate how a budget change would
impact culture. He considered that perhaps the committee
would have a picture of where the budget was going, but he
believed Representative Josephson's question was fair.
3:07:53 PM
Ms. Arduin referenced slide 5 and replied that the fiscal
goal was to balance the budget and increase reserves. She
stated that at that point they could work to diversify the
economy. She highlighted bringing stability to businesses
as an example. She elaborated that stability meant that
businesses would not have to worry about a tax change every
year. She detailed that a stable government and financial
system would mean the ability to attract outside capital.
Additionally, stability would allow legislators and the
governor to focus on bringing in jobs and opportunities
from other states instead of having people continuing to
leave due to uncertainty. She did not want to comment on a
question of culture.
Representative Carpenter remarked that slide 5 showed the
state budget but was missing any information about how the
boroughs would be impacted. He asked whether the proposed
budget had a net positive impact on the state as a whole,
which included local boroughs and governments. He
underscored that the analysis was not represented in the
slide. He reasoned that if the proposed budget negatively
impacted local governments and communities, perhaps it was
not the best thing to do. He stressed that the analysis was
not represented on slide 5.
Ms. Arduin replied that the OMB chief economist would
present an analysis of the overall economic impact [at a
later date].
Mr. Barnhill returned to slide 15 and addressed the
proposal to repeal debt reimbursement for capital projects.
He explained the program had been removed from the proposed
budget. Additionally, the governor had proposed legislation
to eliminate the three statutes providing for the program.
He detailed there were three types of projects and a total
of nine projects. The first category was two projects for
the University of Alaska; the second category was six port
projects through DOT for port communities; and the third
category was two utility projects through the Alaska Energy
Authority. Debt service shifted back to each of the
entities was a total of $4.5 million. He elaborated that
the debt service was fairly far along for most of the
projects. The remaining debt services extended between one
and nine years for a total of $32 million.
3:11:50 PM
Co-Chair Wilson asked if the state was currently paying for
the projects. She asked for verification that repealing the
program would mean municipalities would pay for the
projects.
Mr. Barnhill replied in the affirmative. He corrected his
previous statement and detailed that the remaining debt
service extended between one and twelve years for the nine
projects.
Mr. Barnhill addressed oil and gas tax credits on slide 15.
He referenced extensive conversation the previous year in
the context of HB 331 [legislation passed in 2018
establishing an Alaska Tax Credit Certificate Bond
Corporation]. He detailed that over a period of decades,
the state had offered cashable oil and gas tax credits in
an effort to incent new exploration for gas in Cook Inlet
and oil in the Middle Earth and North Slope regions. At the
beginning of 2018 the cashable credits totaled
approximately $900 million. Prior to the commodity crash in
2014 there was a practice by the legislature of
appropriating the full amount (of what had been presented
in the previous fiscal year) to companies that earned the
oil and gas tax credits. The practice had ended with the
crash of oil prices in 2014. He elaborated that initially
former Governor Bill Walker had vetoed the full amount
presented the previous year down to the statutory amount.
Since that time, the credits had been funded to the
statutory amount. He noted there was an asterisk on
"statutory amount," which he could elaborate on if
committee members were interested.
Mr. Barnhill continued that in the previous session [2018]
the former Walker Administration had proposed HB 331, in
recognition the state did not have general funds to pay off
the entire $900 million, to authorize the creation of
public corporation to issue subject to appropriation debt.
The proposal was to take out the entire [$900 million]
balance of cashable tax credits and the state would pay off
the debt service over a period of years. Immediately
following the enactment of HB 331 (at the end of the
legislative session), litigation had been brought against
the state challenging the constitutionality of the
legislation; therefore, bonds had not been issued and the
litigation was continuing. He detailed that the superior
court had ruled in favor of the state and an appeal to the
state supreme court was expected. The earliest the
administration anticipated debt could be issued was in one
or more years from present (assuming the state was
successful in the supreme court).
Mr. Barnhill explained the governor's proposed budget would
continue paying down the balance of cashable oil and gas
tax credits with Alaska Industrial Development and Export
Authority (AIDEA) receipts instead of general funds. He
expounded that DOR calculated the statutory amount annually
and published the information in its Revenue Sources Book.
The amount was $184 million for FY 19 and the legislature
had appropriated $100 million in the event debt was not
issued. The $100 million had been distributed, leaving a
residual $84 million [owed for FY 19]. The statutory amount
for FY 20 was $170 million, which was the amount included
in the governor's proposed budget.
3:15:50 PM
Vice-Chair Johnston asked how the proposal would impact
AIDEA's fund balances and bond rating.
Mr. Barnhill answered that DOR had done an analysis to
examine AIDEA's excess liquidity and had determined there
was $391 million available. Taking the proposed amount of
over $200 million [$254 million] out of AIDEA would impact
its ability to continue to fund new projects. He addressed
the bond rating and shared his understanding that AIDEA
housed around $50 million in outstanding bonds that were
completely secured by money the budget proposal did not
seek to appropriate. He could not comment on the impact.
Vice-Chair Johnston asked if the proposal had been brought
to the AIDEA board and approved.
Mr. Barnhill responded that he had discussed the proposal
with the new AIDEA director and the chair. He had not
discussed the proposal with AIDEA board members.
Vice-Chair Johnston was interested in an analysis on what
the change would do to AIDEA funding in terms of a 10-year
fiscal plan. She pointed out that the proposal meant taking
funds away for reinvestment. She was interested in a report
from the board.
3:18:07 PM
Mr. Barnhill was more than happy to provide an analysis to
the budget subcommittee. He shared the concern about the
need to continue to provide resources in order for the
state to continue to grow its economy, which was important.
He underscored that paying the credits owed was also
important. The proposal would complete the state's
investment in new oil and gas exploration, which was of
critical importance, to secure the state's financial
future. He acknowledged the goals were in tension with each
other and the administration was trying to accomplish both.
Co-Chair Wilson had learned the previous day that AIDEA
receipts were GF and could be used for any reason because
the state did not have dedicated funds. She remarked that
most legislators had not known the funds existed, but they
did now, which she surmised may be a "sad thing." She spoke
to the proposal to use $84 million and $170 million in
AIDEA receipts to pay off the oil and gas tax credits. She
wondered why the state would not consider some of the
concepts from the bond package where AIDEA could be the
holder of the money versus the banks. She suggested
requiring the money to be reinvested in the state. She
observed the proposal [on slide 15] would give companies a
payout they could use anywhere (e.g. Europe, Texas, and
North Dakota); however, if a structure was put in place,
AIDEA could go forward with capital projects and use the
money as collateral instead. She thought it would help grow
the state's economy more than giving money out that could
be utilized somewhere else.
Mr. Barnhill acknowledged the ideas had merit, but stated
that from an OMB policy perspective, the state had an
obligation to pay the money owed from a program it had
created in the past and ended. He spoke to the importance
of paying off the debt owed to companies, which had been
the point of HB 331, which had not come to fruition due to
litigation. He was happy to explore any way to "clearing
the decks" by concluding the state's investment in the new
exploration effort.
Co-Chair Wilson agreed the state should pay its debt, but
she noted that companies had told the legislature the
previous year that they could not utilize paper no one
would give them any money for. She referenced the
governor's objective to live within the state's means. She
stressed that raiding a savings account did not reflect
living within the state's means. She reasoned if the state
could utilize a program where companies would invest the
money back into oil on the North Slope or gas in Cook
Inlet, it would be an opportunity for the state to pay its
debt and benefit with jobs in Alaska.
3:21:46 PM
Mr. Barnhill addressed the proposal to begin to eliminate
quasi-dedicated funds (last item on slide 15), which were
sometimes called designated funds. He detailed that over a
series of decades the legislature had enacted a variety of
quasi-dedicated fund structures for a specific purpose. He
estimated there were currently dozens of quasi-dedicated
funds on the state's books. The concern from an OMB budget
and policy perspective was that quasi-dedicated funds
decreased the legislature's flexibility to manage state
funds, particularly in times where revenues did not equal
proposed expenditures. The governor had proposed
legislation to eliminate the funds established in statute.
The proposal would start with the largest funds including
the Power Cost Equalization (PCE) Fund, Community
Assistance Fund, and the Higher Education Investment Fund.
He emphasized the proposal did not change the funding for
programs with quasi-dedicated funds; the fund source was
changed to general funds. He emphasized that the fund
source for PCE, the Alaska Performance Scholarship, and
Community Assistance would change to GF.
Co-Chair Foster understood the concept would be to sweep
the $1.1 billion from PCE to GF and still make payments to
the communities for PCE from the GF. He was concerned about
PCE having to compete against other programs in the future
for funds, meaning there was potential for payments to
become less predictable. He discussed the origin of PCE and
detailed different parts of the state had received funds
for energy projects to help keep energy costs down. He
reviewed past energy projects including the Four-Dam Pool,
Bradley Lake hydroelectric, the electric intertie from the
Kenai Peninsula through Anchorage to Fairbanks, and over $1
billion in Cook Inlet tax credits (he noted the state
barely taxed Cook Inlet natural gas). He supported all of
the projects because they helped to reduce energy costs for
huge swaths of the state's population. He stated that
dismantling the PCE program would effectively take down the
energy reduction projects in rural Alaska.
3:24:47 PM
Vice-Chair Johnston asked if the change [moving PCE to GF]
would change how DOR managed the funds.
Mr. Barnhill answered that DOR managed the General Fund. He
noted that DOR could speak to the specifics on its
management of the fund. He detailed that DOR pooled GF and
other GeFONSI [General Fund and Other Non-Segregated
Investments] together (there were dozens of funds). There
was a GeFONSI I and GeFONSI II pool. He explained that
GeFONSI II had equity exposure. He elaborated that DOR
would decide how to allocate the General Fund as it got
bigger assuming the governor's proposal to eliminate the
[quasi-dedicated] funds took place. He added that DOR also
managed the CBR - any funds available for appropriation
were swept from GF to the CBR per the constitution. The CBR
had a main account and subaccount; currently there was
nothing in the subaccount, but it was available for longer-
term investments.
Vice-Chair Johnston speculated that as funds were currently
managed, liquidity may not be necessary, which may not be
the case if the funds became part of the General Fund. She
intended to ask about the issue during the subcommittee
process.
3:26:32 PM
Co-Chair Wilson stated, "I appreciate that you think we can
manage our funds on our own because we don't have a very
good track record of that." She asked which funds Mr.
Barnhill was referring to. She asked if Mr. Barnhill was
talking about several funds or the myriad funds the state
had.
Mr. Barnhill replied that the state had dozens of funds.
The administration was looking at making the change over a
multiyear period and had identified a handful [of quasi-
dedicated funds] to start with. He added that depending on
the reception to the idea, it could be revisited in the
future with other funds.
Co-Chair Wilson wondered why they were testing it out. She
reasoned that someone either believed all of the funding
should be in one fund (e.g. CBR or ERA) or they were
amenable to having thousands of small funds of various
sizes. She stated it was not possible to have it both ways.
Mr. Barnhill replied that it was more of a logistical issue
in terms of jamming up the legislature with dozens of
fiscal notes.
Ms. Sanders added that OMB intended to work with LFD on the
project over the interim regarding how funds should be
categorized and where they should be placed.
Co-Chair Wilson was trying to understand whether the
administration believed the state should not have all of
the small funds and that it would be necessary to compete
for the available funds. She wondered if the
administration's philosophy was to eventually have all of
the money in one place. She reasoned they would not be able
to say whether PCE or the higher education scholarship
program would still be funded because there would be a
matrix or priority list developed by the administration.
3:28:53 PM
Mr. Barnhill replied that the intent of the policy was to
put all stakeholders on a level playing field. He detailed
that the subject had been discussed in 1955 at the state's
constitutional convention. The framers intended the state's
financing and budgeting process to be structured in that
way. He elaborated that framers had been concerned about
the dozens of states that did not have a prohibition
against dedicated funds; states had created pots of money
all over the place and there had been no appropriation
flexibility, which had been of concern to the framers. The
proposal was to return back to the framer's intent with
respect to budgeting and appropriation flexibility.
Co-Chair Wilson stated that PCE had established for a very
different reason than many of the other funds. The purpose
was to provide a way to equalize energy throughout the
state. She believed it would get lost with the [loss of
the] fund. The Railbelt was supposed to have more
affordable energy via various hydro projects. She asked if
certain funds fell under a different guideline and perhaps
certain things could not be equal throughout the state and
[quasi-dedicated] funds were the method of solving the
issue versus all funds being up for grabs.
Mr. Barnhill answered that ultimately, the administration
wanted to evaluate all of the [quasi-dedicated] funds. He
clarified that the budget proposal was limited to PCE,
higher education, community assistance, and one or two
more.
Co-Chair Wilson asked why the particular five funds had
been selected. Mr. Barnhill replied that they were the
biggest [of the quasi-dedicated funds].
Representative LeBon followed up on Vice-Chair Johnston's
comments on AIDEA. He agreed there needed to be concern
about stripping too much capital from AIDEA and impairing
the agency's ability to act as an effective lending partner
to the state's commercial banking community. He addressed
school debt reimbursement. He detailed that organized
boroughs and municipalities would obtain permission from
voters to sell bonds for school construction. Conversely,
when unorganized portions of the state needed a new school,
the state built the school; the local community did not
contribute 30 percent of the cost and some type of general
obligation bond. He asked if his statements were accurate.
3:32:39 PM
Mr. Barnhill explained there were 19 Regional Educational
Attendance Areas (REAA) in the state. There was an REAA
school grant construction fund and a formula designed to
deliver a percentage (to the fund) of the amount the state
reimbursed school districts under the school bond debt
reimbursement program. The budget proposal did not attempt
to restructure the REAA grants fund - those funds would
remain in place.
Representative LeBon spoke about the operating cost per
student per University of Alaska campus. He assumed the
administration was going to do a comparison between all of
the campuses, given the difference between them. For
example, the University of Alaska Fairbanks had a number of
dormitory buildings, a research facility, and a statewide
administration facility. He asked for an apples-to-apples
comparison and reasoned the cost of educating a student at
each campus would differ due to a difference in facilities,
overhead, and fixed cost.
3:34:20 PM
Mr. Barnhill replied that the University had the data and
had provided it to the state. He believed the University
would be willing to provide the data on a per campus basis
to the committee. He understood the data provided by the
University to the administration did not fully allocate out
the administration costs to each of the campuses. He
thought it may be better to wait for the University to
adjust its numbers so the administration costs were fully
allocated out. The data the administration received showed
a fairly stark difference between campuses.
Representative LeBon asked for verification that the
administration based its proposed cut to K-12 education on
the belief that the cost per student was too high and the
outcome was too low.
Ms. Arduin replied that the observations were separate. She
noted that the administration had not specified the
spending was too high. She clarified they had specified the
state had been spending more than other states and
receiving less. The administration believed it was the
beginning of a process and reforming education would be a
longer-term process. The observation was the state was not
getting what it should for the money.
3:36:21 PM
Representative Sullivan-Leonard asked about AIDEA receipts.
She noted that the agency already provided an annual
stipend to the state. She speculated the amount was around
$20 million or so. She asked if it had been factored into
the FY 19 and FY 20 conclusions by the administration. She
asked if the calculation factored in that AIDEA already
provided the state a portion of its reserves. If so, she
wondered if it was something the administration could look
at stretching out farther with regard to paying down oil
and gas tax credits.
Mr. Barnhill characterized the discussions with AIDEA as
ongoing. He believed it was fair to say appropriating the
proposed amount from AIDEA would have an impact on the
dividend. He relayed that the departments and AIDEA could
address the details in the budget subcommittee process.
Vice-Chair Ortiz referenced earlier comments by
Representative Carpenter, Vice-Chair Johnston, and
Representative Josephson regarding the proposed budget and
the administration's vision going forward. He believed that
ultimately for the administration to sell the budget, the
administration needed to address its vision and how the
budget would impact the state as a whole. He referenced Ms.
Arduin's comments about the need to create stability. He
agreed the state could not continue the deficit spend
because it lacked sufficient savings. However, he believed
there had to be a recognition there were other ways to get
to a balanced budget - methods that did not continue
deficit spend but did not create the havoc the proposed
budget would create.
Vice-Chair Ortiz asked what stability there would be if the
proposed 23 percent reduction in the BSA were enacted,
requiring his district to lay off potentially 70 of its 170
teachers. He countered there was not a lot of stability
there. He reasoned there would not be significant stability
for businesses either. He questioned whether businesses
would want to invest in a town where schools were no longer
supported. He requested that going forward the
administration begin to address its vision and the budget's
overall impacts on the economy.
3:40:40 PM
Ms. Arduin replied that the goal was to be sustainable,
predictable, and affordable. She stated that the most
instability the state could give to its school districts
would be to continue deficit spending and to drain its
reserves completely. She underscored that the scenario
would drive complete instability. The administration was
proposing sustainability by spending within the state's
means and showing school districts there would be money
available in the future, which is what was meant by
sustainable and predictable. The administration was
producing an economic analysis and believed the impacts to
the economy would be positive if the state stopped sending
signals to investors that it did not know what it was doing
with its budget (e.g. where it would tax in the future,
where the money would come from, and how the education
system would be funded). She reiterated the
administration's goal of sustainable, predictable, and
affordable budgets in order to turn the economy around.
Representative Josephson stated that his primary concern
was the use of the word predictable on slide 16. The
previous administration had welcomed and encouraged oil
development but had aimed to divorce the state from its
codependent relationship with the oil industry. He was
concerned that the proposed budget wedded the state to the
industry. He referenced slide 9 reflecting changes in the
last four or five months due to declining oil [prices]. He
wondered how any of the proposed budget was predictable. He
reasoned that if oil prices dropped to $29 per barrel, it
would likely be necessary to cut another $500 million [from
the budget]. He referenced Ms. Arduin's comment on the
reliance on the greater world, i.e., school districts,
businesses, investment. He asked how any of the budget was
predictable, given that it would double down on a marriage
to a single funding source.
3:43:25 PM
Ms. Arduin answered that OMB had talked about beginning to
diversify the economy. She detailed that the way to
diversify the economy was to attract outside investment and
to attract investors who would bring jobs and growth to the
state. She reasoned that the goal was not possible as long
as deficit spending continued, and the state could not tell
potential investors where they may or may not be taxed in
the future. In order for the state budget to be
predictable, the governor was proposing a spending limit
based on an amount of money that would likely be an average
of where oil revenues came in. The budget would continue to
spend 2 percent more per year, which would be predictable,
sustainable, and affordable. The administration was also
talking about building the CBR back up to make it available
when revenues dipped.
Representative Carpenter asked if the administration's
economic analysis would provide a timeline on what the
positive impact to the private sector would look like.
Ms. Arduin replied in the affirmative. The analysis by OMB
would look at the impacts on the private and government
sectors.
Co-Chair Foster thanked the presenters. He provided detail
regarding the schedule for the following week.
ADJOURNMENT
3:46:08 PM
The meeting was adjourned at 3:46 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| FY2020 Gov Amend Budget to HFC 2.21.19.pdf |
HFIN 2/21/2019 1:30:00 PM |
HFIN Gov. Amended Budget |
| APBC FY2019 Operating Grant Allocations.pdf |
HFIN 2/21/2019 1:30:00 PM |
Respnse to Q's HFIN |
| ARCS and the Satellite Service Information.pdf |
HFIN 2/21/2019 1:30:00 PM |
Respnse to Q's HFIN |
| Public Broadcasting Funding in Alaska - Impacts of 100% Reduction in Sta....pdf |
HFIN 2/21/2019 1:30:00 PM |
Respnse to Q's HFIN |
| Response to House Finance Questions 2.2128.19.pdf |
HFIN 2/21/2019 1:30:00 PM |
Respnse to Q's HFIN |
| WWAMI fact sheet final 2018.pdf |
HFIN 2/21/2019 1:30:00 PM |