Legislature(2019 - 2020)ADAMS ROOM 519
01/24/2020 01:30 PM House FINANCE
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| Audio | Topic |
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| Start | |
| Fy 2021 Fiscal 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 24, 2020
2:36 p.m.
2:36:19 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 2:36 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Jennifer Johnston, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Colleen Sullivan-Leonard
Representative Cathy Tilton
Representative Adam Wool
MEMBERS ABSENT
Representative Ben Carpenter
Representative Andy Josephson
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor; Brian Fechter, Chief Budget
Analyst, Office of Management and Budget, Office of the
Governor.
SUMMARY
FY 2021 FISCAL OVERVIEW: OFFICE OF MANAGEMENT AND BUDGET
Co-Chair Foster reviewed the meeting agenda.
^FY 2021 FISCAL OVERVIEW: OFFICE OF MANAGEMENT AND BUDGET
2:37:13 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, gave a brief description of how the
governor's budget had been developed. He detailed that the
Office of Management and Budget (OMB) had reached out and
worked directly with departments to understand their
operating budget needs. He shared that prior to his current
position he had served as the administrative services
director for the Department of Education and Early
Development (DEED) for six months. He noted he had been
involved in the DEED budget development process. The
process had been collaborative to ensure the budget fit
within the vision of the various departments.
Co-Chair Foster communicated that members were free to ask
questions throughout the presentation.
Mr. Steininger provided a PowerPoint presentation titled
"State of Alaska Office of Management and Budget: House
Finance Committee FY2021 Budget Overview," dated January
24, 2020 (copy on file). He briefly highlighted a "swoop
graph" on slide 1 showing the FY 21 budget by agency. He
highlighted that almost half of the state budget was
covered under two programs: K-12 foundation formula and
Medicaid accounted for about 44 percent of the operating
budget.
Mr. Steininger turned to slide 2 and addressed a graph
showing Alaska's revenues and expenditures from FY 75 to FY
20. The slide indicated that expenditures changed as
revenues changed - as revenues increased, expenditures
increased. He pointed out that during high revenue years
there had been a good effort to put a substantial amount of
money into savings. He pointed to two spikes where revenues
significantly exceeded expenditures, which had allowed the
state to build a savings that had enabled it to weather the
storm shown to the right of the graph.
2:39:52 PM
Mr. Steininger moved to slide 4 and addressed the FY 21
revenue outlook. Total unrestricted general fund (UGF)
revenue available for government use was approximately $3
billion, comprised of about $2 billion in UGF revenue and a
percent of market value (POMV) transfer of about $1
billion. The current oil price projection was $59 per
barrel, which would bring in about $1.4 billion in
petroleum revenue. The POMV revenue was about $3 billion
split between the dividend and government services. The
other non-petroleum, non-Permanent Fund revenue was about
$500 million. He relayed that balancing the budget on oil
price would require maintaining a per barrel price of
approximately $91 for a year.
2:40:59 PM
Co-Chair Johnston pointed out that the swoop graph [slide
2] did not show an appropriation for the Permanent Fund
Dividend (PFD). Additionally, the revenue source of the
full structured draw was not shown. She highlighted that
total UGF revenue was $5.059 billion.
Mr. Steininger agreed and noted that the total UGF of $5
billion was shown on the chart [slide 4]. He added that the
slide also showed total UGF revenue after removing the
amount statutorily transferred into the PFD.
Co-Chair Johnston noted it was an appropriation.
Co-Chair Foster recognized that Representative Wool had
joined the meeting.
Representative Knopp remarked that the spring revenue
forecast projected oil at $67 per barrel and the projection
had decreased to $59 per barrel in the fall forecast. He
referenced recent discussion about a new methodology for
calculating the per barrel price. He asked for detail and
noted there was a significant difference between the spring
and fall forecasts.
Mr. Steininger deferred the questions to DOR as the
experts.
Co-Chair Foster remarked that it would be an issue to look
at going forward. He noted there was a philosophical
difference in what the legislature regarding the payment of
the PFD. He discussed that the governor's budget paid for
the PFD transfer directly from the Permanent Fund Earnings
Reserve Account (ERA) instead of the traditional funding
method from the General Fund.
Co-Chair Johnston agreed it was a matter of appropriation
versus a transfer. She highlighted that the total UGF
revenue was reflected on the second to last row [on slide
4].
2:44:00 PM
Mr. Steininger moved to slide 5 showing an FY 21 fiscal
summary compared to the FY 20 management plan including the
likely supplementals. He remarked that additional details
would be provided when the administration's supplemental
bill was introduced in early February. He highlighted that
total UGF spending outpaced revenue by about $1.5 billion,
which would result in a draw from the CBR.
Mr. Steininger turned to slide 6 and reviewed significant
budget highlights. The slide included public safety
investment of about $85 million, the introduction of the
Alaska Development Team (a pilot program through FY 23), a
fully funded K-12 formula at $1.3 billion (a $20 million
increase over FY 20), an estimated full statutory PFD of
about $3,000 per Alaskan, and a capital budget of about
$136 million UGF to fully utilize federal funds available.
He elaborated on the K-12 increase and noted that the
student count had decreased slightly, but the makeup of the
student population resulted in increased costs to the
foundation program.
Co-Chair Johnston asked if the numbers on slide 5 included
the supplemental.
Mr. Steininger answered that the FY 20 management plan
numbers included the likely supplementals discussed on the
December 11 budget release. The amounts would be trued up
in the governor's supplemental budget to be released in
early February.
Co-Chair Johnston referenced the bullet point on leveraging
available federal funds [associated with the capital
budget] on slide 6. She asked whether the administration
had been reaching out to its federal delegation to access
all available federal funding.
Mr. Steininger answered that the bullet point largely
pertained to the highway match and capital budget. He
reported that every department worked with its federal
partners to look for opportunities to bring in federal
funds.
2:46:58 PM
Co-Chair Foster returned to slide 5. He stated his
understanding that the forthcoming supplemental could be
around $230 million. He asked for verification that the
number was included in the FY 20 management plan portion of
the table.
Mr. Steininger agreed that the [supplemental] number was
included in the management plan figures. He noted the
information had been discussed when the governor's budget
had been released on December 11. There would be more
detailed numbers provided in early February.
Representative Wool referenced $2.8 million for the Alaska
Development Team pilot program. He asked how the program
would reach self-sufficiency by FY 23.
BRIAN FECHTER, CHIEF BUDGET ANALYST, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR, answered that the
intent was for the Alaska Development Team to utilize
public funds for the first three years, whereby the team
would act as navigators connecting money to projects. There
would be discussions about what a public-private
partnership may look like in order to obtain funds from the
private sector.
Mr. Steininger provided additional detail on the proposed
increase of $86 million for public safety capital and
operating spending on slide 7. He discussed that public
safety continued to be a high priority and was prioritized
in the budget. He noted that the largest increment of $32
million was not necessarily new spending but reflected
adjusting fund sources for things that had been funded with
the Power Cost Equalization (PCE) fund in the FY 20 budget.
The FY 21 budget funded the items with general funds in
order to be operationally sustainable over time. The total
increment also included $24.7 million for the Department of
Corrections (DOC) due to a growth in inmate counts.
2:49:17 PM
Mr. Steininger reviewed the departments' high level budget
items on the next several slides. He began with the
Department of Administration (DOA) on slide 8. The slide
included approximately $1.8 million for public defenders in
the Office of Public Advocacy (OPA) to ensure their ability
to perform client work. He highlighted an increment for the
Office of Information Technology (OIT) and other
centralized standardized systems within DOA. The goal was
to ensure that as functions were brought in from other
departments to operate in a more cost-conscious way that it
was done so in a standardized way. He noted that each
department was doing things a bit differently, meaning some
investment was needed to undergo the process.
Mr. Steininger moved to the Department of Commerce,
Community and Economic Development (DCCED) on the lower
half of slide 8. He noted that a $2.8 million increment for
the Alaska Development Team pilot program was spread across
FY 20 through FY 23. The budget included a $28.7 million
deposit for community assistance. He explained that the
program was funded based on a calculation on the PCE
earnings.
Co-Chair Johnston asked for verification that community
assistance had been paused in the previous year due to some
vetoes. She noted it was a formula-based program where one-
third of the PCE fund balance went to communities. She
remarked that the increment was not the historical $30
million and asked if the increment reflected a calculation
from the PCE fund.
Mr. Steininger agreed. He explained the amount had been
determined by a calculation based on earnings of the fund.
Co-Chair Foster referenced the committee discussion with
the Legislative Finance Division two days earlier. He
believed the full capitalization of the fund was $90
million. He detailed that $30 million had been vetoed by
the governor in the FY 20 budget, which brought the amount
down to $60 million. He elaborated that $30 million would
normally be put into the FY 21 budget, but the only excess
available from the PCE fund was $28.7 million, meaning the
funds would be short $1.3 million. He reminded committee
members that there would be a shortage of $30 million
resulting from the vetoed funds the previous year.
2:52:27 PM
Mr. Steininger addressed the last DCCED increment on slide
8, a $1 million investment into the Alaska Energy Authority
(AEA) Statewide Railbelt Energy Plan.
Representative Wool asked for more detail about the item.
Mr. Fechter answered that the last comprehensive review of
the strategic plan for the Railbelt was in 2010. Enough had
changed, including the costly Swan Lake fire, that made it
important to go back through and determine how to provide
the best service at the lowest cost rate.
2:53:26 PM
Mr. Steininger reviewed funding for the Department of
Education and Early Development (DEED) on slide 9. He
reported that K-12 aid to school districts was fully
funded. With the addition of the North Slope Borough and
Lower Yukon School Districts the residential programs were
fully funded for the first time in a couple of years.
Additional changes included the discontinuation of the
Online with Libraries video conferencing system;
outsourcing of Federal Family Education Loan Program
servicing; the transition of the Public School Trust Fund
to the language section to maximize investment returns; and
additional foundation funding of $488,200 from dividend
donations to the dividend raffle.
Co-Chair Johnston recognized that one of the issues with
education was parity. She asked how the residential
programs fit into the parity equation, especially when
adding the North Slope. She asked how the change worked in
relation to tax caps.
Mr. Steininger asked if she was speaking to the disparity
test.
Co-Chair Johnston agreed.
Mr. Steininger replied that he was not certain how the
residential programs factored into the calculation. He
deferred the question to the department.
Co-Chair Johnston thought it may be a question in
subcommittee. She clarified she was not saying she did not
want to see the funding, but she wanted to learn more about
the issue.
Mr. Steininger addressed the Department of Fish and Game
(DFG) on the bottom of slide 9. The department had
identified various reductions for a total of $1.3 million
that it had determined would have minimal impact to
fisheries.
2:55:52 PM
Mr. Steininger moved to the Office of the Governor, the
Department of Health and Social Services (DHSS), and the
Department of Labor and Workforce Development (DLWD) on
slide 10. He began with the Office of the Governor and
highlighted the restoration of funding for the Division of
Elections and a $30,000 capital budget increment to address
deferred maintenance on state buildings.
Mr. Steininger highlighted DHSS budget items. The budget
transferred the Parents as Teachers program from DEED to
better align with program management. The Payment
Assistance program under Alaska Pioneer Homes had been
increased by $5 million. He detailed that as the department
had implemented rate increases and received better
information about residents' income, DHSS found it needed
more money to ensure all of the residents were able to
remain in the homes. The budget added authority for
electronic visit verification maintenance and operations to
ensure the staff caring for people in their homes were
properly going to locations they were billing to the state.
Mr. Steininger relayed that the Adult Public Assistance
Maintenance of Effort (MOE) had been reduced in FY 20, but
through discussions with the Centers for Medicare and
Medicaid Services (CMS) the department had discovered the
impact of the reduction combined with other changes in the
MOE calculation would have been much greater than intended.
The budget restored the MOE funding. He highlighted an
increment of approximately $1.6 million for Alaska
Psychiatric Institute (API) projects to comply with a
corrective action plan. Additionally, the budget would
utilize available marijuana education and treatment funds
to offset UGF. He reported that revenue from marijuana had
increased slightly and the budget also used a bit of the
fund balance.
Co-Chair Johnston noted that it was a case in point where
the December supplemental figures were playing into the
budget, specifically related to Medicaid. She stated it was
the reason there was no increase.
Vice-Chair Ortiz asked for details about an additional $5
million for the Pioneer Homes payment assistance. He asked
if the increment was in addition to the FY 20 budget
amount.
Mr. Steininger answered that the increment was an
additional $5 million over FY 20. He detailed that the
appropriation for the Pioneer Homes had been restructured
in the budget in FY 20 to break out payment assistance
separately to track how much money was used to subsidize
care and how much money was collected through fees to
residents or through insurance or Medicaid. The process had
given the department much more information about the makeup
and demographics of the residents that had not been
collected in the past. The information had provided a much
clearer picture of how much money was required in order to
ensure coverage for residents who did not have sufficient
funds to pay increased rates. The $5 million increment
reflected the increased amount over what had been budgeted
in FY 20.
2:59:26 PM
Vice-Chair Ortiz asked for verification that a [Pioneer
Homes] fee increase had been implemented in the FY 20
budget.
Mr. Steininger replied in the affirmative.
Vice-Chair Ortiz wondered if the fee increase had ended up
costing the state more because the state had to cover
residents who could not afford the increase.
Mr. Steininger answered that he would let DHSS speak to the
demographic component. The information the administration
had on the demographics of residents was more complete at
present than it was when the proposal had been put forward
in 2019. He reported there was a better idea what the
subsidy level needed to be to charge full rates at the
homes.
Representative LeBon referenced the Pioneer Homes payment
assistance line item and asked if the name implied it had
been tested. He asked if the additional information the
administration learned about the Pioneer Homes residents
was based on their financial disclosures.
Mr. Steininger answered that he did not want to speak for
the department. He relayed that the payment assistance
program had been laid out in statute, but the current
budget appropriated money separately.
Representative LeBon asked if there was a means testing
application to payment of services in the Pioneer Homes.
Mr. Steininger believed so but did not know the details of
the means testing.
3:02:09 PM
Co-Chair Johnston relayed that the new billing payment
system for the Pioneer Homes was on a fee service. She
explained that after Medicare/Medicaid or private insurance
had paid their portion, the Pioneer Homes determined
whether they needed additional assistance to make the
payment. She clarified that it was reimbursement tested and
less of a means test. The department knew it would have to
shore things up and was feeling better that it was coming
in range.
Mr. Steininger addressed DLWD increments at the bottom of
slide 10. He detailed that the Alaska Vocational Technical
Center (AVTEC) would be instituting a 4 percent tuition
increase to raise additional revenue in order to support
operations. The vocational center had also proposed
restructuring savings of about $227,000.
3:03:28 PM
Mr. Steininger moved to the Department of Military and
Veterans Affairs (DMVA) and the Department of Natural
Resources (DNR) on slide 11. He began with DMVA and
highlighted business process and contractual savings of
about $500,000. Additionally, there were savings related to
armory divestiture, which was an ongoing effort by the
department.
Mr. Steininger reviewed DNR items where the department was
looking to invest to increase resource development
throughout the state. He highlighted increments for aquatic
farms application processing and phase 2 of the Arctic
Strategic Transportation and Resources (ASTAR) project.
Mr. Steininger turned to slide 12 and reviewed budget
highlights for the Department of Revenue, Department of
Transportation and Public Facilities (DOT), and the
University of Alaska. He began with DOR and pointed to a
savings of approximately $500,000 due to PFD technology
enhancements. There were additional savings related to
investment management fees in Treasury and the Permanent
Fund. The tax revenue management revenue system had an
increase of almost $1.7 million - the implementation of the
management system had previously been supported through a
capital project. The budget also contained the Alaska
Housing Finance Corporation (AHFC) Homeless Assistance
Project for $6.3 million UGF.
Mr. Steininger reviewed items in the DOT budget including
an increase in 8.8 weeks of service at a cost of
approximately $4 million UGF for the Alaska Marine Highway
System (AMHS). The budget also included a deposit into the
AMHS fund to ensure a healthy fund balance and $15 million
for vessel certification. The capital budget contained
about $75 million in matching funds for highway and
aviation at a 90/10 rate. The breakdown included
approximately $64 million UGF and $11 million in
reappropriations from finished projects.
Mr. Steininger addressed the University at the bottom of
slide 12. He reported that per the compact there was a $25
million reduction structured as a single appropriation to
ensure the University had flexibility to manage the cut.
3:05:55 PM
Mr. Steininger moved to slide 13 and reviewed key cost
drivers responsible for increasing the budget and resulting
in the significant deficit shown in the fiscal summary
[slide 5]. He noted that subsequent slides would provide
additional detail on each of the programs. The budget
restored $128 million UGF to the Medicaid program. He
explained that in FY 20 the Medicaid program took a
significant reduction via the legislative process and
subsequent veto. He elaborated that throughout the process
the department had devised numerous plans to deal with the
reductions, but it had found there were many other
stakeholders it was necessary to work with including the
federal government and hospital associations. He relayed
the issue was not a problem that could be fixed through
simple budget action. He pointed out that the restoration
of $128 million was still a $31 million reduction from FY
19. He added that there was still success in the actions
taken by the department and further success that could be
shown. He stated that the problem could not be solved by
simply cutting money from the budget.
Mr. Steininger continued to review key cost drivers on
slide 13. The K-12 formula program included a $20 million
increase resulting from the change in the demographics of
the students. The number of students was declining;
however, the number of students with intensive needs has
increased, which had driven the formula program up. There
was a $37.6 million increase to a total of $345.6 million.
There was a debt increase of $12.2 million for a total of
$135 million in debt service payments. State employee costs
accounted for 28 percent of agency budgets and included
cost of living adjustments and significant increases in
health insurance costs.
3:08:23 PM
Co-Chair Johnston looked at the full-time, part-time, and
nonpermanent positions in a table at the bottom of slide
13. She highlighted 389 nonpermanent positions in FY 19,
426 in FY 20, and 737 filled as of 12/15/19. She asked for
an explanation of the information.
Mr. Fechter described the situation as a technical issue.
There were off-budget positions and 99 of those positions
were nonpermanent. He used a seasonal firefighter position
as an example where an employee was brought on for a month.
Co-Chair Johnston was interested in a breakdown. She looked
at full-time positions and asked if there were unfilled
positions. She pointed out that FY 19 showed 15,466
fulltime positions and 14,245 filled as of 12/15/19.
Mr. Fechter answered that Co-Chair Johnston was correct,
but the information shown was for a point in time. He
explained that as people were hired and others left state
service throughout the year, there would always be a
smaller number for the filled positions as of a specific
date. The filled positions were much closer to the budgeted
position number when looking at the entire fiscal year.
Co-Chair Johnston understood. She thought the number still
seemed rather large, but guessed it was because it was the
end of the year.
Co-Chair Foster remarked that when the governor's budget
had been released, the press release had highlighted that
by formula a number of things had increased by $86 million.
He observed the figures on the slide exceeded that amount.
He recognized that the $86 million was agency specific,
whereas, the increases shown on slide 14 included statewide
items like retirement and debt. He asked if that explained
the difference.
3:11:30 PM
Mr. Steininger answered that at the time the budget had
been released, the administration had known Medicaid would
require a significant supplemental. The press releases had
included the numbers as well. He stated that the natural
pressure and Medicaid may not be included in the $86
million.
Mr. Steininger advanced to a chart on slide 14 titled
"Budget Drivers: Formula Programs - Medicaid." He shared
that between FY 04 and FY 21, inflation had increased by
about 40 percent and the population had increased by
approximately 12 percent. When compounded, the figures
showed a 57 percent natural pressure on the budget. He
highlighted that the Medicaid program had come close to
tripling within that time period. He elaborated that during
that time, Medicaid coverage had expanded from 17.5 percent
of state residents to 35 percent. Between FY 04 and FY 21
new provider types, services, and eligibility categories
had been added. Additionally, rates to providers had
increased.
Co-Chair Johnston asked for the underlying data for the
graph including federal, UGF, DGF, and other funds.
Mr. Steininger clarified that the slide showed only UGF
funds
Co-Chair Johnston requested a chart including federal funds
as well. She wanted to see the ratio of UGF to federal
funds.
Representative Sullivan-Leonard saw the Medicaid program
increase as unsustainable. She noted that when the new
programs had been brought on in 2015, there had been a plan
to decrease UGF in the next four or more years. She
highlighted the steady growth that had occurred instead.
She asked what the administration was doing to decrease the
use of UGF to FY 16 levels.
Mr. Steininger deferred the question to Adam Crum,
Commissioner, Department of Health and Social Services. He
reported that DHSS was making numerous efforts to contain
costs within the Medicaid program.
Representative Sullivan-Leonard was concerned that the
increase was unsustainable. She stressed there was a huge
deficit in Alaska. She pointed to high costs for education
and DHSS. She remarked that everything seemed to be
increasing. She asked if there was discussion about
decreasing the DHSS budget.
Mr. Steininger replied that the solution to the problem was
not necessarily only a budget problem. He elaborated that
the solution would require a concerted effort by DHSS to
work with stakeholders and federal partners to create
meaningful change to drive costs down. He explained that
simple budget changes would not necessarily be lasting or
sustainable in the same way as the things DHSS may be able
to work through with its federal partners.
3:16:17 PM
Co-Chair Johnston relayed that the previous year there had
been a move to solve the problem with budget cuts alone and
the legislature had been promised no supplemental. She
discussed that the work was not done in a vacuum; it
required working with the federal government in order to
get waivers, which had not taken place in 2019. She
appreciated Mr. Steininger's candor and honesty. She shared
that she and Co-Chair Foster were talking about holding a
session on medical costs to the state including Medicaid,
employee, and retirement costs in order to look at the full
medical picture.
Representative Wool looked at a large increase in the
Medicaid population beginning in FY 15, reaching 250,000
beneficiaries. He asked if the jump was largely due to the
Medicaid expansion population. He asked what percentage of
the beneficiaries fell into the expansion population
receiving the much higher federal reimbursement.
Mr. Steininger answered that he would follow up with the
information.
Representative Wool asked if the large increase in FY 15
was due to Medicaid expansion.
Mr. Fechter answered that about 40,000 to 50,000 of the
added recipients were due to expansion. Additionally, a
substantial number of workers had lost their jobs when oil
prices had dropped, which had resulted in an additional
30,000 to 40,000 individuals on regular Medicaid.
Mr. Steininger returned to slide 14 and highlighted a
reduction from FY 19 actuals of approximately $30 million.
3:19:23 PM
Mr. Steininger moved to slide 15 titled "Budget Drivers:
Formula Programs - K-12 Foundation Formula." He pointed out
that the average daily membership had remained fairly flat
from FY 04 to FY 21; however, the total program cost had
come close to doubling. The Base Student Allocation (BSA)
had increased by 42 percent from $4,169 to $5,930.
Co-Chair Johnston returned to slide 14 and asked for
verification that the yellow line reflected Medicaid
enrollment and the blue bars pertained to cost.
Mr. Steininger agreed.
Mr. Steininger advanced to a bar chart on slide 16 showing
UGF payments for pension liabilities over time. He
highlighted a steady increase through FY 14. The bar
reflecting the liability in FY 15 was very low because
there had been a $3 billion supplemental deposit into the
retirement systems. He noted that the $3 billion payment
was excluded from the slide. He reported that the deposit
had brought the cost pressure down significantly. The right
side of the graph reflected that the cost pressure was
starting to push back up.
3:21:09 PM
Mr. Steininger turned to debt service obligations on slide
17. Debt service was more variable and had peaked in FY 12.
The state continued to issue new debt but not any new
general obligation bond packages. He pointed out that debt
had dropped in the FY 20 management plan, but there was
still some upward pressure on debt service obligation.
Mr. Steininger addressed state employee costs on slide 18,
which represented a significant portion of the operating
budget for all state agencies. The line showed a general
increase in the total count of budgeted positions in the
executive branch and a drop as revenues had decreased. He
noted there was still an increase in the total cost of
state employees. He highlighted that the orange portion of
the bar represented benefits - healthcare cost was the
primary driver of the benefit cost increase (healthcare
payments made by the state for employee insurance).
3:22:26 PM
Mr. Steininger moved to slide 19 showing historical CBR/SBR
balances over time. He referenced his earlier testimony
highlighting two spikes showing significant money deposited
into savings, which had allowed the state to weather the
decline in revenue. The slide showed the decline in savings
balances that could be used to balance the budget. Prior
budgets had been balanced off of revenue that had not been
vetted or passed by the legislature, which had resulted in
significant draws on savings or reductions to statutory
programs that were not durable changes to cost pressures.
He explained it was necessary to address cost pressures in
order to truly turn the tide. He elaborated that simple
increments and decrements in the budget would not fix the
long-term problems. He stated that the budget was an
important policy document, but durable change was needed
for a truly balanced budget going forward.
Representative LeBon observed that the slide showed the CBR
at a zero balance in FY 22.
Mr. Steininger answered that the graph showed where the
balances would go if durable solutions were not implemented
and the budget continued to be balanced with draws from
savings (instead of making changes to statutory formula
programs driving the budget).
Representative LeBon asked if the projection down to a zero
balance in the CBR was based on the governor's proposed
draw from the CBR for a large dividend check.
3:24:39 PM
Mr. Steininger answered that the draw on the CBR was a
result of a budget that ensured all of the statutory and
formula programs were fully funded. The graph acknowledged
that without changing some of the cost pressures, drawing
from the CBR would not be an option for a second year [in
FY 22].
Vice-Chair Ortiz asked if the decrease in the CBR balance
in FY 21 shown on slide 19 reflected the governor's payment
of a full PFD.
Mr. Steininger answered that the drop in FY 21 was a result
of the $1.5 billion deficit and the governor's budget as
proposed.
Vice-Chair Ortiz asked for verification that the governor's
proposed budget included the full PFD.
Mr. Steininger responded affirmatively.
Vice-Chair Ortiz observed that the CBR savings account
appeared to be a bit below $2 billion. He thought the
account had held approximately $2.1 billion at the start of
session. He wondered if the difference reflected the amount
needed for the supplemental or the actual current balance.
Mr. Steininger answered that the estimates for balances
included the likely supplementals shown on the fiscal
summary on an earlier slide. He relayed that the number
would be trued up when the supplemental budget was released
in early February.
3:26:36 PM
Co-Chair Foster asked if the estimated remaining CBR
balance would be in the $400 million to $500 million range.
He shared that the legislature had heard varying numbers on
what the CBR minimum balance should be in terms of the
ability to pay the state's monthly bills. For many years he
had heard the minimum CBR balance should be $1 million,
more recently he had heard $500 million, and most recently
he had heard $400 million. He noted that $1.4 billion was
another figure he had heard. He had recently found that
even based on the current balance of $2 billion there had
been a request from the Permanent Fund to draw earlier than
normal. He imagined things would be much more difficult for
cash flow purposes when the balance declined to $500
million. He asked what the administration believed the
minimum CBR balance should be for cash flow purposes.
Mr. Steininger deferred the question to DOR as the experts
in the field. He agreed that drawing down savings balances
made cash management more difficult.
Co-Chair Johnston appreciated that the governor was forcing
the legislature to look at formula-driven programs. She
pointed to slide 2 that included the large formula K-12
program. She noted that the health costs were not limited
to Medicaid and included employee health, retirement
health, and retirement programs. She remarked there was not
a lot of wiggle room in the "swoop" curve "of other," but
she guessed there were small formula driven items in that
category. She believed DPS and DOC primarily had needs-
based programs and very few formula-driven programs. She
moved to slide 4 and looked at the largest formula-driven
program of over $2 billion. She asked if the administration
believed it was necessary to look at all of the formula-
driven programs, to determine wants and needs, and identify
what the state could afford.
3:30:56 PM
Mr. Steininger agreed. The problems could not be solved
merely through budget actions. He elaborated that the
problems needed to be fixed through looking at cost drivers
and formulas.
Co-Chair Johnston stated that the legislature had already
found from the experience of the previous year that the
state could work with the federal government on the
Medicaid (formula driven) program, but the state did not
have as much control over the program. The education
formula needed to be reviewed but took a couple of years.
There was little flexibility in the state's retirement
program, which was driven by the Alaska Retirement
Management Board (ARMB), unfunded liability, and by the
benefits. She noted the state could not decide to
discontinue retirement funding because it would never
survive a court decision on the topic. She relayed that the
legislature needed the departments' help with identifying
the programs with any degree of flexibility. She
appreciated Mr. Steininger stepping up to his position. She
thought it was important to know which formula-based
programs could be discussed.
Mr. Steininger saw OMB as a resource to provide information
to help the legislature make decisions.
Co-Chair Johnston truly appreciated it. She stressed that
the issue she had highlighted was the question and problem
that needed to be solved. She requested working together on
the issue.
3:34:10 PM
Co-Chair Foster considered his takeaway from the
presentation. He observed that the budget was overall flat
with an increase of 4 percent or $178 million in agency and
statewide spending. He elaborated that part of the increase
was formulaic, which the administration had no control
over, and part was due to the governor's decision to
investment more in public safety. He remarked that the
elephant in the room was what to do with the PFD. He noted
that the budget had a $1.5 billion deficit and how the PFD
was tackled would be a big part of how the budget was
managed.
Representative Wool referenced formulaic budget obligations
and the PFD. He noted that the last slide showed $2 billion
in FY 21. He noted that the PFD formula had not been
followed in the past five years and had been underpaid by
approximately $900 million. He noted that the FY 21 budget
had a $1.5 billion deficit [with the payment of a full
PFD]. He considered that if the full PFD formula was not
paid the deficit would be $500 million. He noted that many
people were looking at the CBR to cover the funds. He
recognized the legislature needed to look at formula
programs beyond the PFD. He elaborated that the PFD was the
largest budget item and recent history had shown that the
formula had not been adhered to. He thought the legislature
should deal with the formula.
Co-Chair Foster reviewed the schedule for the following
Monday.
ADJOURNMENT
3:37:17 PM
The meeting was adjourned at 3:37 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 01.24.2020 OMB Budget Overview HFC.pdf |
HFIN 1/24/2020 1:30:00 PM |