Legislature(2021 - 2022)ADAMS 519
04/16/2021 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB100 | |
| HB92 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 100 | TELECONFERENCED | |
| *+ | HB 92 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 16, 2021
9:02 a.m.
9:02:52 AM
CALL TO ORDER
Co-Chair Merrick called the House Finance Committee meeting
to order at 9:02 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Kelly Merrick, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Bryce Edgmon
Representative DeLena Johnson
Representative Andy Josephson
Representative Bart LeBon (via teleconference)
Representative Sara Rasmussen
Representative Adam Wool
MEMBERS ABSENT
Representative Steve Thompson
ALSO PRESENT
Representative Adam Wool, Sponsor; Lucinda Mahoney,
Commissioner, Department of Revenue.
PRESENT VIA TELECONFERENCE
Representative Bart LeBon; Fred Villa, Self, Palmer; Dave
Rees, Facilitator, Business Education Compact, Eagle River;
Doug Walrath, Director, Northwestern Alaska Career and
Technical Center (NACTEC), Nome; Katie Bender, President,
University of Alaska Anchorage Alumni Association,
Anchorage; Lacey Sanders, Administrative Services Director,
Department of Education and Early Development, Office of
Management and Budget, Office of the Governor; Dan
DeBartolo, Administrative Services Director, Department of
Labor and Workforce Development, Office of Management and
Budget, Office of the Governor; Chad Hutchinson, State
Director, University System; Pam Leary, Director, Treasury
Division, Department of Revenue.
SUMMARY
HB 92 ANTICIPATION OF REVENUE; BORROWING;CREDIT
HB 92 was HEARD and HELD in committee for further
consideration.
HB 100 EXTEND WORKFORCE INVEST BOARD ALLOCATIONS
HB 100 was HEARD and HELD in committee for
further consideration.
HOUSE BILL NO. 100
"An Act relating to allocations of funding for the
Alaska Workforce Investment Board; and providing for
an effective date."
9:03:45 AM
REPRESENTATIVE ADAM WOOL, SPONSOR, provided a brief
reintroduction of the Technical Vocational Education
Program (TVEP) bill that provided funding to 10 different
vocational schools or programs around the state using .016
percent of unemployment funds. The bill provided for a
three year authorization of the program.
Co-Chair Merrick OPENED public testimony.
9:04:38 AM
FRED VILLA, SELF, PALMER (via teleconference), testified in
support of the legislation. He shared that he formerly was
the Associated Vice President for workforce programs for
the University of Alaska (UA) and administered the TVEP
program for 13 years. He believed that the TVEP funding was
an extremely important part of the workforce development
system. He indicated that the program had been in place for
over 20 years. He pointed to the annual program reports
that showed the incredible amount of outreach and industry
supported training programs that were a strong economic
driver and foundation for workforce development in Alaska.
He encouraged the legislature to consider continuing the
program in perpetuity instead of the proposed three year
extension. The program had proven itself in performance and
return on investment and was not a mere pilot program. He
understood there were other entities that would like to be
considered as a recipient of the funds. He suggested that
there were opportunities to expand the program to other
entities. He reported that the situation was similar to
when I?isagvik College [Utqiagvik, Alaska] was added as a
TVEP recipient, where the formula was adjusted by .01
percent to accommodate the change. The current recipients
were held harmless and did not experience any reduction in
their awards. He suggested ways new recipients could apply
for TVEP funding. He thanked Representative Wool for
bringing the bill forward and was deeply grateful to all
the entities involved in the program's success.
9:08:54 AM
DAVE REES, FACILITATOR, BUSINESS EDUCATION COMPACT (BEC),
EAGLE RIVER (via teleconference), supported the bill. He
had been involved in workforce development in Alaska for
the past 30 years. He shared that he was a member of the
Alaska Workforce Investment Board at the programs
inception. He supported TVEP,s continuation for the long-
term. He shared that the BEC had continually supported the
program over the years as an effective approach to
delivering training across the state. The program provided
both secondary and post-secondary education for many of the
businesses in the state. He appreciated Representative Wool
for bringing the bill forward. He stated that the program
provided a pathway to jobs in many areas. He spoke to the
importance of getting unemployed individuals back in jobs.
He reported that the two major funding recipients, UA, and
Alaska Vocational Technical Center (AVTEC) reached students
across the state. Other recipients of the funds were very
focused on local areas and workforce connections. He
reiterated his support for the program and for the
programs continuation in the long-term.
Representative Carpenter acknowledged that the TVEP program
was successful, highly sought after, and useful. He knew
there were some opportunities for high school students to
use the vocational schools and noted the waitlist for
programs. He asked if there were times unemployed members
of the community were unable to get into programs while
there were high school students enrolled.
Mr. Rees answered that he was aware of the situation in
rare instances. He was uncertain how prevalent the
situation was and deferred the answer to the Department of
Labor and Workforce Development (DLWD).
9:14:14 AM
DOUG WALRATH, DIRECTOR, NORTHWESTERN ALASKA CAREER AND
TECHNICAL CENTER (NACTEC), NOME (via teleconference), spoke
in support of the bill. He explained that TVEP supported a
regional training center network that provided workforce
development training that was otherwise unattainable in the
regions and would increase training expenses for the state.
He delineated that in the Nome census area healthcare
training was a top priority. Norton Sound Health
Corporation was the largest regional employer that
partnered with NACTEC to deliver dual credit high school
courses and advanced technical training. The students
graduated high school and immediately began employment as
Certified Nurse Aides and Village Health Aides. He
continued that without the funding, graduated students
would wait until the following fall to begin a post-
secondary education program. In addition to healthcare
needs in Nome, in December 2020, Congress had authorized
over $379 million for construction of an Arctic deep draft
port in Nome. Furthermore, the federal permitting committee
designated Graphite Creek as a high priority infrastructure
project located 40 miles outside of Nome that had the
highest grade and largest known graphite deposit in the
country. He informed that committee that NACTED supported
both projects and the opportunity to provide workforce
training. In addition, NACTEC was a DMV third-party
provider for road test examinations and offered drivers
education classes because of the state DMV closure in Nome.
He believed that as the state budget decreased it became
increasingly necessary to develop a technically trained
workforce. He restated his strong support of the program.
9:17:31 AM
KATIE BENDER, PRESIDENT, UNIVERSITY OF ALASKA ANCHORAGE
ALUMNI ASSOCIATION, ANCHORAGE (via teleconference),
testified in favor of the legislation. She shared that TVEP
had been a vital part of the universitys funding stream to
ensure Alaskan's access to workforce training. The
university worked collaboratively with its partners to
identify holes in the states training system and addressed
the shortfalls with quality education. The university's
TVEP success had been solidly demonstrated in the states
construction, trades and careers, aviation and marine,
mining, oil, and healthcare system by putting people to
work and growing their wages. She stated that the system
was working and was providing critical training to meet the
states needs.
Co-Chair Merrick CLOSED public testimony.
9:19:17 AM
Co-Chair Merrick asked the departments to review its fiscal
notes.
LACEY SANDERS, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF EDUCATION AND EARLY DEVELOPMENT, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR (via teleconference),
spoke to the published fiscal note (FN1 EED) for the
Department of Education and Early Development (DEED). She
indicated that the fiscal noted reflected an appropriation
of $463.4 thousand for the Galena City School District for
the Galena Interior Learning Academy. The department
distributed the grant funding to the district.
9:20:31 AM
DAN DEBARTOLO, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF LABOR AND WORKFORCE DEVELOPMENT, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR (via teleconference),
spoke to four DLWD fiscal notes related to the program. He
turned to the fiscal note appropriated to Employment and
Training Services (FN9 (EED)) that showed a reduction in
the amount of $68.9 thousand from the FY 2022 governors
request. He moved to the fiscal note (FN 8 (EED)) for the
Workforce Investment Board that was the department's
largest fiscal note related to the TVEP program [$665.4
thousand in FY 2022]. The department handled most of the
funds for the program. He highlighted the fiscal note
allocated to Unemployment Insurance (UI) (FN10 (EED)) that
was specifically for collection and enforcement related to
TVEP [$428.8 thousand in FY 2022]. He emphasized that the
department could not use UI Trust Fund money for anything
other than delivery of benefits. He spoke to the fiscal
note (FN7 (EED)) appropriated to the Alaska Vocational
Technical Center (AVTC) [$2.351.7 million in FY 2022] used
for general operations of AVTC. He noted the $382.3 million
reduction to the program in FY 2022.
Co-Chair Merrick asked Mr. DeBartolo to address
Representative Carpenters earlier question.
9:24:47 AM
Representative Carpenter restated his earlier question. He
asked if there were situations where high school students
were enrolled in TVEP courses and there was a waitlist for
unemployed adults to enter the program.
Mr. DeBartolo answered that he would respond in writing
after further research.
9:25:38 AM
CHAD HUTCHINSON, STATE DIRECTOR, UNIVERSITY SYSTEM (via
teleconference), addressed the fiscal note for UA [FN 11
(UA)] allocated to Budget Reductions/Additions
Systemwide. He reported that the anticipated amount of the
appropriation in FY 2022 was $5.2 million. He added that
the operating expenditures were split evenly between
personal services and commodities.
9:26:49 AM
AT EASE
9:28:45 AM
RECONVENED
Co-Chair Merrick announced that the amendment deadline for
HB 100 was the end of the day on April 17, 2021.
Representative Josephson voiced that the UI benefit amount
had not been updated in a long time. He wondered if the
benefit amount was updated whether it would affect the
program. Representative Wool answered that the percentage
for TVEP was .016 percent and if benefits were increased it
would be sustainable. He did not believe it would
jeopardize the program or the UI program. He thought the
issue was separate from funding the TVEP program.
HB 100 was HEARD and HELD in committee for further
consideration.
AT EASE
9:31:23 AM
RECONVENED
9:32:50 AM
HOUSE BILL NO. 92
"An Act relating to borrowing in anticipation of
revenues; relating to revenue anticipation notes;
relating to line of credit agreements; and providing
for an effective date."
9:32:54 AM
LUCINDA MAHONEY, COMMISSIONER, DEPARTMENT OF REVENUE,
provided a PowerPoint presentation titled "State of Alaska
Department of Revenue: HB 92 Revenue Volatility Tools,"
dated April 16, 2021 (copy on file). She explained that the
bill modernized the states cash management tools in order
to increase the investment income from treasury funds and
the Alaska Permanent Fund Corporation (APFC). The last time
the statute was updated was in the 1960s. She believed the
update was necessary to leverage investment income and
bring maximum returns on investments. She emphasized that
the reason for HB 92 was to better manage intra-year funds.
Currently, when the state borrowed from the Constitutional
Budget Reserve (CBR) it resulted in cash flow mismatches.
The bill provided access to more modern short-term
financing tools that allowed the state to borrow externally
on a short-term basis and leveraged funds internally by
keeping them invested.
9:35:29 AM
Commissioner Mahoney turned to slide 2 titled Agenda and
reviewed the presentation agenda:
Goal
Limitations of current statutes (AS 43.08)
Cash Flow Mismatches
Access/Harm to Other Funds if needed for cash
management
Benefits of modernizing financing tools
Mechanics of the Bill
Questions
Commissioner Mahoney delineated that AS 43.08 allowed the
Commissioner of the Department of Revenue (DOR) to issue
Revenue Anticipation Notes. However, there were many more
modern tools the state lacked access to. The proposed tools
allowed for lower interest rates on debt and to manage and
leverage the cash in the cash pool. She offered that
mismatches occurred when expenditures were due before the
revenues needed were received within the same fiscal year.
She elaborated that access to a line of credit or other
financing tools enabled short-term borrowing earning a
higher rate of return than the cost of the debt, which was
called arbitrage. It also delivered more investment
income to the bottom line.
Co-Chair Merrick requested that the commissioner keep the
topic at a high level overview.
9:37:41 AM
Commissioner Mahoney turned to slide 3 titled Goal of HB
92: Improve Cash Flow Management:
Addresses cash flow MISMATCHES, not deficits.
Current statute AS 43.08 allows for "Revenue
Anticipation Notices" (gold circles) which is
only one of short term borrowing structures, and not
always the best fit
Bill enables access to short term debt management
tools available in the market i.e.
Commissioner Mahoney stressed that the bill addressed cash
flow mismatches, not deficits. She indicated that the slide
also provided a visual of the cash management tools
available and pointed to the gold circles that named the
types of Revenue Anticipation Notes and the other colored
circles represented only some of the tools currently
available. She maintained that the world of public finance
was constantly changing. She pointed to the left side of
the slide that represented Capital Market Products and the
right showed products directly from banks or Bank Market
Funded Products. The bank products offered more
flexibility. It was impossible to anticipate every
circumstance where it was beneficial to employ the short-
term financing tools, which was why the state needed access
to every tool available.
9:39:30 AM
Commissioner Mahoney advanced to slide 4 titled Cash Flow
Mismatches:
$400M is minimum balance needed to manage cash
flow
Expenditures can occur prior to receipt of
revenue, resulting in cash flow timing
mismatches:
? Federal programs require expenditures
before reimbursement - Medicaid,
Transportation, etc.
? Beginning of the year appropriation
transfers and cash flow needs State
pension payments, transfers to subfunds,
construction peak season in summer.
Cash flows may be impacted by external events:
? Spike in Medicaid expenditures.
? Federal Shutdown.
Commissioner Mahoney communicated that $400 million
represented two days' worth of high cash needs for the
state. At the point where it was anticipated to need 5
days' worth of revenue, the department turned to the CBR
for borrowing. She commented that mismatches were
experienced throughout the year. She exemplified that
Medicaid caused DOR to spend money in advance of receiving
federal reimbursement and in those situations, she borrowed
from the CBR. Because the CBR was depleted, the department
had to adjust the asset allocation in the CBR, so its funds
were placed in cash equivalent investments which was
earning 1.7 percent instead of a higher interest rate. She
reiterated that the legislation was about borrowing at
lower rates and reinvesting at a higher rate to generate
more net income.
9:41:28 AM
Commissioner Mahoney reviewed a line graph on slide 5
titled Cash Flow Mismatches. The graph depicted
Cumulative Revenues and Expenditures by Week, Excluding
CBR Borrowing in 2019. The gold line represented revenues
and the silver line showed expenditures. She explained that
during the first six weeks of the year the expenditures
were significantly more than revenues due to many upfront
payments during that time. As a result, DOR may have to
borrow from the CBR in such situations, however the graph
was merely intended to provide a visual.
9:42:26 AM
Representative Rasmussen asked if slide 5 was based on
fiscal year or calendar year. Commissioner Mahoney replied
the graph reflected a fiscal year.
Commissioner Mahoney advanced to slide 6 titled Current
Access to Other Funds. The slide contained a chart of some
state funds, their balances and interest earnings. She
pointed to the CBR and reiterated the change to a cash
equivalent investment strategy earning .17 percent. If the
CBR was depleted, she had to look to other high interest
earning funds to help manage cash. She stated that the
scenario was not wise finance management.
Representative Josephson looked at slide 6 showing the
Permanent Fund Earnings Reserve Account, Power Cost
Equalization (PCE), and the Higher Education Fund. He asked
if the funds could statutorily be accessed in a pinch.
Commissioner Mahoney deferred to her colleague.
9:44:17 AM
PAM LEARY, DIRECTOR, TREASURY DIVISION, DEPARTMENT OF
REVENUE (via teleconference), replied that two funds were
not statutorily prohibited to be borrowed from. They were
included in the sweepable funds that were swept into the
CBR and could be accessed if there was a need for
borrowing. Representative Josephson wondered if the CBR was
reverse swept before July 1 and the Treasury could not make
its payments whether the Treasury was allowed to borrow
from PCE or the ERA above the 5 percent draw for some
length of time. Ms. Leary answered that currently the way
the General Fund (GF) was managed was money was taken from
the ERA and CBR as needed. She explicated that the bill
allowed the department to take funds from the CBR, the 5
percent ERA draw was used to manage state funds.
Representative Josephson expressed confusion because the
slide was titled "current access to other funds." He had
thought they were talking about something different.
Representative Wool stated his understanding that the
minimum advisable balance for the CBR was $400 million to
$500 million. He wondered why the entire amount of the CBR
was in a cash access fund. He deduced that $1 billion was a
lot to have invested in cash.
9:47:38 AM
Commissioner Mahoney answered that until six months prior
the CBR was invested farther out on the yield curve, but
until the recent increase in oil prices the department had
been unsure of the amount of deficit and needed revenue and
had adjusted the asset allocation. She wanted to ensure
necessary cash flow was available throughout the year.
Currently, the price of oil increased and she was
considering adjusting the CBR back out on the yield curve.
She stated that the situation reflected that the department
was doing its job managing cash flow. The bill was about
having other tools versus only adjusting for asset
allocation. She would rather have the CBR allocation
farther out on the yield curve for a longer period of time
then managing it so closely for the short-term knowing they
could make arbitrage.
9:48:54 AM
Commissioner Mahoney advanced to slide 7 titled "Benefits:
Enables the Treasury and APFC to maximize returns
and income
? Takes advantage of low short term interest
rates. Today's cost for $100 million 12
months:
? Commercial paper - .8% (.2% interest plus.2%
cost of issuing and liquidity cost of .4%)
? Line of Credit .55% (75% fixed rate of .4%
plus .2% interest when drawing down and .15%
costs of issuing)
? Weekly VRDN - .74% (.04% interest plus .2% cost
of issuing, .1% remarketing and .4% liquidity
cost)
? RANS - .36% (.16% interest plus .2% cost of
issuing)
? Enables current funds to remain in longer lived
higher interest-bearing accounts (APFC, CBR,
PCE, Higher Ed, etc.) earning more income
? Scheduling of POMV payments
? Improved liquidity management
? Enables quick access to funds in case of
emergency
Commissioner Mahoney reiterated that the short-term notes
would enable DOR to better manage the states money. She
elucidated that the legislation would also help the APFC by
offering better tools to manage the POMV payments to the
state. She furthered that currently, the POMV was managed
over 10 months at $300 million per month based on the $3
billion payout. She relayed that there was currently a
large commitment of $8 billion to $9 billion for capital
calls to invest in a private equity fund. The APFC had to
manage the liquidity of the Permanent Fund (PF) and managed
for the monthly $300 million payment. If the department had
access to more financing tools the department could allow
APFC to push out the POMV payments farther towards the end
of the year within the same fiscal year or at a better time
when the APFC could liquidate investments. The department
could take out a short-term note to cover payouts until it
received the funds from the APFC. The scenario increased
the investment income in the PF.
9:51:45 AM
Commissioner Mahoney turned to slide 8 titled hypothetical
example of potential benefit. She related that the slide
depicted the cost of borrowing for various financing tools:
Revenue Anticipation Note, Variable Rate Note, Commercial
Paper, and a Line of Credit. The chart included cost of
borrowing, low and high earning potentials, and the income
generated from borrowing using short-term notes.
9:53:08 AM
Commissioner Mahoney concluded with slide 9 titled HB 92
Mechanics:
Funds borrowed would be repaid no later than the
fiscal year following issuance
Repayment of funds would be made from revenues
anticipated within the fiscal year in which funds
are borrowed
The borrowing pledges the full faith, credit,
resources, and taxing power of the State of
Alaska (identical to general obligation bonds)
Due to the size of Permanent Fund earnings tax-
exemption may not be available for the borrowing
Provides structural alternatives to the currently
authorized revenue anticipation notes that are
available in today's short-term market
Representative Edgmon stated that it all seemed so obvious
he wondered why it had not been done before. He asked about
risk and rewards. He deduced that it basically ring-
fenced the CBR at a certain level. He spoke to the risk
versus reward tradeoffs. He thought that there was a bigger
picture regarding risk and rewards.
9:55:19 AM
Commissioner Mahoney answered that she did not really know
why it had not been done before. She recognized that there
had been a much larger balance in the CBR so there was
likely not attention to the level of revenue generation.
She voiced that regarding the risk versus reward there was
always risk in an arbitrage play. She shared that she had
engaged in arbitrage for 5 years for the Municipality of
Anchorage and always had a positive outcome. She spoke to
the need to be careful but believed that the employees in
the Treasury and DOR could easily deliver. Representative
Edgmon believed it would be helpful to hear from the
director of the Alaska Permanent Fund Corporation (APFC).
Commissioner Mahoney had spoken to Angela Rodell, Executive
Director, Alaska Permanent Fund Corporation to provide
testimony during the hearing but she was unavailable.
Representative Rasmussen asked what the commissioner
believed her roll was in terms of what she owed to Alaskans
as overseer of the states assets. Commissioner Mahoney
answered that it was her responsibility as fiduciary to
oversee all funds in compliance with the laws and to manage
the department. She believed it was also her duty to
maximize investment income and modernize the ways of
investing.
9:58:28 AM
Representative Rasmussen thought the commissioner should
have all the tools allowing the department to execute what
was in the best financial interest to the state. She found
it shocking the statute had not been updated since the
1960s. She supported the bill.
Representative LeBon thanked Commissioner Mahoney for her
presentation. He strongly supported the bill. He thanked
the commissioner for meeting with him in person the
previous day about the bill. He thought the tools should
have always been available to DOR and he believed it was
long overdue. In the world of short-term financing, the
timing was critical for passage of the bill sooner rather
than later to allow the commissioner rapid access to the
tools.
10:00:55 AM
Representative Edgmon supported the bill and believed he
needed to learn more about it. He determined that the
necessary minimum amount of what should be in the CBR was a
gray area and unanswerable question. He considered the
CBR a checking account of sorts. He believed that if the
CBR maintained a $1 billion balance the investment tools
were a no brainer. However, if the CBR was depleted to
$400 or $500 million he was interested in knowing more
about the tradeoffs. He strongly believed $400 million was
the bare minimum that should be in the account and would
like to learn more about the bill.
Representative Wool stated that the legislature kept
hearing that $400 million to $500 million was the bare
minimum balance that should be in the CBR. He referenced
Commissioner Mahoney's testimony stating because the price
of oil decreased the CBR balance needed to increase and if
the financial tools were available more of the CBR could be
kept in a higher earning account. He had not previously
heard that analysis. He deduced that if money could be
borrowed on the short-term then it could be argued that an
even smaller balance could be kept in the CBR. He reasoned
that the CBR was a political and fiscal account, and it was
beyond a simple cash account. He asked if linking the CBR
balance to the price of oil or having additional financing
tools changed the number the legislature was told was the
minimum needed in the CBR.
10:05:09 AM
Commissioner Mahoney viewed reserves differently. She
reasoned that there was a cash flow mismatch reserve and
there was also the potential for deficits. She determined
that cash flow management reserves were different than a
deficit reserve situation. She elaborated that when she had
referred to a price of oil decline, she considered it a
deficit situation therefore she would want the CBR balance
to be higher, because the future was unknown. She stated
the complexity of the issue and shared that the department
had staff exclusively dedicated to work on cash flow
management.
HB 92 was HEARD and HELD in committee for further
consideration.
Co-Chair Merrick reviewed the schedule for the following
Monday.
ADJOURNMENT
10:07:00 AM
The meeting was adjourned at 10:06 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 92 Transmittal Letter 02.04.21 .pdf |
HFIN 4/16/2021 9:00:00 AM |
HB 92 |
| HB 92 Sectional.pdf |
HFIN 4/16/2021 9:00:00 AM |
HB 92 |
| HB92 presentation FINAL.pdf |
HFIN 4/16/2021 9:00:00 AM |
HB 92 |