Legislature(2023 - 2024)ADAMS 519
02/27/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Consideration of Governor's Appointees: Adam Crum, Commissioner, Department of Revenue | |
| Overview: Fy 2024 Budget Overview: Department of Transportation and Public Facilities | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 39 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 27, 2023
1:38 p.m.
1:38:32 PM
CALL TO ORDER
Co-Chair Johnson called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
Representative Neal Foster, Co-Chair
ALSO PRESENT
Ryan Anderson, Commissioner, Department of Transportation
and Public Facilities; Dom Pannone, Administrative Services
Director, Department of Transportation and Public
Facilities; Adam Crum, Commissioner, Department of Revenue;
Katheryn Katherine Keith, Deputy Commissioner, Department
of Transportation and Public Facilities.
SUMMARY
HB 39 APPROP: OPERATING BUDGET/LOANS/FUND; SUPP
HB 39 was HEARD and HELD in committee for further
consideration.
HB 41 APPROP: MENTAL HEALTH BUDGET
HB 39 was HEARD and HELD in committee for further
consideration.
CONSIDERATION OF GOVERNOR'S APPOINTEES: ADAM CRUM,
COMMISSIONER, DEPARTMENT OF REVENUE
OVERVIEW: FY 2024 BUDGET OVERVIEW: Department of
Transportation and Public Facilities
HOUSE BILL NO. 39
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; making reappropriations; making
supplemental appropriations; making appropriations
under art. IX, sec. 17(c), Constitution of the State
of Alaska, from the constitutional budget reserve
fund; and providing for an effective date."
HOUSE BILL NO. 41
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
^CONSIDERATION OF GOVERNOR'S APPOINTEES: ADAM CRUM,
COMMISSIONER, DEPARTMENT OF REVENUE
1:38:39 PM
Co-Chair Johnson reviewed the meeting's agenda.
1:39:44 PM
Adam Crum, Commissioner, Department of Revenue, introduced
himself. He offered a brief history of his background,
education, and his vision for the Department of Revenue
(DOR). He thanked the committee for the hearing. He spoke
from prepared remarks:
I'd like to give you a brief history of my background,
education, work history, and my vision for the
Department of Revenue.
I was born and raised in Alaska, one of five siblings.
Growing up in a cabin in the small town of Anchor
Point, which allowed for a life outdoors fishing,
camping, hiking, and hunting. I graduated from Homer
High School as valedictorian, then earned a
scholarship to play football at Northwestern
University. I graduated with a bachelor's degree in
psychology with a focus in pre-med. After college I
returned home to Alaska and started working at my
family company as a safety professional and trainer on
projects around the state. This allowed me to travel
and see all regions of Alaska, with extensive time in
the villages across the North Slope. To further my
career, I pursued an advanced degree from Johns
Hopkins University, graduating with a Master of
Science in Public Health.
My diverse educational and professional background
allowed me to work as a consultant and project lead
for large oil and gas companies, pipeline companies
and transportation companies. Some of the work
performed includes contract negotiations,
organizational development, leadership development and
risk management. Almost a decade ago, my siblings and
I purchased the family company and have grown it to
include a commercial construction company and many
commercial real estate holdings. Being an entrepreneur
with a diverse portfolio provides a lot of very real
experience with banking, real estate investments, and
corporate finance. You have to learn in a hurry all
the nuances of procurement, grants, corporate
governance, and all the other aspects of running
businesses. From this background, I have been able to
develop organization and strategic expertise, putting
together a history of developing high performing teams
and a positive culture.
I was able to bring these skills to bear four years
ago, when Governor Dunleavy appointed me as
Commissioner for the Department of Health and Social
Services (DHSS), the largest department by positions
and budget. Suffice to say, my tenure at DHSS was not
routine. Less than a month into the role we were
notified by federal partners that the Alaska
Psychiatric Institute (API) was at risk of losing its
authority to operate as a hospital, so we took
immediate measures by bringing in management
consultants to stabilize the situation. We were
granted leave to continue operating, and with focused
efforts from API staff and management, they have been
able to grow their census count to levels not seen in
years and have had multiple successful site surveys by
accrediting organizations.
Then, in early 2020, we were hit with a global
pandemic. The next 2.5 years of ALL our lives were
wrapped up in dealing with COVID-19 and its after-
effects: supply chain disruption, great resignation,
long-covid, rampant inflation, and economic turmoil.
Looking back on the pandemic, I am beyond proud at how
Alaska responded as a State and as a people. From its
inception, Governor Dunleavy stressed partnership and
clear communication, and I feel like we were
successful when you gauge how Alaska fared in relation
to other states in a multitude of health statistics.
The level of responsibility that fell to the health
department was unprecedented, and we took our roles
seriously. Some examples: Coronavirus Aid, Relief, and
Economic Security (CARES) Act funding - this was sent
to states with very little guidance from the United
States (US) Treasury. But we were deliberate and
labored to create a defensible, fair program,
partnering with many community groups, such as the
Alaska Community Foundation to help payout $50 million
in relief to non-profits across all sectors. Funds
were used also for direct hospital and clinic relief,
to purchase testing equipment and Personal Protective
Equipment (PPE), and to pay for modified operations at
state agencies. In just over a year, we disbursed $500
million in CARES relief funding. We also set up an
airport testing program that was first in the world
and did it in just over a weeks time, it ensured
safety to Alaskans while supporting our tourism
economy.
He also worked with cruise ships to get them returning
to Alaska in 2021. This was a coordinated effort with
our federal delegation to get temporary federal law
changed to allow cruise ships to come to Alaska, and
then a focused effort from Health and state Emergency
Management to develop safety plans, communicate with
local communities, and negotiate with international
cruise lines on responsibilities.
In the midst of this was an earnest and robust effort
to reorganize the Department of Health and Social
Services so it could work on system redesigns to
better serve Alaskans. It took two Executive Orders
and one full year of extensive, exhaustive stakeholder
outreach, but in July 2022, we were successful in
splitting DHSS into the two departments Department
of Health and Department of Family and Community
Services. This was the largest organizational
structure change for state government in almost 40
years. The primary purpose of this was to have a
narrower focus and span of control so systemic issues
can be addressed and programs revamped for better
service delivery.
All of this leads to where I am now, Commissioner-
designee for the Department of Revenue. The department
has had quite a bit of change at the commissioner
position for the past 6 years, this culminated this
past fall when Governor Dunleavy was going to be
without a named revenue commissioner one day after the
November election. He didn't wish to name another
interim that only lasted until the end of the term in
December. He wanted this critical department to have
stability in leadership, and he wanted someone that
could step in on short notice and succeed. Based upon
our level of trust and my track record, the Governor
offered me the position. What I bring to this role is
stability and managerial expertise. And I also bring
credibility, both with the public and I hope with the
legislature. I also bring aptitude and adeptness the
ability to rapidly learn and employ knowledge. I've
demonstrated the capacity to learn the necessary
skills of any role in order to hire the right
personnel and put them in position to succeed. This is
evident by the statewide awards presented to me by the
Alaska Chamber of Commerce and Commonwealth North in
2021. These awards are a recognition of the
responsive, hard-working organization I was able to
build at Health, and all the great work the staff did.
The Department of Revenue plays a critical role in our
state by taking primarily role in collecting taxes and
revenue that help fund state government, investing
billions of state funds, determining eligibility, and
administering the Permanent Fund Dividend, and
enforcing and managing child support. The department
is lucky to have a lot of experienced, dedicated staff
that are very good at their jobs. Treasury Division
has a long-tenured, well-respected director and a high
performing chief investment officer. The Division of
Tax has experienced, brilliant staff that administer
our complex programs. The list goes on. It's my job to
support and enable these teams to perform at the
highest level possible for Alaskans.
1:47:11 PM
In the role of Commissioner of Revenue, I am the fiduciary
of nearly $9 billion. This is a legal requirement to manage
the funds for the maximum benefits of Alaskans. This
entails regular investment review and risk meetings with
our qualified staff, advisors and consultants, and sharing
this info with the public and the legislature. Also, in
this role I sit on the boards of Alaska Housing Finance
Corporation, Alaska Industrial Development and Export
Authority, Alaska Municipal Bond Bank Authority, Alaska
Retirement Management Board, and as a trustee for the
Alaska Permanent Fund Corporation. Combined, these groups
manage and invest over $100 billion.
My vision is to have a renewed focus on economic
development for the department. Governor Dunleavy has made
this a key focus of his second term and has instructed all
of the executive branch to work together on diversifying
our economic base and finding ways to bring more people
into the state. My goal is to use my position as
Commissioner of Revenue to work on this by supporting local
community economic development by sharing the knowledge and
resources we have at Revenue and by building relationships
and connecting with investment banks, financial firms,
credit rating agencies and industry leaders to sell the
story of Alaska. I continue to serve because I love and
believe in this state. I want my daughter and all Alaskans
to have amazing opportunities to thrive and enjoy this
beautiful place, well into the future.
1:48:07 PM
Representative Coulombe asked for his view of the biggest
challenge in DNR and how he would correct it. Commissioner
Crum responded that the biggest challenges were ensuring
that the department had the right risk profile in its
investment asset allocation and cybersecurity. He believed
that the global economic market was in disarray and spoke
to the Federal Reserve raising interest rates. He addressed
the states perspective from looking at the Permanent Fund
(PF) and Treasury investments and compared their benchmarks
to active management, which mitigated prospected losses. He
observed that managing the states assets warranted an
active review process. The department recently formalized
its review process and engaged in quarterly meetings using
third party consultants to seek advice on its investment
strategy. The meetings were open to the public.
He continued by emphasizing that protecting Alaskans from
cybersecurity attacks was critical. He discussed the
crucial importance of protecting Alaskans personal data as
well as corporate taxpayer information. He shared that DOR
carried out ongoing assessments, employed a chief risk
officer and were looking to implement an enterprise risk
management system. Cybersecurity was an ongoing process,
and it was necessary to remain one step ahead to ensure
data was protected.
1:50:44 PM
Representative Hannan relayed that she had informed
Commission Crum that she would ask him the following
question on the record. She expressed concern that he was
the head of a prior department [formerly Department of
Health and Social Services (DHSS)] that was left in
shambles which affected the most vulnerable in the state.
Her constituents had warned against leaving the most
vulnerable behind as the department was divided into two.
She recounted that the department suffered a cyber-attack
and knew with the emergency order [COVID-10] expiring
recipients would need redetermination and re-eligibility,
yet 82,000 Alaskans were left without food benefits
[Supplemental Nutrition Assistance Program (SNAP)]since
October of 2022. She asserted that it happened under
Commissioner Crums leadership. She did not see leadership
when the issues became a crisis and reminded the committee
that the issues were known ahead of time. She was concerned
that Commissioner Crum was in charge of the states money
as commissioner designee of DOR.
Commissioner Crum answered that he had not taken the
situation lightly. He related that DHSS had at any one
time five burning fires and it was difficult to determine
where to offer attention. He listed programs and stated
that every departmental program served vulnerable Alaskans.
He spoke to the limited leadership structure of the
department versus the obligations of the department that
were many, demanding, and constant, which was the norm at
the best of times. He indicated that piled on top of all of
the already existing difficulties, the cyber-attack and the
pandemic exacerbated everything. Billions more federal
dollars flowed through the department creating a number of
new programs the department had to administer on top of
existing programs. Some of the emergency programs expanded
eligibility like the emergency allotment SNAP benefits and
some entries had to be manually entered on a monthly basis.
He reported that one of the benefits of the Executive Order
[Executive Order 121, issued January 18, 2022, effective
July 1, 2022] that restructured the department was the
acknowledgement that there was never fully ever since the
history of DHSS got to the point where we had manageable
fires. He spoke to the structure of the two new
departments; the Department of Family and Community
Services was facilities based like the Alaska Psychiatric
Institute (API) and Pioneer Homes, versus the Department of
Health housing Medicaid, Public Assistance, and Public
Health. He added that the department knew there were holes
in the system but underestimated the extent of the
problems in the Division of Public Assistance (DPA). He
relayed prior efforts like big technology upgrades,
electronic document management, virtual call centers, etc.
He believed that situations coalesced around stressed
staff, the expiring emergency health order, the oncoming
Medicaid redetermination and a perfect storm of events
hit. He stated that there was currently a renewed focus
by the governors office and Commissioner Heidi Hedberg,
(Commissioner, Department of Health). He felt bad for all
of the Alaskans that were left in the lurch and thanked
all of the advocates and stakeholders that were continuing
to support the individuals left without benefits.
1:55:44 PM
Representative Josephson asked about an issue that occurred
with Commissioner Crum's predecessor [prior Commissioner
Lucinda Mahoney, Department of Revenue, 2020-2022]. He
recounted that Commissioner Crum's predecessor proposed on
behalf of the Governor, that the Earnings Reserve Account
(ERA) be overdrawn one time by $3 billion and that the
overdraw would not affect future balances. He had disagreed
with the policy call. He noted that the Commissioner also
sat on the Board of Trustees of the Alaska Permanent Fund
Corporation (APFC) and felt that it was odd because the
APFC did not endorse an overdraw. He pointed to repeated
resolutions by APFC trustees resolving not to overdraw the
fund. He wondered how the prior Commissioner managed the
situation of holding opposite policy positions and thought
it was problematic. He asked how Commissioner Crum would
have handled the situation. Commissioner Crum responded
that the legal counsel of the Department of Law (DOL) and
the APFC had done a great job of explaining the importance
of fiduciary status and the important role of the person
acting in a fiduciary capacity. He explained that as a
trustee of APFC he acted as a fiduciary. He weighed the
goal of management for the best health of the fund. The
trustees made resolutions regarding what was best for the
fund's health based on advice from consultants and the risk
perspective. He felt that policy calls in the role of
Commissioner, working for the executive branch, changes
things and it was a difficult position he hoped to avoid.
Representative Josephson hoped that Commissioner Crum could
avoid the situation and commented that it seemed an
impossible situation.
1:59:26 PM
Representative Galvin thanked him for his service. She
asked about the states credit rating. She knew that
historically the state earned a high credit rating. She
inquired if there was anything further the Commissioner
could do regarding credit ratings. Commissioner Crum
answered that the credit rating involved selling the story
of the state. He shared that he was looking forward to
engaging with credit rating agencies in a more robust
manner. He delineated that he had initial discussions with
the rating agencies, which affected two ratings: one from
negative to stable and one from stable to positive. He had
a robust plan to travel to New York and meet with multiple
credit rating agencies to discuss the overall status of the
state and how to move forward. He opined that it was an
intriguing process to engage in business development for
the state. He relayed to the credit rating agencies what
the state was working on in the areas of policy and
regulatory and statutory authority. He remarked that the
carbon credits were an intriguing prospect to the rating
agencies because they like the idea of state sponsored
carbon programs and it had a new revenue diversification
aspect. He indicated that the credit rating agencies
favored the growth in the percent of market value (POMV),
which would be a greater share in the coming years revenue
because it was a stable revenue source. He concluded that
anything DOR could do to bring stability helped the overall
prospects of the states ability to borrow money. He
perceived that the states ability to borrow money played a
role in whether private industries banks felt secure to
invest in projects. He recognized his Deputy Commissioner
[Fadil Limani, Deputy Commissioner, Department of Revenue]
and valued his years of investment experience.
2:03:23 PM
Representative Tomaszewski appreciated that economic
development was one of the Commissioners priorities. He
asked if he could list one priority within economic
development the Commissioner intended to focus on.
Commissioner Crum spoke about the outmigration problem in
the state. He wanted to find ways to mitigate the situation
based on economic opportunity and sufficient housing. He
announced that he sat on the boards of Alaska Housing
Finance Corporation (AHFC) and the Alaska Industrial
Development and Export Authority (AIDEA) and relayed that
housing was an item that was being addressed by both bodies
and between the Department of Natural Resources (DNR), the
Department of Commerce, Community and Economic Development
(DCCED), and the Department of Environmental Conservation
(DEC). He spoke to areas in Fairbanks that experienced
legacy spills and they were looking into what the state
could do to help with environmental clean up to make it
affordable for developers to build housing. The approach
was multi-faceted in meeting the needs of inventory and
access to capital and what could be done across the board
to help grow the state.
2:05:13 PM
Representative Cronk thanked Commissioner Crum. He
appreciated that he answered tough questions. Commissioner
Crum replied that the job required offensive skills to
handle criticism and make sure his actions were correct.
2:06:12 PM
Co-Chair Johnson asked about how he was leaving the former
Department of Health and Social Services behind and the
hands he was leaving the department in and how he could
help as a member of the administration. Commissioner Crum
replied that he had hired new people before he left DHSS,
and a number of the leadership team were still in place
addressing the issues. He stressed the value of
relationships and partnerships that were developed during
the COVID 19 Emergency that were still in place to help
with the transition.
2:08:23 PM
Co-Chair Johnson OPENED public testimony.
2:08:47 PM
Co-Chair Johnson CLOSED public testimony.
2:09:19 PM
Co-Chair Edgmon MOVED to forward the commissioner
designee's name to a joint session.
2:10:02 PM
Co-Chair Johnson the motion The MOTION PASSED unanimously.
2:10:24 PM
AT-EASE
2:16:08 PM
RECONVENED
^OVERVIEW: FY 2024 BUDGET OVERVIEW: Department of
Transportation and Public Facilities
2:16:36 PM
Ryan Anderson, Commissioner, Department of Transportation
and Public Facilities, introduced himself and his staff. He
began a PowerPoint presentation "Alaska Department of
Transportation and Public Facilities: FY 2024 Operating
Budget Overview," dated February 27, 2023 (copy on file).
He commented that the operating budget enabled the
department to get the work done and supported the
administration staff. The mission of the Department of
Transportation and Public Facilities (DOT) was to keep
Alaska moving. He wanted the department to be modern,
resilient, and adaptable in the changing world of
transportation. He focused on safety and taking good care
of the states infrastructure. He considered things like
economic vitality, resiliency, and sustainability. He
wanted to achieve efficiency in the states multi-modal
transportation system.
Commissioner Anderson began on slide 2 titled DOT&PF
Organization:
14 Divisions:
Commissioner's Office
Administrative Services Division
Northern Region
Central Region
Southcoast Region
Program Development & Statewide Planning
Statewide Design & Engineering Services
Alaska Marine Highway
Measurement Standards & Commercial Vehicle Compliance
Statewide Aviation
Statewide Equipment Fleet
Facilities Services
Anchorage International Airport
Fairbanks International Airport
Commissioner Anderson spoke to the 14 divisions within DOT.
He pointed to the three regions and explained that was
where DOTs planning, construction, design, infrastructure
projects, and maintenance and operations happened. He
mentioned the services provided to other departments, such
as the statewide equipment fleet, facilities services, etc.
He highlighted support services like program development
and statewide design and engineering services. He
communicated that the goal was to think of DOT as a team
despite there being many different divisions. He thought
there had been success in achieving a team approach. Each
one of the divisions reports either to the Commissioner or
one of the other two deputy commissioners.
2:20:41 PM
DOM PANNONE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF TRANSPORTATION AND PUBLIC FACILITIES, continued on slide
3 titled DOT&PF Structure and spoke to the budget
structure. He explained that the departments operating
budget was complex and there were 19 fund sources. He
pointed to the 7 budgets areas listed on the slide called
Results Delivery Units (RDU). In addition, there were 52
discreet budgetary components each with its own personal
services, travel, contractual, and commodities lines. The
presentation focused on the seven RDUs: Administration and
Support, Design, Engineering and Construction, Facilities
Services, State Equipment Fleet, Highways, Aviation and
Facilities, International Airports, and Marine Highway
System.
2:21:34 PM
Commissioner Anderson continued on slide 4 titled DOT&PF
Services:
Services of Department
Modernizing Alaska's Infrastructure:
Project Delivery
Obtain Right of Way
Project Design
Utilities Identification & Coordination
Environmental Permitting
Advertise for Bids
Construction Administration
Project Close Out
Operating Alaska's Infrastructure:
Traffic Signal Management
Assure Functional Traffic
Timing Optimization & Adjustment
Snow & Ice Management
Removal of Snow
Application of Traction Aides
Avalanche Mitigation
Traffic Operations
Responding to Illumination Outages
Surface Marking
Surface Sweeping
Visibility Management
Provide Travel Information to Drivers/Public
Operate Certificated Airports
Rural Airport Safety and Security
Wayside Maintenance & Management
Preserve Alaska's Infrastructure:
Abandoned Vehicle Removal
Infrastructure Repair
Incident and Disaster Response
Routine Preservation (signage, lighting,
guardrail replacement, drainage, pothole
repair, lighting repair, brush-cutting)
Bridge Inspection & Preservation
Regulatory Compliance
Providing Transportation Services:
Alaska Marine Highway System
Anchorage International Airport
Fairbanks International Airport
Airline Terminal Facilities & Services
Airport Concessions
Airport Parking
Business Marketing and Acquisition
Passenger Services
Rural Airport Leasing
Whittier Tunnel Operation
Commercial Permitting
Measurement Device Certification
Shared Services:
Statewide Equipment Fleet
Division of Facilities Services
Commissioner Anderson cited Modernizing Alaska's
Infrastructure and noted that much of it was focused on
project delivery. He discussed all of the ways DOT operated
Alaska's infrastructure listed on the slide. He stated
that preserving Alaska's infrastructure was a large service
and reported that abandoned vehicle removal was a new
function intended to keep the states right of ways and
other areas clean and clear. He highlighted Bridge
Inspection and Preservation and indicated that every state
bridge was inspected every two years.
2:23:18 PM
Representative Tomaszewski asked about the Manh Choh
Project [Gold Mine, TOK, Alaska]. He had heard concerns
raised. He was aware the department had a Transportation
Advisory Committee and applauded DOTs outreach in working
with the people of the area. He wondered what the cost to
the state would be regarding the project. Commissioner
Anderson responded that the department was tackling the
question internally as well as with the advisory committee.
He was considering and calculating the daily maintenance
and increased costs of the highway due to road repair from
increased traffic, anticipated increase in maintenance for
things like snow removal, etc. He noted that the public
process would be carried out through the advisory committee
to bring awareness of operational costs and safety
considerations of the project.
2:25:18 PM
Representative Josephson referred to Operating Alaska's
Infrastructure on slide 4 and inquired about the Snow and
Ice Management listing. He reported that Anchorage had 3
major snowstorms that shut down the city in 2022. He knew
that snow removal was part of DOTs Maintenance and
Operations section. He asked if DOT had received a larger
appropriation was there enough staff and equipment to have
assisted Anchorage better. Commissioner Anderson responded
that additional resources were needed to properly address
such problems and increase levels of service. He explained
that the department used a priority ranking system of roads
from number 1 to 4 that was based on how quickly the roads
could be cleared after a storm event. The more plows in
service the quicker priority 2 and higher roads could be
cleared. The department had done more contracting out when
vacancies were high, which was problematic at times. He
perceived that additional resources and funding would
enable DOT to work through its priority system effectively.
2:27:13 PM
Representative Coulombe referenced slide 3 and asked what
the Public Building Fund was. Mr. Pannone answered that it
was a sinking fund for specific state office buildings.
The fund was previously managed by the Department of
Administration until the prior budget cycle. He elaborated
that the department collected fees for the maintenance and
operations of state buildings and to depreciate building
improvements it made, which allowed DOT to reinvest for
current and deferred maintenance needs of state office
buildings. Representative Coulombe asked for an estimated
balance of the fund. She wondered if the fund could be used
for other expenses. Mr. Pannone would follow up with the
balance and replied in the affirmative adding that the
legislature could appropriate the funds in any manner.
2:28:40 PM
Mr. Pannone continued on slide 5 titled Commodities:
Since the pandemic, highway construction costs have
increased 16.8%. The components of this index align
and closely with elements of highway maintenance &
operations.
FY2022 saw fuel increases of $2/gallon on average,
creating a $1.4M increase fuel costs for facilities
and $3.9M in fuel for equipment.
Mr. Pannone discussed that one challenge for the operating
budget was the cost increases for commodities. He pointed
to the graph showing the amount budgeted for commodities by
department that demonstrated DOT purchased a significant
amount especially when compared to other agencies. He
pointed to the graph on the right that depicted the
National Highway Construction Cost Index. He offered that
since the pandemic, highway construction costs increased
16.8 percent, which correlated to the increased costs for
DOTs maintenance and operations and had a significant
impact. He listed some of the commodities that were needed:
equipment, lighting, signals, signs, guardrails, raw
materials, etc. amounting to $23 million for commodities in
the maintenance and operations budget alone.
Co-Chair Johnson commented that she received a phone call
from a road construction contractor. He was trying to bid
on projects and there were a number of places that were not
even quoting prices yet because materials were so unstable.
She asked how that would affect the construction season.
Commissioner Anderson answered that he had heard from
contractors that things were getting tougher. The
department constantly bid out contracts and he had
observed increased bid prices, which rose with uncertainty.
He mentioned alternative procurement methods like bringing
in the contractor earlier during the design and working
together on timelines and supply chain issues. The
department was focusing on the issue.
Commissioner Anderson referenced slide 5 and added that the
weather was also a major factor affecting the commodities
budget. The department was having to do more to help in
extreme weather conditions. The department was also doing
some things to bring costs down, such as removing old
sodium streetlights across the state and replacing them
with LED lights for a significant savings and he was
considering switching to electric vehicles where it made
sense.
2:33:31 PM
Commissioner Anderson advanced to slide 6 titled Vacancy
Rates:
Vacancy Rates* for Highways & Aviation LTC Positions:
• Annual rate, sampled monthly for calendar year
2022.
• Constantly changing.
• Only one part of the staffing challenges.
• Doesn't capture turnover, other absences,
experience.
Commissioner Anderson voiced that the vacancy rate was one
of the most significant challenges facing the department.
He pointed to the charts that showed the vacancy state by
the 3 DOT regions. He observed that not all areas had
staffing challenges, yet other had very high rates up to 50
percent.
2:34:50 PM
Representative Stapp referred to the Dillingham and King
Salmon locations and noted they were listed in different
regions on the slide. He asked what the reason was behind
having the two locations in different regions. Commissioner
Anderson responded that DOT defined the regional boundaries
and implemented a change in the regions roughly 10 years
ago. The change resulted in reducing the Central Region and
spread the Southcoast Region into Southwest Alaska and the
Aleutians. He was a big advocate for working across
boundaries when warranted. Representative Stapp thought
there was a geographic hole on the map because Dillingham
was between King Salmon and other communities. He did not
understand the boundaries.
Mr. Pannone interposed that the northern region extended
the length of the state, which was due to the pipeline and
included all roads that ran parallel to the pipeline. He
acknowledged that it could be misleading to see some of
the locations in the Northern Region.
2:36:44 PM
Representative Hannan pointed to slide 6 Aviation LTC
Positions and asked what it meant. Mr. Anderson responded
that it was an acronym for the Labor Trades and Crafts
union who worked for both highways and aviation.
Representative Hannan asked if there were aviation
positions that were not labor trades and crafts positions
listed on the slide. Commissioner Anderson replied that
some aviation positions were in the Supervisory or General
Government units. He added that in rural Alaska there were
contractors that maintained rural airports.
2:37:44 PM
Representative Cronk noted that half of the Northern Region
was in his district. He pointed to Birch Lake with 3
positions and no vacancies and Northway with 5 positions
and one vacancy. He wondered how the two by two schedule
was working on the Haul Road [Dalton Highway]. Commissioner
Anderson replied that it was successful in keeping vacancy
rates down. Representative Cronk asked what the biggest
factor in the vacancy rate was. Commissioner Anderson
responded that it was tough to pinpoint, people left for a
number of reasons. The department competed for higher
paying seasonal construction work, which was a challenging
situation.
2:39:48 PM
Representative Josephson calculated that DOT currently had
the resources to hire 53 additional staff in the Fairbanks
North Star Borough. He wanted clarification that his
assumption was correct.
Mr. Pannone responded that the column on the left showed
the number of positions in the budget total and the column
on the left showed the vacancy rate.
2:40:30 PM
Representative Coulombe wanted to determine what happened
in Anchorage during the snowstorms. She observed that the
vacancy rates in Anchorage were low. She guessed that it
might have been about the amount of money appropriated or
whether the reason was the amount of snow. She acknowledged
that staffing for the municipality was insufficient. She
relayed that she lived in the Hillside neighborhood. She
asked if there was something more that the department could
have done to prevent the road debacle. Commissioner
Anderson responded that the department was not staffed for
big storm events and when they happen, it worked overtime.
He offered that DOT had been working arduously overtime to
clear the snow and state roads often ended into municipal
roads where it was difficult to track the municipalitys
priorities. The department wanted to improve its
communication with the municipality.
2:42:32 PM
Commissioner Anderson continued on slide 7 titled Vacancy
Rates: Tracking. He indicated that the department received
weekly vacancy rate reports, tracked trends, and acted
proactively to mitigate low staffing levels. He discussed
the tools the department used to offset low staffing levels
by things like flying in staff to rural areas and enacting
mission critical incentive pay to encourage position
growth.
Co-Chair Johnson expressed a perception that too much
funding was spent on administration, and she asked what the
best way was to go about appropriating more money
exclusively for road or other services. Commissioner
Anderson answered that he always viewed things by services
provided. He noted intent language in the prior year that
wanted DOT to ensure that its road priorities were aligned
with the publics expectations. He deferred further answer
to Mr. Pannone.
Mr. Pannone added that the highways and aviation components
were the components where operators and services were
provided and most of the indirect support was budgeted in
other components. He suggested appropriating more money in
the highway and aviation components, which would send a
message.
2:45:22 PM
Representative Galvin asked if one of the departmental
tools employed was training younger people. She illuminated
situations where the individual was trained for free and
then left for higher pay elsewhere. She wondered if the
scenario applied to DOT. Commissioner Anderson responded
that the department was currently tackling the training
problem. The department offered a Commercial Driver's
License (CDL) scholarship program, which could cost up to
$30 thousand. Some of the federal programs allowed DOT to
spend funding on those types of programs. He reported that
there had been some success. They had enacted some
strategies in rural Alaska like hiring a [road] grading
trainer and sent him to rural Alaska to offer basic
training. He was currently strongly focused on training for
entry level positions for the Marine Highway.
Representative Galvin asked if he was doing anything in
particular or had an incentive program to retain the
trained hires. Commissioner Anderson replied that retention
was a though problem to tackle.
2:47:58 PM
Mr. Pannone continued on slide 8 titled Budget Scenario
Comparisons, which was a bar graph that showed last year's
actuals for FY 2022, the current years FY 2023 expenditure
and the FY 24 request. He elucidated that the final column
showed the magnitude of the change from the current year
and the requested budget. Each year was broken down by fund
group; the orange represented the Other funding and was
largely duplicate funds. He detailed that $183 million was
from DOTs capital improvement project receipts, $109
million came from International Airport Revenue Funds, and
$128 million was for shared services such as facility
services or statewide equipment. He pointed to the grey
section of the bar that depicted Federal funding. The two
drivers were for the Alaska Marine Highway System (AMHS)
and Covid relief funding, which was used to offset
Undesignated General Fund (UGF). Finally, the blue and gold
sections of the bar represented UGF and Designated General
Funds (DGF). He listed the DGF funding: motor fuel tax,
marine highway revenues, program receipts, and vehicle
rental tax. Overall, the FY 24 request increased operation
costs by $35 million. The increases were driven by the
AMHS, the international airport system, $8 million for
negotiated salary adjustments and a small amount for
maintenance and operations for highways and aviation.
2:50:44 PM
Representative Ortiz asked whether the slide represented
DOTs overall budget. Mr. Pannone responded in the
affirmative. Representative Ortiz perceived that the FY 24
grey bar would be significantly larger due to the
Infrastructure Investment and Jobs Act (IIJA). He wondered
why that was not the case. Mr. Pannone responded that
federal funding in FY 22 was largely the COVID relief funds
used to forward fund the ferry system and offset UGF. He
delineated that in FY 23 and FY 24 federal funding was
comprised of the rural ferry grant program, part of IIJA
and some continued UGF displacement. The increases from
IIJA would largely be seen in the capital budget.
Representative Hannan asked about DGF in FY 24 and matching
funds from farebox recovery or tolls for IIJA monies. She
thought there would be a decrease in DGF for FY 24 because
some of the toll revenue would be needed in the capital
budget as match for IIJA federal monies. She noted the
anticipated increase in DGF. Mr. Pannone answered that the
operational increase for the ferry system budget totaled
$13 million to maintain the level of service that was
budgeted for. The funding was coming from ferry system
revenue. He elaborated that the toll credits were credits
for prior dollars spent on capital improvements and were
being used in the capital budget to match the capital
grants. He maintained that in the operating budget UGF and
DGF was used as matching funds for the federal grant of $45
million.
2:55:05 PM
Mr. Pannone advanced to slide 9 titled FY 2024 Governor's
Amended:
Administration & Support
Highway Safety Office $805.4 (CIP/OTHER)
• Statewide Safety & Emergency Management, Program
Coordinator $150.0 (OTHER)
• Public Employee Retirement System (PERS) rates,
Health Insurance and Salary Increases $893.7 ($514.8
CIP/OTHER, $116.0 UGF)
Mr. Pannone relayed that the Highway Safety Office was a
federally required program under Title 23. The office was
being given its own component and its focus was to reduce
traffic accidents on the roadways and public safety. He
cited the second bullet and noted that it was also a new
component focused on departmental safety training and
disaster response. He furthered that the department wide
safety training program created by DOT was implemented in
2015 and had reduced the departments Workers Compensation
claims by half, from $6 million to $3 million and continued
the downward trend to under $500 thousand in FY 22. In
addition, the component coordinated with the Department of
Military and Veterans Affairs (DMVA) for state disaster
response and implemented incident command training, which
was the DOT response to disasters and emergencies.
2:57:10 PM
Commissioner Anderson moved to slide 10 and continued to
discuss the FY 24 governors amended budget:
Design, Engineering & Construction
• Public Employee Retirement System (PERS) rates,
health insurance and salary increases $2.7M
(CIP/OTHER)
• Transfer of authority within Northern Region
for Public Information Officer $130.0
(CIP/OTHER)
• FY2023: Combined "Northern Design, Engineering
& Construction Component."
Commissioner Anderson offered that the component was where
the IIJA work was happening. It was represented in the $1.6
billion capital budget as project delivery that was
comprised of in-house staff and contract work. He reported
that DOT was combining closely related components to create
increased administrative efficiency.
2:58:20 PM
Mr. Pannone continued with the FY 24 budget request on
slide 11:
Highway Aviation and Facilities
• Reversals of other one time federally funded swaps,
and Rural Airport Paint Striping
• Rural Aviation use of Federal COVID Relief Funds,
UGF swap $9.8M (FED)
• Commodities increases for road maintenance $1.3M
(UGF)
• Maintained increment for Chitna, Birch Lake,
Silvertip
$1.4M (UGF)
• King Salmon Airport federal authority $868.0 (FED)
• Maintained increment for ice roads $200.0 (UGF)
• Sitka Airport Fund Swap $350.0 (UGF), -$350.0 (IARF
• Wayside Maintenance Improvements $385.0 (UGF)
• Maintained Increment for Dalton 2x2 Shift $1.3M
(UGF)
Mr. Pannone elaborated that DOT shared maintenance with the
US Air Force for the King Salmon Airport. The arrangement
was recently renegotiated, and it was agreed that DOT would
pay the maintenance costs upfront and the Air Force would
reimburse the department. He pointed out that the ice road
increment was added last year by the legislature and the
department was moving it into its base budget. He noted
that Sitka was no longer designated as an emergency
diversion airport and was not eligible to receive
international airport revenue funds and the funds were
replaced with UGF.
Commissioner Anderson interjected that the department
wanted to improve its wayside maintenance and upkeep on its
facilities. He noted the importance of keeping the Chitna,
Birch Lake, and Silvertip maintenance camps open.
3:01:53 PM
Commissioner Anderson further discussed the governors
budget request on slide 12:
Facilities Services
• Facilities Services & Leases was reduced from six to
two components
• Public Employee Retirement System (PERS) rates,
health insurance and salary increases $538.0 (OTHER)
Commissioner Anderson reported that facilities was a shared
service and reiterated his commitment to administrative
efficiencies and providing better service to other
agencies. He delegated more construction authority to other
agencies and provided training in procurement.
3:02:49 PM
Mr. Pannone continued to address the FY 24 budget on slide
13:
Statewide Equipment Fleet
• Public Employee Retirement System (PERS) rates,
health insurance and salary Increases $587.0 (OTHER)
• 1 additional non-perm mechanic $64.0 (OTHER)
Mr. Pannone mentioned that statewide equipment was another
shared service funded by the Highway Equipment Working
Capital Fund, which was a duplicate fund. The department
paid for 80 percent of the costs, while the Department of
Public Safety (DPS) State Troopers were the second largest
customer carrying 8 percent of the costs, and the
Department of Natural Resources and the Department of Fish
and Game (DFG) combined made up 5 percent of the costs. The
remainder from other departments was minimal.
Mr. Pannone underlined the next RDU from the FY 24 budget
request on slide 14:
International Airport System
• Funding for 25 new positions to meet
business needs $2.7M (IARF/OTHER)
• Business operations and administration
expenses $463.1 (IARF/OTHER)
• Contracted snow removal outside of tarmac
and airfield and operational areas $450.0
(IARF/OTHER)
• Mission critical incentive pay for Emergency
Services Dispatch, Maintenance Specialists,
Equipment Operators $3.7M (IARF/OTHER)
• Commodities & energy cost Increases $3.9M
(IARF/OTHER)
Mr. Pannone indicated that the system was funded through
the International Airport Revenue Fund (IARF) and was self-
supporting through its rates and fees. The international
airport system experienced increased traffic up by 30
percent since 2019, therefore were requesting commensurate
funding authority to meet the demands of the airport
industry.
3:05:48 PM
Commissioner Anderson added that there was a vacancy
challenge at the Anchorage International Airport in the
prior summer and fall and utilized mission critical
incentive pay, which mitigated the problem and paid off by
having sufficient staff when the massive snowstorms
arrived. He noted that the Fairbanks and Anchorage airports
were a system and some of the new positions were in
Fairbanks to maintain its support for the Anchorage
airport.
3:06:54 PM
Representative Hannan referred to slide 13 and inquired why
the additional mechanic was a non-permanent position.
Commissioner Anderson responded that the position was for a
summer seasonal service worker. He added that DOT had a lot
of full-time mechanic positions open and wanted to fill
them. Representative Hannan asked if they could be hired as
a seasonal permanent position. Mr. Pannone responded in the
affirmative. He furthered that that instead of permanently
adding positions that were needed in certain locations,
they added a non-permanent position that was often moved to
another lateral permanent position as a way of not
increasing the number of positions unnecessarily.
Co-Chair Johnson asked about the International Airport
System increase from 2019. She wondered how the COVID years
played a role in the increase. Commissioner Anderson
answered that the additional positions reflected current
needs and offered to provide the comparison information.
3:10:01 PM
Representative Galvin asked about the mission critical
incentive pay and asked for more information. She wondered
if it was additional pay or incentive pay for existing
employees. Commissioner Anderson replied that it was
offered as an incentive for existing employees or for new
hires when trying to attract employees. He emphasized that
it was only offered when DOTs mission was threatened by
very high vacancy rates. The Anchorage airport incentive
pay was 20 percent and the vacancy rate stayed flat through
the prior summer. The department increased it to 30
percent, which was successful in attracting candidates and
lowered the vacancy rates. He noted that DOT needed to have
the additional funding and negotiate with the unions before
implementing incentive pay.
3:11:49 PM
Representative Cronk referenced equipment purchases and
asked what the price of graders and plow trucks were and
how it worked. Commissioner Anderson answered that the
price changed often, and it was difficult to give an
estimate and the timeframes could be long. The amount for
equipment was budgeted and DOT worked via contracts to try
to procure the best prices. He offered to provide further
information on costs. Representative Cronk mentioned the
roads from Tok to Fairbanks and listed the Gerstel River
Bridge and Johnson River bridge. He asked if they were the
two oldest trestle style bridges left in the state.
Commissioner Anderson was uncertain and responded that
there were a lot of old bridges in the state. He confirmed
that they were World War Two era bridges and were slated
for replacement. He noted that they were currently
structurally safe. Representative Cronk identified the
Robinson River Bridge and remarked on the narrowness of the
bridge. He asked whether it was considered for replacement.
Commissioner Anderson affirmed that the bridge was narrow
and listed for replacement.
3:14:12 PM
Representative Josephson asked if the three prior named
bridges were selected for replacement because of the Manh
Cho Project. Commissioner Anderson responded that the
bridges had been on DOTs replacement list prior to the
project but had reprioritized its list to consider economic
development in the area.
3:15:02 PM
Mr. Pannone concluded with the FY 25 governors budget
request on slide 15:
Alaska Marine Highway System (CY 2024)
• Budgeted for consistent service levels to
communities throughout the year.
• Increases in operational costs $13.5M (AMHS
Revenue / DGF)
• Federal Backfill Language, Marine Highway System
Fund, HB 39 Sec. 20
Mr. Pannone reported that the AMHS budget was calculated
for a calendar year and was based on the current calendar
year 2023 budget. The significant increase was funded at
$13.5 million in farebox receipts. He added that $10
million of the increase was related to collective
bargaining increases, $2.7 million were projected fuel cost
increases, and there were increases in employee travel
expenses. He referenced the budget breakout by fund source
and pointed to Federal and UGF funds, that was based on the
amount the legislature appropriated in the prior year; $83
million slated for the Rural Ferry Grant Program created in
IIJA. He elaborated that currently DOT only received $45
million of the operating grant. He based the federal amount
by what was set by the legislature and included backfill
language stating that if the department was unsuccessful
when working with the Federal Transit Administration (FTA)
and Alaskas Congressional delegation in obtaining all $83
million, DOT could access Fairbox receipts to backfill
funding.
Commissioner Andersons spoke to the recruiting challenges
with AMHS. The system could not operate all of its ships
because there were not enough employees. The situation
would be evident in the upcoming 2023 summer schedule. He
stressed that the department was examining all its options
to ensure it would provide the best service as possible.
3:18:05 PM
Representative Ortiz pointed to the first bullet point on
slide 15 relating to providing consistent yearly service.
He remarked that would include operating 9 ships but the
plan was to only run six ships even though the budget
allowed for nine. He asked whether he was correct.
Commissioner Anderson answered in the affirmative. He
acknowledged that operating 6 ships was the current level
of service and that was what he was shooting for.
Representative Ortiz asked if the best scenario would be
six. Commissioner Anderson responded in the affirmative and
voiced that with the current staffing levels the system
would operate 6 ships. Representative Ortiz asked what
happened to the excess money, when they budgeted for 9
ships but operated 6. Commissioner Anderson deferred to Mr.
Pannone for the answer but mentioned that the department
was attempting to provide basic supplemental services to
communities, which added to its costs.
Mr. Pannone clarified that the budget was for 10 months in
the future, and he was hopeful that the situation would
improve. He furthered that in FY 2021 the AMHS was budgeted
for roughly $108 million, but due to COVID restrictions it
spent $96 million, and the remaining funds lapsed. In the
present situation, UGF or DGF (farebox funds) funding would
remain in the system revenue funds for future appropriation
if unexpended. Representative Ortiz wanted to understand
the fundamental issue of why the AMHS was unable to provide
the budgeted level of service. He observed vacancy rates
for airports and highways but not for the AMHS. Mr. Pannone
responded that the marine highway system managed its
personnel differently in its exclusive system used for
staffing due to requirements for personnel being fit to
sail and the availability of relief positions. He offered
to provide more information.
Commissioner Anderson offered to provide information
regarding the number of positions necessary to operate the
ships. He emphasized that the system was lacking skilled
positions. He acknowledged that the ships had been running
with minimal relief, which put more stress on the crews.
3:24:00 PM
Representative Hannan asked about the DGF line on slide 15
that showed zero reporting in fairbox recovery in the FY 23
management plan and $13.5 million in the FY 24 amended
budget. She asked what happened to the fairbox recovery in
FY 23 and whether it represented operating 6 ships.
Mr. Pannone responded that in FY 23 the legislature removed
the fairbox receipts from the budget. The receipts were
appropriated in the capital budget for the annual vessel
overhaul for approximately $20 million. He pointed out that
currently, the revenue fund balance was $20 million and
would continue to increase as the year progressed. He
offered to provide the projections for FY 24.
3:25:56 PM
Representative Cronk recounted that two of the newest
ferries were not being used and he wondered if money was
appropriated to operate them. Commissioner Anderson
answered that Representative Cronk was referring to the
Alaska Class Ferries. He indicated that the M/V Hubbard was
near completion of the work to install crew quarters and
should be running by May 1, 2023. The Tazlina had been
operating as a fill in vessel. He emphasized that if the
system was fully staffed both ships would be running.
3:27:06 PM
Representative Ortiz mentioned the crew issue for the new
ships and inquired if both were not fully operational due
to the staffing issues. He asked whether he was correct.
Commissioner Anderson replied in the affirmative.
Representative Ortiz wondered how scheduling worked with
low staffing. Commissioner Anderson replied that the
scheduling had been challenging. He related that AMHS took
into consideration the many events in SE Alaska and DOT
issued a draft schedule for public comment. In addition,
many other factors weighed into scheduling. Representative
Ortiz asked if those in charge of scheduling remained in
charge. Commissioner Anderson answered that it was a team
approach. He noted that recently the AMHS received a civil
rights review from the Federal Highway Administration
(FHWA) because it believed that some factors were missed or
undocumented when providing services to communities. The
commissioners office worked with the scheduling team, and
all attempted to do its best to provide services to
Alaskans. Representative Ortiz asked if the scheduling team
had recently changed. Commissioner Anderson replied in the
negative.
3:30:44 PM
Representative Tomaszewski referenced slide 14 and pointed
to the contracted snow removal outside of tarmac and
airfield increment of $450 million. He asked if there was
an equal decrement to balance the increment. He asked if
DOT utilized contracted services for wayside maintenance.
Commissioner Anderson responded that it was difficult to
make those types of comparisons. Typically, when they were
struggling to meet a service, DOT paid overtime for
existing staff and were burning out employees. Therefore,
contracting was used as a relief valve. He tried to use
contracting services where it worked best. The department
was unable to make the correlation between a contracted
amount and not spending the same amount elsewhere. He noted
that contractors had different rate structures, and DOT had
to bid for contractor services. The department did account
for overtime rates and vacancy rates, etc.
3:32:36 PM
Co-Chair Johnson reviewed the agenda for the following
day's meeting.
ADJOURNMENT
The meeting was adjourned at 3:33 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DOT&PF - HFIN Budget Overview - FINAL 2023.02.27 -.pdf |
HFIN 2/27/2023 1:30:00 PM |
HB 39 |