Legislature(2011 - 2012)HOUSE FINANCE 519
04/02/2012 04:30 PM House FISCAL POLICY
| Audio | Topic |
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| Start | |
| Presentation: Understanding Alaska's Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISCAL POLICY
April 2, 2012
4:35 p.m.
MEMBERS PRESENT
Representative Anna Fairclough, Chair
Representative Alan Austerman
Representative Bob Herron
Representative Lance Pruitt
Representative Tammie Wilson
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Craig Johnson (alternate)
COMMITTEE CALENDAR
PRESENTATION: UNDERSTANDING ALASKA'S BUDGET
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CADY LISTER, Senior Consultant
Information Insights
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint titled
"Understanding Alaska's Budget."
SHANNA ZUSPAN, AICP
Agnew::Beck
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint titled
"Understanding Alaska's Budget."
ACTION NARRATIVE
4:35:23 PM
CHAIR ANNA FAIRCLOUGH called the House Special Committee on
Fiscal Policy meeting to order at 4:35 p.m. Representatives
Fairclough, Kawasaki, T. Wilson, and Herron were present at the
call to order. Representatives Austerman, Tuck, and Pruitt
arrived as the meeting was in progress.
^Presentation: Understanding Alaska's Budget
Presentation: Understanding Alaska's Budget
4:35:54 PM
CHAIR FAIRCLOUGH announced that the only order of business would
be a presentation about Understanding Alaska's Budget.
4:36:35 PM
CADY LISTER, Senior Consultant, Information Insights, explained
that the consulting groups, Information Insights and
Agnew::Beck, were hired to "create a toolbox to assist with
public understanding of the state budget and to design a process
that would engage the public in a meaningful dialogue about our
fiscal future." She shared that this toolbox resulted from
recommendations of the 2010 Fiscal Policy working group, a
subcommittee of the House Finance Committee. She declared the
goal of the project to be an increase of the awareness and
engagement for the general public "and to provide them with the
knowledge and tools that they need to be able to participate in
meaningful dialogue about our shared fiscal future." She
explained that this presentation was phase one of two distinct
phases, and was covered under the current contract. She shared
that the second phase, should the legislature decide to move
forward with it, would be to conduct the public outreach effort
using these tools and designs created in the current phase. She
summarized phase one, declaring that there had been completion
of an extensive literature review, informant interviews, a
statewide telephone survey, and testing using the developed
material and process. She noted that the remaining tasks were
for integration of the committee's input and training for any
legislators and staff who were interested in using the material
and process for public meetings.
4:39:37 PM
MS. LISTER suggested that the public forums include content area
experts to explain each slide in the presentation. She
referenced slide 2, "Meeting Agenda" and explained that the
basic agenda was designed for a three hour presentation. She
outlined the meeting agenda to include, in order of
presentation: a pre-survey for information sharing and
education, a question and answer period, a small group exercise,
a report-out from each group, a post survey, and a closing. She
directed attention to the more detailed agenda [Included in
members' packets].
4:41:03 PM
MS. LISTER explained that participants would be asked to answer
a series of questions at the beginning of each meeting, slide 3,
"Tell us what you think?" She noted that an electronic audience
survey, ConSensor, would be used whenever possible, although a
paper copy would also be available. She specified that the
participants were asked about preferences and priorities
regarding state services, to gauge the level of knowledge and
interest in Alaska's fiscal issues. She shared that some of the
questions were asked at both the beginning and the end of the
meetings, to catalog any change in response from the additional
information and dialogue. She confirmed that the results of the
meetings could easily be summarized and analyzed in both
aggregate and locally.
4:42:22 PM
MS. LISTER explained slide 4, "Fast Draw," which conveyed key
concepts necessary to talk about Alaska's fiscal future in a 90
second video.
4:44:42 PM
MS. LISTER called attention to slide 5, "Where does Alaska's
Money come from?" which covered revenue, spending, savings, and
the fiscal gap, and began the informational portion of the
public meeting slides. She moved on to slide 6, "Oil Revenue,"
and described that the three primary sources of revenue for
Alaska's money were oil, federal government, and earnings on
investments. She stated that oil revenue to the state was about
$9.2 billion in FY 2012, more than 50 percent of the total
revenue and nearly 90 percent of the general fund. She
explained that the general fund was the primary source for
payment of state services, and that oil revenue was dependent on
the number of barrels produced, the price of oil, and the tax
structure imposed by the state.
4:46:20 PM
MS. LISTER explained that although the federal funds paid to
Alaska were about $3.1 billion in FY 2012, about 20 percent of
the total revenue, they were not included in the state's general
fund, slide 7, "Federal Dollars." She detailed that Alaska
received more federal funding per capita than any other state
and this was an historically stable funding stream for Alaska.
She clarified that federal money was for specific purposes,
including Medicare and large infrastructure projects. She
opined that the amount of federal funding could be jeopardized
in the future.
4:47:24 PM
MS. LISTER moved on to slide 8, "Savings & Investments," and
remarked that this was the third source of revenue for Alaska,
but it was rarely used to pay for government operations. She
pointed out that most of the earnings revenue was from the
permanent fund, and this was used to pay dividends and protect
the permanent fund principal from inflation. Addressing slide
9, "All Other Revenue," she reported that the remainder of state
revenue was grouped into other revenue, which accounted for 6
percent of the total revenue and 9 percent of the general fund.
She clarified that some of this revenue was restricted, to be
used for specific purposes. She listed the other revenue
sources to include taxes on alcohol, tobacco, and state
corporate income.
4:48:17 PM
SHANNA ZUSPAN, AICP, Agnew::Beck, moved on to slide 10, "Where
does Alaska's Money go?" She detailed that Alaska's projected
expenditure for FY 2012 was $13 billion, divided into four
categories, as shown on slide 11, "Total State Spending":
operations, which included statewide expenses and agency
budgets, 66 percent; capital projects, 21 percent; savings
payments, 8 percent; and permanent fund dividends, 5 percent.
4:49:32 PM
MS. ZUSPAN explained slide 12, "Per Capita Spending," analyzing
that Alaska spent more per Alaskan than any other state, and
reporting that states with low populations tended to have a
higher per capita spending.
4:50:06 PM
MS. ZUSPAN summarized slide 13, "State Agency Spending," which
depicted the annual operating and capital budgets for each of
the 18 state departments. Directing attention to slide 14,
"Budgets over $1 Billion," she detailed that the four largest
state agencies were Department of Health and Social Services,
Department of Education and Early Development, Department of
Transportation & Public Facilities, and the University of
Alaska.
4:51:18 PM
MS. ZUSPAN, reviewing slide 15, "The last 10 years: State
Operations," commented on the increases to agency expenses, for
both department and statewide operating costs. Slide 16, "The
last 10 years: Total Spending," also depicted spending, but the
bar graph included the deposits to both savings and the
permanent fund dividends.
4:52:04 PM
MS. ZUSPAN moved on to slide 17, "How much does Alaska have in
Savings?" and listed those savings: the constitutional budget
reserve, the permanent fund earnings, the permanent fund
principal, and specialized state savings accounts.
4:52:57 PM
MS. ZUSPAN evaluated slide 18, "Permanent Fund," which charted
the earnings of the fund since 1978 to its current principal of
$40 billion. Explaining slide 19, "Constitutional Budget
Reserve," she shared that the reserve was a mechanism used to
offset annual deficits, although it had to be re-paid.
4:53:45 PM
MS. ZUSPAN, slide 20, "Other Savings," stated that there was
$2.1 billion in dedicated savings for public education, revenue
sharing, and power cost equalization funding; and, another $4.6
billion in the statutory budget reserve for general use funding.
4:54:17 PM
MS. LISTER spoke about slide 21, "What is a fiscal gap?" and
slide 22, "So What's the problem?" She explained that any
government could have a deficit in years when revenue fell short
of expenses, but that it should be repaid in good years. She
defined fiscal gap as a persistent or structural deficit that
occurred when the regular sources of revenues were insufficient
for spending, even in good years.
4:55:30 PM
MS. LISTER disclosed that oil production, which paid for the
majority of Alaska's government services and projects, was
declining while the state budget was increasing, slide 23,
"Declining Oil Production" and slide 24, "Declining Oil
Revenue." She declared that high oil prices would not protect
Alaska from declining oil production forever.
4:56:52 PM
MS. LISTER moved on to slide 25, "The Future: Spending
Projections," and stated that the costs of government were
expected to increase at about 6 percent per year. She opined
that solving a potential fiscal gap could not be achieved
through budget cuts alone without destroying state services.
Considering slide 26, "Unless something changes," she declared
that Alaska's spending would exceed its revenue in the next few
years, as reflected on the chart of revenue from FYs 2007 -
2021, and that the state would need to spend savings by FY 2015.
4:57:44 PM
MS. LISTER, referring to slide 27, "Fiscal Gap: What can we do?"
shared that although there was still some time, current
projections showed that savings would be spent by 2030. She
emphasized that this expenditure of savings did not include the
principal of the permanent fund. She listed some options, which
included: encourage new oil exploration, support a natural gas
pipeline, use the permanent fund earnings, develop other natural
resources, bring back personal income tax, create a statewide
sales tax, tax other industries, increase savings now for the
future, and cut the budget. She declared it to be very unlikely
to find a "silver bullet" solution, that it would take efforts
to both increase the revenue and reduce the growth of spending.
She established that these slides were the framework for the
information and education portions of the public meetings.
4:59:35 PM
MS. ZUSPAN announced that, after the question and answer session
in the public meetings, the small group exercise would begin,
slide 29, "Small group business planning exercise." She
explained that they would form into small groups, and engage in
a business planning activity. She described that the
distributed worksheets allowed the groups to make changes to the
current budget structure, while following certain attached
rules, and pointed out some of the strategies and alternatives
that would be available. She then detailed ways to identify new
revenue sources and apply them to the budget, including the
building of a pipeline, the creation of a sales tax, or the use
of permanent fund earnings for state services. At the end of
the break-out session, each group would report to the other
groups, and determine the impacts from these decisions.
5:03:11 PM
MS. LISTER finished up with slide 31, "Tell us what you think?"
and discussed the post-meeting survey. She shared that some of
the questions were similar to those asked prior to the meeting
in order to reflect any changes for issues or preferences.
MS. ZUSPAN, offering suggestions for the future use of this
information, proposed informal constituent meetings, formal
public meetings throughout the state, or a fiscal policy summit
of participants in the public meetings. This meeting would take
these suggestions and provide recommendations.
5:06:33 PM
CHAIR FAIRCLOUGH opened discussion.
5:06:49 PM
REPRESENTATIVE T. WILSON stated her appreciation that the public
did not have to stay for the entire [three] hour meeting and she
asked about the timing of the small group exercise.
MS. ZUSPAN explained that the small group exercise would take
place after the 45 minutes allocated to the worksheets.
5:07:46 PM
REPRESENTATIVE HERRON expressed his praise for the proposed
public meeting agenda and its toolbox approach for better public
understanding. He offered his belief that while some people
would stay for the entire exercise, others would just "want to
come and sort of catch the flavor." He asked if it was possible
to offer a snapshot for anyone who was not able to attend for
the entire three hours.
5:09:12 PM
MS. LISTER directed attention to the accompanying website which
offered much more in-depth information than the presentation.
She stated that there were also materials at the meeting which
people could take.
5:09:47 PM
MS. ZUSPAN pointed out that there was a break in the agenda
between the presentation and the business planning exercise,
which allowed for an easy exit. She shared that a similar three
hour presentation had fully engaged the participants.
5:10:09 PM
CHAIR FAIRCLOUGH explained that this was an opportunity to focus
the information and visual materials for legislators to present
in their communities. She opined that these choices for
additional economic investments should be addressed "sooner
rather than later for the health of Alaska's economy as well as
the health and well-being of the people of Alaska."
5:11:36 PM
REPRESENTATIVE AUSTERMAN asked if the proposed website would
contain this same information.
MS. LISTER replied that it would contain this, as well as other
information.
REPRESENTATIVE AUSTERMAN, using examples of the presentation
that needed explanation, expressed concern that people visiting
the website could not get their questions answered immediately.
He specified that the definition for savings was sometimes
confused with earnings.
CHAIR FAIRCLOUGH advised that the ability to click on a picture
on the website would allow access to background information.
5:14:00 PM
REPRESENTATIVE HERRON recommended use of the previously
presented video, "fast draw," as a background explanation.
5:14:27 PM
REPRESENTATIVE AUSTERMAN, directing attention to slide 8,
"Savings & Investments," suggested that the proportion of the
piggy bank be more closely aligned to the actual size of the
savings. In reference to slide 9, "All Other Revenue," he noted
that expansion of the economic base should also be included.
5:15:14 PM
CHAIR FAIRCLOUGH directed attention to slide 27, "Fiscal Gap:
What can we do?" and proposed to re-prioritize the choices on
the list, with "Cut the Budget" moving closer to the top of the
list from the bottom of the list. She reiterated that there
were choices for additional revenue and budget cuts.
5:16:22 PM
REPRESENTATIVE AUSTERMAN clarified that there was still time to
react to the future needs. He offered his belief that it was
important to discuss the creation of new industries in Alaska,
and not to focus solely on the increase of taxes.
5:16:54 PM
REPRESENTATIVE HERRON, directing attention to slide 25, "The
Future: Spending Projections," reflecting that it was too
general, asked what was true inflation when a 6 percent
projected rise in operating cost was factored.
5:18:53 PM
CHAIR FAIRCLOUGH suggested the addition of a tab at the bottom
showing actual inflation rates or the consumer price index. She
pointed out that non-negotiable contracts were drivers to
significant increases in the state operating budget.
5:19:49 PM
REPRESENTATIVE HERRON opined that there was no one factor to
generalize the use of 6 percent as the percent of annual cost
increase.
CHAIR FAIRCLOUGH, observing that labor was a significant
percentage of the operating budget, asked if there was any data
for the actual increase of wages. She declared that non-
bargaining unit wages were under consideration for an increase
when the bargaining unit contracts were increased.
5:21:21 PM
REPRESENTATIVE AUSTERMAN requested that another graph show the
increase to state operating costs based solely on Alaska
inflation.
5:22:13 PM
REPRESENTATIVE TUCK, reflecting on the Anchorage School District
budget, reported that the two most significant factors for
increases were energy and PERS/TERS. He opined that these
increased exponentially faster than any other expenses. Noting
that Alaska's energy costs were significant, he suggested that
the graph for inflation increases include a comparison with the
national rate, as well. He asked about the increased cost of
health care.
5:23:31 PM
MS. ZUSPAN explained that the projected 6 percent increase was
the publicized forecast of high level spending growth from David
Teal, Legislative Finance Division, and she offered to delve
into this for more key components.
CHAIR FAIRCLOUGH shared that, although the PERS/TERS obligation
had been "held flat at 22 percent," the anticipated growth of
health care costs was increasing the contribution level from the
state. She opined that this obligation would "top off at
somewhere around $1 billion of annual payments." She confirmed
that this one allocation would be a significant percentage of a
$9.6 billion budget.
5:25:26 PM
REPRESENTATIVE TUCK, directing attention to slide 14, "Budgets
over $1 billion," asked to clarify that the funding for each
department was reflective of the general fund percentage as a
total of the department budget and not as a percentage of the
total general fund. He moved on to slide 22, "So What's the
Problem?" and stated that this would be better illustrated with
a curve similar to that on slide 23. He asked that slide 23,
"Declining Oil Production," and slide 24, "Declining Oil
Revenue," be combined to show the production, revenue, and oil
price on one page.
5:27:26 PM
CHAIR FAIRCLOUGH suggested a drop down box to provide more
information that the public might request on oil production and
operating costs.
5:28:28 PM
MS. LISTER confirmed that there were more graphics on the
proposed website, and that "story telling pop up boxes so that
you have to view the images in a certain order" were an
excellent tool to show how it will all come together.
5:29:13 PM
REPRESENTATIVE TUCK expressed his agreement with Representative
Austerman that the presentation show the option for developing
new industries as a source of revenue. He reflected on the need
for low interest loans to fund new energy projects instead of
"giving the money away." He opined that this revenue from loan
re-payments would allow Alaska to finance more projects in the
future.
5:30:15 PM
CHAIR FAIRCLOUGH expressed her agreement with Representative
Tuck. Musing about private business partnerships with the
state, in order for the state to have a rate of return, she
opined that the private community would have concerns about
competition with other private businesses in negotiating
partnerships with the state, even though the appropriation
process allowed for this selective support by the state.
5:31:29 PM
REPRESENTATIVE HERRON asked if the complete on-line presentation
package would work in regions with slow or no broadband.
MS. LISTER replied that although the website was designed for
rural communities, it was not intended to be used as part of the
public meeting process.
5:32:47 PM
CHAIR FAIRCLOUGH clarified that the presentation would be a
paper product, available anywhere in the state.
5:33:01 PM
REPRESENTATIVE TUCK offered his agreement that the information
should be quickly available.
5:33:28 PM
CHAIR FAIRCLOUGH noted that slide 12, "Per Capita Spending,"
should be footnoted that it was FY 2012 and it included capital
and operating spending.
MS. ZUSPAN clarified that slide 12 conveyed information from FY
2010, and she would report back whether it reflected capital and
operating spending.
5:34:38 PM
MS. LISTER, in response to Representative Austerman, explained
the conundrum in defining whether state spending included
distribution of dividend checks, or placement of funds into the
reserve account.
REPRESENTATIVE AUSTERMAN offered his belief that this could be
confusing to the public.
5:35:30 PM
MS. ZUSPAN proposed a change to the slide description to read
"spending on savings and dividends."
5:35:52 PM
CHAIR FAIRCLOUGH recommended inclusion of "permanent fund and
savings" as spending. She explained that, although these items
were considered spending by an accountant, they were budgeted as
savings by state legislators.
5:37:28 PM
REPRESENTATIVE TUCK asked to clarify whether "spending on
savings" included the permanent fund dividend and other state
savings accounts. He posed that the permanent fund dividend be
listed as a separate category.
5:38:02 PM
CHAIR FAIRCLOUGH submitted that a drop down box could clarify
the details. She asked if the enhanced technical details would
affect access to the website for Rural Alaska.
5:39:01 PM
REPRESENTATIVE HERRON, declaring the importance for clarity with
the initial slide, pronounced that his constituents considered
the permanent fund to be a dividend, not an expense.
5:40:10 PM
CHAIR FAIRCLOUGH advocated to use "share" instead of "spend"
when describing the distribution of the permanent fund dividend.
5:40:34 PM
REPRESENTATIVE AUSTERMAN, directing attention to slide 8,
"Savings & Investments," advised a change of title to "Earnings
& Investments." He opined that the permanent fund generated
earnings on investments, and not savings.
5:41:24 PM
CHAIR FAIRCLOUGH, referring to slide 8, submitted that the
graphic for the piggy bank be a size to visually reflect the
relative size of the earnings. She emphasized that it was also
necessary to clarify that there was limited access to some of
the savings accounts, such as the permanent fund and the
constitutional budget reserve. She concurred with
Representative Austerman for a change of wording to "Earnings &
Investments."
5:42:52 PM
MS. LISTER observed that it was necessary to carefully present
the permanent fund in order to not "overwhelm the conversation."
She agreed that the determination of permanent fund dividends as
spending was tricky because they were a source of operational
revenue. She offered her belief that, although most Alaskans
did not realize that the permanent fund earnings could be used
for government operations, it was important for them to grasp
how the earnings could be used.
REPRESENTATIVE TUCK, referring to slide 12, proposed deleting
the second paragraph, "If you include "spending" on savings, the
figure is $17,000 per person."
5:45:07 PM
REPRESENTATIVE AUSTERMAN, referring to slide 5, "Where does
Alaska's Money come from?" put forward that "savings" in the pie
graph be replaced by "earnings." He noted that the "earnings"
in the pie graph could be further divided to reflect the
spending of those earnings.
5:45:44 PM
REPRESENTATIVE PRUITT agreed that clarification was necessary,
to recognize that the money was coming from investments.
5:46:22 PM
CHAIR FAIRCLOUGH indicated that the permanent fund was not part
of a discussion for fiscal policy and planning, and she
emphasized that there was not any current consideration for
accessing the permanent fund. Recapping that, although annual
investments were to ensure the longevity of the permanent fund,
Alaskans could choose to use permanent fund earnings to provide
for state government.
REPRESENTATIVE AUSTERMAN clarified that, although he did not
want to spend the permanent fund, it needed to be treated as an
asset.
CHAIR FAIRCLOUGH, referring to slide 12, offered her belief that
it was necessary to inform Alaskans for how much was being
invested in Alaska to provide for Alaskans. She proposed that
the silhouetted figures at the bottom of the slide represent
areas of expense and allocation.
5:49:50 PM
REPRESENTATIVE PRUITT submitted that slide 13, "State Agency
Spending," also have graphic representations for the spending by
each agency.
CHAIR FAIRCLOUGH offered her belief that Alaskans valued health
care, and wanted to ensure access to the health care. She
questioned how to illustrate the cost and the unsustainable
trajectory of health costs based on revenue.
5:51:12 PM
MS. LISTER reflected that while health care and education were
both highly valued in the survey, there was a clear
understanding that they were quite costly to the state. She
expressed agreement that the cost of health care was somewhat
underestimated by Alaskans.
5:52:24 PM
MS. ZUSPAN referenced slide 13, "State Agency Spending," and
explained that the original format was a pie chart which
included budget and revenue source for each department; however,
the focus group had spent too much time trying to decipher it.
She pointed out that slide 13, and slide 14, "The Last 10 Years:
State Operations," were a result of this response. Per this
experience, she opined that too many graphics could overwhelm
the message.
5:53:16 PM
REPRESENTATIVE AUSTERMAN referenced a chart that had been
presented by David Teal, Legislative Finance Division, which
used a line graph to depict year by year inflation, along with
"those two big elephants in the room," the decline in oil
production and the increase in operating costs. In response to
Ms. Lister, he said that audiences were immediately impacted by
this chart.
5:54:14 PM
CHAIR FAIRCLOUGH, referring to slide 12, "Per Capita Spending,"
suggested it show that the "lion's share of our budget" was to
the Departments of Education and Early Development, Health and
Social Services, and Transportation & Public Facilities.
5:54:40 PM
REPRESENTATIVE HERRON opined that it was difficult to explain to
ordinary people that the increase in oil revenue was masking the
decline in oil production, while they were making daily
decisions between the purchase of food or fuel. He offered his
belief that Alaskans had lost their share of discretionary
spending.
5:56:32 PM
REPRESENTATIVE PRUITT stated that this presentation was a good
baseline and could be utilized. He opined that the general
public needed more information to better understand the key
pieces.
5:58:29 PM
REPRESENTATIVE AUSTERMAN indicated his desire to convey to the
public an understanding for the sources of revenue and that, as
these were non-renewable, action would be necessary to "fill
that gap that's going to be created and be prepared." He
reflected on the necessity for determining the new business
climate and the new tax base.
5:59:47 PM
REPRESENTATIVE TUCK expressed his appreciation for the process,
declaring that motivation resulted from education. He opined
that the dialogue would achieve good solutions for the state,
that constituents, especially those who did not usually
participate, would attend these presentations and become
involved.
6:00:47 PM
CHAIR FAIRCLOUGH suggested a change to the background color of
the graphics to better accommodate reproduction on non-color
copiers. She summarized that the purpose of this meeting had
been for direction toward finalizing this presentation of
Alaska's finances in the future. She asked that any comments be
remitted to her office by April 9.
6:03:40 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fiscal Policy meeting was adjourned at 6:03
p.m.
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