Legislature(2007 - 2008)
02/19/2007 03:34 PM House W&M
| Audio | Topic |
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| HB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
February 19, 2007
3:34 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Anna Fairclough, Vice Chair
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Sharon Cissna
Representative Max Gruenberg
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 125
"An Act relating to budget planning and a long-range fiscal plan
for the State of Alaska."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 125
SHORT TITLE: LONG-RANGE FISCAL PLAN
SPONSOR(s): WAYS & MEANS
02/08/07 (H) READ THE FIRST TIME - REFERRALS
02/08/07 (H) W&M, FIN
02/14/07 (H) W&M AT 3:30 PM HOUSE FINANCE 519
02/14/07 (H) Heard & Held
02/14/07 (H) MINUTE(W&M)
02/19/07 (H) W&M AT 3:30 PM HOUSE FINANCE 519
WITNESS REGISTER
JOHN BOUCHER, Senior Economist
Office of Management & Budget (OMB)
Office of the Governor
Juneau, Alaska
POSITION STATEMENT: Presented the administration's position on
HB 125 and answered questions.
Marie Darlin, Coordinator
AARP Capital City Task Force (AARP)
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 125 and answered
questions.
ACTION NARRATIVE
HB 125-LONG-RANGE FISCAL PLAN
CHAIR MIKE HAWKER called the House Special Committee on Ways and
Means meeting to order at 3:34:39 PM. Present at the call to
order were Representatives Hawker, Fairclough, Gruenberg, Roses,
Seaton, Wilson, and Cissna.
3:35:37 PM
CHAIR HAWKER stated that the only order of business would be
HOUSE BILL NO. 125, "An Act relating to budget planning and a
long-range fiscal plan for the State of Alaska." [Before the
committee was proposed committee substitute (CS) for HB 125,
Version, 25-LS0546\C, Cook, 2/8/07, which had been adopted as
the work draft on 2/14/07.]
CHAIR HAWKER, speaking as a joint prime sponsor of HB 125,
explained that AS 37.07.020(b) requires the governor to submit
an annual financial plan, but nothing in that statute delineates
or further describes what the financial plan should cover. The
approach taken by the bill amends the statute to require the
governor to submit a fiscal plan. He said that HB 125 was
drafted to detail what is meant by the term "fiscal plan,"
although he acknowledged that the language of the bill may need
some editing for clarity. He emphasized that the intent of the
bill is to make the fiscal plan a simple and objective exercise
to project estimates of revenue and expenses for 10 years. The
fiscal plan will not set forth policy; but will lay the ground
work for future policy decisions, he indicated. In essence, to
prepare the fiscal plan, the OMB would integrate work already
done by the Department of Revenue (DOR) in its biannual "Revenue
Sources Book," with broad projections about significant future
uses of funds. These would be aggregate lump sum projections of
significant uses of funds, he noted.
CHAIR HAWKER emphasized that the bill requires the executive
branch identify sources of revenue and the means to keep the
revenue funds balanced. The fiscal plan would also state
projected balances of significant funds held in separate savings
accounts such as the constitutional budget reserve fund or the
public education fund. The goal of HB 125 is to require the
executive branch to set forth a broad picture of state revenue
trends. He said he believes that the simple baseline fiscal
analysis required by HB 125 is a necessary prerequisite for
long-range fiscal decision making, as well as a way to put a
current year's budget and spending decisions in context. In
summary, HB 125 creates a process through which to approach
long-range fiscal planning.
REPRESENTATIVE WILSON asked whether there is some type of
accepted budget model used by other states to project their
long-range financial situations.
3:46:37 PM
JOHN BOUCHER, Senior Economist, Office of Management & Budget
(OMB), Office of the Governor, answered that although there may
be some standard methodologies for some pieces of the plan,
there is likely not a comprehensive accepted methodology for
state long-range fiscal plans. He noted that any plan is only
as good as its assumptions. Some assumptions, such as the
future growth of Alaska's senior population, are somewhat
factual. However others, such as which revenue sources will be
tapped to pay for increased costs, require policy
determinations. Therefore, the usefulness of a standard plan is
limited, he opined.
CHAIR HAWKER asked whether it is reasonable for OMB to make some
type of predictions for future expenditures based on likely
future cost increases.
3:48:19 PM
MR. BOUCHER replied that the aforementioned type of analysis is
currently practiced by the administration when it prepares the
budget for the next year. He said that administrators feel a
certain level of discomfort when they are required to budget for
a 4 to 5 year period because assumptions can change. Therefore,
either the projections must change, or the assumptions, such as
the amounts of the federal medical assistance percentage (FMAP)
that the state will receive, must be specified within the budget
document itself.
CHAIR HAWKER stated that the drafters of HB 125 recognized
future projections cannot be precise due to some factors, such
as the state's future share of FMAP. Therefore, he acknowledged
that the fiscal plan's forecast will become less detailed the
farther into the future it projects.
REPRESENTATIVE SEATON expressed concern over the usefulness of a
fiscal plan. He referred to this year's prior presentations to
the legislature that predicted a budget gap for Alaska in the
near future, yet pointed out that the legislature is now
considering eliminating certain taxes and concentrating the
state's entire revenue generation on oil. He cautioned that a
fiscal plan may be of limited use if the information presented
does not influence legislative actions.
3:54:16 PM
CHAIR HAWKER replied that he believes it is important for this
committee to raise these revenue issues and to support
development of a record of testimony on fiscal issues. Since
this committee is a special committee which must be re-
authorized, it may be useful to codify the requirement that
there be baseline revenue and spending information similar to
the information brought forth by this committee in its first few
hearings of 2007. He suggested the existence of such
information will help the public see where the executive branch
is leading the state in the area of fiscal policy.
MR. BOUCHER opined that a fiscal plan should be flexible, quick
to respond to change, and contain some idea of the plan's
objective. He said it appears HB 125 requires a fiscal plan
that is part reminder, part educational effort. Furthermore, it
seems to require an appropriate level of effort; although the
executive branch is, he related, capable of putting in a greater
level of effort if the legislature feels that is advisable. He
indicated that it may be important for this committee and the
executive branch to consider what the objective of any fiscal
plan will be. If the objective is clear, it will help put into
context the recognition that long-range expenditures have
consequences, he noted. Referring to past OMB presentations, he
relayed the observation that a relatively simple presentation
can give a picture of future budget predictions.
4:00:17 PM
REPRESENTATIVE WILSON, referring to the difficulty of making
funding decisions in light of the many groups that request
funding and the amount of expenses the state has, and opined
that there needs to be some information to help make these
decisions.
REPRESENTATIVE GRUENBERG questioned whether OMB and the governor
should be required to update any fiscal plan more frequently
than on the annual basis currently required by the bill in light
of possibly fast-changing information about revenues and
spending.
MR. BOUCHER replied that the usefulness of any adjustments would
depend on the size and effort it would take to do them. In the
last 12 months for example, there has been an increase in oil
prices, a policy decision to address unfunded pension
liabilities, and the passage of a production profits tax. Any
one of these aforementioned events can affect future budget
predictions. Furthermore, some of these events were not in play
until September or October 2006, and if a fiscal plan were to
require a detailed analysis of changes like this, the plan may
"die from its own bulk."
REPRESENTATIVE GRUENBERG noted that with the November 2006
initiative which statutorily limits legislative sessions to 90
days, the legislature may be facing more special sessions and
may have to respond to any fiscal plan and updates. Since HB
125 is concerned with the initial fiscal plan, but not with what
happens after the plan is submitted, he questioned whether OMB
has an opinion on what should happen once any fiscal plan is
submitted.
4:07:56 PM
MR. BOUCHER said he believes there should be some sort of
legislative response to a fiscal plan, although he is not sure
what appropriate vehicle for this response should be. He
pointed out that prior administrations have made policy
proposals that have not been implemented by the legislature. In
that type of situation, the failure to implement key components
essentially negates a plan's chance for success, he suggested.
When considering how to craft a plan, it may be more productive
to consider any fiscal plan process as a dialogue between such
bodies as the Legislative Finance Division and OMB, with some
sort of response by the legislature, he opined. He responded to
a query by stating he is not aware of other state's financial
planning efforts.
4:11:42 PM
CHAIR HAWKER informed the committee that Hawaii requires its
governor to prepare a very detailed six-year program and
financial plan. He said he does not want Alaska to utilize such
a detailed route and fall victim to the fallacy of false
precision in the budget planning process.
REPRESENTATIVE ROSES suggested that one advantage of a fiscal
plan is that agencies can be made aware of their future budget
for items such as deferred maintenance. He noted that the
process of predicting future income and expenses is an accepted
business practice, and each year those figures are adjusted to
meet the needs of the business' long-range plan. He warned that
using financial planning information from other states may be of
limited usefulness since Alaska's revenues are based mainly on
income from natural resources, which can be volatile compared to
a resource base that comes mainly from taxes. He said that a
planning process could be very helpful, especially for areas
such as the unfunded pension liability and deferred maintenance
issues.
REPRESENTATIVE SEATON opined that some sort of legislative
response is critical, but in reality it is already done by the
budget process. He stated that there may be a helpful
educational component to a fiscal planning process that involves
the Legislative Finance Division and OMB, but those agencies are
not able to give any type of commitment or implementation
authority to the plan.
4:17:47 PM
MARIE DARLIN, Coordinator, AARP Capital City Task Force (AARP),
testified that the AARP supports the efforts of the committee to
establish a long-term fiscal plan and is willing to provide any
help the committee deems necessary.
CHAIR HAWKER asked Ms. Darlin her opinion of whether a fiscal
plan should be a set plan, or whether fiscal planning should be
considered more of a continuing process that does not dictate a
one time solution.
MS. DARLIN opined that it would be beneficial for the state to
put forth some long-range policy goals, but that anyone who
follows the legislature knows it cannot pin everything down to
finite details. However, in general people like to know where
the state is headed, and within that framework there can be
changes and adjustments made as necessary, she said.
4:23:50 PM
REPRESENTATIVE FAIRCLOUGH asked about AARP's position on the
long-term impacts of an increased senior population and how the
state can provide the resources necessary to meet their needs,
especially in view of potential future decreases in federal
funding for health care services.
MS. DARLIN stated that AARP looks at many factors and studies
every report on Medicaid and other issues, and that one has to
review the many angles when trying to balance the numerous
senior population issues. The AARP does look at many issues,
such as the longevity bonus, to determine what the state is
going to be able to afford.
4:27:19 PM
REPRESENTATIVE FAIRCLOUGH acknowledged that seniors who migrate
to the state bring benefits, and that AARP may have a greater
understanding of some needs related to the senior population.
4:29:35 PM
Mr. BOUCHER paraphrased from the following written testimony
[original punctuation provided]:
The Administration's FY08 budget proposal reflects
some of the principles that have been emphasized in
previous iterations of fiscal plans:
xExamining state spending to insure that state services
are being delivered in the most efficient and cost
effective manner possible, and
xInsuring that surplus revenue is set aside for use at a
future time when the state's revenue is less plentiful.
Conceptually, the administration believes that a
fiscal plan should be a useful tool, and that any
processes or plans developed should be flexible enough
to quickly respond to changes in the fundamental
realities that determine the state's fiscal health-
such as changes in world oil markets or North Slope
oil and gas production.
xOne overarching concern is that the plan or process
may become a bulky annual exercise that sits on a
shelf and [gets] ignored. OMB has some experience
with planning efforts that sit on the shelf and we
would like to avoid that occurring.
Another thing that the committee might consider is
what the objective of the plan or planning process is
and what the appropriate level of resources should be
devoted to achieving that objective.
4:33:20 PM
MR. BOUCHER went on to say that if the intent of the fiscal plan
is to outline the magnitude of the fiscal challenges facing the
state that could be accomplished by presentations to this
committee by DOR, OMB, and the Legislative Finance Division. He
opined that most of the revenue options available to fill the
fiscal gap have been studied, and in some cases presented to the
legislature, yet the state is not really any closer to a
solution. He questioned whether the addition of a planning
process will help the state solve its fiscal problems. He
raised the issue of whether the resources that would be spent
preparing a fiscal plan might be better spent focusing on
targeted solutions to major spending issues, like Medicaid, the
Public Employees' Retirement System (PERS), or deferred
maintenance of state facilities. He said it is within the
normal course of any administration's work to bring major issues
to light and to frame the effect those issues may have on the
fiscal gap.
MR. BOUCHER further paraphrased from the following written
testimony [original punctuation provided]:
As far as the mechanics of the bill- our reading is
that just like the budget, a new administration would
be obligated to release a fiscal plan at the same time
th
as the December 15 budget release. As such, it
· Puts a new administration in the position of
submitting the previous administration's plan-
and potentially distancing itself from the plan
immediately. Therefore, we support the idea that
was discussed by several members that a new
administration might be exempt from submitting a
plan until it's been in office for a year or so.
4:34:10 PM
MR. BOUCHER stated that OMB's current understanding of the
detail desired by the bill would require OMB to add a new full-
time staff position and possibly to contract out some work for
specific issues, such as Medicaid. If a lesser product is
intended by HB 125, OMB may not need an additional position to
prepare the fiscal plan. He stated that while the
administration supports the efforts of the committee to raise
profile of long-term fiscal planning, it has some questions as
to whether this legislation is the most cost-effective way to
achieve the goals of a long-term plan, as well as some other
concerns about the details of plan implementation when an
administration changes. He responded to Chair Hawker by
reiterating the administration's concern is whether this
legislation is the most cost effective approach to long-range
planning. He stated that if HB 125 is designed to require
development of a large document, the administration may question
whether its efforts could be better spent by having a staff
member look in depth at a targeted issue, such as pension fund
debt issues.
4:37:24 PM
CHAIR HAWKER stated he does not envision the fiscal plan being a
huge document. He asked Mr. Boucher to suggest where in the
current bill language could be changed to ameliorate that
concern.
REPRESENTATIVE WILSON opined that it might be beneficial to
clearly state any fiscal plan's intentions for a future
legislature to consider, even though one legislature cannot bind
a future legislature.
CHAIR HAWKER suggested that the committee not create an overly
precise work product; instead, it should craft a process that
can evolve to become a work product an administration may desire
to bring forward.
REPRESENTATIVE GRUENBERG pointed out that a prior legislature
passed missions and measures legislation, which was "kind of
spotty," was only used during one administration, and is in
uncodified law, where "people can't find it." A fiscal plan may
predict the source and amount of projected revenues, but not
much more than that. If the legislature wants to do anything
more that than, the plan has to get into government operations,
he opined. He offered that in his opinion, a part-time
legislature is not able to do enough oversight of governmental
operations. Furthermore, a 90-day legislative session may make
it more of a challenge to have the required governmental
oversight needed to do the people's work right, he said. The
planning function the committee is looking at is concerned with
what the state should be doing in the next 10 years. However,
to do that properly, the legislature needs to determine how to
act as a board of directors. He proposed that as part of the
legislature's response to any fiscal plan, there should be some
discussion as to the extent and timing of legislative oversight.
MR. BOUCHER said that OMB is responsible for the existing
missions and measures programs, and he believes it has come
quite far in the last several iterations. He offered to provide
some information on OMB's performance oversight work.
4:48:45 PM
REPRESENTATIVE GRUENBERG responded to Chair Hawker's inquiry
about the appropriate legislative response by opining that the
legislature ought to respond point-by-point to the annual
update, either in the budget or by resolution. This would give
the legislature, the executive branch, and the public an idea of
what the legislature plans to do in response to the executive's
fiscal plan. Furthermore, there should be a process whereby the
legislature sets out what the legislative oversight function
shall be and as part of that, a process by which the missions
and measures concept is updated. The product of the oversight
would include updating the missions and measures piece of
legislation, he offered.
REPRESENTATIVE CISSNA observed that the legislature has to have
an understanding where various state departments are going so as
to have oversight. She related her understanding that other
states have simplified this process of oversight, and therefore
there are some tools available to help on this issue.
4:53:06 PM
REPRESENTATIVE SEATON stated that a fiscal plan can begin to
include too many factors and agencies. He suggested that it may
be helpful and financially sound to include any fiscal plan as
an addendum to DOR's "Revenue Source Book," because coordination
with various agencies may be helpful and could eliminate some
cost concerns. He said that in his experience as a legislator,
he has not seen the administration put forth plans to resolve
the larger issues facing the state, such as pension fund
liabilities and deferred maintenance of state facilities. As a
result, the legislature is left to try and resolve these
problems. He opined that the executive department, with its
large staff in DOR, should have a much better handle on some of
these issues than the legislature. He would like to see a
fiscal plan identify long-term problems and possibly require
that the executive branch address at least one of the identified
problems. He suggested it could be helpful to internalize in
the process a requirement that there be suggested solutions to
the big pieces of the plan that are causing budget problems.
4:57:52 PM
CHAIR HAWKER said he had not considered the idea of a fiscal
plan being an OMB appendix to DOR's "Revenue Sources Book," to
work as a reconciliation of revenue forecasts with a reasonable
approximation of expenditures, but that it was an intriguing
consideration.
REPRESENTATIVE FAIRCLOUGH suggested that HB 125 be amended to
reduce the fiscal plan forecast from 10 years to 6. While there
are good reasons to have a long-term target, she noted that the
governor's capital improvement plan has a 6-year timeline. She
questioned how valuable a forecast would be beyond a 3-year
period. She also stated that any budget should not be based on
policy decisions that have to go before the legislature, because
the state cannot balance its budget based on predictions of what
another body may do. Any budget should be based on real facts
and numbers from DOR, not on policy decisions that the executive
cannot control, she opined. She highlighted that in the past,
the legislature has balanced the budget in the last few weeks of
the session, which is why certain needs, such as deferred
maintenance and pension liabilities, are not met. She observed
that it is difficult to base fiscal policy on actions that are
up to a different body of government. A reality based budget
would give reality to the budget choices made, she opined.
5:02:36 PM
CHAIR HAWKER pointed out that the 10-year timeline in the
proposed CS to HB 125 is derived from the current revenue
process, which provides a 10-year forecast.
REPRESENTATIVE FAIRCLOUGH pointed out that AS 37.07.020(b)
requires the governor to submit a 6-year capital improvements
program, and thus requiring a fiscal plan to be for 10 years
seems inconsistent. She opined that it would seem to be easier
to predict a 10-year capital improvements plan than a 10-year
budget.
CHAIR HAWKER noted that Version C of HB 125 leaves the capital
improvements section of AS 37.07.020(b) which have been largely
ignored in the past, intact.
5:04:10 PM
REPRESENTATIVE SEATON agreed that budgets need to be constructed
on real numbers, but he stated that a plan can give the decision
makers means to look to the future to consider options for how
to resolve long-term problems.
REPRESENTATIVE FAIRCLOUGH responded that she is contemplating an
amendment that states "a fiscal plan should present policy
choices to the legislature to reduce state [expenses] and/or
increase return on investment." She observed that one can make
assumptions about future revenues, but policies are more of a
strategic plan that would be implemented over time.
CHAIR HAWKER offered that the points brought up by
Representative Fairclough might be appropriate to include in an
amendment to the proposed CS to HB 125, Section 4, on policy
determinations.
REPRESENTATIVE GRUENBERG suggested that the committee consider
whether to propose any changes to the capital improvements
program in AS 37.07.020(b). He went on to say it can be
difficult for committee members to agree on revenue raising
measures. He opined that there is no reason to require the
executive branch to come out with a fiscal plan, without also
requiring the legislature to make some type of strategic
decisions based on the proposed fiscal plan.
5:10:39 PM
MR. BOUCHER responded to Chair Hawker's hypothetical of how OMB
would respond if nothing in AS 37.07.020(b) was amended by
describing OMB's experience with the capital improvements
program required by that statute. He recalled that the capital
improvements program was done sequentially for several years
during the first administration of former governor Tony Knowles,
with the intent "to get a hearing on that bill ... that either
didn't happen ... and so the effort over time ... was not
desired." In reference to a financial plan, as required by AS
37.07.020(b), he opined that the budget is the financial plan.
[HB 125 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
5:13:01 PM.
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