Legislature(2021 - 2022)DAVIS 106

03/30/2021 11:30 AM WAYS & MEANS

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11:32:09 AM Start
11:36:48 AM Presentation: Alaska's Revenues and Expenditures
12:33:53 PM Presentation: 10 Year Plan
01:37:02 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentations: TELECONFERENCED
- Alaska's Revenues & Expenditures by Alexi
Painter, Legislative Finance Div.
- 10 year plan by Neil Steininger,
Office of Management & Budget
                    ALASKA STATE LEGISLATURE                                                                                  
            HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS                                                                         
                         March 30, 2021                                                                                         
                           11:32 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Ivy Spohnholz, Chair                                                                                             
Representative Adam Wool                                                                                                        
Representative Andy Josephson                                                                                                   
Representative Calvin Schrage                                                                                                   
Representative Andi Story                                                                                                       
Representative Mike Prax                                                                                                        
Representative David Eastman                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  ALASKA'S REVENUES AND EXPENDITURES                                                                               
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PRESENTATION:  10 YEAR PLAN                                                                                                     
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ALEXEI PAINTER, Director                                                                                                        
Legislative Finance Division                                                                                                    
Legislative Affairs Agency                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Provided a PowerPoint presentation, titled                                                               
"Historic Revenue and Expenditures," dated 3/30/21.                                                                             
                                                                                                                                
NEIL STEININGER, Director                                                                                                       
Office of Management and Budget                                                                                                 
Office of the Governor                                                                                                          
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT:  Provided  a PowerPoint  presentation  on the                                                            
Office of Management and Budget's 10-year plan, dated 3/30/21.                                                                  
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
11:32:09 AM                                                                                                                   
                                                                                                                                
CHAIR IVY  SPOHNHOLZ called  the House  Special Committee  on Ways                                                            
and Means  meeting to order at  11:32 a.m.  Representatives  Wool,                                                              
Josephson,  Schrage,  Story,  Prax, Eastman,  and  Spohnholz  were                                                              
present at the call to order.                                                                                                   
                                                                                                                                
CHAIR SPOHNHOLZ  reviewed the three  goals that the  House Special                                                              
Committee  on Ways  and Means  (HW&M) was  charged with:  consider                                                              
methods to  control state spending,  identify ways in  which state                                                              
programs may be  made more efficient, and propose  new measures to                                                              
raise  additional  state  revenue.     She  noted  that  the  same                                                              
language had been  used in resolutions that created  the committee                                                              
in previous legislatures  - most recently in 2003-2008.   She said                                                              
each  element  is  critical  as   the  legislature  works  towards                                                              
resolving the state's  structural deficit, which  Alaska has faced                                                              
off and on  for decades.  She  recalled that the first  fiscal gap                                                              
was  in  the  late  1980s  when   the  price  of  oil  dropped  to                                                              
approximately  $9 per barrel  after the  legislature repealed  the                                                              
income tax.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WOOL made  a motion  to grant  the [House  Special                                                              
Committee  on  Ways  and  Means]  chair  the  authority  to  draft                                                              
committee bills for the consideration of the committee.                                                                         
                                                                                                                                
REPRESENTATIVE EASTMAN objected.                                                                                                
                                                                                                                                
A roll  call  vote was  taken.   Representatives Wool,  Josephson,                                                              
Schrage,  Story,  and Spohnholz  voted  in  favor of  the  motion.                                                              
Representatives  Prax and  Eastman voted against  it.   Therefore,                                                              
the motion passed by a vote of 5-2.                                                                                             
                                                                                                                                
^PRESENTATION:  Alaska's Revenues and Expenditures                                                                              
        PRESENTATION:  Alaska's Revenues and Expenditures                                                                   
                                                                                                                              
11:36:48 AM                                                                                                                   
                                                                                                                                
CHAIR SPOHNHOLZ announced  that the first order  of business would                                                              
be  a  presentation  on  Alaska's  revenues  and  expenditures  by                                                              
Alexei Painter, Legislative Finance Division (LFD).                                                                             
                                                                                                                                
11:38:00 AM                                                                                                                   
                                                                                                                                
ALEXEI PAINTER,  Director, LFD, Legislative Affairs  Agency (LAA),                                                              
provided a PowerPoint  presentation, titled "Historic  Revenue and                                                              
Expenditures" [hard  copy included in  the committee packet].   He                                                              
began on  slide 2, titled "General  Notes," which read  as follows                                                              
[original punctuation provided]:                                                                                                
                                                                                                                                
     -Historic  revenue numbers  are from  the Department  of                                                                   
     Revenue's  "60  Years  of Revenue"  publication  in  the                                                                   
     Fall 2018 Revenue Sources Book                                                                                             
     -Recent  revenue  numbers  are   from  the  Spring  2020                                                                   
     Revenue Sources Book                                                                                                       
     -Historic    budget    numbers    use    current    fund                                                                   
     classifications   so  these   numbers  will  not   match                                                                   
     contemporary publications                                                                                                  
     -This allows  for more straightforward  comparisons with                                                                   
     the current year                                                                                                           
     -Inflation and  population data are from  the Department                                                                   
     of Labor and use Anchorage CPI                                                                                             
     -All   Funds   data  in   this   presentation   excludes                                                                   
     duplicated funds                                                                                                           
     -Unrestricted  General  Funds (UGF)  are  used for  most                                                                   
     slides  because  that  is  the  only  fund  source  that                                                                   
     impacts  the  size  of  the   deficit.  All  Funds  data                                                                   
     indicates the  size of government  but may not  directly                                                                   
     correlate to the State's fiscal situation                                                                                  
                                                                                                                                
11:40:18 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PRAX remarked:                                                                                                   
                                                                                                                                
     You're  saying  the  Unrestricted General  Funds  -  the                                                                   
     only fund  source that impacts  the size of  the deficit                                                                   
     - then the  other funds are not just General  Funds that                                                                   
     have been  designated for  this or  that ... it's  funds                                                                   
     that come in from some a source other than ... taxes.                                                                      
                                                                                                                                
11:40:48 AM                                                                                                                   
                                                                                                                                
MR.  PAINTER  explained  that  a  Designated  General  Fund  (DGF)                                                              
included  a  designated  tax  by  statute;  however,  for  deficit                                                              
calculations,  the expenditures  and  revenue from  that fund  are                                                              
set  to   be  equal   because  if   revenue  exceeds   expenditure                                                              
authority, that  amount would either  remain in the fund  or lapse                                                              
to  the  General  Fund.    Further,   when  authorization  exceeds                                                              
revenue, it  is referred to as  "hollow authorization."   He noted                                                              
that neither case would necessarily feed into the deficit.                                                                      
                                                                                                                                
11:42:24 AM                                                                                                                   
                                                                                                                                
MR. PAINTER  resumed the presentation  on slide 3,  which featured                                                              
a graph  showing UGF revenue since  statehood.  The  green portion                                                              
reflected traditional  UGF revenue,  the orange portion  reflected                                                              
Permanent  Fund   Dividend  (PFD)  transfers  from   the  Earnings                                                              
Reserve  Account  (ERA), and  the  purple  showed the  percent  of                                                              
market value  (POMV) draw, which began  in FY 19 and  replaced the                                                              
direct  draw   from  the  ERA  for   the  dividend.     The  graph                                                              
highlighted  historic revenue  spikes, including  the Prudhoe  Bay                                                              
lease  sale  [first  spike  in revenue  -  unlabeled],  the  first                                                              
production from  Trans-Alaska Pipeline System (TAPS)  in 1977, and                                                              
peak North slope oil production in FY 89.                                                                                       
                                                                                                                                
11:44:36 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE STORY  asked when  the tax structure  changed under                                                              
the Palin Administration.                                                                                                       
                                                                                                                                
MR. PAINTER answered  FY 15.  He noted that the  effect of the tax                                                              
regime  change is not  depicted on  the current  slide because  it                                                              
coincided with a drastic drop in oil prices.                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ informed  the committee that 2  billion barrels of                                                              
oil  per  day  was being  produced  in  1989  whereas  today,  oil                                                              
production is at 500,000 barrels per day.                                                                                       
                                                                                                                                
11:45:30 AM                                                                                                                   
                                                                                                                                
MR. PAINTER  continue to the  graph on slide  4, which  showed the                                                              
data  from slide  3 adjusted  for  inflation and  population.   He                                                              
indicated that  the Prudhoe Bay  lease sale, which  was relatively                                                              
small  on the  previous graph,  brought the  state nearly  $20,000                                                              
per  person  in real  revenue  after  inflation adjustments.    He                                                              
noted  that the  same level  was  not exceeded  until oil  revenue                                                              
peaked  in  the  1980s.    Additionally,  the  graph  showed  that                                                              
today's  revenue is  similar to  FY  16 and  FY 17,  which is  the                                                              
lowest level since before the pipeline era.                                                                                     
                                                                                                                                
CHAIR SPOHNHOLZ  surmised that after  adjusting for  inflation and                                                              
population,  [today's]  revenue   is  well  below  the  historical                                                              
average  spending in  the last  60 years.   She asked  if that  is                                                              
correct.                                                                                                                        
                                                                                                                                
MR. PAINTER  replied in  the affirmative.   He noted  that without                                                              
the POMV  revenue, traditional revenue  is at a lower  level today                                                              
than  in the  1990s,  which was  another  troubling  time for  the                                                              
state fiscally.                                                                                                                 
                                                                                                                                
11:48:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SCHRAGE  asked  for  a breakdown  of  oil  revenue                                                              
versus what was brought in by the state oil tax prior to 1980.                                                                  
                                                                                                                                
MR. PAINTER said  at its repeal, the personal  income tax adjusted                                                              
for inflation  and population  would bring  in today's  equivalent                                                              
of  roughly  $600-$700  million.   He  expounded  that  after  the                                                              
Prudhoe Bay  lease sale,  the main sources  of revenue  were taxes                                                              
on  Cook Inlet  oil production  and  the personal  income tax,  as                                                              
well as an education  head tax and several other  revenue sources.                                                              
He believed  that in the early period of statehood, the income tax                                                              
was  a  main  source  of revenue  for  the  state.    However,  he                                                              
reiterated  that if the  income tax  were adjusted forward,  $600-                                                              
$700  million wouldn't  meet the  current level  of government  at                                                              
$4.5 billion.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SCHRAGE  questioned  whether the  personal  income                                                              
tax was primarily funding state government from 1961-1966.                                                                      
                                                                                                                                
MR. PAINTER  confirmed that in the  first few years  of statehood,                                                              
the income tax was the state's largest revenue source.                                                                          
                                                                                                                                
REPRESENTATIVE  SCHRAGE sought verification  that today's  revenue                                                              
is comparable  to the  income tax  revenue during  the first  five                                                              
years of statehood.                                                                                                             
                                                                                                                                
MR. PAINTER  said it's roughly  equivalent without the  POMV draw,                                                              
which is currently the state's largest source of revenue.                                                                       
                                                                                                                                
11:51:07 AM                                                                                                                   
                                                                                                                                
MR.  PAINTER  proceeded  to  the  graph on  slide  5  showing  ANS                                                              
[Alaska  North  Slope]  oil  production  and  prices  from  FY  11                                                              
through FY  21.  The red  portion reflected ANS  production, which                                                              
declined from  approximately 600,000 barrels  per day in FY  11 to                                                              
just  below 500,000  barrels  per  day in  FY  21; the  blue  line                                                              
reflected ANS  price, which  was over $100  per barrel from  FY 12                                                              
to FY 14 and declined to $52 per barrel in FY 20.                                                                               
                                                                                                                                
11:52:24 AM                                                                                                                   
                                                                                                                                
MR. PAINTER advanced  to the graph on slide 6  showing UGF revenue                                                              
and  oil  prices  from FY  11  through  FY  21.   The  black  line                                                              
represented  the  ANS  price, the  blue  portion  represented  the                                                              
petroleum revenue,  the red portion represented  the non-petroleum                                                              
revenue, the purple  portion showed the ERA draw for  the PFD, and                                                              
the  green  portion  showed  the  ERA  draw  for  the  POMV.    He                                                              
reiterated that  the ERA draw  for the POMV  is still  the state's                                                              
largest  source of  revenue; however,  it doesn't  compare to  the                                                              
revenue level in FY 13 and prior.                                                                                               
                                                                                                                                
11:54:12 AM                                                                                                                   
                                                                                                                                
MR.  PAINTER  progressed  to  a  graph  on  slide  7  showing  UGF                                                              
spending and  revenue since statehood  with the bars  representing                                                              
state spending.   He conveyed  that the agency operations  portion                                                              
of  the budget  [shown  in dark  blue]  had been  relatively  flat                                                              
since the  mid-1980s through  the early  2000s due to  constrained                                                              
revenue.   He noted that spending  on agency operations  increased                                                              
when revenue  increased.  He pointed  out that there  were several                                                              
deficits throughout  the 1980s and  1990s resulting in  draws from                                                              
the Constitutional  Budget Reserve (CBR) account,  which turned in                                                              
to surpluses  when revenue  spiked and  returned to deficits  when                                                              
revenue declined.                                                                                                               
                                                                                                                                
11:56:32 AM                                                                                                                   
                                                                                                                                
CHAIR  SPOHNHOLZ questioned  when the  oil tax  changes passed  by                                                              
the Palin Administration went into effect.                                                                                      
                                                                                                                                
MR. PAINTER  answered  FY 07, which  coincided  with the spike  in                                                              
oil prices.                                                                                                                     
                                                                                                                                
CHAIR  SPOHNHOLZ concluded  that  there was  a  nexus between  oil                                                              
taxes and  oil price, resulting in  an infusion of  resources that                                                              
allowed Alaska  to "do a lot  of things," but  wasn't maintainable                                                              
after  the price  of  oil dropped.   She  further  noted that  the                                                              
decline in  oil price  coincided with the  passage of  Senate Bill                                                              
21.                                                                                                                             
                                                                                                                                
MR. PAINTER  replied in  the affirmative.   He explained  that the                                                              
Palin-era tax didn't  have a minimum tax like the  current oil tax                                                              
system.   He expounded that during  the periods of much  lower oil                                                              
prices, the  higher progressivity  of the  Palin-era tax  wouldn't                                                              
have  led to higher  revenue  because of  the lack  of a floor  in                                                              
that tax system.                                                                                                                
                                                                                                                                
11:57:43 AM                                                                                                                   
                                                                                                                                
MR. PAINTER  continued to the graph  on slide 8, which  showed the                                                              
data on slide 7  adjusted for inflation and population.   He noted                                                              
the prolonged period  of constrained spending in  per capita terms                                                              
from  the mid-1980s  through the  early 2000s.   Additionally,  he                                                              
pointed  out that  today,  spending has  declined  to roughly  the                                                              
same level  as FY 07 before the  spikes in spending from  the mid-                                                              
2000s.                                                                                                                          
                                                                                                                                
11:58:41 AM                                                                                                                   
                                                                                                                                
CHAIR  SPOHNHOLZ noted  that  in times  of  lower spending,  there                                                              
were also  services that made the  quality of life much  better in                                                              
Alaska compared  to the 1970s  and 1980s.   She recalled  times in                                                              
her  childhood when  streets went  unplowed,  rural students  were                                                              
sent  to boarding  schools,  and public  safety  was a  challenge.                                                              
Further,  the federal government  had primacy  over many  elements                                                              
of issues that  affected Alaska's government and  the way commerce                                                              
functioned.                                                                                                                     
                                                                                                                                
12:00:29 PM                                                                                                                   
                                                                                                                                
MR. PAINTER  addressed the spike  on statewide items,  noting that                                                              
there was not  an unfunded pension liability until  the mid-2000s,                                                              
which  is now  an annual  expense of  $300 million.   He  directed                                                              
attention to the  graph on slide 9 showing All  Funds spending and                                                              
revenue  since statehood.   He noted  that the  data assumed  that                                                              
revenue equals expenditures for the non-UGF sources.                                                                            
                                                                                                                                
CHAIR  SPOHNHOLZ asked  what  the buying  power  of an  unadjusted                                                              
dollar from 1970 would be today.                                                                                                
                                                                                                                                
MR. PAINTER offered to follow up with the requested information.                                                                
                                                                                                                                
12:02:17 PM                                                                                                                   
                                                                                                                                
MR. PAINTER  advanced to the graph  on slide 10, which  showed All                                                              
Funds   spending  and   revenue  since   statehood  adjusted   for                                                              
inflation and  population.   He pointed out  that the spike  in FY                                                              
20 is primarily  due to federal  aide for coronavirus relief.   He                                                              
said the graph  shows less volatility because the  state's federal                                                              
authorization was  stable over the years.   He added that  many of                                                              
the overall trends are the same.                                                                                                
                                                                                                                                
12:03:27 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WOOL questioned  why agency  operations spiked  in                                                              
1982 and decreased in 1983.                                                                                                     
                                                                                                                                
12:03:36 PM                                                                                                                   
                                                                                                                                
MR. PAINTER offered to follow up with the requested information.                                                                
                                                                                                                                
12:03:44 PM                                                                                                                   
                                                                                                                                
MR.  PAINTER progressed  to  the  graph on  slide  11 showing  UGF                                                              
spending and revenue  from FY 11 through FY 21.   He noted that FY                                                              
13  was the  first year  of deficit  spending  despite having  oil                                                              
prices  over  $100.   He  pointed  out that  FY  21 is  the  ninth                                                              
straight  year of  deficits.   The total  budget is  significantly                                                              
smaller  today  than  it was  in  FY  13,  much of  which  is  the                                                              
reduction in  the capital budget.   There  is also a  reduction in                                                              
statewide items.   He informed  the committee that  the retirement                                                              
liability  and  the  oil  and gas  tax  credits  are  the  largest                                                              
spending items.                                                                                                                 
                                                                                                                                
12:05:22 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON  sought to confirm that  the state cannot                                                              
"deficit spend" institutionally in the final analysis.                                                                          
                                                                                                                                
MR.  PAINTER  defined  "deficit  spending"  as  drawing  from  the                                                              
budget  reserves  to meet  the  state  budget, according  to  LFD.                                                              
However, to  understand the  state's fiscal  situation, he  said a                                                              
draw from  the Statutory Budget Reserve  (SBR) or a draw  from the                                                              
Constitutional Budget Reserve (CBR) is considered a deficit.                                                                    
                                                                                                                                
12:06:26 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  SCHRAGE  questioned  whether  the  capital  budget                                                              
funds  include   deferred  maintenance  or  new   construction  of                                                              
projects.                                                                                                                       
                                                                                                                                
MR.  PAINTER  said  it  includes  both.    He  explained  that  an                                                              
initiative  in  the  Parnell  Administration   addressed  deferred                                                              
maintenance  with $100  million  per year  for  five years,  which                                                              
brought  the  deferred  maintenance  backlog  down  from  over  $2                                                              
billion at  its peak to $1.5 billion.   He noted that  the backlog                                                              
is  currently  back  up to  $2  billion  because  that  investment                                                              
wasn't continued.   Additionally,  he stated that  capital budgets                                                              
during that  era included  numerous direct  grants to  nonprofits,                                                              
local governments, and schools.                                                                                                 
                                                                                                                                
12:07:41 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PRAX  shared his understanding that  when a private                                                              
business  uses  the  term  "capital  spending,"  it's  referencing                                                              
expenditures  that  last  more  than   a  year,  whereas  "capital                                                              
spending"  to  the state  refers  an  expenditure in  the  capital                                                              
budget.  He asked if that is correct.                                                                                           
                                                                                                                                
MR. PAINTER  stated that  in many cases,  LFD counts  items "based                                                              
on their  nature;" for  example, if there  were a clear  operating                                                              
item in  the capital  bill, it  would be  counted as an  operating                                                              
item.   He noted that many  items in the  capital budget are  in a                                                              
"gray area,"  such as  a grant  for a  nonprofit's roof  repair or                                                              
funding for a study.                                                                                                            
                                                                                                                                
12:09:30 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SCHRAGE,  referencing slide 11, asked  whether most                                                              
of the  capital budget  (in light  blue) is deferred  maintenance.                                                              
Additionally,  he asked  whether  the [current]  level of  capital                                                              
budget  is holding  deferred  maintenance  steady  or if  deferred                                                              
maintenance is growing.                                                                                                         
                                                                                                                                
MR.  PAINTER restated  that the  deferred  maintenance backlog  is                                                              
over $2  billion.   He said the  largest share of  that is  at the                                                              
University  of  Alaska,  which  historically   used  part  of  its                                                              
general  funds for  deferred maintenance.   He  explained that  as                                                              
the  University's  of  Alaska's   budget  has  been  reduced,  the                                                              
university    reduced    funding   for    deferred    maintenance.                                                              
Additionally,  the way  deferred  maintenance  is funded  changed.                                                              
Several  years  ago, a  statute  was  passed that  designated  the                                                              
Alaska Capital  Income Fund as  "for deferred maintenance,"  which                                                              
provided  a  regular  revenue  source of  $30  million  per  year.                                                              
However,  for  comparison, the  state  owns  about $9  billion  in                                                              
buildings, which  in the most  conservative 1 percent  rule, would                                                              
be about $90 million  per year.  He said that  amount [of deferred                                                              
maintenance]   has    not   been   funded   since    the   Parnell                                                              
Administration.  He  conveyed that the backlog grew  over the past                                                              
few years because less was invested in it.                                                                                      
                                                                                                                                
REPRESENTATIVE SCHRAGE  characterized the deferred  maintenance as                                                              
"incredibly  troubling."   He also  expressed  concern that  there                                                              
are no new construction  jobs to develop new projects  or maintain                                                              
basic upkeep on the state.                                                                                                      
                                                                                                                                
12:12:09 PM                                                                                                                   
                                                                                                                                
CHAIR  SPOHNHOLZ  asked  whether  the list  of  accruing  deferred                                                              
maintenance projects  includes every statewide project  that needs                                                              
to be completed or if the list could potentially be higher.                                                                     
                                                                                                                                
MR. PAINTER  deferred the question  to the director of  the Office                                                              
of Management  & Budget (OMB).   He stated  his belief  that there                                                              
is currently a  multi-agency effort to bring all  projects forward                                                              
on a unified list.                                                                                                              
                                                                                                                                
CHAIR  SPOHNHOLZ   emphasized  the   importance  of   prioritizing                                                              
deferred  maintenance  projects  when considering  a  strategy  to                                                              
address the  state's fiscal  situation.  She  pointed out  that if                                                              
it  is   not  addressed,   the  cost   would  only  grow   higher;                                                              
furthermore, some  deferred maintenance  projects could  help with                                                              
energy efficiency, which could save costs in the future.                                                                      
                                                                                                                                
12:13:33 PM                                                                                                                   
                                                                                                                                
MR. PAINTER noted  that the $2 billion figure  only includes state                                                              
facilities, leaving  out deferred  maintenance at facilities  that                                                              
the  state  may  have  some  responsibility  for,  such  as  rural                                                              
schools, which are  funded through separate means.   Additionally,                                                              
there is $1.8  billion of deferred maintenance in  water and sewer                                                              
projects  that  is  met  through  the  Village  Safe  Water  (VSW)                                                              
program.   Further, the Alaska  Energy Authority  (AEA) identified                                                              
$800 million  in bulk  fuel deferred  maintenance projects  that's                                                              
funded  through an  AEA appropriation.   He  concluded that  there                                                              
are a number  of other items  that fall into the  general category                                                              
of   deferred  maintenance   that   are  not   necessarily   state                                                              
facilities, so they are not included in the $2 billion figure.                                                                  
                                                                                                                                
CHAIR  SPOHNHOLZ  asked  whether  some  facilities  contribute  to                                                              
operating expense  because the state is responsible  for providing                                                              
funding to local communities to operate the buildings.                                                                          
                                                                                                                                
MR. PAINTER said  in some cases, yes. He explained  that the water                                                              
and sewer programs  don't feed into the budget  directly; however,                                                              
there's  not a local  capacity for  those projects,  so the  state                                                              
and the federal government, through VSW, make that investment.                                                                  
                                                                                                                                
12:16:32 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   JOSEPHSON  recalled   that  DEC  [Department   of                                                              
Environmental  Conservation]  opined  that  there  could  be  less                                                              
regulation of  bulk fuel containers in  the last fiscal  year.  He                                                              
characterized  that statement  as "ironic"  given the amount  that                                                              
they claim  needs to  be enhanced.   He asked  if that  is correct                                                              
[that  the administration's  position  was that  they didn't  need                                                              
on-site inspection of some large bulk fuel containers].                                                                         
                                                                                                                                
MR.  PAINTER confirmed  [that he  recalled that  discussion].   He                                                              
noted that the $800 million figure is AEA's number, not DEC's.                                                                  
                                                                                                                                
12:17:23 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE WOOL  noted that some of the $1.8  billion in water                                                              
and sewer is maintenance  and some is new construction.   He asked                                                              
whether  the  new  construction  is  typically  paid  for  by  the                                                              
federal government.                                                                                                             
                                                                                                                                
MR.  PAINTER said  both  are partially  paid  for  by the  federal                                                              
government with  an existing state  match.  He explained  that the                                                              
annual VSW appropriation  includes a portion for  new construction                                                              
and a portion for maintenance.                                                                                                  
                                                                                                                                
REPRESENTATIVE WOOL asked whether the state match is 50/50.                                                                     
                                                                                                                                
MR. PAINTER  shared his belief that  the match is 25 percent.   He                                                              
offered to verify that number and follow up with the committee.                                                                 
                                                                                                                                
12:18:23 PM                                                                                                                   
                                                                                                                                
MR. PAINTER  proceeded  to the graph  on slide  12 showing  agency                                                              
operations  by fund  group from  FY 11  through FY  21.  The  blue                                                              
portion  reflected  UGF,  the  red  portion  reflected  Designated                                                              
General Funds (DGF),  the green portion showed  other state funds,                                                              
and  the purple  showed  federal  receipts.   He  highlighted  the                                                              
spike in  federal receipts  in FY 20 from  the CARES  Act funding.                                                              
He noted that while UGF had decreased, All Funds remained level.                                                                
                                                                                                                                
12:19:04 PM                                                                                                                   
                                                                                                                                
MR.  PAINTER  continued to  the  graph  on  slide 13  showing  UGF                                                              
agency operations  by department  from FY  11 through  FY 21.   He                                                              
pointed out that  in agency operations, the peak year  for UGF was                                                              
FY 15.  He noted  that the governor's FY 22 budget  is roughly the                                                              
same as FY 18, which was the lowest.                                                                                            
                                                                                                                                
12:19:47 PM                                                                                                                   
                                                                                                                                
MR. PAINER  turned to  the table  on slide  15 listing UGF  budget                                                              
changes by  agency since FY  15.  He  explained that the  table is                                                              
divided into  two separate periods: FY  15-18 and FY 18-22.   From                                                              
FY  15-18,  every  agency  experienced   UGF  reductions  with  an                                                              
overall reduction of  $663 million or 14.7 percent.   Since FY 18,                                                              
the  overall reduction  is  1.1  percent; however,  some  agencies                                                              
have increased  while others  have decreased.   He noted  that the                                                              
table  uses  final budget,  which  explains  the increase  to  the                                                              
legislature.   He  added  that in  terms  of the  actual  expected                                                              
spending, the legislature is closer to flat.                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ  surmised  that the legislature  is a  restoration                                                              
of previous funds spent in FY 15.                                                                                               
                                                                                                                                
MR.  PAINTER said  that  is correct  to  some  degree; however,  a                                                              
considerable  amount of  the funds  are  projected to  lapse.   He                                                              
reported  that  rather  than  providing   capital  projects,  [the                                                              
legislature]  over-authorizes  on operating  and  lapses into  the                                                              
capital  budget.   He  conveyed  that  the legislature  took  some                                                              
reductions   in  Legislative   Legal   Services  and   Legislative                                                              
Research,  but  generally,  the  legislature's  budget  in  actual                                                              
spending had been flat during this time.                                                                                        
                                                                                                                                
12:22:08 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  sought  to  verify the  change  of  1.1                                                              
billion,  which  he derived  by  adding  statewide expenses.    He                                                              
approximated that  it drove up the  percent change to  21 percent.                                                              
He asked if that sounds plausible.                                                                                              
                                                                                                                                
MR. PAINTER answered in the affirmative.                                                                                        
                                                                                                                                
12:22:39 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  STORY asked  why there's  not an  asterisk by  the                                                              
legislature's  spending  column  to note  the  relative  flatness.                                                              
Further,  she asked  whether  any other  agencies  are similar  in                                                              
that they differ from the figures on the table.                                                                                 
                                                                                                                                
MR. PAINTER  related that  there's no  single point of  comparison                                                              
that's  completely  fair  when doing  historical  comparisons,  as                                                              
final budget includes  supplementals and things like  the lapse in                                                              
the  legislature.    He  noted  that  the  Department  of  Natural                                                              
Resources  (DNR)  is  misleading  because  its  budget  fluctuates                                                              
based on the fire  season.  He explained that it  looks like there                                                              
had  been a  large reduction;  however,  it's actually  reflecting                                                              
the fire suppression funding.                                                                                                   
                                                                                                                                
CHAIR   SPOHNHOLZ  asked   whether   each   figure  includes   the                                                              
supplementals.                                                                                                                  
                                                                                                                                
MR. PAINTER answered yes.                                                                                                       
                                                                                                                                
CHAIR SPOHNHOLZ  pointed  out that  in the last  three years,  the                                                              
legislature   had   essentially   increased  the   department   of                                                              
Corrections' (DOC's)  budget by over  $60 million, which  is about                                                              
the same amount  that was cut from the University  of Alaska.  She                                                              
said at  a time of  fiscal constraint, more  money is  being spent                                                              
to  lock people  up and  less money  is spent  on educating  them.                                                              
Additionally,  she   highlighted  the  $54  million   decrease  in                                                              
Department  of Health  and Social  Services (DHSS)  and asked  why                                                              
that is.                                                                                                                        
                                                                                                                                
12:25:37 PM                                                                                                                   
                                                                                                                                
MR.  PAINTER  said  the  bulk  of  that  change  is  the  Medicaid                                                              
program, as the  governor has a reduction of $35  million from the                                                              
FY 21 amount.   Additionally, changes  to behavioral health,  as a                                                              
waiver  process  through  Medicaid   enabled  reductions  in  that                                                              
program.                                                                                                                        
                                                                                                                                
CHAIR  SPOHNHOLZ   pointed  out   that  the  governor's   proposed                                                              
Medicaid  cut is  based on  a one-time  drop  in utilization  that                                                              
occurred last  year because of  the public health  measures, which                                                              
restricted health care delivery.                                                                                                
                                                                                                                                
12:26:53 PM                                                                                                                   
                                                                                                                                
MR. PAINTER  turned to  the table  on slide  15 showing  All Funds                                                              
budget changes  by agency since  FY 15.   He noted that  All Funds                                                              
for DHSS  stands out due  to a $700  million increase  in Medicaid                                                              
in  federal receipts,  which is  primarily an  impact of  Medicaid                                                              
expansion.   Additionally, the $151  million increase in  DOR from                                                              
FY  18-22  reflects  federal  funding   for  rental  relief.    He                                                              
summarized that  All Funds for  most agencies decreased;  however,                                                              
Medicaid expansion was  such a large influx of  federal funds that                                                              
it made the total aggregate look like it did not go down.                                                                       
                                                                                                                                
CHAIR SPOHNHOLZ  shared her  understanding that 65,000  additional                                                              
Alaskans are covered  because of Medicaid expansion.   She further                                                              
noted  that the  federal  government  covers most  of  it, as  the                                                              
match is 90/10.                                                                                                                 
                                                                                                                                
12:29:17 PM                                                                                                                   
                                                                                                                                
MR.  PAINTER advanced  to the  table  on slide  16 listing  filled                                                              
full-time  position  count changes  by  agency since  FY  15.   He                                                              
indicated that  the trend in  positions mirrors the  total budget,                                                              
as nearly  every agency  shows a  10 percent  reduction in  filled                                                              
positions  from  FY 15-18.    From  FY  18-22,  there's a  mix  of                                                              
agencies  being up and  down with  a total  decline of  2 percent.                                                              
He said  many of the  increases are the  public safety  items that                                                              
resulted from  House Bill 49 and  the increased investment  in the                                                              
criminal justice system.                                                                                                        
                                                                                                                                
12:30:55 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  PRAX questioned whether  comparing state  spending                                                              
against  gross state  product  would accurately  measure  Alaska's                                                              
overall economy.                                                                                                                
                                                                                                                                
12:31:37 PM                                                                                                                   
                                                                                                                                
MR. PAINTER said  gross state product, which is  largely dependent                                                              
on the oil  industry, would give  a "decent proxy" to  the state's                                                              
revenue  generation  ability,  as   [oil]  is  a  primary  revenue                                                              
source.    He   pointed  out  that  it  wouldn't   factor  in  the                                                              
investment  revenue.   He  suggested using  personal  income as  a                                                              
proxy for  the size of Alaska's  economy because it  would exclude                                                              
the swings  of the oil  industry; however,  it wouldn't  relate to                                                              
the  ability to  finance  government.   He  offered  to prepare  a                                                              
slide with the requested information.                                                                                           
                                                                                                                                
12:32:42 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked, "Would  this  44  number in  the                                                              
change  in the  last three  fiscal  years -  would that  represent                                                              
that they're down 56 from the beginning of the spreadsheet?"                                                                    
                                                                                                                                
MR. PAINTER answered yes.                                                                                                       
                                                                                                                                
12:33:08 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  STORY questioned  whether  the  position cuts  are                                                              
distributed equally across the state.                                                                                           
                                                                                                                                
MR. PAINTER offered  to follow up with the  requested information,                                                              
per OMB.                                                                                                                        
                                                                                                                                
^PRESENTATION:  10 Year Plan                                                                                                    
                   PRESENTATION:  10 Year Plan                                                                              
                                                                                                                              
12:33:53 PM                                                                                                                   
                                                                                                                                
CHAIR SPOHNHOLZ announced  that the final order  of business would                                                              
be  a presentation  by  Neil Steininger,  Office  of Management  &                                                              
Budget.                                                                                                                         
                                                                                                                                
12:34:35 PM                                                                                                                   
                                                                                                                                
NEIL  STEININGER,  Director,  Office  of  Management  and  Budget,                                                              
Office of the  Governor, provided a PowerPoint  presentation [hard                                                              
copy  included  in   the  committee  packet]  by   the  Office  of                                                              
Management  and Budget (OMB)  on a  10-year plan.   He  detailed a                                                              
graph on  slide 2 showing historical  state savings balances.   He                                                              
explained   that  in   some  of   the   high-revenue  years,   the                                                              
legislature  made an  effort to  put  money away  into both  state                                                              
savings  accounts,  the  CBR and  the  SBR  [in  dark blue].    He                                                              
highlighted the  peak savings  balance of over  $16 billion  in FY                                                              
13, which combined  with prior efforts to save,  allowed the state                                                              
to weather  the last decade of  budget deficits from a  revenue to                                                              
expenditure perspective.   He indicated that very  little money is                                                              
left   in  the   traditional  reserve   accounts  to   accommodate                                                              
continued budget  deficits.  He  explained that while  there's not                                                              
a "magic"  number that  the state needs  in its savings  balances,                                                              
$500 million  is the  amount that  may be  needed on a  day-to-day                                                              
basis  to   cover  financial   outlays  in   advance  of   revenue                                                              
collections  from federal  programs.   He  informed the  committee                                                              
that money is  expended in advance of collection  from the federal                                                              
government; therefore,  at any given  time, the state may  be $500                                                              
million ahead  of those collections  and requires cash on  hand to                                                              
manage it.  He  said that while developing the budget  and the 10-                                                              
year  plan this  year, OMB  recognized that  the savings  balances                                                              
could not be relied upon.                                                                                                       
                                                                                                                                
12:38:25 PM                                                                                                                   
                                                                                                                                
CHAIR SPOHNHOLZ  noted that  the CBR  and SBR  were built  up when                                                              
the price  of oil  was high.   She shared  her understanding  that                                                              
[the legislature]  is obligated  to repay the  CBR for  money that                                                              
is spent from it.                                                                                                               
                                                                                                                                
MR. STEININGER  replied  in the affirmative.    He said any  money                                                              
drawn from the  CBR to meet a  budget deficit is due  to be repaid                                                              
to the CBR per the constitution.                                                                                                
                                                                                                                                
CHAIR SPOHNHOLZ  reiterated that  in FY 13,  combined CBR  and SBR                                                              
savings peaked  at about $16 billion,  which is close to  the same                                                              
amount of  money in  the ERA of  the Alaska  Permanent Fund.   She                                                              
opined  that   the  inability  to   resolve  the   state's  fiscal                                                              
situation could result  in depleting the ERA, as  it only requires                                                              
a majority vote in each body.                                                                                                   
                                                                                                                                
12:39:52 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WOOL highlighted  the uptick in  savings in  FY 22                                                              
and  asked  how  much  of  that   is  from  settlements  with  oil                                                              
companies   for   past  audits   over   the  last   seven   years.                                                              
Additionally,  he inquired  about the  money from  tax audits  and                                                              
lawsuit settlements  that was  put in  the CBR, which  contributed                                                              
to the growing balance in early years.                                                                                          
                                                                                                                                
MR. STEININGER  confirmed that revenues  diverted to the  CBR were                                                              
a result  of claims  settlements, which  primarily contributed  to                                                              
the balance in the  CBR.  Regarding the uptick in  FY 22, he said,                                                              
that  is primarily  the  adjustment  in  revenue from  the  spring                                                              
revenue forecast.                                                                                                               
                                                                                                                                
12:41:52 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   SCHRAGE  observed   that  the   state  had   been                                                              
"weathering  the  storm"  for  quite some  time.    He  questioned                                                              
whether  the  state  is  "hunkered  down,  weathering  the  storm,                                                              
hoping that  things will  get better" or  is something  being done                                                              
internally to  change the trajection.   He expressed  concern that                                                              
the [current fiscal situation] isn't temporary.                                                                                 
                                                                                                                                
MR. STEININGER acknowledged  that it's become the new  normal.  He                                                              
emphasized  the need  for significant  structural  changes to  the                                                              
way the state  approaches state finances to change  the trajectory                                                              
and meet existing  obligations.  He said there  are many different                                                              
financial  levers and  changes that  could be  made to adjust  the                                                              
state's   financial    structure.       He   referenced    several                                                              
constitutional  amendment  proposals that  address  some of  these                                                              
issues, one  of which  would change  the relationship between  the                                                              
permanent fund and  state finances by enshrining the  POMV draw in                                                              
the constitution.                                                                                                               
                                                                                                                                
12:45:37 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE PRAX  asked if "savings"  referred only to  the CBR                                                              
balance.                                                                                                                        
                                                                                                                                
MR. STEININGER  clarified that state  savings is both the  CBR and                                                              
the SBR; however, the SBR is empty.                                                                                             
                                                                                                                                
REPRESENTATIVE PRAX  sought to clarify whether  the "considerable"                                                              
amount  of money  in  the ERA  and  other designated  funds  could                                                              
conceptually be considered savings.                                                                                             
                                                                                                                                
MR. STEININGER replied  in the affirmative.  He  explained the ERA                                                              
is available  with a  simple majority.   He  said there  are other                                                              
designated general  funds, but most of them have  programs reliant                                                              
on either  the earnings of  that fund or  some other  mechanism to                                                              
spend money  from the fund.   He acknowledged that those  could be                                                              
considered  as state  reserves  in terms  of  money available  for                                                              
appropriation.  He  clarified that in the "budget  world," the CBR                                                              
and  SBR are  primarily  acknowledged as  state  savings that  are                                                              
generally available for appropriation.                                                                                          
                                                                                                                                
12:47:45 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   PRAX   inquired   about  the   "prohibition"   of                                                              
dedicated funds.                                                                                                                
                                                                                                                                
12:48:40 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE STORY  asked where the money from  past oil company                                                              
audits is distributed into the budget.                                                                                          
                                                                                                                                
MR.  STEININGER   offered   to  follow  up   with  the   requested                                                              
information.                                                                                                                    
                                                                                                                                
12:49:22 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  in  response  to  Representative  Prax,                                                              
opined  that  the   difference  is  ultimately  a   lawsuit.    He                                                              
explained  that  if [the  legislature]  spent  in violation  of  a                                                              
dedicated  provision  from  the  territorial  days,  a  successful                                                              
lawsuit would be provoked.                                                                                                      
                                                                                                                                
12:49:47 PM                                                                                                                   
                                                                                                                                
MR.  STEININGER  reviewed that  there  are truly  dedicated  funds                                                              
that  existed prior  to  the clause  in the  constitution  barring                                                              
dedicated  funds, such  as the  school  fund.   He clarified  that                                                              
designated -  versus dedicated  - funds are  up to the  discretion                                                              
of the legislature to appropriate in any given year.                                                                            
                                                                                                                                
CHAIR  SPOHNHOLZ  added  that  many   of  those  designated  funds                                                              
resulted  from  carefully  crafted compromises  over  many  years.                                                              
She pointed  out that the  administration views them  as sweepable                                                              
funds that  can be used  for other purposes,  whereas many  in the                                                              
legislature  would  like  to  see   a  change  in  statute  before                                                              
implementing such a change.                                                                                                     
                                                                                                                                
12:51:14 PM                                                                                                                   
                                                                                                                                
MR. STEININGER advanced  to the table on slide 3  showing a fiscal                                                              
summary of  [FY 21 and] FY 22.   He highlighted the  difference in                                                              
revenues, noting  the slight increase  in unrestricted  revenue to                                                              
approximately $1.7  billion in  FY 22.   He further noted  that in                                                              
FY 22, [OMB]  is proposing that the  entire POMV draw be  used for                                                              
government services.   He added that the deficit or  surplus in FY                                                              
22, as indicated  on the slide, is before the payment  of the PFD.                                                              
Additionally,  in FY  21,  the $1.1  billion  in carryforward  and                                                              
adjustments reflects  CARES Act money  that was extended  from the                                                              
FY  20 budget.   He  explained that  the $50  million decrease  in                                                              
capital appropriations  from restricted general funds in  FY 22 is                                                              
a  "misnomer"  because  the  full   capital  budget  wasn't  fully                                                              
appropriated  in FY 21  due to  the pandemic.   In  FY 22,  OMB is                                                              
proposing  to  use  bonding through  the  Alaska  Housing  Finance                                                              
Corporation   to  cover   the  traditional   capital  budget,   as                                                              
indicated by the deflated UGF amount for capital spending.                                                                      
                                                                                                                                
CHAIR  SPOHNHOLZ  asked how  many  other  states use  bonding  for                                                              
their capital budgets.                                                                                                          
                                                                                                                                
12:54:29 PM                                                                                                                   
                                                                                                                                
MR. STEININGER  shared his understanding  that some states  are on                                                              
a three-year  cycle  of using bonding  for the  majority of  their                                                              
capital  spending.    He  said  Alaska   had  enough  unrestricted                                                              
general fund  to cover most of  its capital needs in  prior years.                                                              
Additionally,  the  state has  a  generous  match in  its  highway                                                              
program.  He explained  that the interest rates are  low, so there                                                              
is an  advantage to  using bonding  from a financial  perspective,                                                              
which  is  why  the  administration   put  forward  two  different                                                              
bonding proposals.                                                                                                              
                                                                                                                                
CHAIR  SPOHNHOLZ  asked  whether  bonding  was  used  for  capital                                                              
projects in 2012.                                                                                                               
                                                                                                                                
MR. STEININGER confirmed.                                                                                                       
                                                                                                                                
12:55:35 PM                                                                                                                   
                                                                                                                                
MR. STEININGER  detailed the  state savings  accounts on  slide 4.                                                              
He highlighted the  $1.5 billion in the CBR in FY  21, noting that                                                              
OMB is  projecting a  $550 million  draw from  the CBR  leaving an                                                              
end balance of $897  million going into FY 22.   He pointed to the                                                              
lower  chart,  titled "Permanent  Fund  Earnings  Reserve,"  which                                                              
showed a  POMV draw  for government, POMV  draw for the  Permanent                                                              
Fund Dividend  (PFD), and a statutory  PFD draw in both  FY 21 and                                                              
FY 22.                                                                                                                          
                                                                                                                                
CHAIR SPOHNHOLZ noted  that the POMV, as referenced  in an earlier                                                              
slide,  is about $3  billion.   She sought  verification that  the                                                              
administration  is proposing to  draw the  $3 billion in  addition                                                              
to  $1.2  billion  from  the  Alaska   Permanent  Fund  to  pay  a                                                              
statutory PFD [in FY 21].                                                                                                       
                                                                                                                                
MR. STEININGER replied  in the affirmative.  He  acknowledged that                                                              
completing  the statutory  calculation  of the  PFD would  require                                                              
another $1.2 billion.                                                                                                           
                                                                                                                                
CHAIR  SPOHNHOLZ  asked  whether overdrawing  the  permanent  fund                                                              
this year  would impact the  fund's balance and  earning potential                                                              
in the future.                                                                                                                  
                                                                                                                                
MR.  STEININGER replied  any  amount  of money  spent  out of  the                                                              
earnings  reserve  would  reduce  the balance  and  impact  future                                                              
earnings.   He added  that drawing $1.2  billion would  change the                                                              
POMV calculation in the future.                                                                                                 
                                                                                                                                
CHAIR SPOHNHOLZ pointed  out that the ERA is invested  in the same                                                              
way  as  the corpus.    She  explained that  overdrawing  the  ERA                                                              
essentially  reduces the  amount  of earnings  that the  permanent                                                              
fund produces  for the  state in  perpetuity; therefore,  the $1.2                                                              
billion overdraw  would result in losing additional  revenue every                                                              
year  in the  future  and,  potentially,  increase the  amount  of                                                              
revenue needed to fill the fiscal gap in perpetuity.                                                                            
                                                                                                                                
12:59:02 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   JOSEPHSON   sought   to   clarify   whether   the                                                              
administration considers the ERA a state savings account.                                                                       
                                                                                                                                
MR. STEININGER answered  no, the administration does  not consider                                                              
the ERA  an account  that should  be used  for general  government                                                              
expenses;  however, in  the  state's current  economic  situation,                                                              
the  money to  pay  the PFD  outweighs  the consideration  of  the                                                              
impact on  the POMV going  forward.  He  opined that paying  a PFD                                                              
is more  important, especially  in the  current economic  climate.                                                              
He  reiterated that  the  administration  does not  view  it as  a                                                              
savings  account,  but  it  had  to be  drawn  from  to  meet  the                                                              
statutory obligation.                                                                                                           
                                                                                                                                
1:01:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL asked  whether  the constitutional  amendment                                                              
that proposes  constitutionalizing the POMV  draw of 5  percent is                                                              
tied to a PFD formula.                                                                                                          
                                                                                                                                
MR.  STEININGER said  that constitutional  amendment was  proposed                                                              
alongside a  statutory change  to the PFD  formula.   He explained                                                              
that the  POMV and  dividend calculations  in  Senate Bill  26 are                                                              
"on   different  date   ranges"   for  the   five-year   averages;                                                              
therefore, enshrining  the POMV draw  into the constitution  would                                                              
necessitate  addressing  those  statutory  issues  with  the  PFD.                                                              
Additionally,      the     constitutional     amendment      would                                                              
constitutionalize the payment of a dividend.                                                                                    
                                                                                                                                
1:04:02 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ  pointed out  that  if  the legislature  were  to                                                              
overspend  the   POMV  by  $1.2   billion,  as  proposed   by  the                                                              
administration,  the Alaska  Permanent Fund  projects earnings  of                                                              
6.5   percent  over   the   long-term.     She   emphasized   that                                                              
overspending  on   a  one-time  basis   would  result   in  losing                                                              
approximately $80  million in revenue to the permanent  fund every                                                              
year in  perpetuity.   Additionally, the  five percent  draw would                                                              
result  in  a lower  amount  available  to the  government,  which                                                              
would potentially  necessitate increased  taxes to meet  that gap.                                                              
She opined  that overspending  the permanent  fund is  essentially                                                              
raising taxes on future Alaskans forever.                                                                                       
                                                                                                                                
1:05:27 PM                                                                                                                    
                                                                                                                                
MR. STEININGER  proceeded to slide  5, which showed a  snapshot of                                                              
the state's operating  budget over the past 10 years.   The tables                                                              
[top right] indicate  the changes from FY 19 through  the proposal                                                              
for FY  22.  He  emphasized the significant  reduction in  UGF and                                                              
noted  the  .7  percent  reduction  in  the  number  of  full-time                                                              
budgeted  positions.   Further, he  highlighted  the following  in                                                              
the  development of  the FY  22 operating  budget:  organizational                                                              
changes  for  service  delivery;   utilization  of  COVID  relief;                                                              
process  changes from  telework  resulting  in savings;  continued                                                              
constraint on operational costs.                                                                                                
                                                                                                                                
1:07:22 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ  asked whether the  FY 22 figures  exclude federal                                                              
COVID-19 relief funds.                                                                                                          
                                                                                                                                
MR. STEININGER  explained that the  federal COVID-19  relief funds                                                              
show up  in the FY 20  column, which is  the year they  were added                                                              
into the budget.   He noted that some of the  federal relief funds                                                              
flow into  FY 21 as  carryforward transactions.   He  also pointed                                                              
out that  the FY 22  column does not  reflect the American  Rescue                                                              
Plan (ARP) dollars.                                                                                                             
                                                                                                                                
CHAIR SPOHNHOLZ  conveyed that  the federal  ARP numbers  would be                                                              
at least  $1.1 billion  and flexible.   She  anticipated that  the                                                              
federal  relief funds  would mask  the  structural deficit  moving                                                              
forward for the next several years.                                                                                             
                                                                                                                                
1:08:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EASTMAN recalled  hearing conversations  regarding                                                              
the  amount  of funds  in  the  CBR.   He  said  different  people                                                              
posited  different   numbers  and   questioned  the   accuracy  of                                                              
historical  reportings.    He  asked  how  the  data  on  slide  4                                                              
resolves that conversation.                                                                                                     
                                                                                                                                
MR. STEININGER  confirmed that there  had been discussions  on the                                                              
CBR  balance calculation  and the  source of  the information  for                                                              
that calculation.   He reported that  over the summer,  OMB worked                                                              
with LFD, Division  of Finance, and Legislative  Audit Division to                                                              
ensure  that the  numbers and  calculations used  to estimate  the                                                              
CBR balances  were aligned  and robust.   He  said the  figures on                                                              
slide 4 reflect that effort.                                                                                                    
                                                                                                                                
1:10:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EASTMAN asked whether  there is  a consensus  or a                                                              
difference of opinion [on the CBR balance].                                                                                     
                                                                                                                                
MR. STEININGER replied there is a consensus.                                                                                    
                                                                                                                                
1:10:42 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER   continued  to  slide  6,  titled   "Budget  Cost                                                              
Drivers," which read as follows [original punctuation provided]:                                                                
                                                                                                                                
     From FY2019 to FY2022?                                                                                                     
        • State assistance to retirement has increased                                                                          
          $70.3 million                                                                                                         
        • Employee salary adjustments for cost of living                                                                        
          and health insurance have increased $50.0 million                                                                     
        • Public  protection    services   including    law                                                                     
          enforcement, prosecution, defense, courts, and                                                                        
          corrections have required investment of $52.8                                                                         
          million                                                                                                               
                                                                                                                                
       $173.1 million in UGF reductions to maintain a flat                                                                      
     budget                                                                                                                     
                                                                                                                                
MR.  STEININGER  added that  the  $330  million reduction  in  UGF                                                              
spending [slide 5]  is after accommodating $173  million in upward                                                              
cost pressure.                                                                                                                  
                                                                                                                                
1:12:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EASTMAN  sought   to  clarify  whether  the  third                                                              
bullet on slide  6 is referring to an increase to  the base budget                                                              
or a capital investment.                                                                                                        
                                                                                                                                
MR.   STEININGER  explained   that  the   third  bullet   reflects                                                              
increases  in the  base  budget  for public  protection  agencies,                                                              
such  as the  Department  of Public  Safety  (DPS),  DOC, and  the                                                              
Department  of Law  (DOL).   He noted  that the  court system  had                                                              
also seen increases during this time period.                                                                                    
                                                                                                                                
REPRESENTATIVE   EASTMAN  sought   clarification   on  the   first                                                              
bullet's reference to state assistance to retirement.                                                                           
                                                                                                                                
MR.  STEININGER said  the state  assistance to  retirement is  the                                                              
difference  between the  22 percent  of payroll  charge that  both                                                              
the state  of Alaska  and municipal  PERS employers  pay into  the                                                              
retirement  system and the  total actuarial  cost, which  is 30.11                                                              
percent of  payroll.  He stated  that the 8.11  percent difference                                                              
between contributions  made by employers  and the  total actuarial                                                              
cost is  born by the state  in a UGF  expenditure.  He  added that                                                              
the  $70.3  million  figure  in  the  first  bullet  reflects  the                                                              
increase in that cost over this time period.                                                                                    
                                                                                                                                
1:13:56 PM                                                                                                                    
                                                                                                                                
CHAIR   SPOHNHOLZ  asked   if  that   is   in  part,   due  to   a                                                              
miscalculation  of  the  retirement formula  from  previous  years                                                              
that must be rectified.                                                                                                         
                                                                                                                                
MR.  STEININGER   said  he   would  not   characterize  it   as  a                                                              
miscalculation  because the actuaries  perform this  determination                                                              
on an annual basis.                                                                                                             
                                                                                                                                
CHAIR  SPOHNHOLZ  offered  her  understanding  that  there  was  a                                                              
previous  miscalculation that  resulted  in less  money being  put                                                              
toward  retirement,  which  resulted  in  a  "fairly  significant"                                                              
liability on the balance sheet.                                                                                                 
                                                                                                                                
MR.  STEININGER  said  that  is  not  the  genesis  of  the  $70.3                                                              
million.                                                                                                                        
                                                                                                                                
1:15:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WOOL  pointed  out  that  the third  bullet  is  a                                                              
budgetary  choice rather  than  mandated by  law  or by  contract,                                                              
which is different  than the first two bullets.   He asked if that                                                              
is correct.                                                                                                                     
                                                                                                                                
MR. STEININGER  acknowledged that there  is a distinction,  as the                                                              
third  bullet  point  reflects  a  policy  decision  to  focus  on                                                              
rebuilding  investments  in  public protection  versus  a  formula                                                              
that is set in statute.                                                                                                         
                                                                                                                                
1:16:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON returned  to slide  5 and asked  whether                                                              
the UGF reduction  is mostly from school bond  debt reimbursement.                                                              
He  expressed  interest  in  hearing   OMB's  assessment  of  what                                                              
constitutes the  $389 million delta since the  administration came                                                              
into power.                                                                                                                     
                                                                                                                                
MR.  STEININGER said  yes, a  large  portion of  the reduction  is                                                              
school bond debt  reimbursement, as well as other  statewide items                                                              
not necessarily  just personnel.  He  offered to follow  up with a                                                              
report on "which agencies and how much over this time period."                                                                  
                                                                                                                                
1:18:00 PM                                                                                                                    
                                                                                                                                
MR. STEININGER  moved to a "swoop  graph" on slide 7  depicting FY                                                              
22 UGF  budgets by department.   He  indicated that the  statutory                                                              
PFD  would  be the  largest  single  expenditure followed  by  the                                                              
Department   of  Education   and   Early  Development   (DEED)   -                                                              
specifically  the K-12  formula program  - and  the Department  of                                                              
Health  and Social  Services (DHSS)  -  specifically the  Medicaid                                                              
program- which  make up the lions  share of the state budget.   He                                                              
noted   that  Department   of  Commerce,   Community  &   Economic                                                              
Development (DCCED) has the smallest UGF budget.                                                                                
                                                                                                                                
1:18:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PRAX asked  how much  of the  Medicaid program  is                                                              
"controllable" rather than mandated by federal policy.                                                                          
                                                                                                                                
MR. STEININGER  said that  is one of  the more difficult  programs                                                              
for the  state to  exert unilateral  control over.   He  expounded                                                              
that there  are many  federal rules  associated with the  Medicaid                                                              
program  that   restrict  changes   to  eligibility   or  services                                                              
offered.  He  stated that much of  the UGF budget within  DHSS for                                                              
Medicaid  must  be   spent  per  the  direction   of  the  federal                                                              
government.                                                                                                                     
                                                                                                                                
CHAIR  SPOHNHOLZ noted  that the  committee would  perform a  deep                                                              
dive on Medicaid and Medicaid reform at a later hearing.                                                                        
                                                                                                                                
1:19:58 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER proceeded  to slide  8,  titled "Operating  Budget                                                              
Cost  Drivers"   which  read  as  follows  [original   punctuation                                                              
provided]:                                                                                                                      
                                                                                                                                
        ?Medicaid $610.0 Million UGF (14.2% of Operating                                                                        
     Budget)                                                                                                                    
     ?$43.7 million UGF (7.7%) increase in last 10 years                                                                        
                                                                                                                                
      -12 Support $1,246.7 Million UGF (29.0% of Operating                                                                      
     Budget)                                                                                                                    
     ?$72.2 million UGF (6.1%) increase in last 10 years                                                                        
                                                                                                                                
       ?Retirement Assistance $342.0 Million UGF (8.0% of                                                                       
     Operating Budget)                                                                                                          
     ?$207.9 million UGF (155.1%) increase in last 5 years                                                                      
                                                                                                                                
        ?Payroll 17,149 PCNs $812.4 Million UGF (18.9% of                                                                       
     Operating Budget)                                                                                                          
     ?$0.9 million UGF (0.1%) increase in last 10 years                                                                         
     ?1,319 position reduction (7.1%) in last 10 years                                                                          
                                                                                                                                
CHAIR  SPOHNHOLZ  questioned  what  the  number would  be  if  the                                                              
retirement assistance were looked at over the last 10 years.                                                                    
                                                                                                                                
MR.  STEININGER   offered   to  follow  up   with  the   requested                                                              
information.                                                                                                                    
                                                                                                                                
1:21:40 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER advanced  to  slide 9,  which  provided a  10-year                                                              
outlook  from  December  2020.   He  highlighted  the  traditional                                                              
revenue that  was projected for FY  22 of $1.2 billion,  which was                                                              
expected  to  steadily  increase  through  the  end  of  the  time                                                              
period.   He  noted that  the significant  reduction  in the  POMV                                                              
draw in  FY 23  reflects the  change to  the dividend  calculation                                                              
from the  historical  calculation to  one based  on 50 percent  of                                                              
the POMV draw.   The table also shows a return  to a more "normal"                                                              
capital budget  in FY 23  and onward.   He emphasized  the figures                                                              
labeled  "other   revenue  sources,"  which  reflects   the  state                                                              
deficit after accounting for other  changes in the 10-year plan.                                                                
                                                                                                                                
CHAIR  SPOHNHOLZ   inquired  about   the  debt  service   payments                                                              
associated with the capital bonding.                                                                                            
                                                                                                                                
MR. STEININGER  said those would  be incorporated  under statewide                                                              
items.                                                                                                                          
                                                                                                                                
1:24:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE  asked whether  the capital budget  of $130                                                              
million [FY 24] would address the deferred maintenance.                                                                         
                                                                                                                                
MR.  STEININGER  explained  that  over  the  past  several  years,                                                              
deferred  maintenance has  been addressed  by  utilizing money  in                                                              
the  Alaska  Capital  Income  Fund,  which  is  sourced  from  the                                                              
Amerada Hess  settlement [State  v. Amerada  Hess] portion  of the                                                            
Alaska  Permanent Fund  and supplies  $20-30 million  per year  to                                                              
address  deferred maintenance.   He  acknowledged that  additional                                                              
work  is required  to find  a way,  within  a constrained  revenue                                                              
situation,  to  address  the  much-needed   maintenance  at  state                                                              
facilities.                                                                                                                     
                                                                                                                                
1:26:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SCHRAGE  asked if there are many  completed capital                                                              
projects  for  which there  are  funds  to reappropriate  or  move                                                              
around.   Additionally,  he  asked what  level  of capital  budget                                                              
funding would  be required to start  chipping away at  the backlog                                                              
of deferred maintenance.                                                                                                        
                                                                                                                                
1:27:10 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER  said the  ideal  capital  budget is  a  difficult                                                              
question  to answer.   He  emphasized  that slide  9 reflects  the                                                              
amount necessary  for basic federal  matching on  larger programs,                                                              
such  as state  highways or  VSW.   He indicated  that they  don't                                                              
necessarily  address   deferred  maintenance  backlogs   in  state                                                              
facilities; however,  they do address  other needs  throughout the                                                              
state in  addition to  utilizing available  UGF funds to  maximize                                                              
the statewide benefit of federal funds.                                                                                         
                                                                                                                                
REPRESENTATIVE  SCHRAGE clarified  his first  question, asking  if                                                              
there are  any capital  projects  that came in  under budget  from                                                              
which there might be funds left over.                                                                                           
                                                                                                                                
1:28:15 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER explained  that  in prior  years,  there was  more                                                              
available  in   reappropriations  from  years  of   large  capital                                                              
budgets.    As  those  projects  completed,  the  availability  of                                                              
reappropriations  has   decreased;  however,  "a   couple  million                                                              
dollars"  can  be found  every  year  from  money left  over  from                                                              
projects that have been completed in the past year.                                                                             
                                                                                                                                
CHAIR SPOHNHOLZ said  she is familiar with the 90/10  match of the                                                              
federal highway  fund.  She  inquired about the  match requirement                                                              
for the village safe water program.                                                                                             
                                                                                                                                
MR. STEININGER  stated his  belief that  it's 25/75.   He  said he                                                              
would follow up with confirmation.                                                                                              
                                                                                                                                
1:29:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE EASTMAN  asked to what  extent the PFD  amounts, as                                                              
shown on  the bottom  line of  slide 9,  differ from the  historic                                                              
[dividend] calculation in statute.                                                                                              
                                                                                                                                
MR. STEININGER explained  that moving from a  historic calculation                                                              
to a 50/50  POMV wouldn't necessarily  always be higher  or lower.                                                              
In looking  at the  historical calculation,  he said, it's  highly                                                              
volatile.     Alternatively,   the  50/50   POMV  calculation   is                                                              
inherently stable,  as it is 5  percent of the  five-year average.                                                              
He  shared his  understanding  that the  average  PFD is  slightly                                                              
over  $1,000,  so the  figures  [on  slide  9] would  represent  a                                                              
higher PFD than average.                                                                                                        
                                                                                                                                
REPRESENTATIVE   EASTMAN   sought   to   clarify   how   the   PFD                                                              
appropriations on slide 9 differ from the historic calculation.                                                                 
                                                                                                                                
CHAIR SPOHNHOLZ  offered  her understanding  that the PFD  amounts                                                              
in  question  are  based  on  the  new  formula  proposed  by  the                                                              
governor.                                                                                                                       
                                                                                                                                
MR. STEININGER  replied in the affirmative.   He said  the numbers                                                              
on the bottom row,  in addition to the entire chart,  are based on                                                              
the governors proposed changes.                                                                                                 
                                                                                                                                
CHAIR SPOHNHOLZ  further clarified  that on average,  the historic                                                              
PFD has been closer to $1,600.                                                                                                  
                                                                                                                                
1:31:48 PM                                                                                                                    
                                                                                                                                
MR.  STEININGER  resumed  the presentation  on  slide  10,  titled                                                              
"Material changes  in budget picture  since December,"  which read                                                              
as follows [original punctuation provided]:                                                                                     
                                                                                                                                
        Department of Revenue Spring update increases UGF                                                                       
       revenue forecast by $332 million in FY2021 and $460                                                                      
     million in FY2022                                                                                                          
                                                                                                                                
     Just over $1 billion new federal funding to state                                                                          
     ?Additional program-specific funding                                                                                       
        ?Working through details and waiting for specific                                                                       
     guidance                                                                                                                   
                                                                                                                                
      Despite these bright spots, structural fiscal deficit                                                                     
     persists                                                                                                                   
                                                                                                                                
MR.  STEININGER noted  that the  federal funding  coming into  the                                                              
state does  not completely solve  the problem, but it  provides an                                                              
opportunity to work  through the solutions necessary  to solve the                                                              
existing fiscal problems.                                                                                                       
                                                                                                                                
1:32:48 PM                                                                                                                    
                                                                                                                                
MR. STEININGER  advanced to slide  11 and noted that  it's similar                                                              
to  slide  9   but  reflects  the  new  revenue   estimates.    He                                                              
highlighted  that the  "other revenue  sources"  figures are  much                                                              
less than  the prior  slide, indicating  that the revised  revenue                                                              
estimates put  the state in a  better place compared  to December.                                                              
He reiterated  that they  don't solve  the entire problem,  adding                                                              
that there's  still more  to be solved,  including changes  to the                                                              
PFD statute,  increases in  revenue, and  continued constraint  on                                                              
the operating budget.                                                                                                           
                                                                                                                                
CHAIR SPOHNHOLZ  observed that  a larger impact  on the  budget is                                                              
the increased  revenue forecast.  She  pointed out that  in FY 23,                                                              
there would  still be a  deficit of nearly  $800 million  based on                                                              
the governor's proposed 50/50 split.                                                                                            
                                                                                                                                
MR.  STEININGER  confirmed that  a  significant fiscal  gap  would                                                              
remain.   He conveyed that there  are "several different  areas of                                                              
outlays and  inflows of money that  have to be addressed  in order                                                              
to solve  this problem."   He  continued to  state that  there are                                                              
significant  policy issues  related to  [the areas  of concern]  -                                                              
none  of  which  could  be solved  unilaterally  or  in  a  budget                                                              
document.                                                                                                                       
                                                                                                                                
1:35:04 PM                                                                                                                    
                                                                                                                                
CHAIR  SPOHNHOLZ agreed.   She  asked  whether the  administration                                                              
planned  to  introduce  specific  revenue measures  for  the  next                                                              
fiscal year.                                                                                                                    
                                                                                                                                
MR. STEININGER declined  to speculate on what could  be introduced                                                              
next year.   Right now,  he said, the  focus is on  protecting the                                                              
ERA  with  a  constitutional  amendment   and  making  "necessary"                                                              
changes to  the PFD calculation  so that other policy  discussions                                                              
can be addressed.                                                                                                               
                                                                                                                                
1:35:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SCHRAGE opined that  resolving the dividend  prior                                                              
to  anything  else  "seems  odd."   He  suggested  addressing  the                                                              
deficit ["other  revenue sources"  on slide  11] by introducing  a                                                              
broad-based tax  or continuing to  deficit spend.   [Tackling that                                                              
first], he  said, would  allow the  legislature to better  address                                                              
the capital  budget and identify a  proper level of spending.   He                                                              
reiterated  his  belief  that  the state  needs  a  broader,  more                                                              
comprehensive   plan  that   seriously   addresses  the   existing                                                              
structural issues.                                                                                                              
                                                                                                                                
1:36:37 PM                                                                                                                    
                                                                                                                                
CHAIR SPOHNHOLZ  thanked both  presenters and provided  additional                                                              
closing remarks.                                                                                                                
                                                                                                                                
1:37:02 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being  no further business  before the committee,  the House                                                              
Special  Committee on  Ways  and Means  meeting  was adjourned  at                                                              
1:37 p.m.                                                                                                                       

Document Name Date/Time Subjects
LFD Budget and Revenue History 3.30.21.pdf HW&M 3/30/2021 11:30:00 AM
OMB 10 year plan 3.30.21.pdf HW&M 3/30/2021 11:30:00 AM
HR 6.pdf HW&M 3/30/2021 11:30:00 AM
HR 6