03/13/2024 06:00 PM House WAYS & MEANS
| Audio | Topic |
|---|---|
| Start | |
| HB194 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 194 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
March 13, 2024
6:03 p.m.
MEMBERS PRESENT
Representative Ben Carpenter, Chair
Representative Tom McKay
Representative Kevin McCabe
Representative Cathy Tilton
Representative Cliff Groh
MEMBERS ABSENT
Representative Jamie Allard
Representative Andrew Gray
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 194
"An Act relating to the duties of the Legislative Budget and
Audit Committee; relating to the Executive Budget Act;
establishing consensus estimating conferences; relating to the
development of official information for use in preparing the
state budget; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 194
SHORT TITLE: CONSENSUS ESTIMATING CONFERENCES; BUDGET
SPONSOR(s): REPRESENTATIVE(s) CARPENTER
05/08/23 (H) READ THE FIRST TIME - REFERRALS
05/08/23 (H) W&M, FIN
05/10/23 (H) W&M AT 6:00 PM DAVIS 106
05/10/23 (H) <Bill Hearing Canceled>
05/15/23 (H) SPONSOR SUBSTITUTE INTRODUCED
05/15/23 (H) READ THE FIRST TIME - REFERRALS
05/15/23 (H) W&M, FIN
05/15/23 (H) W&M AT 6:00 PM DAVIS 106
05/15/23 (H) -- MEETING CANCELED --
01/24/24 (H) W&M AT 6:00 PM DAVIS 106
01/24/24 (H) <Bill Hearing Canceled>
02/21/24 (H) W&M AT 6:00 PM DAVIS 106
02/21/24 (H) -- MEETING CANCELED --
03/13/24 (H) W&M AT 6:00 PM DAVIS 106
WITNESS REGISTER
KENDRA BROUSSARD, Staff
Representative Ben Carpenter
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Carpenter,
prime sponsor of SSHB 194, provided the sectional analysis for
the bill.
ALEXI PAINTER, Director
Legislative Finance Division (LFD)
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During the hearing on SSHB 194, provided a
PowerPoint presentation titled "House Bill 194," dated 2/21/24.
ACTION NARRATIVE
6:03:36 PM
CHAIR BEN CARPENTER called the House Special Committee on Ways
and Means meeting to order at 6:03 p.m. Representatives McKay,
McCabe, Groh, and Carpenter were present at the call to order.
Representative Tilton arrived as the meeting was in progress.
HB 194-CONSENSUS ESTIMATING CONFERENCES; BUDGET
6:04:18 PM
CHAIR CARPENTER announced that the only order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 194, "An Act relating
to the duties of the Legislative Budget and Audit Committee;
relating to the Executive Budget Act; establishing consensus
estimating conferences; relating to the development of official
information for use in preparing the state budget; and providing
for an effective date."
6:04:56 PM
CHAIR CARPENTER, prime sponsor of SSHB 194, explained that the
House of Representatives established the House Special Committee
on Ways and Means to consider methods to bring spending and
revenue into balance and to identify ways to make government
programs more efficient. These goals, he said, support the
majority caucus's vision of improving economic stability in the
state. He related that SSHB 194 would modify AS 37.07.014,
Responsibilities of the legislature, and AS 37.07.016,
Governor's primary duty, both within the Executive Budget Act.
He then read both statutes aloud.
6:09:14 PM
CHAIR CARPENTER specified that SSHB 194 would establish eight
estimating conferences and provide the ability for the presiding
officers of the legislature to call estimating conferences.
These estimating conferences, he said, will reduce the need for
supplemental budgets, provide a path for resolving fiscal note
conflicts, and help establish that the Executive Branch cannot
budget non-recurring revenue for recurring expenses or agency
operations. Examples of non-recurring revenue, he continued,
include one-time funds and Constitutional Budget Reserve (CBR)
draws. He specified that unanticipated revenue above expected
and sustainable revenue sources, as determined by a revenue
estimating conference, would also be non-recurring. He said
SSHB 194 would require the Office of Management and Budget (OMB)
to provide a five-year capital improvement plan with project
cost, maintenance cost, timeline, anticipated revenue sources
over those five years, and justification for each project. He
related that SSHB 194 would require the Legislative Budget and
Audit [Committee] and the Legislative Finance Division to
provide performance measures for each agency. He further stated
that SSHB 194 would require the legislature and the Executive
Branch to lay out the annual budget according to services and
programs with costs and performance measures tied to each, as is
done in other states. This bill is about getting to better
management of Alaska's state government, he added.
6:11:58 PM
KENDRA BROUSSARD, Staff, Representative Ben Carpenter, Alaska
State Legislature, on behalf of Representative Carpenter, prime
sponsor of SSHB 194, provided the sectional analysis for the
bill [included in the committee packet], which read as follows
[original punctuation provided]:
Section 1
Amends Fiscal Note statute to allow the sponsor for a
bill or a committee to request a special impact
estimating conference to evaluate a fiscal note.
Section 2
Adds a new section to Fiscal Note statute that allows
a special impact estimating conference to prepare a
new fiscal note to replace the existing fiscal note
for a bill.
Section 3
Adds to the duties to the Legislative Budget and Audit
Committee to adopt a method of measuring results for
state agencies and to provide the measures to the
Governor's Office of Management and Budget (OMB).
Section 4
Amends the statement of policy for the Executive
Budget Act to include setting and measuring program
and financial goals.
Section 5
Adds to requirements for the legislature under the
Executive Budget Act to review the budget by service
and program area and to include the service or program
cost and the desired measurements for each.
Section 6
Requires the Legislative Budget and Audit Committee to
provide the measures it has set for each agency to the
OMB by August 1st each year.
Section 7
Amends requirements of the legislature for results-
based government to clearly identify service, program,
and financial goals and desired results.
Section 8
To fulfill the legislature's responsibilities to
achieve results-based-government, each agency shall
formulate its budget by allocating resources to
achieve the service, program, and financial goals and
desired results established by the legislature, and to
measure progress toward those goals.
Section 9
Amends the requirements of the Governor under Article
III Sections 1 (Executive Power) and 16 (Executive
Authority: responsibility for faithful execution of
the laws) of the Constitution to use the financial
goals and desired results to implement and execute the
law. The Governor shall ensure that each agency
complies with the service and program measurements and
achieves the desired results identified by the
legislature.
Section 10
Amends the requirements of the Governor in preparing
the Governor's budget. Requires the budget be
organized by program or service of each agency and
include service and program cost and desired results
for each. Each service and program expenditure request
must include detailed unit cost and performance of the
service or program expenditure. Changes the Governor's
budget submission deadline for a newly elected
governor from December 15 to January 15.
Section 11
Requires the Governor's budget to include projections
for three succeeding fiscal years rather than ten
succeeding years.
Section 12
Requires the proposed expenditures in the budget not
to exceed estimated revenues for the succeeding fiscal
year. Additionally, operating expenditures may not
exceed official estimates of recurring revenue.
Section 13
Adds a new section of the Executive Budget Act to
require the Governor to submit an alternative budget
plan for the next fiscal year, and projections for the
next three succeeding fiscal years, based on the
average price per barrel for Alaska North Slope crude
oil for sale on the United States West Coast over the
preceding ten years. Requires the Governor to submit
an alternate budget plan based on $70 per barrel for
Alaska North Slope crude oil.
Section 14
Adds a new section of law that creates a consensus
estimating process. Consensus estimating conferences
are created in the legislature for economic and
demographic forecasts, revenue estimates, and
expenditure estimates for education, criminal justice,
social services, and retirement costs. The membership
of each conference consists of principals and
participants. Principals of the conference are the
director of the legislative finance division or the
director's designee. Participants include staff of the
house and senate designated by the Speaker and
President, and participants appointed by the governor.
Each conference shall develop "official information"
within its area of responsibility that the conference
determines, by consensus, is needed for the purpose of
preparing the state budget. Provides for the
procedures of the estimating conferences, including
public meetings. Conferences develop "official
information" based on current law. Following the
regular session of the legislature, each conference
shall convene in a final session to revise the
official information of the conference to reflect
changes made in law. Adds special impact estimating
conferences that can be requested by the Speaker of
the House or the President of the Senate to evaluate a
legislative proposal. The "official information" from
a special impact conference will serve as a fiscal
note.
Section 15
The Office of Management and Budget is required to
provide electronic data used in building its budget to
the legislature at least seven days before the
legislative session. OMB is required to submit to the
legislature by December 15 each year an annually
updated five-year capital improvements program, which
must include the estimated cost of construction and
maintenance, the estimated project timeline, potential
funding sources, and justification for each project.
Section 16
Requires state agencies to report semi-annually the
results of the measures set by the legislature and
achievement of program, service, and financial goals.
Lays of the required content of the reports.
Section 17
Conforming language to add service, program, and
financial goals to the capital improvement program.
Section 18
Conforming language to include service, program, and
financial goals to agency programs execution
requirements.
Section 19
Conforming language to include service, program, and
financial goals to agency operational plans.
Section 20
Effective date for Section 6 (LB&A to set program
measures) is July 1, 2025. Section 20 Provides an
effective date of July 1, 2024, for the remainder of
this Act.
6:19:00 PM
MS. BROUSSARD began a PowerPoint presentation titled "HB 194
Consensus Estimating Conferences; Budget," dated 2/21/24 [hard
copy included in the committee packet]. She spoke from the
second slide which read as follows [original punctuation
provided]:
HB 194 Amend the Executive Budget Act (AS37.07) in two
significant ways:
1. Reforms current performance budgeting requirements
a. Puts a system in place through Legislative
Finance to develop strong and usable measurements
b. Requires the Governor to use the measures in his
budget
2. Adds multiple revenue and expenditure estimating
provisions to
1. Stabilize the budget from year to year
2. Make estimates more transparent
MS. BROUSSARD outlined current statute for the legislature and
the governor as cited on slides 3 and 4, which read as follows
[original punctuation provided]:
Legislature:
Legislative Finance will adopt a method of measuring
results for state agencies. The LB&A committee will
adopt the measures and provide them to the Governor
each year.
The legislature will clearly identify program and
financial goals for each government program and
service, set priorities, and assign program and
financial measurements.
Governor:
The Governor will prepare a budget that is organized
by service and program. The budget will include
program costs and desired measurements for each.
Each appropriation must be accompanied by the service
cost and performance measure.
MS. BROUSSARD spoke to the performance measure currently in use
as cited on the fifth slide, which read as follows [original
punctuation provided with some formatting changes]:
CURRENT PRACTICE EXAMPLE Public School Funding
Calculate and distribute state entitlement funding on
the Base Student Allocation and formula calculations
as per Alaska Statute.
MS. BROUSSARD displayed slide 6, Priority 1: Public School
Funding Alaska Department of Education and Early Development.
She noted that the graph titled "Annual Base Student Allocation
for Formula Funding to School Districts" depicts how the current
practice was done [for fiscal years 2008-2021].
6:20:55 PM
CHAIR CARPENTER noted that the legislature gave the Department
of Education and Early Development (DEED) the measure to
calculate and distribute the state entitlement funding for the
Base Student Allocation. That only shows the amount of money
DEED spent, he pointed out, it doesn't tell the legislature
anything about performance and that isn't adequate to have a
conversation about how well the state's money is being spent.
MS. BROUSSARD stated that revenue estimates would be done under
SSHB 194. She spoke from slide 7, which read as follows
[original punctuation provided]:
Revenue Estimates:
The Governor's budget will be based on consensus
revenue estimates developed by a transparent
conference of legislative and executive finance staff.
The balanced budget requirement is expanded so that
non-recurring revenue can only be used for non-
recurring expenditures.
In addition, the Governor's budget will include an
alternative budget and three-year forecasts based on:
1. The average price of Alaska crude oil for the last
10 years
2. An average price of $70 a barrel for Alaska crude
oil
MS. BROUSSARD reviewed the consensus estimating conferences
within SSHB 194 and listed on slide 8, which read as follows
[original punctuation provided with some formatting changes]:
Consensus Estimating Conferences
Economic estimates
Demographic estimates
Revenue estimates
Education cost estimates
Criminal justice cost estimates
Social services cost estimates
Retirement systems actuarial assumptions verification
Special impact estimating conferences
May be called by the Senate President or Speaker of
the House to review and modify fiscal notes
6:22:54 PM
CHAIR CARPENTER explained that "conferences" in this use means a
group of appointees from the legislature and Executive Branch
discussing the data to ensure that both branches agree on the
data being used before getting into the budget conversations.
He said many other states use this process.
6:23:48 PM
MS. BROUSSARD presented slide 10, "State of Utah performance
measurement playbook," which read as follows [original
punctuation provided]:
Utah ties performance measures to the budget
Utah created a dashboard of performance measures to
enable policy makers, agencies, stakeholders, and the
public to see the impact of taxpayer investments.
Line-item performance measures
Measures a program's objective, effectiveness, etc.
that are included as intent language under a line
item, typically in a base budget appropriations bill.
Reported annually unless the Legislature votes to
alter a line -item performance measure and/or target.
Shows long -term trends and progress toward key agency
goals.
CHAIR CARPENTER interjected that while the Alaska OMB dashboard
has performance measures on it, the OMB dashboard has nothing to
do with the budget process.
MS. BROUSSARD outlined some of the questions that the State of
Utah uses to assess performance measures. She spoke from slide
11, "Questions to help assess performance measures," which read
as follows [original punctuation provided]:
• Is it meaningful? Does it tie to the mission of the
division/agency?
• Is it focused on customer needs and demands?
• Is it simple enough on customer needs and demands?
Does it avoid ambiguous concepts?
• Are the data available, accurate, and reliable?
• Is it cost effective to collect and report the data?
• If the measure captures output, does it influence an
outcome?
• Do you have a meaningful target (reasonable, not
stretch or too conservative)?
• For new funding item performance measures, can the
data be collected and reported within a year?
MS. BROUSSARD displayed slide 12, "Examples of Performance
measures," which provided a table showing four projects in Utah.
She highlighted the goal, output measures, and outcome measures
for the fourth project that would reduce the number of repeat
offenders.
MS. BROUSSARD presented an example of a line item in Utah's
budget as shown on slide 13, which read as follows [original
punctuation provided
ITEM 20 To Department of Health and Human Services
Division of Juvenile Justice Services - Juvenile
Justice & Youth Service Community Programs
(63,740,400)
In accordance with UCA 63J-1-903, the Legislature
intends that the Division of Juvenile Justice and
Youth Services report performance measures for the
Administration line item, whose mission is "to be a
leader in the field of juvenile justice by changing
young lives, supporting families and keeping
communities safe." The department shall report to the
Office of the Legislative Fiscal Analyst and to the
Governor's Office of Planning and Budget before
October 1, 2023, the final status of performance
measures established in FY 2023 appropriations bills.
For FY 2024, the department shall report the following
performance measures:
1) Avoid new felony or misdemeanor charge while
enrolled in the Youth Services program and within 90
days of release (Target = 100 [percent]); and 2)
Reduce the risk of recidivism by 15 [percent] within 3
years (Target = 15 [percent]).
6:27:10 PM
CHAIR CARPENTER drew attention to slide 12 and pointed out that
this does not happen with the [Alaska State Legislature's
appropriations process]. He said the performance measures that
Utah legislators have access to are a range of goals and output
measures, which are used at the time that they are discussing
budget. He brought attention to slide 13 and noted that a $63
million appropriation is being considered for Item 20, and there
is a performance measure as to what the program is trying to get
to. If this were the Alaska legislature, he continued, the
conversation during the budget subcommittee process would then
become, "Are you meeting your target? Or to what extent are you
meeting your target? And then that ... directly relates to the
dollars that we're appropriating to the questions of, Why are
you not meeting your target? Led to, Is this a policy problem
or is this a dollar problem? and that would help us come to
better decisions within the appropriations process that we go
through."
6:28:51 PM
REPRESENTATIVE GROH asked how the sponsor picked $70 a barrel.
CHAIR CARPENTER responded that the $70 in SSHB 194 is a number
that has been used before in conversations regarding what the
right number is for oil, so he started with that number. Since
[the price] fluctuates, he continued, a more valuable component
is to use the average of a 10-year lookback to help come up with
a number that is "budgetable." Then if there is excess revenue,
he advised, the legislature would have a path forward for how to
use that as opposed to just spending it all. He said the number
is subject to change if a better number is needed.
REPRESENTATIVE GROH remarked that Alaska has seen oil prices
below $40. He drew attention to the provision in Section 12 of
SSHB 194 which states that operating expenditures may not exceed
official estimates for revenue. Other expenditures include
capital expenditures and permanent fund dividends, he noted,
which often go up the most in spikes. He inquired about the
thinking behind this provision.
CHAIR CARPENTER replied that recurring revenue is the key part.
Day to day agency operations in state government, he explained,
not one-off expenses or projects, are only paid for with the
recurring revenue that is sustainable on a regular basis. He
said this goes to why a conference would establish a particular
dollar figure in oil prices and stick with a revenue stream
number year to year that tells what size of government can be
afforded. If more recurring services are wanted, he added, then
more recurring revenue must be found to pay for it. The
tendency when there is a binge of revenue from oil, he added, is
that it goes to all sorts of things including agency operations
that are reoccurring in nature. So, he continued, the thinking
is to tie recurring revenue to recurring expenses and force a
different conversation about one-time non-recurring expenses.
REPRESENTATIVE GROH noted that right now the state's operating
budget is substantially lower than it was 10 years ago. The
spending control that is helpful, he opined, is one that tries
to control all the spending and not from just one source.
6:33:51 PM
ALEXI PAINTER, Director, Legislative Finance Division (LFD),
Alaska State Legislature, provided a PowerPoint presentation
titled "House Bill 194," dated 2/21/24, [hardcopy included in
the committee packet].
MR. PAINTER related what he would be discussing as delineated on
slide 2, "Outline," which read as follows [original punctuation
provided]:
• Current vs. Proposed Performance Measurement Systems
• Consensus Estimation Conferences
Current vs. proposed procedures
Examples of impact
• LFD's Role in HB 194 and Fiscal Note
MR. PAINTER provided a history of the current statute while
speaking to slide 3, "Current Missions and Measures System,"
which read as follows [original punctuation provided, with some
formatting changes]:
• Legislature establishes mission statements for each
agency.
• State agencies and the Office of Management and
Budget (OMB) develop missions and measures to measure
results and progress towards the mission statements.
• According to the OMB's Performance Management Guide,
"Performance measures are quantifiable indicators that
inform agencies of their progress toward their desired
results. Effective performance measures are management
tools developed to help monitor work performed and
results achieved."
• These measures are reported by OMB in the Governor's
Detail Books and under a "Performance Measures,
Indicators and Details" section of OMB's website.
• Measures are assigned for each core service of each
program.
MR. PAINTER noted that the bulleted item, "Measures are assigned
for each core service of each program", contrasts with Utah
where there are specific projects where the legislature will say
that it wants to have within an agency a few focus areas that
the legislature wants some change in the results, or the
legislature wants to measure the results.
MR. PAINTER displayed slide 3 and reviewed an example of current
performance measures for the Department of Transportation and
Public Facilities (DOTPF): Priority 1, to preserve Alaska's
transportation infrastructure; under which is Target 1,
Condition of highway pavement, for which there is a year-to-year
comparison of miles of roads in good or fair condition; and an
analysis. He related that in 2013/2014 DOTPF went through a
process working with the finance committees and a consultant to
develop better measures. He said DOTPF has some reasonable
measures that look like those of states that do this more
seriously, but there are items that aren't quite as actionable.
MR. PAINTER showed slide 4 and discussed an example of current
performance measurements for the Department of Administration
(DOA), Division of Motor Vehicles: Target 2, achieve 80 percent
customer satisfaction score. This target was far exceeded for
the years 2020, 2021, and 2022, he said, which triggers the
question that if the target is far exceeded, should there be
some measure of improvement or determination of what the purpose
is for keeping the target at 80 percent. He stated that this
has happened for a lot of these measures because they are not
really a part of the budget process. For many targets, he
continued, it is seen from year to year that the agency just
asks whether it is meeting some baseline with a yes or no answer
and with some analysis that doesn't necessarily feed into
something actionable for the legislature. That information
isn't necessarily useful, he advised, because it was developed
maybe 10 years ago and just sits in the budget every year.
6:39:31 PM
CHAIR CARPENTER asked about the amount of money the legislature
is appropriating in the budget toward achieving customer
satisfaction, but surmised it isn't answerable right now.
MR. PAINTER confirmed it isn't answerable. He noted that the
existing measures don't get into the reasons for why something
may have improved over time because they aren't targeted in a
way that ties them to specific activities being done by the
agency, and therefore it doesn't lead to a budget conversation.
MR. PAINTER spoke from slide 6, "How HB 194 Would Change
Performance Measurement," which read as follows [original
punctuation provided with some formatting changes]:
• HB 194 assigns the Legislative Budget and Audit
Committee (LB&A) the responsibility of providing the
measures to OMB by August 1 of each year.
As staff to LB&A, the Legislative Finance Division
would work with LB&A, OMB, and agencies to modify
existing measures.
• HB 194 orients the measures around "service, program
and financial goals" rather than missions.
• OMB would continue reporting the measures as
established by LB&A, as well as the unit cost and
performance cost of each service or program
expenditure.
MR. PAINTER added that it is unknown how much DMV is spending to
improve customer satisfaction. He said SSHB 194 would encourage
the legislature to ask questions of agencies, an example being
to ask the Department of Natural Resources (DNR): How quickly
are permits being processed? How much does it cost to process
each permit? Then, he continued, there could be a target to
reduce the cost per permit. He explained that this is an
example of how this system would work versus the current system
that doesn't have this flow of logic.
6:42:24 PM
MR. PAINTER spoke from slide 7, "Current Revenue Forecast
Process," which read as follows [original punctuation provided
with some formatting changes]:
• Until recently, the Department of Revenue (DOR) held
an annual oil price forecasting session, inviting
stakeholders within State government, the legislature
and academia.
• In 2019, this was replaced with a simpler
methodology for oil price estimation utilizing futures
market data.
• DOR develops the "Revenue Sources Book," published
twice a year (in December and March) as the official
revenue forecast.
• The Governor and Legislature use these forecasts to
build the budget.
MR. PAINTER specified that utilizing futures market data doesn't
involve people getting together and agreeing on a number, a
consensus forecast; it is the Department of Revenue (DOR) doing
a forecast of its own. He noted that DOR consults with LFD on
methodology and there are two meetings a year between DOR, LFD,
and OMB to discuss the "Revenue Sources Book" and any changes in
methodology used by DOR.
CHAIR CARPENTER asked whether DOR is required by statute to
consult with LFD.
MR. PAINTER replied no, DOR has chosen to keep OMB and the
Legislative Branch in the loop through informal meetings. He
related that Utah used to rely on informal things, but it became
necessary to put formal consultation into statute because of
conflicts between the legislative and executive branches. He
shared that such conflicts have not occurred during his 11-12
years of being part of the forecast for Alaska, except for 2020
when the budget process had to be closed out before the spring
forecast came out.
MR. PAINTER spoke from slide 8, "Revenue Estimation Process in
HB 194, which read as follows [original punctuation provided
with some formatting changes]:
• DOR would still prepare the Revenue Sources Book as
they do now.
• Revenue Estimation Conference would develop a
consensus between the Legislature and DOR for
assumptions. Presumably, the results would of the
conference and the RSB would match.
• Sec. 10 of HB 194 requires the Governor to limit
operating expenditures in their budget proposal to
"official estimates of recurring revenue." This would
appear to prevent the use of reserve draws to meet
operating expenses.
Sec. 11 of HB 194 requires the Governor to develop
an alternative revenue forecast and budget plan based
on the 10-year average oil price and a fixed $70
price.
MR. PAINTER expounded that in some states a revenue estimation
conference could do all the work of revenue estimation. Alaska,
he said, relies on a petroleum tax that is comprised primarily
of three taxpayers. Substantial confidential information is
required to make an accurate forecast, he explained, and since
confidential information cannot be viewed by the public or LFD,
coming up with a revenue forecast cannot be an entirely public
process, the confidential part must be done by DOR. However, he
continued, there could be a public process through the price or
the methodology rather than the model itself that DOR runs. The
conferences, he stated, would formalize some of the things that
are happening now but that aren't a public process.
6:49:47 PM
MR. PAINTER explained that the graph on slide 9, "Projection
Scenarios Versus Actual Revenue," [for fiscal years 2022-2027],
shows the alternative numbers that would be used for a revenue
forecast versus what is used now. He specified that the blue
area is the actual unrestricted general fund (UGF) revenue
[excluding percent of market value (POMV)] that was used in the
fall forecast for this year. The red line, he said, is the $70
nominal used to prepare the forecast. He noted that the $70
nominal moves around quite a bit partly because of adding the
POMV, which increases the revenue forecast a lot. He pointed
out that even when using the same $70, the revenue forecast is
different each year because of changes in production and changes
in company costs. The $70 nominal, he added, would be a lot
more stable than what was had in reality. He further pointed
out that currently the $70 nominal is very close to the 10-year
average [purple line]. If the 10-year average is used, he
continued, spikes and drops would still be seen because there
has been huge volatility in oil prices from year to year. He
stated that the actual fall forecasts [blue line] and actual
spring forecasts [orange line] for each year tracked fairly
close, but sometimes spikes were foreseen that didn't occur.
For example, he related, in fiscal year 2023 (FY 23) it was
thought that prices would stay in the $100-something range in
the spring forecast, but instead prices dropped, and the
forecasts were slow to capture just how deeply revenue dropped
during the drop.
6:52:35 PM
MR. PAINTER addressed the bar graphs on slide 10, "Example: FY24
Revenue Scenarios," depicting the forecasted UGF revenue by
scenario (fall 23 forecast, spring 23 forecast, 10-year average,
$70 nominal) for fiscal years 2025, 2026, and 2027. There isn't
a huge difference between the scenarios, he explained, because
prices are close to $70 and close to that average. Right now,
he said, these things are coincidentally very close so it looks
like this wouldn't make a big difference. But, he added, slide
9 shows that historically using these different methodologies
would have a very different result from each other.
MR. PAINTER discussed the bar graphs on slide 11, "Example: FY12
Revenue Scenarios," depicting the forecasted and actual UGF
revenues by scenario (fall 2010 forecast, spring 2011 forecast,
10-year average ($52), $70 nominal, and actual) for fiscal years
2012, 2013, and 2014. Looking back historically, he related
that in FY 12 the results are very different between the five
scenarios, with the actual being much higher than the other four
because there was an unexpected revenue spike. In FY 13, he
noted, the fall 10 forecast and spring 11 forecast were very
close to actual, while the 10-year average and $70 nominal were
lower because prices were unusually high at that point. So, he
continued, in that year more accuracy wouldn't be seen, but had
the budget been built on those lower numbers the budget wouldn't
have been as far out of whack when the crash was seen because
there would have been a budget scenario that went to a lower
price that was more in line with what really happened in FY 16
and FY 17.
MR. PAINTER spoke to slide 12, "Example: FY 17 Revenue
Scenarios," depicting the forecasted and actual UGF revenues by
scenario (fall 15 forecast, spring 16 forecast, 10-year average,
$70 nominal, and actual) for fiscal years 2017, 2018, and 2019.
He pointed out the big differences between the actual and the
forecasts the forecasts showed continued low revenue but in
reality it went upwards in a swifter recovery than what showed
in the forecasts. While the forecast doesn't always look like
the most accurate methodology, he added, it would lead to more
stability if the budgeting were done on that.
6:55:17 PM
MR. PAINTER paraphrased from slides 13 and 14, "Consensus
Estimation Conferences," which read as follows [original
punctuation provided with some formatting changes]:
• HB 194 establishes seven estimation conferences. The
Legislative Fiscal Analyst would be the principal,
with participants appointed by the Speaker of the
House, Senate President, and Governor.
• The seven conferences would cover:
Economic forecasts
Demographic estimates
Revenue forecasts
Education
Criminal justice
Social Services
Retirement systems actuarial assumptions
• Developing policy-neutral baselines for major
expenditure items is a priority of LFD now.
• For example, this session LFD worked with OMB and
the Department of Health this session to review
Medicaid projections in detail after the Governor's
amended budget was released. However, in some past
years it was difficult to get Medicaid projections.
• Consensus estimation conferences would create a
framework to formalize a collaborative budget process
between the legislative and executive branches.
• Potential challenges would be developing a timeline
that does not conflict with the executive branch's
budget development process and avoiding duplication of
work.
• Another challenge is that Alaska does not have
permanent legislative committee staff like Florida;
partisan legislative staff are tied to individual
legislators and may not have longevity in their roles
to develop subject-matter expertise.
7:00:09 PM
MR. PAINTER concluded his presentation by speaking to slide 15,
"HB 194's Impact on LFD and Fiscal Note," which read as follows
[original punctuation provided with some formatting changes]:
• HB 194 would significantly add to LFD's interim
workload.
Assisting LB&A in developing new performance metrics
Organizing seven consensus estimation conferences
• Florida Office of Economic and Demographic Research,
which plays a similar role in that state's estimation
conferences, has 27 analysts. LFD had six. (Both
organizations do have significant other duties beyond
these conferences.)
• Utilizing existing legislative meeting space,
recording staff, and infrastructure reduces the cost
need.
• LFD is conservatively requesting one additional
Fiscal Analyst PCN to assist with additional workload
($210.9 UGF including one-time costs).
We are unsure whether this is enough additional
personnel to meet these new duties but are wary of
attempting to expand too quickly because of the steep
learning curve for new analysts.
Our current building does not have space for more
staff (even one additional PCN would require
reconfiguring current space).
• Requesting $17.5 UGF of travel funds for interim
conferences, assuming many will be held in Anchorage
to accommodate other participants.
MR. PAINTER advised that if there was better agreement on some
of these items before session, not quite as much of the budget
work would need to be done during session. Session is intense
right now, he continued, partly because there is not substantial
budget work that happens during interim. It would be beneficial
to shift work, he added, rather than just add to it.
7:03:11 PM
REPRESENTATIVE GROH asked what Mr. Painter sees as the most
likely benefits and the biggest challenges of this proposal.
MR. PAINTER responded that the two parts of the proposal are the
estimation conferences and the performance measures. Regarding
performance measures, he said that if the legislature wants to
make performance budgeting a priority again, then having the
Legislative Budget and Audit (LB&A) Committee as the designated
agency within the legislature would be a benefit because an
interim committee could do the work since it is a challenge to
fitting everything into session. He advised that performance
management, measurements, and budgeting take a substantial
amount of work as well as buy-in from both the executive and
legislative branches. Culture cannot be legislated, he added,
and changing budgeting practices and culture is probably a
bigger challenge than changing the statute. Regarding
estimation conferences, Mr. Painter said the biggest benefit
would be moving some of the work that LFD tries to do. For
example, he continued, being more formal in separating out
projections and policy choices would help tease out policy
changes from the underlying growth or shrinkage of a program's
cost and would make budgetary choices clearer. He allowed that
getting this to a functional system in the state's programs
would be a substantial amount of work that will take time.
7:08:12 PM
CHAIR CARPENTER acknowledged the considerable amount of change
that HB 194 would require. On the other side of difficult, he
opined, is a benefit. He asked whether any other proposals are
being considered that would better the process going forward.
MR. PAINTER replied that a bill by Senator Kaufman was heard
yesterday in the Senate Finance Committee. He said Senator
Kaufman's bill would formalize transferring the performance
management to the Executive Branch, would change some of the
terminology and missions, and instead of a 10-year plan it would
focus on a shorter time horizon.
CHAIR CARPENTER stated that that would be a competing proposal
on where the oversight responsibility lies, what the goal is,
and how to measure it. He said he sees the two proposals as two
policy choices choosing to say the Executive Branch has
responsibility for that or choosing to say the legislature
retains that and will move forward with it is doing.
7:10:33 PM
REPRESENTATIVE TILTON inquired about what is in SSHB 194 that
would create a successful environment and not fizzle out.
MR. PAINTER answered that it goes back to the legislative
culture, people cannot be forced to continue to care about these
things. Giving it to a specific committee, he said, probably
improves the likelihood that it will continue being done because
the chairman of that committee would presumably want to exercise
the committee's power versus the entire legislature being
unclear as to who is supposed to be leading and staffing it.
Looking at the statute and changing it in some way, he added,
probably increases the likelihood it will succeed versus just
hoping the current statute with no additional emphasis will
succeed.
7:13:03 PM
REPRESENTATIVE MCCABE stated that the fiscal note is reasonable
with one position control number (PCN) for looking at this and
then perhaps coming back for more.
7:13:43 PM
REPRESENTATIVE MCKAY said he likes having an alternate budget
that is based on a certain oil price. He expressed his concern
that Alaska isn't ready should there be a drastic reduction in
world oil prices. He suggested that Alaska have an austerity
budget and know what it would do if oil prices decreased to $30-
$40 at current reserve levels, which are much less than the 1.5
and 2.0 million barrels of oil a day produced in 1986 and 1989,
respectively. He said he likes "this idea" because "it kind of
forces you to deal with that."
7:16:58 PM
REPRESENTATIVE GROH recounted that when Alaska was going broke
in 1949, a broad-based tax was brought in for the first time
which helped achieve statehood, and when Alaska was in a bad
financial spot in 2018 it moved to a percent of market value
(POMV) system. So, there are approaches that can help, he said,
but it isn't just oil prices going down, a twist could be a fall
in production, or it could be the financial markets. Decent
schools, roads, and public safety can be provided, he opined, if
[the legislature] is smart about it and willing to consider
acquiring revenues as well.
7:18:38 PM
REPRESENTATIVE MCCABE stated that revenue isn't just taxes and
financial markets, it is resources like coal, gold, copper, and
antimony. "We" are in this position, he opined, because "we"
haven't developed Alaska's resources as required by the state's
constitution. Instead, he opined further, "we" are just going
to tax people, and that is abhorrent.
7:19:33 PM
REPRESENTATIVE MCKAY maintained that generating new revenues is
simply transferring money from individuals and corporations to
the government, so it's a transfer of wealth, a taking. He
argued that the focus should not be on generating new revenues,
but rather on creating new wealth through resource development
and bringing more resources to the market instead of just taking
from the private sector.
7:20:56 PM
REPRESENTATIVE TILTON asked whether there is anything from the
previous framework that would be helpful for setting up
measures, an example being the measures that DOTPF has in place.
MR. PAINTER replied that LFD has looked at whether any existing
measures would fit this framework, and while some are useful
measures, none have a cohesive system with a clear goal and
policy analysis called a logic model. He explained that a logic
model states the desired outcome at the end and the output that
can be measured on the way to getting to that outcome, which is
what the Utah model does. The analytical framework is lacking
right now to make that work, he continued, but there are some
measures that could be kept and, with some work, put into a
cohesive system.
REPRESENTATIVE TILTON related her concern about federal funding
used in certain projects. She asked whether the State of Alaska
would give up a program or would budget state funds for a
program if federal funding of that program should cease.
MR. PAINTER responded that LFD is often asked to look at where
federal funds are being replaced with state general funds. That
was a big concern after the 2009 stimulus bill of 2009, he said,
when [the state] was asked to invest in certain things and
several years later LFD was asked to look through replacing
federal funds as they expired with general funds. That trend is
again being see, he advised, but there isn't a structure in
place to look at what impact is going to happen when [the state]
accepts federal funds.
REPRESENTATIVE TILTON remarked that it is hard to take something
away from a program that has been there. She asked what the
state will be willing to do if a program goes away.
7:26:32 PM
CHAIR CARPENTER noted that earlier in the meeting there was talk
about the challenges with spending nonrecurring revenue on
recurring expenses because then the expectation is that it's
going to continue. But when a nonrecurring federal source dries
up at some point, a policy problem will then be had, he stated.
REPRESENTATIVE TILTON apologized for missing the first part of
the bill's presentation.
CHAIR CARPENTER asked whether the term "structure" as used by
Mr. Painter meant statutory framework or the frameworks of
computer systems, culture, and way of doing business, or both.
MR. PAINTER answered probably not computer systems. But, he
explained, when deciding whether to investigate something, LFD
considers whether there is an audience for it so that time isn't
spent on researching and developing a new analytical product
that will never be used. He said having a committee in charge
of something, or having a formal publication requirement, builds
a reason to do something and an audience for it, at least for a
while. To have value and be worth spending legislative and
agency time on, he stated, these potential things need to be
part of the legislative process. As part of the legislative
process in a formal way, he added, it will continue regardless
of who is the committee chair, instead of fading away over time.
CHAIR CARPENTER stated that the system of record the budget
documents used in House Finance Committee budget deliberations
have remained about the same under three different LFD directors
over the last six years. He surmised Mr. Painter is getting at
how to sustain a change and make it part of [the legislature's]
culture. Chair Carpenter said the connection between how money
is spent and how money is budgeted are two different computer
systems that don't talk to each other and have no relation to
the budget process. A big gap in the current system of record,
he continued, [is not being able to] have a conversation about
this year's budget that has a tie-in to how the money was spent
in that same department in the previous year. He said SSHB 194
does nothing to address that part except start the conversation
that identifies the need for some sort of system of record to
keep this going through the next legislature.
MR. PAINTER recounted that when the current law was first
implemented, performance measures were in the budget bill and
budget reports. Now, he continued, they're on OMB's very thick
budget books which people may not read, and on OMB's dashboard
which many people aren't even aware of. Some of the things are
there now but are a bit hidden, he said, and placing them in the
bill is the most direct way to make them visible. That was
something the legislature once did, he noted, but moved away
from because of a legal dispute that is no longer relevant.
7:33:09 PM
REPRESENTATIVE MCCABE stated that a much better way is needed to
provide transparency and measurement of the people's money that
is spent by the legislature to educate Alaska's kids because
currently the only outcome seen is that Alaska is forty-nineth
out of fifty states. He requested a few examples of what would
be measured in the arena of education.
MR. PAINTER answered that the outcome could be test scores,
graduation numbers, or some other target. But, he noted,
specifics must be looked at in the earlier years, such as
whether students are reading at grade level, test scores, and
whether there is progression from year to year. In education it
isn't just levels, he advised, it's wanting to see improvement,
so it's figuring out what levers to pull to improve things and
how to measure that. He posed the scenario, What is the Alyeska
Reading Academy supposed to do to improve reading scores? He
answered that a clear causal statement is needed and then that
program's performance is measured as it relates to statewide
reading scores. He said this is an example of applying it on
the smaller level to get to that bigger outcome, which is every
kid should be able to read.
REPRESENTATIVE MCCABE noted that the legislature provides money
called the base student allocation (BSA) and there is also
transportation, school heat, roof replacement, aides, and
janitors. Everything is lumped together, he continued, and
there is no transparency for Alaskans on how their money is
being spent and no real way to measure all the other pieces of
it other than the outcome for Alaska's kids.
CHAIR CARPENTER said that while SSHB 194 sets the statutory
framework, he isn't sure how that is communicated other than in
a budget bill that may or may not be adequate for legislators to
make sense of or to understand that that is where it can be seen
every year. So, he allowed, some additional conversation may be
needed outside of this bill for how to communicate the missions
and measures so that it's well understood.
7:38:25 PM
CHAIR CARPENTER announced that SSHB 194 was held over.
7:38:53 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
[7:39] p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0194B.PDF |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB 194 Sponsor Statement Version B.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB 194 Sectional Analysis Version B.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB194SS - VAR-EXE-01-18-24.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB 194 SS - VAR-EXE-01-18-24.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB 194 HW&M Presentation.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |
| HB 194 HWAM 2024 - Director Alexei Painter Presentation.pdf |
HW&M 3/13/2024 6:00:00 PM |
HB 194 |