Legislature(2001 - 2002)
01/17/2002 09:33 AM Senate FIN
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* first hearing in first committee of referral
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GENERAL SUBJECT(S):
Overview: Possible Supplemental Requests for FY 02
David Teal, Director, Division of Legislative Finance
The following overview was taken in log note format. Tapes and
handouts will be on file with the Senate Finance Committee through the
21st Legislative Session, contact 465-4935. After the 22nd
Legislative session they will be available through the Legislative
Library at 465-3808.
Time Meeting Convened: 9:33AM
Tape(s): SFC-02 # 1 Side A
PRESENT:
x Senator Donley
x Senator Kelly
x Senator Austerman
x Senator Green
x Senator Hoffman
x Senator Leman
x Senator Olsen
x Senator Ward
x Senator Wilken
ALSO PRESENT:
DAVID TEAL, DIRECTOR, DIVISION OF LEGISLATIVE FINANCE
LOG SPEAKER DISCUSSION
0 Co-Chair Donley Call to order
This meeting to hear overview from the
Division of Legislative Finance on what the
legislature might anticipate budget-wise.
$16.5 million for supplemental expenses
planned - already receiving some
notification of some requests from the
Executive Branch.
145 DAVID TEAL, Noted co-chair also requested highlight of
Director, Division FY 03 requests to give the Committee a
of Legislative "starting point".
Finance
214 Don't know that much about supplemental
budget requests at this point.
228 Referenced "The Fiscal Year 2003 Budget:
legislative fiscal analyst overview of the
governor's request" [Copy on file]
253 There are some very minor differences
between the budget as we analyze it and
Office of Management and Budget assessment.
308 Express appreciation for efforts of the
Office of Management and Budget and the
agencies on making this budget
understandable.
322 Difference on four open-ended language
provisions - three in Department of Health
and Social Services and one for the
Longevity Bonus Program, where the Governor
estimates a zero fiscal impact, but we
calculate slightly less then $15 million.
Governor Tony Knowles says the FY 03
contains a $179 million spending increase,
we say it is actually $193 million.
This difference is an improvement over last
year, is minor and easy to explain.
355 Revenue is down $98 million so the fiscal
gap is $1.2 billion.
Perspective: revenue covers only 55% of
expenses- the remaining 45 comes from the
Constitutional Budget Reserve (CBR) fund.
434 This shows us that the CBR is not being
used as a cushion but as a major funding
source.
455 Depletion of the CBR is no longer three
years away as earlier anticipated but
rather, the fund will be exhausted by FY
05.
513 FY 03 capital budget is break-even
524 Big increase is in the operating budget;
primarily the Department of Health and
Social Services - $69 million
537 Without a Medicaid refinancing plan, which
is built into the governor's proposed
budget but not yet approved by the federal
government, there will be a $56 million
hole in the budget.
This would put this department's request at
over $123 million increase, almost
equivalent to the total increase for the
rest of the budget last year and would be
equal to 2/3rds of the increase this year.
604 The Department of Health and Social
Services budget increases are not just
Medicaid-also foster care, alcohol and drug
abuse, and other programs.
619 No suggestions on how to deal with it, but
inform you this is a huge and growing part
of the budget.
628 University of Alaska increase request is
$22.6 million.
Department of Corrections requesting $10
million increase.
651 University of Alaska increases are for a
continuation and expansion of their
initiatives of the last 2 years.
The Department of Corrections general fund
increases are to replace $5 million federal
money that has been lost.
710 Big issue - not related to money but to the
process: the governor's request contains no
recommendations for reductions.
This means more work is now required of the
budget subcommittees and the Committee to
determine where reductions should be made.
756 Alaska Marine Highway System (AMHS) fund
balance has been draining, which is now
dry. General fund appropriation for the
AMHS rose from under $30 million in recent
years to over $45 million in FY 03.
823 Alaska Housing Finance Corporation (AHFC)
dividend is approximately $103 million a
year. However, more and more is being
diverted to cover debt service over the
years.
This year, in combination with their
reduction of the dividend, the amount is
down $17 million from last year.
Essentially, the state has $23 million out
of the $103 million that is discretionary.
857 In the governor's budget request, this has
been replaced with general funds
These items are what the Governor is
referring to when he states $81 million in
increased spending is unavoidable.
919 Co-Chair Donley Is AHFC still claiming they are supplying
the state with the agreed-upon $103
million?
925 Mr. Teal No. The board decided to reduce the
dividend to $96.3 million. From that,
according to the language provisions, they
would keep an additional $4.9 million for
debt service on bonds they anticipate
issuing.
In our opinion, this should be considered
normal internal corporate receipts.
There is also another formula being used
for housing programs. You could say they
are converting the dividends to normal
internal corporate receipts, not leaving it
for you to spend.
There are also debt service increases as
well.
1014 Labor costs account for another spending
increase.
The general fund cost to pay for salary
increases is approximately $15 million.
Plus general funds replace other funding
sources that are no longer available to pay
for salaries, which brings total to $17
million.
The total of those is just over $50
million. Those are not one-time items. They
will continue into FY 04 and beyond.
1053 So does Medicaid.
If Fair-Share is not approved there will be
a hole, not just in this year's budget but
every year in the future.
1103 In summary the Governor proposes a $179
million general fund spending increase -
we bump it up to $193 million.
Fair-Share is $53 million.
Plus the governor is requesting $47 million
general funds for homeland security.
This totals approximately $296 million
increase.
The homeland security spending is presented
as FY 02 supplemental.
Either way, the funds still come from the
CBR and shorten the length of time before
the CBR is gone.
1149 Co-Chair Donley What is the amount of spending requested by
the Executive Branch last year in the form
of amendments to the governor's budget?
How many can the legislature expect this
year?
1221 Mr. Teal Not sure. Certainly we will expect
amendments.
Only certain of an amendment relating to
the proposed gas pipeline-because they told
us. But we don't know how much money the
request will be for.
1256 Senator Olson Where is the $56 million Medicaid figure
coming from?
1312 Mr. Teal The Governor's budget uses the assumption
that the federal government will approve
the Fair-Share proposal to partially fund
Medicaid.
The federal government has already stated
that Pro-Share can't be used to fund
Medicaid.
If that program goes away and is not
replaced with the yet to be approved Fair-
Share proposal, the budget is out $56
million because governor assumes it would
be accepted.
1405 Senator Olson
1410 Mr. Teal
1423 Co-Chair Donley Plus we don't know how many additional
amendments to the FY 03 governor's budget
request will be submitted by the Office of
Management and Budget.
1438 Mr. Teal There is also new legislation sponsored by
the governor that includes additional
spending. The Governor has proposed bills
mostly for education that would total $22
million.
1502 Senator Hoffman Is any of those federal dollars?
1512 Mr. Teal Just general funds.
1519 List of supplemental requests from recent
years - not necessarily what will be
requested this year. Office of Management
and Budget just started working on the
supplemental this week and won't decide
what items to include until the February 11
deadline.
This list is from our office showing what
has been requested over last 3-5 years
Department of Administration:
Leases: $1-1.5 million
Office of Public Advocacy and Public
Defenders: $.5-1 million
Power Cost Equalization: $1-7 million. (It
should not be on the high end this year.)
1626 Co-Chair Donley Don't we have a strange situation where the
governor did not request an appropriation
from the Power Cost Equalization (PCE)
Endowment last year?
1647 Mr. Teal Yes. But this does not involve general
funds but rather PCE endowment funds.
Explain the $100 million endowment was
established to fund the PCE program.
Seven percent of the market value was
supposed to transfer from the endowment
fund to the PCE fund every year to make the
grant payments.
Somehow the 7-percent transfer from the
endowment was overlooked by everyone last
year and was not put into a budget.
There should therefore be a supplemental
request for that 7-percent transfer from
the endowment.
1735 Co-Chair Donley But the endowment did not earn 7 percent
last year.
1745 Mr. Teal The last we knew, the endowment was less
than $100 million at this point.
1757 Co-Chair Donley So it has actually lost money since it was
created.
So if we were to subsequently withdraw $7
million from it, we would actually making
the problem worse because it would have
even less earning value for the next
funding cycle.
1807 Mr. Teal True. This year, it would certainly eat
into the principal.
The hope is that in the future it would
earn 7 percent or more and would not have
to use principal to fund the program.
However, it is also known that 7 percent of
the endowment value is not enough to fund
the PCE program.
There is some Four Dam Pool debt service
that goes into the grant program as well.
That gets close to the $15.7 million that
is the agreed upon level of funding, but
it's actually been funded at $16.9 million
for the last couple of years.
1858 There is question if the endowment could
support the program even after Four Dam
Pool is sold and the money goes into the
endowment.
It is even more complicated then that
because now the transfer is supposed to be
done as of February 1.
If Four Dam Pool were sold after February
1, it wouldn't count as market value on
February 1, which would affect the transfer
for FY 02.
There is also a supplemental request to
fund FY 02 grants.
You will probably have to tweak the 7
percent withdrawal and determine level of
funding either in a subcommittee or the
full Committee.
2018 Return to listing previous supplemental
requests.
Education- typical supplemental request in
the recent years has been negative because
the foundation formula has been over funded
in the past three years and funds were
returned. The Department of Education and
Early Development usually requests how the
department would like to spend the excess
funds.
Don't know if the formula is over funded
this year.
2100 Department of Health and Social Services:
Medicaid: $14 - 96 million (includes both
general funds and federal funds)
Based on FY 03 increase and FY 01 actuals,
looking at a supplemental this year of $15
million or more - up to twice that.
2122 Purchase services-Foster Care and
Guardianship: $1-3 million
2129 Department of Law: Attorney General: $3
million
2133 Disaster relief fund: $.5-24 million
2140 Fire suppression: $4-18 million, it's
unpredictable.
2152 That's as far as we can go until February
11 when the legislature receives the
supplemental budget request from the
Governor.
2206 Senator Hoffman Do you expect a supplement request for high
fuel costs.
2221 Mr. Teal Fuel costs have gone down slightly. Some
budgets-Marine Highways and Department of
Transportation and Public Facilities- did
have an increase for high fuel costs in FY
02. We don't know. There could be one for
PCE
2244 Senator Wilken Understood University of Alaska request is
for a $17 million increase but you stated
it is $21 million.
2303 Mr. Teal They are telling you about the increments,
but not about fund source changes.
There is about $2 million worth of Post
Secondary Education receipts and $2.6
million of Alaska Science and Technology
Foundation receipts. Both have been
replaced with general funds in the FY 03
budget.
2320 Senator Wilken Two years ago $400 from the CBR was
identified to help support some bond
payments.
How has that worked out?
2338 Mr. Teal The funds are earning about 8 percent,
which the rest of the CBR is earning about
5 percent.
2348 Could you give a report on the matter?
Realize we are at the end of the 5-year
agreement with AHFC - was co-chair made
aware of that board was going to take the
action it did?
2415 Co-Chair Donley No, don't remember receiving any
information they were going to reduce the
amount of funds provided to the state.
2437 Senator Wilken I would like to discuss this matter in
future meetings.
Did they reduce the amount of money spent
on advertising?
2451 Co-Chair Donley Any other questions or comments
Seeing we are faced with a large deficit it
will be important that we review
supplemental requests closely and start to
"strongly" request the Administration set
priorities in their spending to make room
for supplemental spending.
Don't want to make this problem any worse.
Target is $16.5 mill will be tough to make.
2614 Senator Austerman Ask that the Committee concentrate on our
priorities. On what to spend and what to
fund rather then just telling each budget
subcommittee how much it could spend.
We also have to figure out the opposite
end: supply.
Can't know supplemental requests until we
receive them.
When I was in the House of Representatives,
there was discussion about consolidation of
departments to try to find efficiencies.
2752 Co-Chair Donley Thank Mr. Teal. Look forward to working
with you. Thank Division of Legislative
Finance for work done on the budget last
session
2813 Senator Hoffman Regarding figures for the tourism industry
their request for funds. If the request is
not addressed, there will be an impact on
the economy. Request report from Division
of Legislative Finance showing the possible
impact of not funding the request.
Governor's recommendation gives some
consideration of the economy after the
September 11, 2001 terrorism attacks.
We as a Committee also have to help ensure
the economy doesn't crash.
Oil companies' staff reductions will also
affect the economy.
Need to give special attention to how this
budget would impact the state's economy.
2943 Co-Chair Donley Thanked Mr. Teal.
Welcome Committee back
Looking forward to this year. Last year we
did a lot of clean up on the budget
process.
3041 Adjourn 10:04 AM
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