Legislature(1995 - 1996)
01/26/1995 09:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE January 26, 1995 9:10 a.m. TAPES SFC-95, #2, Side 1 (000-340) CALL TO ORDER Senator Rick Halford, Co-chair, convened the meeting at approximately 9:10 a.m. PRESENT In addition to Co-chairs Halford and Frank, Senators Sharp, Donley, and Phillips were present. Senators Zharoff and Rieger arrived while the meeting was in progress Also Attending: Annalee McConnell, Director, Office of Management and Budget; Tam Cook, Director, Legislative Legal Services; Nancy Slagle, Director, Division of Budget Review, Office of Management and Budget; Virginia Stonkus, Fiscal Analyst, Legislative Finance Division; and Kathy Holmquist, Senate Finance Secretary. SUMMARY INFORMATION SENATE FINANCE COMMITTEE ORGANIZATION AND PROCEDURES REVIEW Presentations were made by Tam Cook, Director, Legislative Legal Services; Virginia Stonkus, Fiscal Analyst, Legislative Finance Division; and Kathy Holmquist, Senate Finance Secretary. HB 100 - APPROP: FY 96 OPERATING AND LOAN BUDGET Presentation made by Annalee McConnell, Director, Office of Management and Budget (OM&B). Co-chair Halford announced that the purpose of the meeting is to review committee procedures regarding legislation. Larry Stevens, Legislative Aide to Co-chair Halford, will be in control of bill scheduling. Co-chair Halford referenced his memo, dated January 19, 1995, outlining the Senate Finance Committee Procedures and Bill Scheduling. He announced a presentation of fiscal notes by Virginia Stonkus, a discussion on drafting by Tam Cook, and the organizational procedure of the bill files by Kathy Holmquist. Co-chair Halford observed (without an operating budget), that fiscal notes, could be a greater problem early in this session. The Finance Committee relies heavily on the deputy commissioners (who have not yet been appointed) to provide this information. Co-chair Halford introduced Virginia Stonkus, Fiscal Analysis, Legislative Finance Division, and invited her to make her presentation. Ms. Stonkus began by referring to the "Legislative Budget Guide: Swiss Army Knife of Budget Handbooks". Within the legislative section of the publication, she noted the technical procedural technical steps on fiscal notes. Ms. Stonkus emphasized that legislation to be proposed by statute, (anything that is not an appropriations bill) will have to be accompanied by a fiscal note before it can be reported out of committee of first referral. On January 20th, the Office of Management and Budget released a revised memo of detailed fiscal note procedures. She referred to the one-page analysis of the note, the assumptions used, and the economic impact. She invited the committee to take advantage of Legislative Finance for assistance in reviewing fiscal notes to: ensure the assumptions are valid; that the program impact is correct; and the position count is justified. She concluded her presentation noting that Legislative Finance looks forward to working with the staff. Co-chair Halford emphasized that the first committee is to attach the fiscal note. The bills are going to be posted the preceding Thursday. Bills taken up by the committee will require fiscal notes. He stressed that the committee will not hold bills for administrative fiscal notes. It is not the committee's intention to deny the administration a chance to respond. In some cases, confusion on fiscal notes is used to slow down legislation that is opposed by the administration. Co-chair Halford indicated that he did not want the committee to be in that position. He noted that the committee will be using the Legislative Finance Office to draw fiscal notes to bills coming out of a committee with a zero fiscal note. Co-chair Halford thanked Ms. Stonkus for the presentation. Co-chair Halford introduced Tam Cook, Director, Legislative Legal Services, and invited her to make her presentation on drafting. Ms. Cook stressed that priority is given to the Finance Committee in drafting amendments and committee substitutes. She explained that only one or two attorneys will have expertise on any particular project. She explained that it will not be possible to pass on a given subject between attorneys. Therefore, she asked that Legal Services be warned, as early as possible, when a need for assistance with legislation is required. Ms. Cook requested advanced notice, with subject matter, be given to her office when there is a need for an attorney, including evenings or week- ends. She stressed that Legal Services gives priority to all drafting to enable all committees to continue to function. She stressed that Legal Services has a strict policy of attending to sectionals after drafting. Committees can function without a sectional from Legal Services but they cannot function without their committee substitutes and bill drafts. Legal Services searches into "hot" legal issues, consequently, there are some committee chairs that prefer to see a sectional out of Legal Services. Ms. Cook noted that Legal Services cannot promise it can provide sectionals, and warned against holding up committee action. She informed the committee that the new computer system has slowed production. She explained that with the upgrades and disconnection of the mainframe, the length of time to print is longer. The process time has increased from 2 minutes to 15 minutes for a three page document. Co- chair Halford expressed concern and asked that if, within the last 30 days of the session, the system is not running as quick or quicker than last year, the Co-chairs and presiding officers be so advised so the issue can be resolved. Co-chair Halford stressed that inability to print is a major cause for loosing legislation. Co-chair Halford questioned Ms. Cook as to the turnaround time for responding to a half-page amendment. She responded that it was not possible to give a time frame. She explained that the number of amendments has escalated significantly. Last year was a record year. She noted that up to 40 to 50 requests per bill were prepared by Legal Services. She said there is a limit. Legal Services cannot draft every amendment that is received. She emphasized a need for Legal Services to look at amendments; it enables smoother preparation of a committee substitute. She stressed that Legal Services will give priority to committee substitutes and amendment requests over new bills. Ms. Cook brought attention to the Ethics Committee's open meeting guidelines. They are not yet in effect, but she warned that they will have substantial impact on the type of notice that committees must give. Right now the guidelines are strict and they require subcommittees to comply with the preceding notice requirement. When the guidelines are passed, she noted, they may have an organizational impact on the operations of the committee. Co-chair Halford requested that Legislative Finance prepare a fiscal note on the ethics guidelines. Co-chair Halford turned the floor over to Kathy Holmquist, Finance Committee Secretary. Ms. Holmquist introduced additional Finance Committee staff: Norma Strickland, Secretary, and Rose Sturgis, Page. Ms. Holmquist briefly spoke to preparation of the bill files. Co-chair Halford expanded on the procedure by pointing out the deadlines. He asked that major amendments at the last minute be avoided. Folders must be available by 3:00 p.m. the day before the hearing. By 11:00 a.m., the material must be given to his Aid, Larry Stevens, for distribution. Co-chair Halford requested a brief recess at 9:30 a.m. Co-chair Frank reconvened the meeting at 9:40 a.m. HB 100 - APPROP: FY 96 OPERATING AND LOAN BUDGET "An Act making appropriations for the operating and loan program expenses of state government and to capitalize funds; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." Presentation made by Annalee McConnell, Director, Office of Management and Budget (OM&B). Co-chair Frank introduced Annalee McConnell and welcomed her to the meeting. He emphasized that the committee looks forward to working with her. Co-chair Frank invited her to bring to the table any of her staff. Ms. McConnell gave a brief synopsis of her past experience. She began with her affiliation as budget director when Governor Knowles was in his second term as Mayor of Anchorage. She emphasized that this was during the 1986 oil crash, which gave her experience at a time of monetary instability. She spoke of her experience with Alaska Native Foundation, and her work with small villages, particularly in western and northwestern Alaska, as well as Kodiak Island. She emphasized her work in the larger urban areas as well. Ms. McConnell mentioned that while she has not been employed by the state government before, her other responsibilities have put her in contact with state agencies. Ms. McConnell introduced her staff to the committee and asked that they be excused so they could go back to their other assignments: Nancy Slagle, Director of Budget Review; Budget Analysts are Jeff Hoover, Dept. of Transportation and Public Facilities, Dept. of Community and Regional Affairs, the Governor's budget, Dept. of Military and Veteran Affairs, and the Capital budget; Danith Watts, Dept. of Health and Social Services, and Dept. of Revenue; Laura Baker, Dept. of Environmental Conservation, Dept. Natural Resources, and Dept. of Fish and Game; Royce Weller, Dept. of Labor, Dept. of Commerce, and the University of Alaska; Dan Spencer, Dept. of Education, and Legislation budget; Deborah Driver, Dept. of Law, Courts, Dept. of Public Safety, and Corrections; Policy Analysts are Jack Kreinheder, Fred Pierce, and Jack Fargnoli. Ms. McConnell emphasized her goals as Director of OM&B. She spoke of expanding the time horizon of fiscal planning to 5 years and beyond. She addressed issues that tend to cut across departmental lines and are of concern to the committee, such as deferred maintenance, and issues of program receipts. She said that she is interested in developing a good working relationship between the administration and the legislature on the budget issues. Ms. McConnell stated her commitment to integrity and openness in all dealings with the public, the legislature, and with each other within the administration and various departments. Ms. McConnell addressed the specifics of the budget process and the time line. The administration began working immediately with the acting commissioners on the 1995 budget supplementals and 1996 budget. Obviously, we were taking that which was prepared by the previous administration. She stated that this administration did not have the same lead time that most transitioning teams have to analyze the budget. The permanent commissioners are just now coming on board. The previous administration's material, which had been prepared in OM&B, reflected $69.9 million in proposed supplementals to the 1995 budget. Ms. McConnell continued that OM&B has made a conscious decision to work with the new commissioners in preparing a realistic budget package. She stated that many of the items in former Governor Hickel's supplemental materials were the result of conscious policy decisions by the legislature last year. As an example, for oil and gas litigation, the legislature made a determination to give half year funding and require that the department come back to defend the remainder. She pointed out other areas, such as corrections, where the legislature knew there would be a need for additional funds to get through the year. She said that OM&B is evaluating those as well as other items. The schedule at this time is to have those supplementals to the committee within the next three weeks. The statutory deadline is February 14th. It is the Governor's intention to provide the package earlier. The 1996 amendments presented by Governor Knowles, December 15th, indicated he would present amendments by the end of February, which would be in advance of the statutory deadline. Again, Ms. McConnell stated that Governor Knowles has asked that it be brought forward sooner. Ms. McConnell addressed the 5-year fiscal plan and the commitment to expend within recurring revenues. She explained that the 5-year fiscal projection will be a tool for looking at the out-year impacts of current year budget recommendations. She said this is a similar tool she put into place in the municipality of Anchorage. It was an active decision-making tool. The prior administration had a very general 5-year projection, but minimal projection techniques. For example, all state expenditures were extended out at population and inflation growth. She pointed out the unreality, particularly within formula programs where there are different growth factors, depending on education, medicaid, etc. The same is true with revenues. While the state has the oil price and figures, there has not been much refinement as to how the program receipts are pushed out into the future. Ms.McConnell drew attention to the administration's "Preliminary Draft of Fiscal Model Being Developed" chart. Some adjustments have been made insofar as breaking out different parts of state government. Information is being provided by departments regarding growth within their agencies. This document does not incorporate policy decision. It is simply to show the size of the fiscal gap for 5 years (excluding any decisions to change either revenue structures or program expenditures). The administration is developing a tool to see where the state is headed and take specific looks at impacts for proposed capital projects. OM&B is also working with the Dept. of Administration to: finite labor costs; to determine how that will be included in the out-year budgets; and the handling of revenue projections. In general, she said, this does not include any proposals on the 1996 budget amendments. It shows approximately $80 million in supplementals for 1995 (the amount of money recommended by the previous administration, plus other items which have since come in). She noted that this is not an indication of what the final number will be. Ms.McConnell then referred to the "Five-Year Projection - Mid Case" chart. She pointed out the FY 95 projected gap will be about $300 million, to be filled from the constitutional budget reserve fund. She said that next year would jump to over $500 million, and by the year 2000 we would be well over $900 million (excluding any decision about revenue or expenditures). She pointed out that the figure to be concerned about is between 1995 and 1999. The state would be using $2.63 billion in reserves, leaving the constitutional budget reserve fund wiped out in 1999. These figures do include the BP settlement amounts of $350 million in the next two years. Ms. McConnell switched to the "Five Year Projection - with One Low Year" chart showing the danger point. Using 1997, the budget gap could be $970. million. She feels that the public does not have a sense of the magnitude of this information. She stated that there is work that needs to be accomplished to disseminate this information. People need to understand why we are making these necessary painful choices over the next few years. Senator Phillips interjected that his public is aware of the problem. Senator Rieger asked what the administration's position is on the G.O. debt? Ms. McConnell responded that the administration is just beginning to look at capital financing. She could not yet give a recommendation, but said it is an item up for discussion next week. Senator Rieger said that he was skeptical. He felt that there has been enough mortgaging of the future. He inquired what would happen to contributions toward the Public Employee Retirement System (PERS) over the next four years, and if OM&B shows steady or increasing contributions. Ms. McConnell could not answer the question, but indicated that she would look into it. Senator Frank wanted to make clear that this presentation does not reflect any decision or policy recommendations by the administration, but more a snapshot of what would happen given the inflation rate. He noted that the Governor has made repeated statements that he would veto any increases over prior-year appropriations in all areas, excluding education. He noted that this is not Ms. McConnell's recommendation, it is a projection of what will happen if growth were allowed. Ms. McConnell emphasized that the various departments understand how their areas must fit into a bigger picture and the impact of what happens if that is not accomplished. Senator Frank asked if OM&B is planning on providing a follow-up projection based on recommendations regarding the fiscal gap? Ms. McConnell indicated that when the FY 96 budget amendments are presented, OM&B will have a projection that would include proposals for FY 96. At that point we will not have recommendations for years beyond 1996, but at least we will be showing our proposals and detail work such as breaking down major programs and using actual projections such as education. Senator Halford inquired as to the governor's statements relating to vetoing increases. Would the governor veto increases, with the exception of education? Is this in nominal dollars or inflated dollars? Ms. McConnell responded that the Governor meant it in actual nominal dollars. She also clarified that the Governor also said in the State of the Budget speech, that he is referring to the total 1995 budget. But, as we know, there are other items such as oil and gas litigation, corrections, etc. which were not funded for the full year. Obviously, the pledge cannot be against the partial year. It is the total 1995 budget. Ms. McConnell said it is not a department-by-department, across-the-board cut. It is a total dollar amount with the exception of education. Senator Halford brought up the question of supplementals. He said he felt it was important that those who felt strongly, express their opinion. He was specifically referring to the decisions in the previous administration's package where a manager decided to spend beyond that which was appropriated. Senator Halford made clear that he would not vote for a supplemental that includes decisions to spend beyond the appropriated level -- in those areas that are not obvious to the legislature as the area of conflict or conscious decision in the last budget. He felt that what happens in supplementals would define where this legislature and this Governor are going. He stated it was important for OM&B to know if others feel the same way, then a conclusion could be drawn. It is important when only half way through the year, managers are told that they need to stop spending at a level above appropriation and try to make it up in the year that still remains. If in fact, it is not identified until May, it is more difficult to respond to the problem. Ms. McConnell expressed her concerns on how money is expended once it is appropriated. The focus seems to be on the budget in terms of OM&B activity, rather than expenditures and how it is going once the budget is approved. She pointed out that she has not solved that problem yet, but assured the committee that the incoming administration has been somewhat crippled in dealing with the situations Senator Halford described. The new administration had no legal control on what happened up to December 5th. However, with new commissioners just coming on board and not being in a position for a few months to delve into the areas of concern, Ms. McConnell asked that the legislature be understanding. Until the administration brings forward the 1995 supplemental requests, that is the position it is in. There are certain areas within the departments where they are at a critical level of spending. She said that the legislature's first opportunity to see how OM&B conducts business is not so much in the 1995 supplemental or even the 1996 budget process. What will be important, in terms of evaluating the administration's budget capabilities, is what happens in 1997. Ms. McConnell affirmed that one of her goals is making the adjustments now within departments and evaluating budgets and guidelines provided to departments. Otherwise, the administration will never be able to form a budget that reflects the management that she, along with the governor and commissioners, believe in. Ms. McConnell said she is focusing on the long-range vision and employing preventative measures, rather than turning off the "spigot". It is much easier for the commissioners to find the areas that are in trouble, with respect to needing supplemental money, than it is to find the places to cut. Senator Halford explained that he understands the normal rule does not work. The first source of a supplemental should be the salary of the manager that decided to spend beyond his budget. In many cases that manager is gone and replaced. It is a contest of agencies convincing the commissioner of their needs while at the same time identifying the duties of the agency. That contest is going on all over the state. From the legislative perspective, it is important that the legislature refrain from being drawn into a continual supplemental process. If the legislature is directed by the administration and continuously follows it, as we have sometimes done, we give away the power to appropriate. Senator Halford said that the legislature might just as well not bother to appropriate if the agency is going to expend without regard to the amount identified. He noted that the legislature is thus not in charge of state spending as the constitution dictates. He made clear, that if the person who made the decision is still there, and the decision is bad, it is going to affect his attitude towards that supplemental. If on the other hand, the person is not there, and OM&B is doing everything to turn it around, that is understandable. Senator Phillips confirmed that he agreed with Senator Halford. Ms. McConnell acknowledged a need to develop a clearer set of roles for the executive and legislative branch in the appropriation process. One of the ways to get there is to present to the legislature good faith efforts to show what the administration believes is a total year budget. If you have a lack of confidence in the management of those appropriations, then it is an indication that you want clarification. She reiterated that OM&B needs to be involved in ensuring that expenditures are appropriate. What goes on during the year is not just a matter of adding up the number of dollars spent, it is also the effectiveness of the spending along the way. Senator Zharoff asked about the revenue and if there were other anticipated sources of revenues coming into the state? Ms. McConnell responded that the "Notes" for 1995 as indicated on the chart, shows AHFC, for 1996; previous Governor Hickel's budget reflects AIDEA, Executive Life, and DNR land sales. However, there are no other new sources of revenue. It does include $5 million in increased program receipts (mostly fees included in previous Hickel budgets). Ms. McConnell asked if the committee would like to have OM&B return to answer any questions between now and when the supplementals come before the committee. For example, program receipts. She asked if there were suggestions regarding this fiscal projection. OM&B would be most interested in having comments referred to Brad Pierce, or any of the other policy analysts. Senator Phillips noted that when he was Chairman of Budget and Audit, the Hickel administration overturned the committee's denial of two RPL's. Prior to that time, every other governor had followed the recommendations of Budget and Audit. What is the feeling of the administration if Budget and Audit turns down one of the RPL's? Are you going to honor the committee's decision? Ms. McConnell responded that Nancy Slagle brought that situation to her attention just recently, and that she has not had a chance to look into the details. She said she wants to get more information before she comments. Senator Phillips made it known that traditionally the executive branch honored whatever Budget and Audit decided on the RPL's. Ms. McConnell questioned whether this could have been a case where each branch was not sure what the other was going to do? Her preference in a working relationship is to be up front. She stated, she does not intend to inflate costs, with the intention of being cut in size. That wastes a lot of time. Senator Phillips said he was not happy when the Hickel administration overturned the RPL's, in effect saying that the legislature is not important. Senator Phillips' intention was to defend the honor of the committee, and the legislative branch, once a decision had been made. Senator Rieger brought up the subject of lapse money. It might be worth considering appropriation by appropriation carryover language so that an agency would have an inducement not to spend that money. Instead, they could chose to carryover to July of the next fiscal year. In a time of tighter budgets, that might lead to more efficient expenditure of state dollars than trying to bring the lapses up. Co-chair Frank reiterated that the incentives are all the wrong way. If you d not spend the last dollar, you will not get it in your base for the next year. Co-chair Frank suggested that at the OM&B level, one of the ways the Finance Committee should deal with the supplemental is to fund the supplemental from lapse money and give OM&B the incentive to find the lapse money. There has to be a way to reward for the right kind of performance rather than continuously rewarding for the wrong kind of performance. Ms. McConnell responded that a concern brought to her attention by government agencies is that if they save money, they are often penalized in the appropriations process, particularly where there are across-the-board cuts. She stated that OM&B wants to deal with this issue. She brought up other initiatives that OM&B is considering: performance budgeting; the impact of program activities that cross departmental lines along, the creation of inter-departmental teams within the administration to deal with issues that cut across lines, and the provision of incentives to eliminate duplication. This can be very difficult for the commissioners to do this, because they are facing their employees and the citizen groups and making some very difficult choices. The governor mentioned one of them in particular, in his State of the Budget speech, relating to job training and looking at the various places within state government. Co-chair Frank commented that on the committee would be interested in working with OM&B on program receipts. He stated that different kinds of program receipts, need to be handled differently as opposed to lumping them all together and handling them all the same. Co-chair Frank asked if there was any other business. He thanked Ms. McConnell for her presentation. ALASKA STUDENT LOAN SUBCOMMITTEE Co-chair Frank addressed the committee with the intention of forming a sub-committee or a working group to look at the Student Loan Corporation. He stated there is a need to come up with a plan to make it financially feasible in the future. He appointed Senator Rieger to Chair the subcommittee with Senators Phillips and Zharoff serving. ADJOURNMENT The meeting was adjourned at approximately 10:30 a.m.