Legislature(2001 - 2002)

02/01/2001 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                         February 01, 2001                                                                                    
                              9:02 AM                                                                                         
SFC-01 # 6, SIDE A                                                                                                              
CALL TO ORDER                                                                                                               
Co-Chair Dave Donley convened the meeting at approximately 9:02 AM.                                                             
Senator Dave Donley, Co-Chair                                                                                                   
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Loren Leman                                                                                                             
Senator Gary Wilken                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
Senator Lyda Green                                                                                                              
Senator Jerry Ward                                                                                                              
Also Attending:   ANNALEE MCCONNELL, Director, Office  of Management                                                          
and  Budget,  Office  of the  Governor;  JOAN  BROWN,  Chief  Budget                                                            
Analyst, Office  of Management and  Budget, Office of the  Governor.                                                            
SUMMARY INFORMATION                                                                                                         
SB  27-APPROP: GOVERNOR'S OPERATING BUDGET                                                                                      
SB  28-APPROP:MENTAL HEALTH BUDGET                                                                                              
SB  29-APPROP: GOVERNOR'S CAPITAL BUDGET                                                                                        
The Committee heard an overview on the Governor's proposed FY 02                                                                
budget from the Office of Management and Budget.                                                                                
     SENATE BILL NO. 27                                                                                                         
     "An  Act  making appropriations   for the  operating  and  loan                                                            
     program  expenses of  state government,  for certain  programs,                                                            
     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."                                                                                                           
     SENATE BILL NO. 28                                                                                                         
     "An Act making appropriations for the operating and capital                                                                
     expenses of the state's integrated comprehensive mental health                                                             
     program; and providing for an effective date."                                                                             
     SENATE BILL NO. 29                                                                                                         
     "An Act making  capital appropriations and capitalizing  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."                                                                                
ANNALEE  MCCONNELL,  Director,  Office  of  Management  and  Budget,                                                            
Office  of  the Governor,  expressed  that  she  looked  forward  to                                                            
working  on the  budget  with  the legislature  during  the  current                                                            
legislative session.                                                                                                            
Ms. McConnell noted handouts  she provided the Committee. [Copies on                                                            
Ms. McConnell introduced  several budget analysts from the Office of                                                            
Management  and Budget, Karen  Elliott, Connie  Nesgoda, Dawn  Mach,                                                            
Mary Sutton and Steve Hildebrand,  and offered their services to the                                                            
Ms. McConnell  began her  presentation stating  that the  governor's                                                            
proposed  FY 02  budget meets  four primary  goals.  The first,  she                                                            
said, is  to maintain at  least the existing  level of services  and                                                            
the  progress  achieved  in  key areas  such  as  child protection,                                                             
quality  education, etc.  "Strategic  investments"  in the areas  of                                                            
education, early  development, public health and public  protection,                                                            
she listed as the second  goal. The third goal, she continued, is to                                                            
restore the  level of permitting  and other  services to  businesses                                                            
and industry  that have "fallen  below the  level that they  feel is                                                            
acceptable"  and  what  is  "necessary  to  adequately  support  the                                                            
economic  development activities  in the state."  This includes  the                                                            
proposed natural  gas pipeline, which  is the newest major  economic                                                            
activity,  she noted. She  concluded with the  fourth goal  being to                                                            
ensure that  all state dollars spent,  whether on existing  services                                                            
or the proposed  strategic investments, are spent  in the most cost-                                                            
effective manner  possible. She stressed that the  concept of budget                                                            
discipline has not been abandoned.                                                                                              
Ms. McConnell  indicated  that  the total  budget for  the State  of                                                            
Alaska has  reached $7.2  billion. However,  she pointed out  that a                                                            
third of that  amount consists of  investment revenues, principally                                                             
the permanent  fund, and to a lesser extent, interest  earnings from                                                            
the Constitutional  Budget Reserve fund (CBR). She  stated that $1.9                                                            
billion, the  largest expenditure,  is the permanent fund  dividends                                                            
and inflation  proofing. She noted  that this amount is $52  million                                                            
more than  the current  year. She  commented that  while this  is an                                                            
area of the  budget that continues  to grow, there are generally  no                                                            
Ms. McConnell  addressed  the general  fund  increases, emphasizing                                                             
that fully  $80 million in the governor's  proposed budget  increase                                                            
is  necessary  to  maintain  the existing  level  of  services.  She                                                            
stressed  that it would  be helpful  to have  the public  understand                                                            
this  situation. She  stated  that the  largest percentage  of  this                                                            
increase  is $28  million  for  debt services.  She  used  furniture                                                            
advertisements  as an analogy  to debt service,  in that they  offer                                                            
"no  payment for  12 months."  She  said after  the  12 months  have                                                            
passed and the customer  has been using the furniture, it is time to                                                            
begin  making payments.  The  state is  in the same  situation,  she                                                            
stated, because  important infrastructure investments  over the last                                                            
several years  have been made using deferred payment  plans, through                                                            
bonds and other methods.                                                                                                        
Ms. McConnell  highlighted  public protection  and the $3.5  million                                                            
appropriation  in  the  proposed   budget  to  fight  an  increasing                                                            
caseload of tuberculosis  and hepatitis C and food-born illness. She                                                            
stressed that  such cases are a problem  in Anchorage as  well as in                                                            
the villages.                                                                                                                   
Ms. McConnell next spoke  to the $14 million investment proposed for                                                            
other  areas of public  safety,  including criminal  justice,  child                                                            
protection,  senior  protection,  emergency  services  and  alcohol-                                                            
related programs. She noted  senior protection as an area of growing                                                            
concern with  the increasing number  of older people who  are unable                                                            
to fend for  themselves. She stated  that the Committee would  learn                                                            
more about the  alcohol-related programs during budget  subcommittee                                                            
meetings  and  as  it  hears  related  legislation   such  as  those                                                            
addressing drunken driving.                                                                                                     
Ms.  McConnell continued  by  detailing  the requested  $14  million                                                            
general fund increase for  quality education from early education up                                                            
through the University  of Alaska. She pointed out that the governor                                                            
chose to support the Board  of Regents' request for $16.9 million to                                                            
rebuild and strengthen the university system.                                                                                   
Ms. McConnell  referenced  separate  legislation  introduced at  the                                                            
governor's request  that would provide additional  staff to increase                                                            
the number  of beds  that could be  used at the  Pioneers Homes  and                                                            
expand  the  use of  the  facilities  to include  a  preference  for                                                            
veterans. She  stated that more information  on this proposal  would                                                            
be given later in the week.                                                                                                     
Ms. McConnell  stated that the governor transmitted  the request for                                                            
a $1.5 million increase for the Alaska Court System.                                                                            
Ms. McConnell  next addressed the  FY 02 capital budget noting  that                                                            
Alaska  Housing   Finance  Corporation  (AHFC)  bonds   and  tobacco                                                            
settlement  bonds were  used to  fund projects  during the  previous                                                            
legislative  session. Because  of this, she  stressed, there  was an                                                            
unusually  low  level  of general  funds  included  in  the  capital                                                            
budget, down  to $73 million  in FY 01. She  said it was  understood                                                            
that this  method could not  be used to  maintain, or rebuild  where                                                            
necessary,  the state's  infrastructure.  This  was  the reason  the                                                            
budget request proposed  an additional $30 million in general funds,                                                            
she explained.                                                                                                                  
Ms. McConnell  qualified that the  general fund per person  spending                                                            
contained in the  FY 02 proposed budget, adjusted  for inflation, is                                                            
$1700  less than  what it was  in 1979,  the final  year before  the                                                            
pipeline boom brought increased revenues to the state.                                                                          
Ms. McConnell drew the  member's attention to documents she provided                                                            
showing  the Administration's   Internet  sites and  explaining  the                                                            
budget. [Copy  on file] She stressed  that this has been  a resource                                                            
to  legislators   and  also   constituents.   She  noted  that   the                                                            
information  is written  from a  layperson's  perspective  including                                                            
details on capital  projects. She added that the budget  information                                                            
is listed  both  by departments  and  by affected  communities.  She                                                            
elaborated on  the layout and presentation of information  contained                                                            
on the web pages.                                                                                                               
Ms. McConnell  then refocused on the addition of $80  million needed                                                            
to  maintain  the current  level  of  state services.  She  told  of                                                            
meetings where  she spoke to interested parties across  the state on                                                            
the matter.  She stressed that people  do understand this  necessity                                                            
once it has been  explained, and are actually appreciative.  Part of                                                            
the explanation,  she said is pointing  out that some actions  taken                                                            
in recent years have deferred costs rather than eliminated them.                                                                
Ms. McConnell  continued noting new  facilities, including  juvenile                                                            
detention  facilities  in  Mat-Su,  Anchorage   and  Ketchikan,  the                                                            
Anchorage  Public  Health  Lab,  the  new  jail  in  Anchorage,  are                                                            
complete or nearly  so. Operating costs for the new  facilities, she                                                            
stressed, add  almost $7 million to  the proposed budget.  She noted                                                            
that statutory  and contract obligations, which include  leases with                                                            
the public  sector, public employees  contracts and formula  funding                                                            
programs  are  other items  that  require  additional  funding.  She                                                            
emphasized  that departments were  making efforts to bring  and keep                                                            
costs down wherever possible, although these obligations remain.                                                                
Ms.  McConnell  stated  that  $15  million  is  needed  to  maintain                                                            
existing services  that have been funded in the current  fiscal year                                                            
using one-time  monies that  will not be  available again.  She gave                                                            
the $4.4  million  special Alaska  Industrial  and Export  Authority                                                            
(AIDEA) dividend  as an example. She  did not give specifics  of the                                                            
affected programs or departments.                                                                                               
Ms. McConnell listed another  $1.6 million requirement for increased                                                            
costs  for emergency  broadcasts  due to  the installment  of a  new                                                            
satellite system by AT&T.                                                                                                       
Ms. McConnell  stated  that $4 million  was included  in the  budget                                                            
request  to address  backlogs in  existing programs.  She  explained                                                            
that these  were not new services  but areas where service  delivery                                                            
had eroded  to the point  that it created  problems for the  private                                                            
sector.  She  pointed  out  that not  all  of  these  services  were                                                            
entirely  fee-supported, but  still necessary  in order to  ensure a                                                            
healthy  economy.   Water use  permitting, habitat  permitting  were                                                            
some examples she offered.                                                                                                      
Ms. McConnell  addressed the significant events, including  the fire                                                            
aboard  the MV  Columbia,  affecting the  revenue  generated by  the                                                            
Alaska  Marine  Highway  System.  She  argued  that  this  need  for                                                            
additional  financial  support would  not  be an  issue with  roads,                                                            
although road maintenance is essentially a subsidy.                                                                             
Ms. McConnell  referenced the Summary  of Debt Obligations  included                                                            
in the  members' files,  which lists the  increased obligations  and                                                            
notes the  fewer revenues  available to support  the debt.  [Copy on                                                            
Ms.  McConnell  then  referenced  the analysis  of  the  changes  in                                                            
positions in state government.  [Copy on file.] She stated that this                                                            
issue received attention  during the Division of Legislative Finance                                                            
overview  presented to  the Committee  earlier in  the session.  She                                                            
stressed  that  not all  of  the increases  have  an impact  on  the                                                            
state's fiscal  gap; 24 positions are in enterprises  that are fully                                                            
self-supporting,  such as the Ted  Stevens International  Airport in                                                            
Anchorage, and AHFC. She  continued that fee-supported programs fund                                                            
another 26 positions. Other  positions, she stressed, are the result                                                            
of capital  project  decisions made  by previous  legislatures.  She                                                            
emphasized that a significant  number of new positions are for major                                                            
program  efforts,  including 123  positions  for the  University  of                                                            
Alaska, 126 positions are  required to fully implement the Veteran's                                                            
and Pioneers Homes  proposal, and 59 positions are  for Alaska State                                                            
Trooper and  Village Public Safety  Officer programs. She  continued                                                            
that  105  positions  are  needed  to  staff  the  new correctional                                                             
facility in Anchorage and the new juvenile detention facilities.                                                                
Senator Ward shared  that during a recent Department  of Corrections                                                            
budget subcommittee meeting,  Commissioner Margaret Pugh stated that                                                            
137 new full-time  positions would  be needed for the new  Anchorage                                                            
Ms.  McConnell thought  Ms.  Pugh's  figure included  the  part-time                                                            
positions, but stated that she would verify.                                                                                    
Senator Ward  asked if the state and  the Municipality of  Anchorage                                                            
could issue  a request for proposals  to contract-out the  operation                                                            
of the new jail.                                                                                                                
Ms. McConnell replied that she would research the matter.                                                                       
Ms. McConnell  turned  her direction  to the FY  02 Capital  Budget,                                                            
noting a summary of projects. [Copy on file.]                                                                                   
Ms. McConnell pointed out  the proposed $7 million general funds and                                                            
$80 million  total  funds. She  stressed  that the  majority of  the                                                            
capital  budget is  supported  with federal  funds,  AHFC funds  and                                                            
other revenue sources.                                                                                                          
Ms. McConnell stated that  $830 million total funds are proposed for                                                            
Department  of Transportation  and  Public Facilities  projects  and                                                            
that only $62 million of  that amount is general funds. She spoke to                                                            
the  emphasis  on  maximizing   federal  funds  for  transportation                                                             
Ms. McConnell shared that  the Administration would offer additional                                                            
proposals in the  upcoming weeks to address school  construction and                                                            
Ms. McConnell  emphasized  the "great  success"  in determining  the                                                            
best financing mechanism for the capital budget.                                                                                
Co-Chair Donley adjourned the meeting at 9:24 AM.                                                                               

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