Legislature(2019 - 2020)SENATE FINANCE 532
02/18/2019 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB20 | |
| Departmental Review: Education and Early Development | |
| Departmental Review: Statewide | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 20 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
February 18, 2019
9:01 a.m.
9:01:59 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Lyman Hoffman
Senator Peter Micciche
Senator Donny Olson
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Mike Shower
ALSO PRESENT
Senator Cathy Giessel; Senator Gary Stevens; Senator Mia
Costello; Senator Chris Birch; Representative Tammie
Wilson; Donna Arduin, Director, Office of Management and
Budget; Heidi Teshner, Administrative Services Director,
Department of Education and Early Development, Office of
Management and Budget; Michael Johnson, Commissioner,
Department of Education and Early Development; Mike
Barnhill, Policy Director, Office of Management and Budget.
SUMMARY
SB 20 APPROP: OPERATING BUDGET/LOANS/FUNDS
SB 20 was HEARD and HELD in committee for further
consideration.
PRESENTATION: DEPARTMENTAL REVIEW
EDUCATION and EARLY DEVELOPMENT
STATEWIDE
Co-Chair Stedman noted that the committee had modified its
schedule due to extensive questions the previous Friday. He
noted that two departments had been rescheduled for the
following day. He wanted to keep to the schedule as closely
as possible. He thought the Legislative Finance Department
(LFD) might not be before the committee until the following
Monday. He wanted to constrain questions to the budget of
the department being discussed.
Co-Chair Stedman informed that the director of the Office
of Management and Budget (OMB) would review the budget from
a high-level. All members of the committee would chair
Senate Finance Subcommittees. He thought the review would
be beneficial. He asked for members to refrain from
pontificating.
SENATE BILL NO. 20
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; amending
appropriations; 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."
9:05:30 AM
^DEPARTMENTAL REVIEW: EDUCATION and EARLY DEVELOPMENT
9:05:30 AM
DONNA ARDUIN, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
introduced herself.
HEIDI TESHNER, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT,
OFFICE OF MANAGEMENT and BUDGET, introduced herself.
MICHAEL JOHNSON, COMMISSIONER, DEPARTMENT OF EDUCATION AND
EARLY DEVELOPMENT, introduced himself.
Ms. Arduin discussed the presentation, "State of Alaska,
Office of Management and Budget; FY 2020 Governor's Amended
Budget; Presentation to the Senate Finance Committee;
February 18, 2019; Director Donna Arduin" (copy on file).
She showed slide 2, "Department of Education and Early
Development."
Ms. Teshner spoke to slide 3, "FY2020 Budget: Department of
Education & Early Development," which showed two bar graphs
that provided a funding comparison between the FY 19
Management Plan and the FY 20 governor's amended budget.
Overall, the funding was decreased in the governor's
amended budget. The blue bar represented General Funds
(GF), 98 percent of which was Unrestricted General Funds
(UGF). She noted that the green was other funds and the
grey showed just over $250 million in federal funding.
Ms. Teshner continued to look at slide 3. The graph on the
right provided a budgeted comparison between the two
budgets. She pointed out a small decrease in positions
between the two years being compared.
Co-Chair Stedman asked about the purpose of the slide.
9:08:22 AM
Ms. Teshner stated that the slide provided a picture of how
the department was funded. The majority of the Department
of Education and Early Development (DEED) funds came from
GF, the majority of which was UGF. There were other funds
such as the Public School Trust Fund, statutory designated
program receipts, interagency receipts ($61.6 million shown
on the green tab), and federal funds of approximately $252
million. The federal funds were largely passed through to
sub-recipients, including title funding, special education
funding, and impact aid.
Co-Chair Stedman asked if the funding described was going
up or down.
Ms. Teshner stated that future slides would discuss major
decreases presented in the budget. Funding was projected to
go down in FY 20.
Co-Chair Stedman asked if the proposal was to reduce
education funding by roughly $310 million.
Ms. Teshner stated that "approximately yes."
Co-Chair Stedman asked if the DEED position headcount was
negative seven.
Ms. Teshner answered in the affirmative.
Senator Hoffman thought that education was a budget
component that everyone supported, which was evident the
previous year when the legislature added $20 million for FY
19 and another $30 million for FY 20. He emphasized the
proposed reduction to education was for over $300 million.
He thought the proposed cut was about 25 percent of the
education budget, which he found completely unacceptable.
He thought that even though educational performance was low
in the state, education funding was still a high priority
for Alaskans. He wondered how the administration justified
an almost 25 percent reduction in education and asked what
was trying to be accomplished.
Co-Chair Stedman suggested consideration of the subsequent
slide before addressing Senator Hoffman's question.
9:12:37 AM
Senator Wielechowski referenced statute that described the
commissioner's responsibility for the preparation and
execution of the budget. He asked if the Alaska Board of
Education had approved the proposed budget.
Commissioner Johnson stated that the board had met the
previous week and had received well over an hour of public
comment and a presentation by Ms. Teshner on the budget.
Almost all the members of the board expressed support for
the governor's budget to balance revenues and expenditures
but had decided to table the motion and allow the
legislative process to happen before taking action on the
budget.
Senator Olson understood that the commissioner stated the
board had not acted on its statutory obligation to approve
the budget.
Commissioner Johnson restated that the board had decided to
table the motion in order to see the budget process through
the legislature.
Senator Bishop asked how the magnitude of the cut could
improve outcomes for students in Alaska.
Ms. Arduin stated that the proposed cut was made because
the state was out of money and the budget needed to be
balanced. She referenced Senator Hoffman's comments about
funds spent the previous year and stated that the monies
that were spent in FY 19 for additional funding were spent
out of the Constitutional Budget Reserve. She asserted that
the state had run out of reserves to drain. The
administration had proposed the cut to get the budget
balanced and get the state's fiscal house in order.
Senator Bishop stated that Ms. Arduin had given the wrong
answer.
Senator Wielechowski recalled that Commissioner Johnson had
testified the previous year on February 13 that the
department's capacity to meet its constitutional obligation
would be "accurately be described as stretched."
Additionally, the commissioner had stated that "we have
little or no margin in the department" and had had
testified about a lack of capacity when employees left. He
asked if the proposed budget improved upon the state's
ability to meet its constitutional obligations or weakened
the ability to do so.
Commissioner Johnson stated that the proposed budget did
not reduce personnel inside the department in the K-12
division.
9:16:16 AM
Co-Chair Stedman suggested that presenters discuss the
slide, after which time he would take questions from
members. He asked that members to confine the questions
within subject matter areas on the slide.
9:17:24 AM
AT EASE
9:17:55 AM
RECONVENED
Ms. Teshner turned to slide 4, "FY2020 Budget: Department
of Education & Early Development Snapshot":
? Statewide Support Executive Branch 50% Travel
Reduction (-$146.6 GF)
? Reduction to the Foundation Funding Formula Program
(-$269,396.9 GF)
? Withdraw One-Time Future Funding to School Districts
(-$30,000.0 GF)
? Withdraw funding for the Washington, Wyoming,
Alaska, Montana, and Idaho (WWAMI) Medical Education
Program (-$3,096.4 GF)
? Reduction to Pre-Kindergarten Programs & Other Grant
Programs (-$16,847.7 GF)
Ms. Teshner stated that the proposed travel reduction was
based on the FY 18 actual travel within the department, and
the total travel reduction for the department was $350,000.
She commented that the reduction to the foundation funding
formula was not a reduction to the Base Student Allocation
(BSA), which was set in statute. She noted that the WWAMI
program provided for 20 medical students in Alaska to get
education from the University of Alaska through the
University of Washington School of Medicine.
Ms. Teshner continued to address slide 4. She explained
that the reduction to Pre-K programs included reductions as
follows: $6.8 million for Head Start, $320 million for Best
Beginnings, $474,000 for Parents as Teachers, about $1.2
million for additional grants for continuation of a
settlement for school construction, and $8 million in Pre-K
grants. She clarified that $6 million of the $8 million was
a multi-year grant.
9:20:54 AM
Co-Chair von Imhof considered the proposed reductions in
the BSA, which was about $1,000. She thought the BSA was
similar in the 2005 - 2006 school year. She had looked at a
comparison between the 2005-2006 school year and the
present. The number of students statewide had declined, yet
the amount of money paid to education had gone up. She
asserted that employee benefits had experienced a $294
million (97 percent) increase in 11 years. Districts were
spending more on healthcare for teachers than for books and
curriculum. She thought rather than making an across-the-
board cut, perhaps a better approach would be to assist
with the highest cost driver. She thought it was
problematic that the proposed cuts did not address the
issue.
Co-Chair von Imhof continued her remarks. She hoped to hear
a mitigating plan along with the proposed cuts. She asked
why the largest cost driver in education was not addressed,
and why mitigating factors were not addressed.
Co-Chair Stedman asked the OMB director to help Co-Chair
von Imhof to understand the philosophical process that
resulted in the proposed cuts.
9:24:00 AM
Ms. Arduin asserted that the state did not control school
districts and school district spending. She referenced data
that indicated that only 54 percent of funds to districts
were spent on instruction. She added that districts also
received local funds. She thought the commissioner would be
open to proposals from the committee to mitigate
expenditures so more money could go to the classroom.
Senator Hoffman thought the problem was that the
administration was proposing around 20 pieces of
legislation to change the law. He thought school districts
were well aware that districts had self-determination to
decide on how funds were spent. He emphasized that the
legislature had put the formulas in place and modified them
many times over the years. He thought Co-Chair von Imhof
made a strong case that the administration was not coming
forward in a constructive manner to address the problem. He
thought it was crucial to consider the state's obligation
to educate students, rather than just being "all about the
checkbook."
Senator Hoffman emphasized that it was Ms. Arduin's job and
responsibility to defend and try and improve education for
the students in the state. He strongly stated that the
board should do its duty according to the law. He did not
think the Board of Education should hide behind the
legislature to see what it would do on the budget. He
thought activity by the board should be a strong request of
the committee.
Co-Chair Stedman asked Commissioner Johnson to explain to
the public how the department was structured, including who
appointed the commissioner of DEED.
Commissioner Johnson stated that the commissioner of DEED
served at the pleasure of the state board, and the board
selected a commissioner. The governor approved or rejected
the board's selection.
Co-Chair Stedman asked Commissioner Johnson to address
Senator Wielechowski's earlier question about the board's
timely or untimely review and support or non-support of the
proposed budget. He thought it sounded as if the board had
an obligation to take action.
Commissioner Johnson stated that Senator Wielechowski was
correct in the statute that was cited. He continued that
attorneys at the Department of Law (LAW) had informed that
the statute was subject to the Executive Budget Act. The
State Board of Education's budget acceptance or approval
was subject to the act.
9:28:53 AM
Senator Wielechowski reiterated that his question pertained
to whether anyone at LAW had expressed any concern over the
constitutionality of the budget with regard to whether the
state was meeting its obligation to adequately fund
education.
Co-Chair Stedman thought the matter could be addressed by
the Legislative Legal Department. He thought it was a broad
question.
Commissioner Johnson stated that no one from LAW had
indicated any concern over constitutionality since the
budget came out.
Co-Chair Stedman asked to go back to the second bullet on
slide 4. He referenced a comment about the reduction in the
funding formula not being a reduction to the BSA. He asked
for further explanation.
Ms. Teshner stated that the foundation formula (including
the BSA) was set in statute and was currently $5,930. The
department calculated the foundation funding formula amount
based on FY 20 projected average daily membership (student
count). In statute, if the foundation formula was not fully
funded, the department could pro-rate the balance to all
school districts. She continued that the $269 million
reduction was pro-rating the overall amount that was
calculated for the foundation formula.
Co-Chair Stedman assumed that the BSA was $5,930 per
individual, which was adjusted by a litany of factors to
determine what each school district received per student.
Ms. Teshner stated Co-Chair Stedman was correct.
9:31:56 AM
Co-Chair Stedman asked about the BSA after the reduction.
Ms. Teshner answered $4,880.
Co-Chair Stedman asked if the BSA had ever been lowered
before.
Ms. Teshner stated that records showed that the BSA had
never declined, only increased.
Co-Chair Stedman recalled the same. He thought it might be
beneficial to have both amounts up for discussion. He
thought it was easier for members to consider the BSA
numbers versus other numbers that might differ depending
upon the area.
Senator Micciche asked to go back to slide 3. He thought
there was a theme of shifting costs to local governments,
which meant local property and sales taxes would increase
to make up the difference. He pointed out that reduction in
funding also reduced the local funding cap and exacerbated
the problem. The locals could not respond with higher
funding. The slide seemed to indicate there was a budgeted
position comparison reduction of seven. He was concerned
about class sizes as a result of the proposed cut. He asked
if it was possible to deliver an adequate educational
product with 45 kids in a classroom.
9:35:52 AM
Ms. Arduin stated that there was an additional $500 million
that was collected locally and went to school districts.
She asserted that the proposed reduction was a reduction of
a total base of over $2 billion. She contended that the
reduction was a lower percentage than what had been stated.
Co-Chair Stedman asked the commissioner to offer thoughts
on the student-teacher ratio as mentioned by Senator
Micciche.
Commissioner Johnson stated that any reduction in funding
would be difficult for everyone. He thought class sizes
would vary from district to district. He was not sure how
each district would respond if the reductions were passed.
He asserted that schools and districts would have to do
what the legislature was doing and receive public input, as
well as work together to problem solve how to meet the
needs of all students with whatever funding was received.
Senator Hoffman thought all the proposed reductions totaled
$320 million; comprised of $270 million plus one-time
funding of $30 million, as well as $20 million the governor
had spoken about eliminating. He asked about the total
proposed reduction for the Anchorage School District (ASD).
Ms. Teshner stated that the proposed combined cuts to ASD
would signify $85.7 million.
Senator Hoffman emphatically asked how ASD would be able to
deal with such a reduction when it was challenged with even
a $3 million reduction. He thought it was an impossible
task.
Co-Chair Stedman asked if the testifiers could aid Senator
Hoffman in understanding the ability of the districts to
implement the proposed cuts. He mentioned that school
districts had contractual obligations to employees and
needed more time to respond to downward budget pressure. He
recalled that many superintendents had expressed the need
for a year's notice to respond to reductions in the
employee base.
9:40:55 AM
Commissioner Johnson mentioned employee contracts and
acknowledged that districts had certain dates and times
that contracts were issued before the end of the school
year. He stated that DEED was evaluating the impact on each
of the 53 unique school districts in the state. He would
personally reach out to superintendents to get perspective
on the potential impact of the proposed budget.
Co-Chair Stedman asked if Commissioner Johnson had been a
superintendent.
Commissioner Johnson answered in the affirmative.
Co-Chair Stedman asked about the commissioner's history as
a superintendent and what flexibility he had when facing
reductions.
Commissioner Johnson stated that he had been the
superintendent of the Copper River School District (CRSD).
During his tenure, there had been reductions each year due
to the economy and declining enrollment. He discussed the
challenge of implementing cuts. There had been few
solutions that were agreed upon by all stakeholders. He
asserted that consideration of cuts had brought about
constructive discussions in the community. He discussed his
process for dealing with budget cuts, which included
seeking input from faculty and staff and other parties.
9:44:25 AM
Co-Chair Stedman did not have a background in education. He
assumed that the CRSD was similar in size to school
districts in his district. He asked the commissioner to put
past reductions in a historical perspective considering the
proposed reductions. He asked if the proposed reductions
were normal or abnormal.
Commissioner Johnson could not recall reductions of the
magnitude proposed to be normal. He stated that the
proposed reductions were in an abnormal context since the
state was in a tough spot.
Co-Chair Stedman asked for the formula-driven number for
CRSD.
Ms. Teshner stated that the FY 20 projected state
entitlement for CRSD was $6,837,257. The pro-rated
reduction was $5,566,200; for a difference of $1,271,057.
Co-Chair Stedman estimated that the proposed reduction was
roughly one-sixth of the CRSD budget.
9:47:03 AM
Senator Micciche agreed that the budget must be reduced. He
thought there was a misunderstanding with the connection of
funding to the cap while being reduced by 25 percent. He
asked for information relating to local match reductions
and teacher reductions as a result of the proposed
reductions.
Co-Chair Stedman suggested that the department could work
on getting the information, including budget reserves per
district. He was still concerned and not clear about the
timing of employee contracts in school districts. He
recalled that sometime in March or April school districts
wanted to have employees under contract. He knew that
employees and superintendents liked to have early
information pertaining to funding in order to lock down
contracts. He relayed that the committee had long discussed
the topic of early versus late funding for school
districts. He thought surely Commissioner Johnson had
experience to consider the issue and provide insight.
Commissioner Johnson stated that the sooner teachers could
be secured, the better. There was not a certain date when a
teacher had to be hired, but clearly the goal was to hire
the best teacher possible.
Co-Chair Stedman thought the legislature had been
criticized for giving out the funding in May at the end of
session versus the beginning of April. He was concerned
that the budget would not be completed until well into the
middle of May or longer. He thought it was important to
understand the matter when making policy decisions.
9:51:02 AM
Co-Chair von Imhof was not sure how much commissioners were
engaged in creating the proposed budget. She thought
several of the commissioners had not been chosen until the
previous six weeks. She had a background on the Anchorage
School Board. She recalled that Governor Dunleavy had
background as a superintendent as well as experience on the
Senate Education Committee. She thought there would have
been more of a plan for rolling out one of the state's top
statutory obligations. She thought there seemed to be cuts,
and nothing more. She thought the plan was incomplete. She
relayed that her office had engaged in a brainstorm for
ideas and mentioned several.
Co-Chair von Imhof continued her remarks. She continued her
list of ideas including tribal compact agreements, and
pooling of covered lives. She asked if there was any
evaluation of the impact of the proposed cuts, or if there
was any attempt to mitigate the cuts.
Ms. Arduin saw the fiscal plan as solving the fiscal
problems in the state, but not the end of the process. She
stated that the commissioner was working on ideas and would
be working with various stakeholders. She asserted that the
proposed budget was the beginning of the process rather
than the end. She mentioned the opportunity to work with a
reformed University of Alaska college campus system,
working with the board of education on changes in the way
the formula was funded.
9:54:26 AM
Senator Wilson declared a conflict of interest as a part-
time on-call employee of the Matanuska-Susitna School
District. He asserted that the it was not possible to
control the number of students in the classroom nor how
funds were spent in the classroom. He stated that his
school district had the opportunity to cut its budget but
had not done so. He asked if there were school districts
that had fleets of planes.
Commissioner Johnson only knew of one school district with
a single plane.
Senator Wilson asked if there were school districts that
provided full-time benefits to part-time volunteer school
board members.
Commissioner Johnson was not aware of what Senator Wilson
had described.
Senator Wilson asked if it was possible to provide more
information on different plans and initiatives. He asked if
the administration was willing to provide technical
assistance to get administrative help in best implementing
the best use of reduced funds.
Commissioner Johnson was absolutely committed, as long as
the state board allowed, to do everything he could to
support school districts in effectively spending the money
received. He thought the staff at the department was
equally committed. He referenced issues brought up by Co-
Chair von Imhof, and suggested DEED had already begun
discussing ways to support school districts. He was
confident there would be creativity coming from school
districts.
9:57:17 AM
Senator Olson considered slide 4 and referenced the
proposed withdrawal of funding from the WWAMI program. He
pointed out that there were 20 students per year in the
program and asked about funding for students currently in
the program.
Ms. Teshner understood that as of FY 20, the program would
no longer be funded. She did not know what would happen for
students in the program. She offered to provide more
information at a later time.
Co-Chair Stedman asked that Ms. Teshner provide background
information on the program. He noted that Senator Olson had
been very interested in the program for at least 14 years.
Ms. Teshner agreed to provide the information.
Senator Olson informed that many studies had shown that
Pre-K education had been effective for students,
particularly for rural students that were sometimes behind.
He noted that the proposed budget showed grants that had
been rescinded. He found it troubling that two weeks
previously he had a communication dated February 4, 2019;
which and indicated that FY 20 Pre-K grant funding had not
been rescinded for Head Start. The communication also
indicated that DEED intended to distribute new letters of
intent to award for the FY 20 Head Start funding by the end
of May and early June 2019. He asked if DEED or the OMB
director was to decide what happened with the programs.
10:00:04 AM
Commissioner Johnson stated that DEED distributed funds
that were appropriated to the department. He was not
entirely certain about the communication Senator Olson
referred to. He stated that before the budget came out it
was intended to proceed with the grants as the department
had in previous years.
Ms. Teshner stated that the department was in the process
of changing how it distributed Head Start funding. Through
the process there was pushback from the Head Start
grantees, and one had appealed. Through the appeal, the
department had rescinded the original amounts projected to
go to each Head Start grantee in FY 20. The department was
working with Head Start, and the funding was subject to
appropriation. If the funding were to continue in FY 20, a
distribution system would be developed.
Senator Olson asked what he should tell Head Start grantees
in his district for the FY 20 fiscal year.
Ms. Teshner stated that the department would still work
with grantees, but the funds were subject to appropriation
by the legislature.
Co-Chair Stedman reminded that Ms. Arduin worked at the
behest of the governor, and the legislature was the
appropriating body.
10:02:42 AM
Senator Wielechowski stated that Pre-K funding was required
as part of the Moore v. State of Alaska settlement [the
agreement concluded an 8-year-old case concerning the
state's education system with the state providing $18
million for the lowest performing schools to improve
outcomes in the poorest performing districts]. He relayed
that the funding had improved outcomes. He asked if cutting
Pre-K funding would improve or decrease outcomes in the
poorest-performing districts in the state.
Commissioner Johnson thought Pre-K was important and
advantageous for targeted populations. He stated that there
was still Pre-K funding that would be sent out, including
an over $2 million federal grant. He continued that the
department would be working hard to identify additional
outside funding to support as many Pre-K students as
possible. He thought some districts supported Pre-K outside
of the grants.
Senator Wielechowski asked if the commissioner thought
schools would be adequately funded if the governor's
proposed budget was passed; or if local communities would
be required to add additional funds to adequately fund
education.
Ms. Arduin thought the question about adequate education
funding had already been answered and thought that Senator
Wielechowski was asking about a legal term. She referenced
Senator Wielechowski's question about whether the attorney
general had advised the administration about issues with
education funding, and reiterated that OMB had not heard of
any issues from LAW regarding adequate funding.
Senator Olson thought the question was directed at the
commissioner rather than OMB.
Co-Chair Stedman thought some questions being raised were
better answered through other departments. He thought there
would be a litany of questions for LAW to answer. He asked
the commissioner to give the committee a broader answer.
Commissioner Johnson could not answer the legal question
regarding adequacy of funding. He thought that school
performance had many variables and state funding was only
one of them.
Co-Chair Stedman thought the adequacy question would be the
subject of further hearings. He mentioned that there was
some litigation settlements and other topics to be
concerned about relating to rural versus urban fairness.
10:05:59 AM
Senator Hoffman referenced his earlier comments about the
$30 million one slide 4. He suggested that the slide be
altered to reflect he actual numbers rather than be
shortened. He did not know if the depiction of the numbers
on the slide was intentional in order to minimize the
proposed reduction and emphasized that the reduction to the
formula was $270 million. He thought the slide was
misleading.
Co-Chair Stedman noted that it was standard format to
truncate numbers and add a footnote. He did not think there
was ill will at work, but perhaps there had been an
oversight. He mentioned budgeting scenarios such as
forecasting where rounding of numbers was done.
10:09:05 AM
Senator Hoffman emphasized that pennies and dollars were
significant in his school district. He acknowledged that
the truncated numbers on slide 4 might be standard format,
but thought it should be acknowledged on the page. He
stated that the proposed budget was being received with
less than enthusiasm by the committee. He did not see
consideration of alternatives going into the budget. He
thought OMB needed to be better prepared and more diligent
when considering cuts. He thought Co-Chair von Imhof had
stated the matter eloquently. He thought presenters should
be cognizant of the timeframe that the legislature was
working under, and that there should have been a better
presentation for the justification for one of the state's
most important responsibilities.
Co-Chair Stedman understood Senator Hoffman's concerns. He
had spoken with the OMB director about keeping
presentations streamlined. He pondered if the presentation
had been streamlined too much. He was concerned the
committee could get bogged down.
Ms. Arduin stated that the presentation was a budget
presentation, and was not an opportunity for the
commissioner to talk about the things critical to his job,
such as improving performance. She noted that discussion of
school performance was a big topic for another time.
10:12:43 AM
Co-Chair von Imhof reminded that the governor had ran on a
campaign of paying a full dividend in the current year; and
thought that without an income tax, the only way to do so
was to cut the budget. She thought there was about 18 state
agencies. She suggested that the proposed dividend was
equivalent to paying out the proposed budget for 15
agencies and including the DEED and University budgets.
Co-Chair Stedman thought the discussion would be had after
the whole budget overview. He thought there would be
discussion on cash-flow and savings. There would be a cash-
flow report coming from the treasury. He considered that
the fiscal impacts would be of concern at the end of the
budgetary process. He thought there would be a policy
discussion, after which the legislature would consider what
the operating budget would look like. He thought there was
much input needed.
10:15:47 AM
Senator Bishop thought it was fair to remember that the
administration had only two months to put together the
budget. He opined that any good business practice would not
do a $1.6 billion cut across the board without doing due
diligence. He did not think OMB had made a very good case
for the budget proposal. He was not suggesting that he was
not looking for efficiencies. He thought OMB had not shown
efficiencies. He suggested that Ms. Arduin had hit a nerve
when discussing outcomes. He recalled that the education
debate in the state had gone on for sixty years.
Co-Chair Stedman stated there would be ample committee
hearings in which to discuss the issues. He reminded that
the presentation was only the beginning of the process.
Senator Wielechowski reminded that it was the statutory
obligation of the commissioner to prepare a budget to meet
the state's constitutional obligation. He was surprised
that the commissioner asserted that the proposed budget
adequately funded education. He asked if the budget
affected school debt reimbursement and Bree's Law dating
violence programs.
Ms. Arduin stated that school debt reimbursement would be
addressed at a later meeting.
Co-Chair Stedman stated that the budget affect school debt
reimbursement.
Ms. Teshner stated there was no budget impact to the dating
violence education program.
10:18:54 AM
Senator Micciche stated his constituents wanted him to
support cutting the budget, and he did support cutting the
budget. He thought it was very difficult to avoid having a
conversation about the effect of the proposed cuts. He
recalled that the department had supported a bill the
previous year that pertained to teacher hire. He discussed
the difficulty in hiring teachers, and thought it was due
to uncertainty. He referenced oil and gas policy to
increase certainty and increase investment in the state. He
asked the commissioner if the proposed budget would make it
easier or more difficult to hire teachers.
Co-Chair Stedman asked testifiers to address potential
impacts on hiring teachers.
Commissioner Johnson thought Senator Micciche's question
was fair. He restated that budget cuts would be difficult.
10:21:42 AM
Senator Wilson reiterated that the legislature could not
set the limits for how funds were spent in districts. He
thought some school districts did better than others in
terms of management and structure of utilizing funds. He
asked about per capital spending on student education as
compared to other states.
Commissioner Johnson knew that Alaska had high spending
compared to other states but did not have specific
information. He offered to follow up with more details.
Co-Chair Stedman asked the commissioner to bring
information on FY 19 education spending adjusted for the
proposed budget.
Commissioner Johnson agreed to provide the information.
Senator Wielechowski discussed the WWAMI program. He
referenced a 2006 report in which the Department of Health
and Social Services recommended increasing the number of
students to 30. He noted that the United States Department
of Health and Human Services had designated much of the
state as a health professional shortage area based on the
lack of primary care physicians. Based on the information,
there was an estimated need for 200 more physicians in the
state. He asked if there had been any consideration of
impacts of the cuts the WWAMI program in bringing more
doctors to the state.
Ms. Arduin stated she would get more information on the
program, including the program history and the difficulties
the program had in achieving its goals.
Co-Chair Stedman stated that the committee would consider a
presentation on the WWAMI program and hoped it would
include a historical perspective.
^DEPARTMENTAL REVIEW: STATEWIDE
10:24:57 AM
MIKE BARNHILL, POLICY DIRECTOR, OFFICE OF MANAGEMENT AND
BUDGET, showed slide 5, "Statewide Items." He thought the
conversation was incredibly important for the state. He
reflected that the size of the state's deficit made it so
that any proposed plan would contain an element that would
be hated. He acknowledged the frustration in the room, and
acknowledged the budget was a difficult task. He referenced
an editorial in the Anchorage Daily News that discussed the
difficulty faced by the state. He thought the editorial had
made an important point that the state was at "the end of
the line." He thought the governor had done an incredible
job of bringing the issues into sharp focus. He stated that
OMB wanted to be an active participant. His purpose at the
meeting was to present the legislative proposals that
accompanied the proposed budget.
10:27:42 AM
Mr. Barnhill highlighted slide 6, "FY2020 Budget:
Legislative Proposals":
Revenue
Repeal Local Petroleum Property Tax (+$398 million)
Repeal Sharing of Fisheries Business/Resource Landing
Taxes (+$28.4 million)
? 50% of Alcohol Tax as a Shared Tax (-$20 million)
Debt Reimbursement
? Repeal School Debt Reimbursement (-$100 million)
? Repeal Project Debt Reimbursement (-$4.5 million)
O&G Tax Credit Paydown
Replace UGF with surplus AIDEA funds
? FY19 $84 million (Align w/Statutory Calculation)
? FY20 $170 million (Statutory Calculation)
Mr. Barnhill noted that the slide showed revenue proposals
that were not new revenues but rather re-directed existing
revenues. He recognized the large impact on communities
from the proposed repeal on the Local Petroleum Property
Tax. He noted that the amount of revenue would comprise one
fourth of the deficit.
10:30:31 AM
Senator Wilson asked if the administration had considered a
partial repeal of the proposed tax repeals.
Mr. Barnhill referenced his opening comments and suggested
that anything taken off the table had to be replaced by
something else.
Senator Olson referenced Mr. Barnhill's earlier remarks. He
did not agree that there was something in the budget for
everyone to hate. He thought there was nothing in the
budget for oil companies to hate, as they were left
harmless. He thought it was disingenuous that the
administration would present the budget without considering
revenues with sharp focus.
Co-Chair Stedman asked if Senator Olson had a question
about the proposed repeal of the Local Petroleum Property
Tax and its effect on his district. He thought the matter
should be laid out in greater detail, and relayed that
there was a pipeline corridor and an oil basin.
Co-Chair Stedman thought Senator Olson had given a high-
level review of the property tax, which did not affect his
own district but affected other areas of the state. He
referenced the Revenue Sources Book, which listed boroughs
which were affected and dollar amounts.
Mr. Barnhill noted that every year the Department of
Revenue put out the Revenue Sources Book, which had a chart
and narrative about the Local Petroleum Property Tax, how
it worked, and the revenues that were collected by the
state and municipalities. He detailed that there was $563
million that was collected under the tax in FY 18. He
listed the amounts collected by the associated areas, with
municipalities collecting about $440 million with a
residual $123 million for the state.
Ms. Arduin stated that the governor had been very clear
that he was not contemplating raising taxes to fix the
state's budget problems. He viewed the fiscal issue as a
spending problem and was not contemplating tax increases.
10:34:24 AM
Co-Chair von Imhof stated that in FY 17, HB 111 was passed
and had addressed oil taxes for petroleum companies. The
provision of ring-fencing was removed. She discussed ring-
fencing. She remarked on increased taxes paid by
ConocoPhillips. She asked how the administration had
notified the borough and business leaders in Senator
Olson's district on the North Slope of the proposed repeal
of the Local Petroleum Property Tax.
Co-Chair Stedman asked for a broad answer to the question
to include how the process was undertaken to come up with
the proposals.
Ms. Arduin stated that the governor's budget was presented
the previous week to everyone at the same time. She thought
the commissioner of the Department of Revenue would be
testifying in committee the following day, and he could
discuss specific conversations he had after the
presentation of the budget.
Senator Bishop asked if Ms. Arduin had alleged that the
governor did not want to raise taxes.
Ms. Arduin answered in the affirmative.
Senator Bishop thought that it was debatable as to whether
the governor wanted to raise taxes.
Co-Chair Stedman asked for Mr. Barnhill to provide more
detail pertaining to other taxes listed on slide 6.
Mr. Barnhill discussed the Fisheries Business Tax and the
Fisheries Resource Landing Tax, which were shared with
municipalities that were fishing communities. He continued
that DOR published a shared taxes report each year that
showed the amount collected and shared.
Co-Chair Stedman thought Dutch Harbor was mostly likely the
largest participating community.
Mr. Barnhill thought Unalaska was the largest.
Co-Chair Stedman understood that it would take legislation
to repeal the tax.
Mr. Barnhill explained that the tax could be removed from
the budget without changing the statutes, and the issue
would be before the legislature the following year.
10:38:35 AM
Senator Hoffman noted that when he had met with the
governor, he had stated that until the laws changed, they
were the laws of the land. He thought the reasoning applied
to the dividend. He found it hard to fathom that the
governor planned to pick and choose which laws would be
enforced. He thought there was inconsistency. He asked if
through the budget process the governor would enforce
certain laws and ignore other laws.
Ms. Arduin stated that the governor was submitting
statutory changes along with the budget so that the
statutes would be consistent with the appropriations.
Senator Hoffman was aware of what Ms. Arduin asserted. He
asked if the governor would enforce the laws until they
were changed. He reminded that he had been in the
legislature for 20 years and did not need schooling on the
subject of the legislative process. He asked if the
governor would honor laws until they were changed, or if
the governor would pick and choose which laws to enforce.
Ms. Arduin stated that the governor would be enforce all of
the laws of the state. He was proposing changes to the
laws.
Co-Chair Stedman thought an earlier response might have
been garbled. If the legislature did not take statutory
action to alter the proposed tax splits, the existing
appropriations would take place in FY 20.
Ms. Arduin stated that some of the proposals were
appropriations that were already in the budget, and the
legislature had the ability to change the appropriations.
The governor was proposing changes in statute to make
permanent changes, but appropriations could be changed.
10:42:14 AM
Senator Micciche wanted to point out that the
administration's approach, despite discussion of not
raising taxes, would dramatically change the local tax
rate. He mentioned discussed the Local Petroleum Property
Tax. In running petroleum-related facilities, there were a
number of required responses by federal and local services,
and his district provided the services in Cook Inlet. He
disclosed that he was chair of the Cook Inlet Harbor Safety
Committee. The services were required by federal law to
serve petroleum facilities. He asked that if the budget
proposed that direct costs should be billed to the state in
order to stay with the philosophy of not raising taxes, or
if the administration proposed that property and sales
taxes in his district must be increased to meet the federal
requirements to deliver the taxes to the state.
Ms. Arduin stated that OMB would provide an answer at a
later time.
Co-Chair Stedman mentioned the Resource Landing Tax and the
Fisheries Business Tax and stated that many taxes were
shared with coastal communities. The taxes paid by
fisherman was shared with the city as well as ports and
harbors, in order to drive the economy forward. He asked if
there had been discussion or policy consideration
pertaining to the balance of taxation to drive the economy
forward.
Mr. Barnhill stated that each of the items presented on
slide 6 was prepared and included in the budget as a way to
achieve a budget within the policy parameters that were
dictated by the governor, which was to get to $1.6 billion
and keep the PFD whole. He shared that getting to the
number without redirecting some revenue was very difficult.
He fully recognized that there were impacts for each and
every piece of the budget.
10:46:09 AM
Senator Bishop asked how the budget proposal grew the
state's economy. He had received phone calls from
businesses.
Ms. Arduin recalled that the impacts of the budget, the
budget imbalance and the negative impacts on the economy
because of the state's fiscal situation had been discussed
at a prior meeting. She asserted that any money that was
taken out of the private sector to put into the government
would continue to deteriorate Alaska's economy. She stated
that Alaska's economy was falling, while the rest of the
nation was increasing. She stated that the administration
was striving to reverse the situation, starting with
getting the state's fiscal house in order.
Senator Wilson referenced Senator Hoffman's earlier
statement about following the laws of the land. He thought
the governor was going to introduce his permanent solution
to the budget crisis by introducing legislation, and asked
if the governor but would still be following the law if he
used his power of veto.
Ms. Arduin answered in the affirmative.
Co-Chair Stedman referenced the proposed 50 percent of the
Alcohol Tax going back to the community.
Mr. Barnhill answered in the affirmative.
Co-Chair Stedman thought it was preventive to take the
funds and put them into alcohol and drug programs.
Mr. Barnhill answered in the affirmative. He explained that
the funds would be redistributed into the Community
Assistance Program.
Co-Chair Stedman thought it was good news for communities.
10:49:03 AM
Mr. Barnhill continued to discuss slide 6 and addressed the
subheading 'Debt Reimbursement.' He stated that the debt
reimbursement section of the budget was reduced
substantially. Both of the programs listed on the slide
were set in statute, and there was associated legislation
to proposed repeal. He noted that all of the form of debt
reimbursement was subject to appropriation. He added that
school debt reimbursement had been reduced in the past,
most recently by Governor Bill Walker. There were several
years when School Debt Reimbursement was funded at less
than 100 percent, but his was the first proposal to reduce
it entirely.
Mr. Barnhill continued to discuss debt reimbursement. The
amount proposed for repeal would shift back to the
municipalities that issues the general obligation bond to
fund the school construction, and the district would be
responsible for paying the amount. He understood that the
change would have no impact on the state's credit rating.
Mr. Barnhill discussed project debt reimbursement as listed
on slide 6. There were two projects through the University
of Alaska, six port projects through the Department of
Transportation and Public Facilities, and two utilities
projects through the Alaska Energy Authority.
Senator Micciche was supportive of the debt reimbursement
changes being discussed on slide 6. He did not support the
shift of taxes to local communities. He believed the Senate
had passed legislation repealing school debt reimbursement
because the state had no control of the burden that local
communities could put on the state.
10:52:12 AM
AT EASE
10:53:03 AM
RECONVENED
Senator Micciche appreciated aspects of the budget. He
asked if the administration understood his stance of
supporting the proposed repeal of debt reimbursement and
not the cost shifting of the other proposed tax repeals.
Ms. Arduin thought there were many conversations that had
begun as a result of the proposed budget. She thought state
and local alignment could continue to be discussed.
Senator Wielechowski asked about school debt reimbursement
and asked if the proposals applied to FY 19 or FY 20, or
both. He wondered if the proposed debt reimbursement
applied for debts that had been incurred in the past when
school districts may have been expecting state
reimbursement.
Mr. Barnhill stated the proposed change did not apply to FY
19 and would apply to FY 20. If the statute was repealed,
it would apply to FY 21 and forward.
Senator Wielechowski asked about debts already incurred. He
wondered how many years back debts would go.
Mr. Barnhill stated that the proposed change would apply to
projects that had already been incurred. He noted that the
state was currently in moratorium for new projects until FY
21. He offered to provide a list of projects. The total
inventory of outstanding debt was $90 million.
SB 20 was HEARD and HELD in committee for further
consideration.
Co-Chair Stedman stated that the presentation would be
continued the following day. He discussed the other items
on the agenda for the following day.
ADJOURNMENT
10:56:04 AM
The meeting was adjourned at 10:56 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Administrative Order 305.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Administrative Order 304.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Admin Orders - Gov Directives connected to FY2020 Gov Amend Budget.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Administrative Order 306.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Administrative Order 307.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| FY2020 Gov Amend Budget to SFC 2.18.19 DEED and Statewide.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DHSS Attachment D.XLS |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DHSS Attachment C.PDF |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DHSS Attachment E.XLSX |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DHSS Attachment B.XLSX |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DHSS Attachment A.PDF |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DEC USDA 2018 Milk Report.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Wildlife Sport Fish Restoration Reversion Chart.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Univ Ranked by Exp FTE.xlsx |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| DEC Prevention Account Projection FY2018 - FY2027.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| Land Grant Universities.xlsx |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| SHEF_State_by_State_Wave_Charts_FY17.xlsx |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| University Alaska Data.xlsx |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| HB 214 Fiscal Note.pdf |
SFIN 2/18/2019 9:00:00 AM |
HB 214 |
| Land Grant All Revenue Sources.xlsx |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| WWAMI fact sheet final 2018.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| How Does WWAMI Benefit Alaska-2018.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| FY2017 Fund Balance Compliance.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| History of WWAMI.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |
| 2.18-22.19 OMB Response.pdf |
SFIN 2/18/2019 9:00:00 AM |
SB 20 |