Legislature(2019 - 2020)SENATE FINANCE 532

02/18/2019 09:00 AM FINANCE

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Audio Topic
09:01:59 AM Start
09:05:30 AM SB20
09:05:30 AM Departmental Review: Education and Early Development
10:24:57 AM Departmental Review: Statewide
10:56:04 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 20 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+ Departmental Review Continued: TELECONFERENCED
- Education & Early Development
- Statewide
- Health & Social Services - Rescheduled to 2/22
                 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