Legislature(2019 - 2020)SENATE FINANCE 532

02/19/2019 09:00 AM FINANCE

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Audio Topic
09:02:18 AM Start
09:04:18 AM SB20
09:06:28 AM Departmental Review: Statewide
01:51:31 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 1:00 p.m.--
+= SB 20 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+ Departmental Review Continued: TELECONFERENCED
- Department of Military & Veterans' Affairs
- Judiciary
- Statewide Items Continued
<Above Items Added to Agenda>
- University of Alaska
- Transportation & Public Facilities
- Revenue
                 SENATE FINANCE COMMITTEE                                                                                       
                     February 19, 2019                                                                                          
                         9:02 a.m.                                                                                              
                                                                                                                                
                                                                                                                                
9:02:18 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Stedman   called  the  Senate   Finance  Committee                                                                    
meeting to order at 9:02 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 Mike Shower                                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Donna  Arduin, Director,  Office of  Management and  Budget;                                                                    
Mike  Barnhill, Policy  Director, Office  of Management  and                                                                    
Budget;  Amanda  Holland,  Management  Director,  Office  of                                                                    
Management  and Budget;  Jim Johnson,  President, University                                                                    
of Alaska;  Senator Shelley  Hughes; Senator  Cathy Giessel;                                                                    
Senator Mia  Costello; Senator  Gary Stevens;  Senator Chris                                                                    
Birch; Senator Scott Kawasaki.                                                                                                  
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 20     APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
                                                                                                                                
          SB 20 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
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."                                                                                                    
                                                                                                                                
9:04:18 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  clarified  that Bree's  Law  funding  was                                                                    
reduced by $144,000 in the FY 20 Adjusted Base.                                                                                 
                                                                                                                                
^DEPARTMENTAL REVIEW: STATEWIDE                                                                                               
                                                                                                                                
9:06:28 AM                                                                                                                    
                                                                                                                                
DONNA  ARDUIN, DIRECTOR,  OFFICE OF  MANAGEMENT AND  BUDGET,                                                                    
(OMB) introduced herself.                                                                                                       
                                                                                                                                
MIKE  BARNHILL, POLICY  DIRECTOR, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, introduced himself.                                                                                                     
                                                                                                                                
Mr. Barnhill looked  at slide 3 of  the presentation, "State                                                                    
of  Alaska;  Office  of  Management   and  Budget;  FY  2020                                                                    
Governor's  Amended  Budget;   Presentation  to  the  Senate                                                                    
Finance  Committee;   February  19,  2019;   Director  Donna                                                                    
Arduin"  (copy   on  file),  ""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)                                                                                
                                                                                                                                
9:10:56 AM                                                                                                                    
                                                                                                                                
Mr.  Barnhill  shared that  during  the  development of  the                                                                    
bill, there were different  interpretations of the statutory                                                                    
formula.  He stated  that one  interpretation  was that  the                                                                    
percentage  was  applied  to  the  gross  amount  of  levied                                                                    
production tax.  He stated  that another  interpretation was                                                                    
that the  percentage was  applied to  the net  amount, which                                                                    
produced  a  much  smaller  number.  He  remarked  that  the                                                                    
appropriations in  the Revenue  Sources Book both  relied on                                                                    
the gross  value interpretation.  He stated that  the source                                                                    
of  the fund  was not  available general  funds to  make the                                                                    
appropriation. He stated that  the appropriation, subject to                                                                    
legislative appropriation  was to  use surplus  funds within                                                                    
Alaska Industrial Development  and Export Authority (AIDEA).                                                                    
He  shared  that  the  Department of  Revenue  (DOR)  did  a                                                                    
liquidity  analysis  of  AIDEA funds,  and  determined  that                                                                    
there was  sufficient excess funds  that were  not presently                                                                    
designated  for any  particular  purpose.  He stressed  that                                                                    
those  funds  could  be  taken,   and  appropriate  for  the                                                                    
specified purpose.  The state  obligation would  continue to                                                                    
be  paid  down.   He  remarked  that,  if   the  funds  were                                                                    
appropriated by  the legislature,  it would leave  a balance                                                                    
of  approximately $500  million.  He remarked  that, in  the                                                                    
event that  the Supreme  Court ruled  in the  state's favor,                                                                    
there would be  a smaller balance to which issue  debt and a                                                                    
smaller amount of future debt service.                                                                                          
                                                                                                                                
Senator Wielechowski  did not understand  why the  there was                                                                    
not  an inclusion  of  the $84  million from  FY  19 in  the                                                                    
supplemental  budget. He  remarked  that the  interpretation                                                                    
regarding the  calculation of the tax  was an interpretation                                                                    
that included over $1 billion  in deductible tax credits. He                                                                    
stressed  that the  state  was being  placed  in a  position                                                                    
where  they could  be paying  out more  in tax  credits than                                                                    
were received  in production  taxes. He felt  that it  was a                                                                    
bizarre interpretation of the statute.  He did not feel that                                                                    
it was ever the intent  of the legislature. He remarked that                                                                    
the oil and  gas tax credits were  subject to appropriation.                                                                    
The   provision  was   subject  to   appropriation  by   the                                                                    
legislature and the tax director  may issue certificates. He                                                                    
stressed that they were discretionary  tax credits. He noted                                                                    
that  there  was  now an  increase  from  Governor  Walker's                                                                    
budget, from $27 million to $254  million in oil and gas tax                                                                    
credits.                                                                                                                        
                                                                                                                                
9:14:59 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  remarked that  there  would  be a  future                                                                    
hearing about  AIDEA, and its  policy and  discussions about                                                                    
whether that  money would be  used for tax credits.  He felt                                                                    
that  Senator   Wielechowski's  concerns  would   be  better                                                                    
applicable  in the  tax credit  structure  discussed as  the                                                                    
sole item. He understood that  there was an interplay in all                                                                    
the expenditures.                                                                                                               
                                                                                                                                
Ms. Arduin stressed  that requesting what to  say to Senator                                                                    
Wielechowski's constituents was not a budget question.                                                                          
                                                                                                                                
Co-Chair Stedman  understood that,  but he  wondered whether                                                                    
there   was   any   comment   that   may   address   Senator                                                                    
Wielechowski's question.                                                                                                        
                                                                                                                                
Mr. Barnhill  replied that all  of the matters  were subject                                                                    
to  legislative appropriation,  and  his department  carried                                                                    
the burden  of proof. He  addressed the interplay,  and felt                                                                    
that an  argument could  be made that  oil and  gas cashflow                                                                    
tax  credits  were  the  sole obligation  of  the  state  of                                                                    
Alaska,  so they  were not  identical to  general obligation                                                                    
bond debt.                                                                                                                      
                                                                                                                                
Co-Chair von Imhof looked at  the source of funds. She noted                                                                    
that  AIDEA  paid  a  dividend  to the  state,  and  it  was                                                                    
sometimes difficult to  pay that dividend. She  felt that it                                                                    
was interesting to  assume that there were  surplus funds in                                                                    
AIDEA to  pay the $225  million, and queried the  reason for                                                                    
the  surplus funds  in  AIDEA. She  queried  the purpose  of                                                                    
AIDEA,  especially whether  the PCE  funds were  proposed to                                                                    
move into the general fund.                                                                                                     
                                                                                                                                
Co-Chair Stedman  felt that there  was a deviation  from the                                                                    
budget, but rather a policy discussion.                                                                                         
                                                                                                                                
Mr.  Barnhill replied  that he  did not  know why  AIDEA had                                                                    
surplus funds.  He stressed that  there were  obligations on                                                                    
the balance sheet  that should be cleared  in an appropriate                                                                    
manner.                                                                                                                         
                                                                                                                                
Senator Olson felt that he question was already answered.                                                                       
                                                                                                                                
Senator  Hoffman agreed  that  the state  must "balance  its                                                                    
checkbook and  live within its  means." He wondered  how the                                                                    
administration   justified   spending    $225   million   in                                                                    
additional revenue and not spending it on education.                                                                            
                                                                                                                                
9:21:21 AM                                                                                                                    
                                                                                                                                
Mr. Barnhill  replied that  there were  difficult decisions.                                                                    
He  regarded the  issue in  the category  of state  debt. He                                                                    
remarked  that  there  was  a   discussion  about  the  debt                                                                    
reimbursement   section    of   the   budget,    which   was                                                                    
approximately $215  million. That  debt would by  reduced by                                                                    
$100 million  for school debt reimbursement.  He stated that                                                                    
the remaining  $100 million was  in general  obligation bond                                                                    
debt,  and there  was not  a proposal  to reduce  that debt,                                                                    
because  of  the impact  to  state's  reputation and  credit                                                                    
rating. He  stressed that it  was important for  the state's                                                                    
credit  story and  reputation that  the  debts were  managed                                                                    
appropriately.                                                                                                                  
                                                                                                                                
Senator  Hoffman   wanted  to  point  out   that  there  are                                                                    
different   approaches   between  the   administration   and                                                                    
legislature.                                                                                                                    
                                                                                                                                
Co-Chair Stedman stressed  that the issue would  be taken up                                                                    
in more detail at a later date.                                                                                                 
                                                                                                                                
Senator  Micciche encouraged  Alaskans to  read the  Revenue                                                                    
Source  Book,  chapter  8, which  addressed  the  difference                                                                    
between deductions and credits.                                                                                                 
                                                                                                                                
9:24:25 AM                                                                                                                    
                                                                                                                                
Mr.   Barnhill   highlighted   slide  4,   "FY2020   Budget:                                                                    
Legislative Proposals":                                                                                                         
                                                                                                                                
     Program Reform                                                                                                             
     ? Exempt position reform                                                                                                   
     ? Pay increment reform                                                                                                     
     ? Bi-weekly payroll                                                                                                        
     ? Begin to eliminate quasi-dedicated funds                                                                                 
          ? Power Cost Equalization Endowment Fund ($1.1                                                                        
          billion)                                                                                                              
         ? Community Assistance Fund ($60 million)                                                                              
          ? Higher Education Investment Fund ($344 million)                                                                     
                                                                                                                                
Mr. Barnhill continued with slide 4:                                                                                            
                                                                                                                                
     Unleashing Entrepreneurialism                                                                                              
     ? Eliminate most revolving loan funds                                                                                      
                                                                                                                                
          Examples:                                                                                                             
          ? Agriculture Revolving Loan Fund ($5 million)                                                                        
          ? Mariculture Revolving Loan Fund ($4 million)                                                                        
          ? Alaska Microloan Revolving Loan Fund ($2.4                                                                          
          million)                                                                                                              
          ? Development Initiative Revolving Loan Fund                                                                          
          ($3.5 million)                                                                                                        
                                                                                                                                
Co-Chair von  Imhof looked  at the $1.1  billion in  the PCE                                                                    
endowment, and wondered where that money go.                                                                                    
                                                                                                                                
Mr. Barnhill  replied that,  in each  case, the  funds would                                                                    
lapse to the  general fund. He remarked  that, in connection                                                                    
with each  of there, there  was no suggestion to  change the                                                                    
funding for the program. He  stressed that it was consistent                                                                    
with the original constitutional intent.                                                                                        
                                                                                                                                
Co-Chair  von Imhof  felt that  it had  taken years  to save                                                                    
$1.1 billion. She wondered whether  it was proposed that the                                                                    
money  be put  in the  general fund  to be  spent until  its                                                                    
gone.                                                                                                                           
                                                                                                                                
Mr. Barnhill  replied that  he was  not suggesting  that the                                                                    
money be  fretted away.  He stressed  that the  governor was                                                                    
calling  on the  legislature  to  be frugal  and  be a  very                                                                    
strict steward of its funds.                                                                                                    
                                                                                                                                
9:30:58 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman surmised  that that the funds  would not be                                                                    
swept into the CBR.                                                                                                             
                                                                                                                                
Mr. Barnhill agreed.                                                                                                            
                                                                                                                                
Co-Chair  Stedman  asked  whether  it would  be  counted  as                                                                    
potential payback owed to the CBR.                                                                                              
                                                                                                                                
Mr. Barnhill replied that it would count.                                                                                       
                                                                                                                                
Senator Hoffman  remarked that the  PCE program had  been in                                                                    
existence for over thirty years.  He felt that the people of                                                                    
the state would  rather see it voted on  by the legislature,                                                                    
and  remain  in  the  fund.  He  remarked  that  there  were                                                                    
villages  that paid  close to  seven dollars  for diesel  to                                                                    
generate electricity.  He stressed  that there was  a twenty                                                                    
times  higher cost  to generate  electricity to  a community                                                                    
that  probably  had  the  lowest income  in  the  state.  He                                                                    
understood  that the  administration  would prioritize  that                                                                    
issue. He stressed that PCE  was set up as a quasi-dedicated                                                                    
fund.  He looked  forward to  continued conversation  on the                                                                    
program. He helped  build the funds over the  years, and the                                                                    
program  was  well   on  its  way  before  he   was  in  the                                                                    
legislature.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  remarked that  there was a  question about                                                                    
the speed at which the money  had been put in the account in                                                                    
the years of surplus.                                                                                                           
                                                                                                                                
9:34:38 AM                                                                                                                    
                                                                                                                                
Senator Olson remarked that he  had seen Mr. Barnhill in the                                                                    
community. He  felt that PCE  was a successful  program, and                                                                    
wondered why the money would  be spent for other things than                                                                    
it was originally intended.                                                                                                     
                                                                                                                                
Mr. Barnhill  replied that he appreciated  the kindness that                                                                    
Senator Olson had  shown him over the years.  He stated that                                                                    
the proposal  was not intended  to be punitive, and  was not                                                                    
an  attack  on the  program.  The  funding for  the  program                                                                    
remained in  place. He stressed that  the characteristics of                                                                    
the  PCE program  that were  identified  by Senator  Hoffman                                                                    
were   good  characteristics,   and  were   meritorious.  He                                                                    
stressed  that   there  was  an  attempt   to  increase  the                                                                    
legislature's   flexibility    to   deal   with    all   the                                                                    
stakeholders.   He  recalled   that  the   minutes  of   the                                                                    
constitutional convention  showed a discussion  about having                                                                    
a level playing  field. He stated that the  wisdom was that,                                                                    
in  the current  times when  there was  not enough  money to                                                                    
meet the needs,  there must be an examination  of the merits                                                                    
and the needs of the state.                                                                                                     
                                                                                                                                
Senator  Micciche felt  that the  discussion was  important,                                                                    
because  of the  state's financial  lurch. He  remarked that                                                                    
the PCE Rural Electric  Capitalization fund (RuralCAP) would                                                                    
go on in  its current state. He queried the  source of the 5                                                                    
percent POMV if the fund did not exist.                                                                                         
                                                                                                                                
Mr.  Barnhill  replied  that   there  were  some  mechanical                                                                    
changes  in the  statute in  order to  keep the  formula. He                                                                    
stated  that  the  appropriation   would  not  come  a  fund                                                                    
pursuant  to the  formula,  rather  the appropriation  would                                                                    
come from the general fund  pursuant to a formula subject to                                                                    
appropriation.                                                                                                                  
                                                                                                                                
                                                                                                                                
Senator  Bishop  looked   forward  to  further  discussions,                                                                    
because  he did  not  want future  lawmakers  to forget  the                                                                    
history and foundation of the program.                                                                                          
                                                                                                                                
Senator  Shower  wondered  whether the  administration  felt                                                                    
that  it was  not constitutional  to set  aside funding  for                                                                    
special classes of people.                                                                                                      
                                                                                                                                
Mr. Barnhill  replied he  would defer  to the  Department of                                                                    
Law.   He  furthered   that  the   state  had   historically                                                                    
established  funds, and  nothing  in the  statute created  a                                                                    
dedicated fund.                                                                                                                 
                                                                                                                                
Senator Shower queried the view  on how it was beneficial to                                                                    
consolidate  the funds,  rather than  keep them  in separate                                                                    
funds.                                                                                                                          
                                                                                                                                
9:40:00 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  requested a brief synopsis  of the state's                                                                    
savings position. He queried the balance of the CBR.                                                                            
                                                                                                                                
Mr. Barnhill  replied that the  starting balance of  the CBR                                                                    
was  $2.4  billion.  The  balance   in  the  Permanent  Fund                                                                    
Earning's Reserve  was between $14 billion  and $16 billion.                                                                    
The total  balance of the  Permanent Fund  was approximately                                                                    
$60 billion.                                                                                                                    
                                                                                                                                
Co-Chair Stedman  stated that there  was roughly  $2 billion                                                                    
the  CBR  and it  required  a  three-quarter vote  from  the                                                                    
entire  legislature  to access.  He  Stated  that there  was                                                                    
approximately $200  million in the Statutory  Budget Reserve                                                                    
(SBR), and required a simple  majority of the legislature to                                                                    
access.  The  PCE had  about  $1.1  billion. There  was  the                                                                    
ability  to  access the  Permanent  Fund,  and it  would  be                                                                    
accessed by about 5.1 percent.  He felt that the legislature                                                                    
was being "cornered"  to make its payroll.  He remarked that                                                                    
the Permanent  Fund would  not be  liquidated. He  felt that                                                                    
the $1.1  billion in  PCE was a  significant portion  of the                                                                    
available   liquidity,   after   $14  million   in   savings                                                                    
reductions.                                                                                                                     
                                                                                                                                
Mr.  Barnhill stressed  that it  was only  liquid when  it's                                                                    
used  as  general  fund.  The  budget  and  flexibility  was                                                                    
created with the smaller general funds.                                                                                         
                                                                                                                                
Co-Chair Stedman remarked that  the committee will decide on                                                                    
its recommendation on any potential restructuring.                                                                              
                                                                                                                                
Senator   Bishop   commented   that   he   appreciated   the                                                                    
administration's diligence  in recognizing the  hardships in                                                                    
receiving  funding for  commercial  fishing. He  appreciated                                                                    
that those grants did not have proposed reductions.                                                                             
                                                                                                                                
9:43:33 AM                                                                                                                    
                                                                                                                                
AMANDA  HOLLAND, MANAGEMENT  DIRECTOR,  OFFICE OF  MANGEMENT                                                                    
AND   BUDGET,  looked   at  slide   5,   "FY  2020   Budget:                                                                    
Administrative Orders":                                                                                                         
                                                                                                                                
     Business process realignment                                                                                               
                                                                                                                                
     ? Alaska Oil and Gas Conservation Commission to                                                                            
     Department of Commerce, Community and Economic                                                                             
     Development                                                                                                                
                                                                                                                                
     Program reform                                                                                                             
     ? Procurement Consolidation                                                                                                
     ? HR Consolidation Eliminate duplication                                                                                   
     ? Statewide Investigator Unit                                                                                              
                                                                                                                                
9:45:59 AM                                                                                                                    
                                                                                                                                
Senator Bishop  requested assurance  that it would  not take                                                                    
six months for a department commissioner to make a hire.                                                                        
                                                                                                                                
Ms. Holland  replied that the Human  Resource centralization                                                                    
and  decentralization had  occurred several  times over  the                                                                    
decades.  The  intent of  the  administrative  order was  to                                                                    
create  a  task  force  that would  include  human  resource                                                                    
experts in  the agencies  to ensure that  the implementation                                                                    
of  the   consolidation  would   result  in   realizing  the                                                                    
efficiencies. She  furthered that metrics would  be in place                                                                    
for agencies  could ensure the appropriate  level of service                                                                    
to be efficient.                                                                                                                
                                                                                                                                
Senator  Bishop   wanted  to   ensure  that   nothing  would                                                                    
jeopardize its primacy.                                                                                                         
                                                                                                                                
Senator  Hoffman  wondered  whether the  administration  had                                                                    
examined consolidation of the  purchasing of health care. He                                                                    
remarked that the area had great potential for savings.                                                                         
                                                                                                                                
                                                                                                                                
Ms. Arduin replied in the  affirmative, but hoped to discuss                                                                    
the issue further.                                                                                                              
                                                                                                                                
Senator  Micciche   looked  at   the  Alaska  Oil   and  Gas                                                                    
Conservation  Commission   (AOGCC)  realignment   order.  He                                                                    
wondered whether it was related  to function or mission, and                                                                    
asked for a definition of "administrative purposes only."                                                                       
                                                                                                                                
Ms. Holland replied  that the AOGCC would be moved  to be in                                                                    
more in line with the  Department of Commerce, Community and                                                                    
Economic Development  (DCCED), as opposed to  the Department                                                                    
of Administration (DOA).                                                                                                        
                                                                                                                                
Senator Micciche wondered how it saved money for the state.                                                                     
                                                                                                                                
Ms. Holland  replied that the focus  was to make DOA  a more                                                                    
efficient  agency  by  pulling  misaligned  outside  of  the                                                                    
department  so it  could  focus its  resources  on its  core                                                                    
mission.                                                                                                                        
                                                                                                                                
Senator Wielechowski  stated that  the mission of  AOGCC was                                                                    
to  essentially  protect  against  waste  from  its  natural                                                                    
resources. He  felt that there  would be a  better alignment                                                                    
with the Department of Natural  Resources (DNR). He wondered                                                                    
why it was not moved into DNR.                                                                                                  
                                                                                                                                
Ms. Holland agreed to provide that information.                                                                                 
                                                                                                                                
9:50:23 AM                                                                                                                    
                                                                                                                                
Ms.  Holland   addressed  slide  6,  "FY   2020:  Governor's                                                                    
Directives":                                                                                                                    
                                                                                                                                
     Unleashing Entrepreneurialism                                                                                              
     ? Alaska Marine Highway System                                                                                             
                                                                                                                                
     Maximizing Return on Assets                                                                                                
     ? Property Disposal                                                                                                        
     ? Rural Airport System                                                                                                     
                                                                                                                                
     Program reform                                                                                                             
     ? Laboratory Consolidation                                                                                                 
     ? Travel  Hire Policy                                                                                                      
                                                                                                                                
Co-Chair Stedman felt  that the return on  assets would fall                                                                    
to the  Department of  Transportation and  Public Facilities                                                                    
(DOT/PF). He  stated that  he wanted  the committee  to hold                                                                    
their questions on those issues to DOT/PF.                                                                                      
                                                                                                                                
Senator Olson  felt that DOT/PF addressing  budget questions                                                                    
was  shortsighted, because  the  points  could be  addressed                                                                    
with OMB.                                                                                                                       
                                                                                                                                
Co-Chair Stedman  stated that DOT/PF would  be presenting at                                                                    
a later date along side OMB.                                                                                                    
                                                                                                                                
Co-Chair von  Imhof "chuckled" at the  header of "Unleashing                                                                    
Entrepreneurialism" with  shutting down state funding  on so                                                                    
many areas and hoping that  the private sector would pick up                                                                    
the slack. She stressed that  the reason the state played in                                                                    
the  transportation space,  because  it  was not  altogether                                                                    
profitable. She stressed that the  state was doing a service                                                                    
to the  community. She stated  that perhaps that  header was                                                                    
more  related  to  decreasing regulations  and  streamlining                                                                    
permits.  She  wondered whether  the  state  was looking  at                                                                    
truly  unleashing  entrepreneurialism   by  providing  AIDEA                                                                    
funds,  or public/private  partnerships  using  some of  the                                                                    
state's  PCE  to attract  outside  investment  to help  with                                                                    
projects.                                                                                                                       
                                                                                                                                
9:55:35 AM                                                                                                                    
                                                                                                                                
Ms. Arduin  replied that attracting outside  capital was one                                                                    
of the administration's goals. She  felt that, for too long,                                                                    
there was a reliance on state capital for state investment.                                                                     
                                                                                                                                
Co-Chair  Stedman stressed  that  DOT/PF  would address  the                                                                    
issues  further.   He  wanted  to  get   to  the  University                                                                    
presentation.                                                                                                                   
                                                                                                                                
Mr.   Barnhill  discussed   slide  17,   "FY  2020   Budget:                                                                    
University  of  Alaska."  The   slide  showed  a  comparison                                                                    
between  FY 19  Management Plan  and the  current governor's                                                                    
proposal. He stated  that the columns were  equal, but there                                                                    
was  a reason  behind  that.  He pointed  to  the dark  blue                                                                    
section  of  the  two  bars   at  the  bar,  which  was  the                                                                    
unrestricted general fund section  of the columns. It showed                                                                    
that in  FY 19 there  was an appropriation of  $327 million.                                                                    
He stated that, in the  governor's budget, it was a proposal                                                                    
for  an  unrestricted  general fund  appropriation  of  $193                                                                    
million,  or a  $134  million reduction  in  the budget.  He                                                                    
stated that  the shaded  sections above  the dark  blue were                                                                    
designated  general  fund,  other,  and  federal  funds.  It                                                                    
showed a corresponding increase  in designated general funds                                                                    
from FY 19 to FY 20, but there was hollow authority.                                                                            
                                                                                                                                
Co-Chair   Stedman  queried   the   definition  of   "hollow                                                                    
authority."                                                                                                                     
                                                                                                                                
Mr.  Barnhill replied  that hollow  authority was  authority                                                                    
that was  given by  the budget to  collect and  expend funds                                                                    
from other sources.  In the University's case  that would be                                                                    
tuition,  donations, and  other fund  sources they  have the                                                                    
authority to collect and expend.                                                                                                
                                                                                                                                
10:01:40 AM                                                                                                                   
                                                                                                                                
Mr.  Barnhill continued  that the  green  shaded section  of                                                                    
"other"  remained   the  same.   He  wanted  to   focus  the                                                                    
discussion  on the  reduction  of $134  million  in UGF.  He                                                                    
wanted to take  the committee through the  process to arrive                                                                    
at the number.  He stated that it was  largely a comparative                                                                    
process.  They   compared  the   University  of   Alaska  to                                                                    
institutions of  higher education  across the  country. They                                                                    
relied  on  two  sources  of data,  with  hundreds  of  data                                                                    
points. He remarked that it  was available online. He stated                                                                    
that the  two data sources  were the State  Higher Education                                                                    
Executive   Officers  Association,   which  compared   state                                                                    
funding across  all the states.  The second data  source was                                                                    
the  National Center  of Education  Statistics, which  had a                                                                    
database  called "The  IPEDS  Database."  He explained  that                                                                    
they learned  that that  the state  of Alaska  contributed a                                                                    
substantially higher  percentage of funds to  the University                                                                    
of  Alaska than  most  states. The  average contribution  of                                                                    
state  funding to  state-funded universities  was just  over                                                                    
$7000  per student.  The state  of  Alaska contributed  more                                                                    
than double  that, between $16,000 and  $17,000 per student.                                                                    
There was also  a comparison of percentage  of state support                                                                    
across land grant universities.                                                                                                 
                                                                                                                                
10:07:38 AM                                                                                                                   
                                                                                                                                
Ms.  Arduin  furthered  that  the   size  of  the  reduction                                                                    
proposed by the governor  had been mischaracterized as "over                                                                    
40  percent",  when  it  was  really  about  17  percent  of                                                                    
university funding.                                                                                                             
                                                                                                                                
Senator  Hoffman recalled  mentioning  the  DGF amount,  and                                                                    
queried  the guidelines.  He wondered  whether there  was an                                                                    
examination  of the  tuition for  the  University of  Alaska                                                                    
system. He asked  for further explanation. He  felt that the                                                                    
proposal would  be balanced on  the backs of  the university                                                                    
students.                                                                                                                       
                                                                                                                                
Mr.  Barnhill  shared that  the  average  tuition at  state-                                                                    
funded universities  was $6000 in  2010; $7000 in  2016; and                                                                    
$7300 in 2019. The University  of Alaska's average was $5100                                                                    
in 2010;  $6000 in 2013;  and $6500 in 2017.  The University                                                                    
of  Alaska had  a  number of  recent  tuition increases,  at                                                                    
about  5 percent  each time.  He did  not believe  that they                                                                    
could increase much more than  5 percent. He did not suggest                                                                    
that the budget  should not be balanced on the  backs of the                                                                    
students. He remarked that tuition  increase was not part of                                                                    
the proposal.                                                                                                                   
                                                                                                                                
10:10:32 AM                                                                                                                   
                                                                                                                                
Senator  Hoffman   believed  that   the  DGF   increase  was                                                                    
primarily  dependent on  tuition and  fees. He  wondered why                                                                    
tuition and fees would increase over 50 percent.                                                                                
                                                                                                                                
Co-Chair Stedman  stressed that  there would be  more detail                                                                    
in the budget subcommittee process.                                                                                             
                                                                                                                                
Senator  Micciche wondered  whether  the administration  was                                                                    
planning to engage  in resources to determine  why the state                                                                    
was  exorbitantly  higher,  and  whether there  could  be  a                                                                    
managed glidepath to lower spending.                                                                                            
                                                                                                                                
Ms. Arduin did not understand the question.                                                                                     
                                                                                                                                
Co-Chair Stedman asked for a question restatement.                                                                              
                                                                                                                                
Senator Micciche restated his question.                                                                                         
                                                                                                                                
Ms.  Arduin  replied that  there  would  be engagement  with                                                                    
experts in the field, and noted that that occurred already.                                                                     
                                                                                                                                
Senator Micciche wondered whether  the processes were taking                                                                    
place in the large areas of spending                                                                                            
                                                                                                                                
Ms.  Arduin replied  that there  was a  proposed premium  to                                                                    
other  states,  but  believed   that  the  university  could                                                                    
deliver a cost effective higher education.                                                                                      
                                                                                                                                
10:15:07 AM                                                                                                                   
                                                                                                                                
Senator  Wilson  wondered  whether  the  administration  had                                                                    
asked  the  university  to  prioritize  their  programs  and                                                                    
services.                                                                                                                       
                                                                                                                                
Mr.  Barnhill replied  that the  administration did  not ask                                                                    
the university to provide a prioritization.                                                                                     
                                                                                                                                
Senator Wilson  felt that  the exercise  should be  asked of                                                                    
the university.                                                                                                                 
                                                                                                                                
Senator Wielechowski  felt that it  was not fair  to compare                                                                    
UA  to the  other states.  He requested  information on  how                                                                    
much  higher  the operating  costs  Alaska  had compared  to                                                                    
other states. He  surmised that it was  probably 30 percent.                                                                    
He  also   requested  the  amount  of   local  contributions                                                                    
provided in those other states  versus Alaska. He understood                                                                    
that  the  average for  other  states  was approximately  19                                                                    
percent of the state  appropriation. He remarked that Alaska                                                                    
received virtually  no local support. He  also requested the                                                                    
number  of campuses  per square  mile. He  remarked that  UA                                                                    
operated  20 times  fewer university  and  square mile  than                                                                    
other states.                                                                                                                   
                                                                                                                                
Senator Shower wondered whether  there was an examination of                                                                    
what  would  occur  if  some   of  the  expensive  satellite                                                                    
campuses were either closed or consolidated.                                                                                    
                                                                                                                                
Mr. Barnhill replied  that he was not  making the suggestion                                                                    
to  close or  consolidate satellite  campuses. He  explained                                                                    
that the data showed that  the community campuses were quite                                                                    
cost  effective, and  were not  the cost  driver. He  stated                                                                    
that UAF was  the largest cost driver. He  remarked that the                                                                    
UAF  community was  the lowest  cost structure.  He accepted                                                                    
that there was  a 30 percent cost premium, and  it was built                                                                    
into the proposal at a  40 percent premium over the national                                                                    
average.                                                                                                                        
                                                                                                                                
Senator  Shower was  only asking  what would  happen if  the                                                                    
smaller campuses were closed.                                                                                                   
                                                                                                                                
10:22:05 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:23:33 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:24:49 AM                                                                                                                   
RECESSED                                                                                                                        
                                                                                                                                
1:01:54 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
1:03:22 PM                                                                                                                    
                                                                                                                                
JIM JOHNSON, PRESIDENT, UNIVERSITY  OF ALASKA, discussed the                                                                    
presentation, "University  of Alaska FY 20  Budget Impacts."                                                                    
He  quoted a  French Army  marshal  in 1914,  "My center  is                                                                    
giving way.  My right is retreating.  Situation excellent. I                                                                    
am attacking."                                                                                                                  
                                                                                                                                
Mr.  Johnson  looked at  slide  2,  "University UGF  Funding                                                                    
History."  The  history  went  back to  1915,  when  the  US                                                                    
Congress created the Alaska  Agricultural College and School                                                                    
of  Mines. He  noted 1935  when the  Territorial Legislature                                                                    
said there  shall be  a University of  Alaska. He  noted the                                                                    
Constitutional   Convention  in   the  mid-1950s   when  the                                                                    
University of  Alaska was included  in the  Constitution. He                                                                    
suggested that  there be a  core purpose and a  core mission                                                                    
for Alaska.  He stated  that that mission  was in  place for                                                                    
over  100  years. He  remarked  that  the cumulative  impact                                                                    
number the year  prior equaled $195 million,  which was what                                                                    
would  have  been  received  from   the  state  in  UGF.  He                                                                    
explained   that,  with   the  governor's   proposed  budget                                                                    
reducing  the  UGF  to  $193  million.  He  noted  that  the                                                                    
cumulative impact on UA would be $380 million.                                                                                  
                                                                                                                                
1:05:37 PM                                                                                                                    
                                                                                                                                
Mr.  Johnson  highlighted  slide 3,  "University  of  Alaska                                                                    
Budget." He  stated that the  governor's proposal was  for a                                                                    
41  percent  cut  of  the  UGF. He  stated  that  the  other                                                                    
portions of funds were not state dollars.                                                                                       
                                                                                                                                
Senator Wilson  queried the percentage that  would be gained                                                                    
in DGF.                                                                                                                         
                                                                                                                                
Mr.  Johnson replied  that  he believed  it  was a  negative                                                                    
number. He  stated that the  ability to offer  classes would                                                                    
drive enrollment  and tuition revenue.  The ability  to hire                                                                    
research  faculty would  drive  the ability  to receive  the                                                                    
research grants and contracts.                                                                                                  
                                                                                                                                
Senator   Wilson  surmised   that  Mr.   Johnson  had   zero                                                                    
confidence in  the University's ability to  increase its DGF                                                                    
funds.                                                                                                                          
                                                                                                                                
Mr.  Johnson  replied  in the  negative.  He  believed  that                                                                    
history  will show  that when  budgets were  cut, enrollment                                                                    
follows because  of fewer faculty, fewer  courses, and fewer                                                                    
programs.                                                                                                                       
                                                                                                                                
Co-Chair  von Imhof  wondered  whether  the highest  funding                                                                    
point  in   history  the  best  reference   to  continue  to                                                                    
maintain. She  wondered whether the university  should be at                                                                    
the   2014  funding   levels.  She   wondered  whether   the                                                                    
university  should  accommodate   funding  levels  over  the                                                                    
course of several decades, which normalized over time.                                                                          
                                                                                                                                
Mr. Johnson  stated that the regents'  budget request, which                                                                    
had been  subsumed by  the governor's  budget, was  a modest                                                                    
increase  of up  to $351  million, which  did not  return to                                                                    
$378 million.                                                                                                                   
                                                                                                                                
1:10:07 PM                                                                                                                    
                                                                                                                                
Senator Wielechowski recalled that  the legislature shall by                                                                    
general  law  establish  a  system  of  public  schools.  He                                                                    
furthered that the courts  had consistently interpreted that                                                                    
to  mean  adequate  funding  and  oversight.  He  noted  the                                                                    
similar  language with  the  state  university. He  wondered                                                                    
whether there could be  constitutional violations because of                                                                    
lack of funding.                                                                                                                
                                                                                                                                
Mr.  Johnson replied  that he  had not  yet considered  that                                                                    
issue.                                                                                                                          
                                                                                                                                
Senator  Bishop  wondered what  the  proposal  would say  to                                                                    
potential grantees.                                                                                                             
                                                                                                                                
Mr.  Johnson  felt  that  it  did  not  provide  a  vote  of                                                                    
confidence.                                                                                                                     
                                                                                                                                
Senator  Wielechowski noted  an  argument  about the  higher                                                                    
spending  argument than  other states.  He wondered  whether                                                                    
that was a good argument.                                                                                                       
                                                                                                                                
Mr. Johnson  felt that it  was more  of a "pears  to apples"                                                                    
comparison.                                                                                                                     
                                                                                                                                
Senator  Bishop noted  that there  were  not extremely  rich                                                                    
people on the university's alumni association.                                                                                  
                                                                                                                                
Senator  Hoffman remarked  that  for every  dollar spent  on                                                                    
research gets six  dollars in return. He  wondered whether a                                                                    
reduction of  a dollar could  anticipate a reduction  of six                                                                    
dollars in DGF.                                                                                                                 
                                                                                                                                
Mr. Johnson could not predict  that outcome, but felt that a                                                                    
reduction in  research funding would  result in  a reduction                                                                    
in research revenue.                                                                                                            
                                                                                                                                
1:15:47 PM                                                                                                                    
                                                                                                                                
Mr. Johnson displayed slide 4, "University of Budget":                                                                          
                                                                                                                                
     ? UGF $134 million cut is real                                                                                             
     ? DGF $154 million increase is not                                                                                         
     ? In the face of declining enrollments, and                                                                                
     year-over-year increases to tuition?.                                                                                  
     ? Our ability to capture $154 million in new tuition                                                                       
     and fees is not realistic                                                                                                  
                                                                                                                                
Senator  Shower wondered  whether  there was  a  level at  a                                                                    
compromise.                                                                                                                     
                                                                                                                                
Mr.  Johnson replied  that  he was  not  here to  negotiate,                                                                    
rather he was here to advocate the Regents' budget.                                                                             
                                                                                                                                
Senator Olson wanted  to know why there  was not willingness                                                                    
to negotiate.                                                                                                                   
                                                                                                                                
Mr. Johnson  remarked that  there could  be a  discussion of                                                                    
the details in the budget,  and remarked that the university                                                                    
had survived through budget cuts.  He stressed that critical                                                                    
mass was important for quality.                                                                                                 
                                                                                                                                
1:21:40 PM                                                                                                                    
                                                                                                                                
Mr.  Johnson addressed  slide 5,  "FY20 Governor  Dunleavy's                                                                    
Budget":                                                                                                                        
                                                                                                                                
     ? $134 mill UGF Reduction - 41% (FY19 $327 to FY20                                                                       
     $193.0)                                                                                                                    
     ?    Structure:    Single    appropriation    to    two                                                                    
     appropriations                                                                                                             
          o UA System wide  reduced $154.3 million (-54%)                                                                     
          o UA Community Campuses  increased $20.4 million                                                                      
          (+49%)                                                                                                                
     ? Additional $154.3 million university receipt                                                                             
     authority without an identified revenue source                                                                             
          o BOR reduced three sources of "hollow" budget                                                                        
          authority in their FY20 budget                                                                                        
    ? Community Campus UGF appropriation $61.7 million                                                                          
          o $11,000 times 5,611 student full-time equivalent                                                                  
          (FY18)                                                                                                                
     ? Legislation proposed (SB59) to repeal debt service                                                                       
     reimbursement. Equals loss of $1.2 million annually                                                                        
     for (principle balance of $9.3 million):                                                                                   
          o University Center in Anchorage ($877.4k                                                                             
          annually)                                                                                                             
          o Joint Use Readiness Center in Juneau ($338.2k                                                                       
          annually)                                                                                                             
     ? WWAMI program support eliminated from DEED budget.                                                                       
          o WWAMI program is offered at UAA in partnership                                                                      
          with Univ of Washington School of Medicine                                                                            
                                                                                                                                
Co-Chair   Stedman   asked   for  more   information   about                                                                    
Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI).                                                                        
                                                                                                                                
Mr. Johnson  replied that the  WWAMI program  was critically                                                                    
important,  and   the  funds   were  funneled   through  the                                                                    
Department of  Education and  Early Development  (DEED), and                                                                    
were eventually funneled through tuition.                                                                                       
                                                                                                                                
1:24:12 PM                                                                                                                    
                                                                                                                                
Co-Chair  von  Imhof agreed  that  WWAMI  was a  significant                                                                    
benefit to  Alaska. She  hoped that  she would  hear through                                                                    
the subcommittee  process how  many students  were applying,                                                                    
returning  to  Alaska,  and potential  to  meet  halfway  to                                                                    
perhaps  require WWAMI  participants to  serve in  a smaller                                                                    
community. She  commended the University with  its strategic                                                                    
initiative recently.  She noted  that sometimes  the credits                                                                    
could  not move  between UA,  UAF,  and UAS.  She felt  that                                                                    
there should  be more collaboration and  cooperation between                                                                    
campuses, rather than silos.                                                                                                    
                                                                                                                                
Mr.  Johnson replied  that all  credits transferred  between                                                                    
the  universities. He  stressed that  they may  not transfer                                                                    
for a  particular degree. He  understood the issue  with the                                                                    
recent  accreditation  loss, but  noted  that  all of  those                                                                    
students  were provided  the alternative  without moving  to                                                                    
complete the graduation through UAF.  He felt that it was an                                                                    
example of campuses working together.                                                                                           
                                                                                                                                
Co-Chair Stedman wondered  why there should not  be a single                                                                    
appropriation.                                                                                                                  
                                                                                                                                
Mr.  Johnson  replied it  limited  the  Regents' ability  to                                                                    
manage the entire university system.                                                                                            
                                                                                                                                
1:30:13 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman wondered whether  the comparisons should be                                                                    
considered erroneous as related to  the main cost drivers in                                                                    
the university system.                                                                                                          
                                                                                                                                
Mr.   Johnson  stressed   that  there   should  be   a  real                                                                    
differentiation  between the  rural  community campuses  and                                                                    
the larger ones in the big city.                                                                                                
                                                                                                                                
Senator  Wielechowski felt  that  it was  important to  note                                                                    
that the  university had been  cut $195 million  five years.                                                                    
He felt  that there  should be  continued investment  in the                                                                    
university. He requested the economic  and job impact of the                                                                    
proposed cuts. He also asked  about the impacts of the young                                                                    
Alaskans staying in Alaska.                                                                                                     
                                                                                                                                
Mr. Johnson replied that 80  percent of the graduates stayed                                                                    
in Alaska. He remarked that  the largest challenge in Alaska                                                                    
education was about the people  who did not attend any post-                                                                    
secondary education in Alaska.                                                                                                  
                                                                                                                                
1:34:06 PM                                                                                                                    
                                                                                                                                
Senator  Wilson   recalled  the  number  of   programs,  and                                                                    
wondered   whether  the   university  had   prioritized  its                                                                    
programs.                                                                                                                       
                                                                                                                                
Mr. Johnson  remarked that there  were various  factors, and                                                                    
had  recently reduced  over 50  programs.  He stressed  that                                                                    
there was currently contingency plans in place.                                                                                 
                                                                                                                                
Mr.  Johnson  looked  at  slide   6,  "Magnitude  $134  Mill                                                                    
Reduction."  He remarked  that there  were  many ideas  that                                                                    
related to closing campuses.                                                                                                    
                                                                                                                                
Mr. Johnson  highlighted slide 7,  "UA Tuition  History." He                                                                    
noted that  the higher  tuition increases  in 2018  and 2019                                                                    
for  Prince William  Sound College  and Kodiak.  He remarked                                                                    
that those  two community campuses  were lower than  all the                                                                    
other community campuses,  so the Board of  Regents chose to                                                                    
set them at the same rate.  He noted that, starting in 2019,                                                                    
there was a  discount for tuition for  high workforce demand                                                                    
occupational  endorsements  such   as  welding,  across  the                                                                    
system.                                                                                                                         
                                                                                                                                
Co-Chair  Stedman  queried   the  tuition  comparisons  with                                                                    
Idaho, Montana, and Oregon.                                                                                                     
                                                                                                                                
Mr. Johnson  replied that the  tuition was high  compared to                                                                    
those states.                                                                                                                   
                                                                                                                                
Co-Chair Stedman  wanted to have  a further  conversation in                                                                    
the subcommittee.                                                                                                               
                                                                                                                                
Mr.  Johnson   replied  that  he  looked   forward  to  that                                                                    
conversation.                                                                                                                   
                                                                                                                                
1:40:32 PM                                                                                                                    
                                                                                                                                
Mr.   Johnson  addressed   slide   8,  "Employee   Headcount                                                                    
Reductions." He stated that it  was tied to the $195 million                                                                    
cumulative reduction.                                                                                                           
                                                                                                                                
Mr. Johnson  discussed slide 9, "State  Divestment Compounds                                                                    
Enrollment Challenges."                                                                                                         
                                                                                                                                
1:51:09 PM                                                                                                                    
                                                                                                                                
Co-Chair Stedman discussed the following day's schedule.                                                                        
SB  20  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
1:51:31 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 1:51 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
FY2020 Gov Amend Budget to SFC 2.19.19 Statewide JUD MVA DOR UA DOT.pdf SFIN 2/19/2019 9:00:00 AM
SB 20
2019 02 19 UA Senate Finance FY20 Budget Final2.pdf SFIN 2/19/2019 9:00:00 AM
SB 20