Legislature(2019 - 2020)SENATE FINANCE 532

02/25/2019 09:00 AM FINANCE

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Audio Topic
09:01:00 AM Start
09:04:17 AM SB20
09:04:33 AM Department of Labor and Workforce Development
09:12:55 AM Department of Administration
09:30:40 AM Department of Commerce, Community and Economic Development
09:49:40 AM Office of the Governor
10:00:20 AM Department of Revenue
10:23:14 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 20 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Heard & Held
+ Departmental Review Continued: TELECONFERENCED
- Labor & Workforce Development
- Administration
- Commerce, Community & Economic Development
- Governor
- Revenue
                 SENATE FINANCE COMMITTEE                                                                                       
                     February 25, 2019                                                                                          
                         9:01 a.m.                                                                                              
                                                                                                                                
9:01:00 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Stedman   called  the  Senate   Finance  Committee                                                                    
meeting to order at 9:01 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Natasha von Imhof, Co-Chair                                                                                             
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Mike Shower                                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Lacey  Sanders, Budget  Director, Office  of Management  and                                                                    
Budget;    Cheryl   Lowenstein,    Administrative   Services                                                                    
Director,   Department   of    Administration,   Office   of                                                                    
Management  and  Budget;   April  Wilkerson,  Administrative                                                                    
Services  Director, Department  of  Commerce, Community  and                                                                    
Economic  Development,  Office  of  Management  and  Budget;                                                                    
Shawn  Henderson, Administrative  Services Director,  Office                                                                    
of  the   Governor;  Brad  Ewing,   Administrative  Services                                                                    
Director, Department  of Revenue,  Office of  Management and                                                                    
Budget;   Mike   Barnhill,   Policy  Director,   Office   of                                                                    
Management  and Budget;  Paloma Harbour,  Director, Division                                                                    
of   Administrative  Services,   Department  of   Labor  and                                                                    
Workforce Development;  Senator Cathy Giessel;  Senator Gary                                                                    
Stevens; Senator Mia Costello.                                                                                                  
                                                                                                                                
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."                                                                                                    
                                                                                                                                
9:04:17 AM                                                                                                                    
                                                                                                                                
LACEY  SANDERS, BUDGET  DIRECTOR, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET,  discussed  the   presentation,  "State  of  Alaska;                                                                    
Office of Management and Budget;  FY 2020 Governor's Amended                                                                    
Budget;  Presentation  to   the  Senate  Finance  Committee;                                                                    
February 25,  2019; Budget Director Lacey  Sanders" (copy on                                                                    
file).                                                                                                                          
                                                                                                                                
^DEPARTMENT OF LABOR and WORKFORCE DEVELOPMENT                                                                                
                                                                                                                                
9:04:33 AM                                                                                                                    
                                                                                                                                
PALOMA   HARBOUR,  DIRECTOR,   DIVISION  OF   ADMINISTRATIVE                                                                    
SERVICES,  DEPARTMENT OF  LABOR  AND WORKFORCE  DEVELOPMENT,                                                                    
looked at slide  3, "FY2020 Budget: Department  of Labor and                                                                    
Workforce Development."                                                                                                         
                                                                                                                                
Senator Micciche queried  the detail on the shift  to DGF as                                                                    
realizable revenue.                                                                                                             
                                                                                                                                
Ms. Harbour spoke to the question in the following slide.                                                                       
                                                                                                                                
Ms. Harbour highlighted slide  4, "FY2020 Budget: Department                                                                    
of Labor and Workforce Development Snapshot ($ Thousands)":                                                                     
                                                                                                                                
     ? Discontinued Alaska Mental  Health Trust Agreement (-                                                                    
     $125.5 GF and -1 FT)                                                                                                       
     ?   Decrease  UGF   to   Offset  Technical   Vocational                                                                    
     Educational  Program  (TVEP)  funding  for  the  Alaska                                                                    
     Vocational   Technical  Center   (+/-$261.7  Net   Zero                                                                    
     Change)                                                                                                                    
     ? Statewide Support  Executive Branch 50 percent                                                                           
     Travel Reduction (-$146.7 GF)                                                                                              
                                                                                                                                
Co-Chair  von   Imhof  wondered  whether  it   was  adjusted                                                                    
annually based on expected DGF.                                                                                                 
                                                                                                                                
Ms. Harbour  replied that it  changed every  year, depending                                                                    
on the  amount believed  in the  fund based  on projections.                                                                    
She  stated  that,  in  the last  three  years,  there  were                                                                    
declines  in the  TVEP  funding for  the  recipients of  the                                                                    
funding. She furthered that there were currently increases.                                                                     
                                                                                                                                
Co-Chair von  Imhof requested  commented on  the anticipated                                                                    
increase, and how it would be extrapolated to FY 21.                                                                            
                                                                                                                                
Ms. Harbour replied that the  fund was doing well, and total                                                                    
wages had not declined as  anticipated. She stated that, for                                                                    
FY  20,  the total  increase  for  all recipients  was  $1.5                                                                    
million. She  remarked that  there was  an economist  in the                                                                    
department  that provided  future year  projections, and  it                                                                    
was expected to grow moving forward.                                                                                            
                                                                                                                                
Senator  Shower  wondered  whether  the  50  percent  travel                                                                    
reductions  was relative  to the  growth or  decline of  the                                                                    
budget.                                                                                                                         
                                                                                                                                
9:10:23 AM                                                                                                                    
                                                                                                                                
Ms. Sanders  replied that the  travel reduction  was applied                                                                    
to the FY 18 actual expenditures in the travel line.                                                                            
                                                                                                                                
Ms. Harbour  furthered that  it was  addressed in  her third                                                                    
bullet.                                                                                                                         
                                                                                                                                
Senator Olson  queried the  impact of  the second  bullet on                                                                    
TVEP.                                                                                                                           
                                                                                                                                
Ms.  Harbour  agreed  to  provide   the  list  of  the  full                                                                    
recipients.  The total  increase  was $1.5  million for  all                                                                    
recipients,  but the  amount by  recipient  depended on  the                                                                    
statutory formula.                                                                                                              
                                                                                                                                
Senator Olson wondered whether the  proposal was in increase                                                                    
or decrease.                                                                                                                    
                                                                                                                                
Ms. Harbour replied that it was an increase.                                                                                    
                                                                                                                                
                                                                                                                                
Senator Bishop stressed  that it was important  to note that                                                                    
it was paid for by the employees.                                                                                               
                                                                                                                                
^DEPARTMENT OF ADMINISTRATION                                                                                                 
                                                                                                                                
9:12:55 AM                                                                                                                    
                                                                                                                                
CHERYL   LOWENSTEIN,   ADMINISTRATIVE   SERVICES   DIRECTOR,                                                                    
DEPARTMENT  OF  ADMINISTRATION,  OFFICE  OF  MANAGEMENT  and                                                                    
BUDGET,  addressed slide  6, "FY2020  Budget: Department  of                                                                    
Administration."                                                                                                                
                                                                                                                                
Co-Chair  von Imhof  looked  at slide  7,  which showed  two                                                                    
bullet points.  She wondered whether  her question  could be                                                                    
addressed on the slide.                                                                                                         
                                                                                                                                
Co-Chair Stedman replied in the affirmative.                                                                                    
                                                                                                                                
Co-Chair  von Imhof  noted that  the  internal services  had                                                                    
increased  in  the  Department of  Administration  (DOA)  in                                                                    
consolidating  the duties  of other  agencies. She  wondered                                                                    
whether  there  was  a   corresponding  reduction  in  other                                                                    
agencies.                                                                                                                       
                                                                                                                                
9:20:07 AM                                                                                                                    
                                                                                                                                
Ms. Lowenstein  replied that between  FY 18 and FY  19 there                                                                    
was a  transfer of  140 positions.  The funding  remained in                                                                    
the agencies,  and the utilization of  the services resulted                                                                    
in charging of  the agencies. She remarked  that there could                                                                    
be a  reduction in  the charge  back once  more efficiencies                                                                    
were addressed.                                                                                                                 
                                                                                                                                
Co-Chair von Imhof  wondered whether the $26  million was an                                                                    
increased.                                                                                                                      
                                                                                                                                
Ms. Sanders  noted that there  were duplicated  fund sources                                                                    
in DOA.  She noted  that the agencies  were paying  into the                                                                    
duplicated  funds,  which  is  why   there  was  not  a  net                                                                    
reduction in the agencies.                                                                                                      
                                                                                                                                
Co-Chair von  Imhof queried the  reason for the  $26 million                                                                    
increase.                                                                                                                       
                                                                                                                                
Ms. Sanders  replied that the  amount was the  budgeted cost                                                                    
to DOA for the duplicated fund sources.                                                                                         
                                                                                                                                
Co-Chair Stedman surmised that it was a net zero.                                                                               
                                                                                                                                
Ms. Sanders  disagreed. She  explained that  the departments                                                                    
were paying DOA for their services.                                                                                             
                                                                                                                                
Senator  Micciche noted  the increase.  He remarked  that he                                                                    
was the  subcommittee chair  for DOA,  and wanted  detail on                                                                    
the interagency interplay specific to that shift.                                                                               
                                                                                                                                
Senator  Shower requested  a list  of consolidated  services                                                                    
into  DOA.   He  queried  the  number   of  vacant  budgeted                                                                    
positions statewide,  and how it  compared to  the necessary                                                                    
vacancy rate.                                                                                                                   
                                                                                                                                
Senator  Hoffman wondered  whether  the  positions were  not                                                                    
physically moving to a facility in DOA.                                                                                         
                                                                                                                                
Ms. Lowenstein replied in the affirmative.                                                                                      
                                                                                                                                
Senator Hoffman  queried the  circumstance that  would cause                                                                    
that not to occur.                                                                                                              
                                                                                                                                
Ms. Lowenstein replied that it  would occur, should there be                                                                    
a  service  that  only  one person  could  provide  to  that                                                                    
agency.                                                                                                                         
                                                                                                                                
Co-Chair Stedman asked for more  detail about that question,                                                                    
and  requested  that it  be  submitted  to the  subcommittee                                                                    
chair.                                                                                                                          
                                                                                                                                
9:25:01 AM                                                                                                                    
                                                                                                                                
Senator  Hoffman   wondered  whether   there  would   be  an                                                                    
expectation that the position stay in the same community.                                                                       
                                                                                                                                
Ms. Lowenstein  replied that there were  some positions that                                                                    
were transferred and unable to fill.                                                                                            
                                                                                                                                
Senator Olson  noted that  there was  no money  for managing                                                                    
the assets in public broadcasting.                                                                                              
                                                                                                                                
Co-Chair  Stedman asked  that slide  7  be addressed  before                                                                    
answering Senator Olson's question.                                                                                             
                                                                                                                                
Ms.   Lowenstein  highlighted   slide  7,   "FY2020  Budget:                                                                    
Department of Administration Snapshot ($ Thousands)":                                                                           
                                                                                                                                
     ? Withdraw State Grant for the Alaska Public                                                                               
     Broadcasting (-$3,496.1 GF)                                                                                                
     ? Statewide Support  Executive Branch 50 percent                                                                           
     Travel Reduction (-$459.1 GF)                                                                                              
                                                                                                                                
Senator Olson  noted that  there was  no money  for managing                                                                    
the assets in public broadcasting.                                                                                              
                                                                                                                                
Ms.  Lowenstein  agreed, and  replied  that  no funding  was                                                                    
available for grants to the stations.                                                                                           
                                                                                                                                
Co-Chair von  Imhof recalled a  discussion about  adding $23                                                                    
million, and wondered who would see the savings.                                                                                
                                                                                                                                
Ms. Lowenstein  replied that  it was  savings to  the Health                                                                    
Trust, so it would reduce the health care costs.                                                                                
                                                                                                                                
Senator  Shower queried  the number  of budgeted  but vacant                                                                    
positions.                                                                                                                      
                                                                                                                                
Ms. Sanders agreed to provide that information.                                                                                 
                                                                                                                                
Co-Chair von  Imhof wondered whether  the financials  of the                                                                    
Health Care trust public.                                                                                                       
                                                                                                                                
Co-Chair Stedman and if not, why not.                                                                                           
                                                                                                                                
Ms. Lowenstein  replied that  the financials  were published                                                                    
in  the  comprehensive  annual  financial  report  from  the                                                                    
Division  of   Finance,  so  she  agreed   to  provide  that                                                                    
information.                                                                                                                    
                                                                                                                                
^DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT                                                                   
                                                                                                                                
9:30:40 AM                                                                                                                    
                                                                                                                                
APRIL    WILKERSON,   ADMINISTRATIVE    SERVICES   DIRECTOR,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
OFFICE OF MANAGEMENT and BUDGET,  looked at slide 9, "FY2020                                                                    
Budget:  Department  of  Commerce,  Community  and  Economic                                                                    
Development."                                                                                                                   
                                                                                                                                
Ms. Wilkerson highlighted slide  10, "FY 2020: Department of                                                                    
Commerce,  Community and  Economic  Development Snapshot  ($                                                                    
Thousands)":                                                                                                                    
                                                                                                                                
     ? Reorganize and Consolidate the Division of Economic                                                                      
     Development (-$243.4 GF and -2 PFT)                                                                                        
     ? Realign Local Government Support and Services                                                                            
     (-$1,000.0 GF)                                                                                                             
     ?   Withdraw   Subsidy   to   Alaska   Legal   Services                                                                    
     Corporation (-$450.0 GF)                                                                                                   
     ? Power Cost Equalization (PCE) Program Fund Source                                                                        
     Change (+/-$32,355 Net Zero Change)                                                                                        
     ? Statewide Support  Executive Branch 50 percent                                                                           
     Travel Reduction (-$354.2 GF)                                                                                              
                                                                                                                                
Senator  Wilson   noted  that  the  governor's   budget  had                                                                    
increases  in  focusing  on  crime  and  reducing  rates  of                                                                    
domestic violence.  He remarked that most  domestic violence                                                                    
victims were often  fought in the civil  process. He queried                                                                    
the  reason  for  the reduction  in  Alaska  Legal  Services                                                                    
Corporation to assist those victims.                                                                                            
                                                                                                                                
Ms.  Sanders replied  that it  was a  named recipient  grant                                                                    
that  was  not  statutorily  required,  and  was  identified                                                                    
outside  of the  core services  for Department  of Commerce,                                                                    
Community and Economic Development (DCCED).                                                                                     
                                                                                                                                
9:35:46 AM                                                                                                                    
                                                                                                                                
Senator Wilson asked  whether the money be  better placed in                                                                    
the Department of Public Safety (DPS).                                                                                          
                                                                                                                                
Ms.  Sanders  replied  that  it  was  placed  within  DCCED,                                                                    
because  the   department  had  authority  to   issue  named                                                                    
recipient grants.                                                                                                               
                                                                                                                                
Senator  Shower felt  that  Senator  Wilson's concerns  were                                                                    
placed in the crime bills.                                                                                                      
                                                                                                                                
Ms.  Sanders   replied  that  she  was   not  familiar  with                                                                    
inclusion, but agreed to provide more information.                                                                              
                                                                                                                                
Senator Hoffman remarked that DOA  wanted to protect savings                                                                    
accounts,  and stressed  that  the  Power Cost  Equalization                                                                    
(PCE) fund  was a savings  account that did not  follow that                                                                    
philosophy. He  wondered whether the intent  was to transfer                                                                    
the amount in the fund to GF.                                                                                                   
                                                                                                                                
Ms.  Sanders replied  that  the  proposed legislation  would                                                                    
eliminate the PCE fund, and return  the funds to GF. The PCE                                                                    
program would continue with general funds.                                                                                      
                                                                                                                                
Senator Hoffman  felt that  there were  inconsistencies with                                                                    
how  the savings  accounts were  being  protected, and  went                                                                    
against  what the  administration had  asserted. He  felt it                                                                    
was a  major mistake to  not protect the  particular savings                                                                    
account.                                                                                                                        
                                                                                                                                
Co-Chair  Stedman  requested  more information  on  the  PCE                                                                    
endowment fund.                                                                                                                 
                                                                                                                                
Ms.  Sanders  recalled  that   the  legislature  had  passed                                                                    
legislation  that allowed  for  the excess  earnings of  the                                                                    
funds  to  be utilized  for  specific  programs. The  excess                                                                    
earnings were  only utilized after  the initial  program was                                                                    
funded. The governor's amended budget  had funds for PCE had                                                                    
been replaced with general funds.                                                                                               
                                                                                                                                
9:40:32 AM                                                                                                                    
                                                                                                                                
Co-Chair  von Imhof  expressed  concerns  about rolling  the                                                                    
funds into  the GF. She  stated that the original  spirit of                                                                    
PCE was to help rural  Alaska address high energy costs. She                                                                    
noted that there  were other agencies that  could help rural                                                                    
Alaska with  their energy costs,  and the PCE  provided that                                                                    
assistance.                                                                                                                     
                                                                                                                                
Senator Micciche  queried discussions about  eliminating the                                                                    
DCCED  and absorb  their costs  into other  departments, and                                                                    
the reasons why or why not.                                                                                                     
                                                                                                                                
Ms. Sanders  replied that there  were conversations  for all                                                                    
agencies  in  reviewing  core  services  and  programs.  She                                                                    
stated  that DCCED's  budget was  not being  proposed to  be                                                                    
consolidated within another agency.                                                                                             
                                                                                                                                
Senator Bishop remarked that PCE  was a working program, and                                                                    
felt that the earnings were  more as an endowment than would                                                                    
be earned in the general fund.                                                                                                  
                                                                                                                                
Senator  Olson  remarked that  PCE  was  not designed  as  a                                                                    
subsidy for  rural Alaska,  rather it  was designed  for all                                                                    
residents  of   Alaska.  He  wondered  whether   there  were                                                                    
complicated   fund  shifts   in  the   community  assistance                                                                    
program, with  the addition of  the alcohol tax.  He queried                                                                    
the ultimate outcome of those shifts.                                                                                           
                                                                                                                                
Ms. Sanders replied  that along with the  PCE, the community                                                                    
assistance fund was also proposed to be eliminated.                                                                             
                                                                                                                                
9:45:35 AM                                                                                                                    
                                                                                                                                
Senator   Olson   wondered   what  the   communities   could                                                                    
anticipate in the following year.                                                                                               
                                                                                                                                
Ms.  Sanders   replied  that  there   would  be   an  annual                                                                    
appropriation of $30 million in the operating budget.                                                                           
                                                                                                                                
Co-Chair Stedman  wondered whether that appropriation  was a                                                                    
commitment.                                                                                                                     
                                                                                                                                
Ms. Sanders  replied that there  was $30 million  that would                                                                    
flow out directly  in FY 20. She stated that  there would be                                                                    
future proposals with general funds.                                                                                            
                                                                                                                                
Senator  Hoffman asserted  that after  community assistance,                                                                    
the funds  would go toward  rural energy. He  explained that                                                                    
there was a law that gave  the funds to the renewable energy                                                                    
to program  to encourage  people to  apply to  get renewable                                                                    
energy to put less pressure on the PCE.                                                                                         
                                                                                                                                
Co-Chair Stedman noted  that that it was  difficult to level                                                                    
the energy costs throughout the state.                                                                                          
                                                                                                                                
^OFFICE OF THE GOVERNOR                                                                                                       
                                                                                                                                
9:49:40 AM                                                                                                                    
                                                                                                                                
SHAWN  HENDERSON, ADMINISTRATIVE  SERVICES DIRECTOR,  OFFICE                                                                    
OF THE GOVERNOR, looked at  slide 12, "FY2020 Budget: Office                                                                    
of the Governor."                                                                                                               
                                                                                                                                
Mr. Henderson addressed slide 13,  "FY2020 Budget: Office of                                                                    
the Governor Snapshot ($ Thousands)":                                                                                           
                                                                                                                                
     ? Reduce Contingency fund (-$300.0 GF)                                                                                     
     ?   Consolidate   Administrative   Services   Directors                                                                    
     (+2,706.3 I/A and +13 PFTs)                                                                                                
     ? Statewide Support  Executive Branch 50 percent                                                                           
     Travel                                                                                                                     
     Reduction (-$618.7 GF)                                                                                                     
                                                                                                                                
Senator Olson wondered how many  of the added positions were                                                                    
partially exempt or exempted positions.                                                                                         
                                                                                                                                
Mr. Henderson agreed to provide that information.                                                                               
                                                                                                                                
Co-Chair von Imhof  wondered whether it was a  net zero with                                                                    
the adjustment of positions.                                                                                                    
                                                                                                                                
Ms. Sanders replied in the affirmative.                                                                                         
                                                                                                                                
Senator Hoffman  wondered how  much would  be left  with the                                                                    
reduction of $300,000 in the fund for the last two years.                                                                       
                                                                                                                                
9:55:06 AM                                                                                                                    
                                                                                                                                
Mr.  Henderson replied  that the  contingency fund  would be                                                                    
reduced  by $300,000,  which left  the balance  at $250,000.                                                                    
The only funding used out of  that account in the year prior                                                                    
were transition related costs.                                                                                                  
                                                                                                                                
Senator  Micciche   wanted  to   understand  the   shift  in                                                                    
responsibilities  showing   an  approximately   $30  million                                                                    
increase.                                                                                                                       
                                                                                                                                
Ms. Sanders responded  that the $3 million  was reflected in                                                                    
the green  bar, but  was not familiar  with the  $30 million                                                                    
change.                                                                                                                         
                                                                                                                                
Senator Micciche explained that there was a jump in DOA.                                                                        
                                                                                                                                
Ms. Sanders  remarked that it  showed in the green  bar, but                                                                    
was significantly less.                                                                                                         
                                                                                                                                
^DEPARTMENT OF REVENUE                                                                                                        
                                                                                                                                
10:00:20 AM                                                                                                                   
                                                                                                                                
BRAD EWING, ADMINISTRATIVE  SERVICES DIRECTOR, DEPARTMENT OF                                                                    
REVENUE, OFFICE  OF MANAGEMENT and  BUDGET, looked  at slide                                                                    
15, "FY2020: Department of Revenue."                                                                                            
                                                                                                                                
Co-Chair  von  Imhof noted  the  blue  bar large  jump.  She                                                                    
stated that  "cash is  king" in the  world of  finances. She                                                                    
heard the  statement about bonuses and  compensation for the                                                                    
Department of Revenue (DOR) was paid in net fees.                                                                               
                                                                                                                                
Mr. Ewing  stated that, in  the Permanent  Fund Corporation,                                                                    
60 percent  of the  investments were externally  managed and                                                                    
40  percent   were  internally  managed.  There   were  fees                                                                    
associated with the externally managed funds.                                                                                   
                                                                                                                                
Ms. Sanders requested a "lifeline."                                                                                             
                                                                                                                                
10:07:12 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:07:35 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:07:52 AM                                                                                                                   
                                                                                                                                
Mr. Ewing  highlighted slide 16, "FY2020  Budget: Department                                                                    
of Revenue Snapshot ($ Thousands)":                                                                                             
                                                                                                                                
     ? Align Management Fees with Actuals:                                                                                      
     ? Alaska Permanent Fund Corporation (+$269,501.3                                                                           
     Other)                                                                                                                     
     ? Alaska Retirement Management Board (+$60,000.0                                                                           
     Other)                                                                                                                     
     ? Treasury Division (+$117.2 GF and +$70.4 Other)                                                                          
     ? Deregulate Small Charitable Gaming (-$212.2 Other                                                                        
     and -2 PFT)                                                                                                                
     ? Statewide Support  Executive Branch 50 percent                                                                           
     Travel Reduction (-$53.3 GF)                                                                                               
                                                                                                                                
10:09:15 AM                                                                                                                   
                                                                                                                                
MIKE  BARNHILL, POLICY  DIRECTOR, OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET, shared that there had  been various practices in the                                                                    
different contexts  for illiquid investment  management fees                                                                    
be paid  directly from the  cash flow of  those investments.                                                                    
For  all other  liquid investments,  the fees  were paid  by                                                                    
check or wire from either  the Permanent Fund Corporation or                                                                    
the  Department  of  Revenue. He  explained  that  only  the                                                                    
latter category  for which an appropriation  had been sought                                                                    
historically.  The investment  management of  illiquid funds                                                                    
was not free, and was  substantially more expensive than the                                                                    
active investment management  of domestic, international and                                                                    
fixed income securities.                                                                                                        
                                                                                                                                
Co-Chair  von   Imhof  noted  that  the   $328  million  was                                                                    
increased from  FY 19 to FY  20 in the management  fees. She                                                                    
wondered whether it was an  additional cash outflow from the                                                                    
DOR to illiquid investment managers.                                                                                            
                                                                                                                                
Mr. Barnhill replied  that DOR had switched  the billing, so                                                                    
it was  almost all  paid from cash  flow. He  furthered that                                                                    
there  should be  a focus  on the  total cost  of investment                                                                    
management for the funds.                                                                                                       
                                                                                                                                
Senator  Micciche  wondered  where   the  cash  outflow  was                                                                    
previously located,  and why it  was an increase in  DOR for                                                                    
$330 million.                                                                                                                   
                                                                                                                                
Mr.  Barnhill  replied  that,  in   the  past  for  illiquid                                                                    
investments, the  investment management fees were  paid from                                                                    
the cash flow of the investment.                                                                                                
                                                                                                                                
Co-Chair  Stedman  surmised  that  it was  paid  without  an                                                                    
appropriation.                                                                                                                  
                                                                                                                                
Mr. Barnhill agreed.                                                                                                            
                                                                                                                                
Co-Chair  Stedman stated  that  it was  usually  off of  the                                                                    
balance sheet.                                                                                                                  
                                                                                                                                
Mr. Barnhill  replied that  there were  different treatments                                                                    
about the reporting of investment management fees.                                                                              
                                                                                                                                
Senator   Hoffman  wondered   whether   there  was   similar                                                                    
legislation to charitable gaming on the House side.                                                                             
                                                                                                                                
Mr.  Barnhill  replied that  he  was  not aware  of  similar                                                                    
legislation currently in the House.                                                                                             
                                                                                                                                
Senator Hoffman asked  for the reason there  was not similar                                                                    
legislation.                                                                                                                    
                                                                                                                                
Mr. Barnhill agreed to provide further information.                                                                             
                                                                                                                                
10:15:14 AM                                                                                                                   
                                                                                                                                
Senator  Micciche  wondered  why  it  mattered  that  it  be                                                                    
reported as  a gross rather than  net when there was  not an                                                                    
increase or decrease in the investment fees.                                                                                    
                                                                                                                                
Mr.  Barnhill  replied  that transparency  with  respect  to                                                                    
investment management  fees was something that  was a focus.                                                                    
He  remarked that  the more  investment fees  one had  would                                                                    
impact the returns.                                                                                                             
                                                                                                                                
Co-Chair Stedman  recalled that  the committee  had examined                                                                    
for years about  whether it was net or gross  of fees in the                                                                    
presentation and performance.                                                                                                   
                                                                                                                                
Senator  Micciche  requested  a   list  of  the  liquid  and                                                                    
illiquid categories.                                                                                                            
                                                                                                                                
Mr. Barnhill replied that the  investment management fees in                                                                    
the Permanent  Fund liquid investment  with the  expenses of                                                                    
the corporation totaled just over $151 million.                                                                                 
                                                                                                                                
10:17:21 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:17:36 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:17:38 AM                                                                                                                   
                                                                                                                                
Mr. Barnhill  restated that  the management  fees associated                                                                    
with the  liquid investments paid  for by  appropriation was                                                                    
just  under  $119  million.  He  that  the  management  fees                                                                    
associated  with  the  illiquid   investments  paid  for  by                                                                    
appropriation  was   $276.4  million.   The  fees   for  the                                                                    
corporate expenses were just under $24 million.                                                                                 
                                                                                                                                
Senator Hoffman  wondered whether there was  a difference in                                                                    
the  funds that  were contracted,  and the  funds that  were                                                                    
invested internally.                                                                                                            
                                                                                                                                
Mr. Barnhill agreed to provide that information.                                                                                
                                                                                                                                
Senator  Wielechowski  queried  the plan  for  the  dividend                                                                    
payout.                                                                                                                         
                                                                                                                                
Mr.  Barnhill  replied  that the  position  of  the  current                                                                    
administration was that the dividend  be paid outside of the                                                                    
operating budget, so there was separate legislation.                                                                            
                                                                                                                                
Senator  Shower surmised  that it  was the  most transparent                                                                    
way to see  the spending by the  administration. He wondered                                                                    
whether there were other places to show actual spending.                                                                        
                                                                                                                                
Mr. Barnhill  replied that there  were a variety of  ways to                                                                    
show transparency in management fees.                                                                                           
                                                                                                                                
Senator Wielechowski wondered whether there was a separate                                                                      
appropriation for the dividend or whether there would be an                                                                     
automatic transfer.                                                                                                             
                                                                                                                                
Mr. Barnhill replied that there would not be an automatic                                                                       
transfer, and there would be a separate bill for an                                                                             
appropriation for the dividend.                                                                                                 
                                                                                                                                
SB 20 was HEARD and HELD in committee for further                                                                               
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
10:23:14 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:23 a.m.                                                                                         
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
FY2020 Gov Amend Budget to SFC 2.25.19 DLWD DOA DCCED GOV DOR.pdf SFIN 2/25/2019 9:00:00 AM
SB 20
022519 FY2020 TVEP Distribution.pdf SFIN 2/25/2019 9:00:00 AM
SB 20
2.25.19 OMB Response.pdf SFIN 2/25/2019 9:00:00 AM
SB 20
FY19 Budgeted Vacant PCNs as of 1-15-2019.pdf SFIN 2/25/2019 9:00:00 AM
SB 20
FY19 Mgt Plan to FY20 Gov Amend Federal Funds Comparison.pdf SFIN 2/25/2019 9:00:00 AM
SB 20