Legislature(2015 - 2016)SENATE FINANCE 532
02/03/2016 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: New Sustainable Alaska Plan | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
February 3, 2016
9:05 a.m.
9:05:01 AM
CALL TO ORDER
Co-Chair Kelly called the Senate Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor; Randall Hoffbeck, Commissioner,
Department of Revenue.
SUMMARY
PRESENTATION: NEW SUSTAINABLE ALASKA PLAN
^PRESENTATION: NEW SUSTAINABLE ALASKA PLAN
9:05:38 AM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, continued to discuss the PowerPoint
from the previous day, "New Sustainable Alaska Plan:
Pulling Together to Build Our Future" (copy on file). She
noted that she would introduce and discuss one slide and
then discuss a packet of materials entitled "FY 2017 10-
Year Plan."
Ms. Pitney displayed slide 13, "Multi-Year Budget
Components":
By FY19:
· Unrestricted general fund spending -target $4.7B
· Continued operating reductions
· Limit oil and gas tax credits to $100M
· Strategically utilize debt
o general obligation bonds -$250M annual capital
budget
o finance existing pension payments
o finance gas line construction (FEED -interest
payments)
· Utilize DGF and federal funds to preserve services
· Maintain SBR/CBR balance -use earnings as regular
revenue source
Constrained spending FY20-FY25 -FY26 gasline revenue
Ms. Pitney noted that the New Sustainable Alaska Plan
(NSAP) would be a multi-year process and would take three
years (FY 17, FY 18, FY 19) before the budget was balanced.
She specified that the unrestricted general fund (UGF)
spending target took into account downward cost reductions
as well as investments (such as the AKLNG project). She
thought the proposed annual capital budget was quite
constrained, considering the transportation and sewer
matching funds, as well as deferred maintenance.
Ms. Pitney continued to discuss slide 13. She related that
a major motivation in bringing in new revenue sources was
to maintain the state's savings balance, whether in the
State Budget Reserve (SBR) or the Constitutional Budget
Reserve (CBR). She noted that the savings balance gave the
state a steady revenue stream of between $100 million and
$150 million annually. She thought the majority of the plan
focused on 2017 through 2019.
9:09:34 AM
Vice-Chair Micciche discussed variables inherent in the
planning process and wondered if the administration had
alternate plans in case variables such as an income tax or
oil tax credits were different than anticipated.
Ms. Pitney relayed that the administration had various
models that depicted what the savings difference would be
if variables such as taxes were changed. She did not have
figures available to reflect alternate scenarios, but
reiterated that the administration had looked at the impact
of various outcomes. She agreed to discuss ramifications of
changing different components of the plan as she continued
her presentation to the committee.
Vice-Chair Micciche discussed the probability of success
for the various components of the plan, and thought some
pieces had a better chance than others. He asked if the
administration had considered an outcome based on the
contingency that certain items would not pass the
legislature.
RANDALL HOFFBECK, COMMISSIONER, DEPARTMENT OF REVENUE,
stated that the model included base assumptions of oil
price recovery that were reflected in the proposed annual
draw of $3.3 billion. He discussed hypothetical shortages
through reductions or new revenues, and stated that the
administration was putting together a matrix for the House
Finance Committee to illustrate the impact of shortages. He
offered to share the matrix with the committee and thought
it would illustrate a different scenario.
9:13:21 AM
Senator Hoffman introduced seventh and eighth grade
students from his legislative district that were in Juneau
participating in the Alaska Close-Up Program. The students
were from New Stuyahok, Koliganek, and Twin hills (the
sockeye salmon capital of the world located in Bristol
Bay). The committee welcomed the students with applause.
Co-Chair MacKinnon asked Senator Dunleavy to give the
students a high-level overview regarding the topic of
discussion before the committee.
Senator Dunleavy discussed the function of the Senate
Finance Committee, and outlined the topic of the
presentation. He informed the students they would be
hearing about taxes and new sources of revenue. He
highlighted the services that were paid for with state
funds.
9:15:38 AM
Senator Dunleavy asked how the administration had arrived
at the estimation of how much government should be reduced,
and asked about the nature of the discussions.
Ms. Pitney stated that planning was done on a program basis
with each of the state agencies. The plan had built in
continuation of efficiencies, as well as two reform efforts
known to be taking place. She discussed the balance of
reductions in combination with offsetting increases (such
as the gasline and the rural engagement program). She
specified that the administration had asked agencies to
look within various programs to determine what items could
be privatized in order to preserve the service while
reducing expenditures. She furthered that there were
reports, requests for interest, and feasibility studies
being done.
Senator Dunleavy asked about Ms. Pitney's reference to the
rural engagement program. Ms. Pitney explained that the
program was within the Department of Military and Veterans
Affairs, and would begin to strengthen National Guard
presence in rural Alaska. The program was one of three
proposed increases including gasline development [for the
AKLNG project] within the Department of Revenue (DOR) and
Department of Law in the amount of approximately $38
million.
Senator Dunleavy asked if the administration thought the
proposed increases were a necessity for government. Ms.
Pitney clarified that the gasline increase was $38 million,
and the rural engagement program request was $1 million.
She considered that having a ready and trained volunteer
workforce for emergencies would be a cost savings in the
future. She discussed a third priority of strengthening the
state's in-house finance capacity. She noted that the state
currently spent a great deal of money to have Wall Street
manage its assets, much of which could be managed in-house
at a lower cost.
9:20:33 AM
Co-Chair MacKinnon noted that she chaired the budget
subcommittee for DOR and pointed out that there had been
trouble filling the positions of professional money
managers. She wondered why funds were being requested to
expand personnel when there were still vacancies from the
previous year that had been unable to be filled.
Commissioner Hoffbeck acknowledged the difficulty in
filling the positions, and expanded that the state would
get a 3 to 1 or better revenue increase for dollars spent
on in-house investing. He characterized the change as an
opportunity cost, and clarified that the funds would only
be spent in the eventuality that someone was hired.
Co-Chair MacKinnon referred to maintaining the balance in
the state savings accounts, and referred to a Standard and
Poor report that indicated the proposed $3.3 billion draw
would require a savings capacity of approximately $100
billion. She wondered if there was a plan in place to
ensure that there was $100 billion was in savings.
Commissioner Hoffbeck stated that currently the funds were
not of a size where savings would fund everything. He
stated that the plan was to supplement with other revenues
in order to get to a balanced budget. He did not think the
permanent fund would be large enough in the foreseeable
future to totally support government; rather, it would
always require a combination of earnings plus other
revenues to fully fund the budget.
9:24:29 AM
Co-Chair MacKinnon asserted that Alaskans were concerned
about maintaining the permanent fund dividend (PFD). She
wondered why, instead of taking the proposed draw and
capping the PFD, would the proposal not shrink government
and form a long-term plan towards growing savings.
Commissioner Hoffbeck relayed that the issue had been
discussed, and stated that there were not sufficient funds
to drive all monies towards savings and then draw out
funds. He reminded the committee that once funds were in
savings it was only possible to take out the sustainable
draw, rather than the full use of the funds. He proposed
that cutting the $1 billion in shortfall would be very
difficult, and so the governor had proposed a balance of
some new revenues and some cuts. He stated that ultimately
the plan had a toggle switch in the case that the state was
at a point where it did not need funds flowing in to the
earnings reserve account (ERA) to fund government, the
funds would start going in to the corpus.
9:27:23 AM
Co-Chair MacKinnon recounted that the Senate had proposed
an additional $250 million in cuts to the operating budget
the previous year. She noted that some proposed cuts had
been contentious.
Co-Chair MacKinnon asked about pension obligation bonds,
which had not been received well by the legislature thus
far. It had been indicated in a report by Standard and Poor
(and subsequent media coverage) that the consideration of
bonds was one of the factors which had negatively
influenced the state's credit rating. She was interested in
how the administration would be continuing forward, as she
understood that the rating agencies were watching media
coverage and finance committee activities. She thought that
the legislature, as well as she personally, had
communicated that pension obligation bonds would not be
recommended. She wondered if the discussion would continue
or if the legislature and administration could concur that
bonds were not favorable at the current time and ongoing
conversations on the topic could result in negative
ramifications with the state credit rating.
Commissioner Hoffbeck stated that the state had made it
clear to the bond rating agencies that no action would be
taken without the support of the legislature. He agreed
that the matter needed to be resolved expeditiously so as
to send a clear message to the bond rating agencies.
Co-Chair MacKinnon expressed appreciation for the
challenges faced by the Director of the Office of
Management and Budget (OMB).
Co-Chair MacKinnon commented on preserving services and
taking federal funds as listed on slide 13. She understood
the need for preserving services, but was concerned about
additional costs to utilizing federal funds. She admired
the approach taken on reduction of the work force; by
taking reductions through retirement, vacancies, or
attrition. She expressed that the committee was looking for
long term reductions in perpetuity in the budget rather
than one-time increments.
9:31:49 AM
Senator Hoffman referred to a constitutional change being
considered by the administration; and wondered if there
were others being contemplated, such as changes to the
parameters for accessing the CBR.
Ms. Pitney looked back to slide 13, and clarified that
there was only one constitutional amendment pertaining to
the gasline being contemplated by the administration.
Senator Hoffman suggested that was there great concern
pertaining to reduction of the PFD, and thought that an
advisory vote or constitutional amendment had been
discussed. He referred to slide 5, "Message Received," in
which reference was made to preserving a dividend program.
He wondered if the administration had discussed
constitutional protection of the PFD.
Commissioner Hoffbeck stated that the department had not
looked at a constitutional provision to protect the PFD
program. He thought that future actions would be largely
determined on decisions that were made on the methodology
calculating the dividend for the future.
Senator Hoffman commented that using the phrase "preserve
the dividend program" gave a false impression if the
dividend program was being reduced and not in fact
protected. He understood the magnitude of the program, and
agreed that additional drastic cuts were needed. He added
that it would be possible to add programs back if cuts were
too deep, but if the fiscal gap was not closed there would
be few options.
9:36:03 AM
AT EASE
9:41:38 AM
RECONVENED
Senator Dunleavy discussed a conversation he had while the
committee was at ease. He mentioned the Northern Tobacco
Securitization Company and referred to the budget cuts in
the amount of approximately $800 million during the
previous legislative session. He discussed the effects on
the general public and suggested that there were no
discernable negative effects that he had observed. He
wondered how the administration had determined the state's
tolerance for cuts. He thought it was possible to make
further cuts. He found it difficult to support taxes at
this time. He thought more efficiencies could be found
before asking the public to pay taxes.
Ms. Pitney asked the question, "What kind of state do we
want to live in?" and thought draconian cuts could have
been made, and then caused tremendous economic recession.
She thought there were many options, and acknowledged that
dialogue and ongoing scrutiny of the budget were important
parts of the process.
Senator Bishop responded to Senator Dunleavy's comments and
related that there were people he knew that were business
owners and were considering laying off upwards of 150
construction workers per contractor.
Co-Chair MacKinnon pointed out that Alaska's unemployment
rate was almost 1.1 percent higher than the national
average. She noted that investments in the capital budget
since 2008 had helped mitigate the effects of the national
recession, yet currently the state was facing additional
challenges.
9:46:28 AM
Vice-Chair Micciche referred to the governor's proposed
Permanent Fund Protection Act (PFPA) and reminded the
public that the SBR was gone, the CBR would be gone by FY
18 if conditions did not improve, and the ERA would be gone
soon after. He thought the PFPA was appropriately titled,
but echoed Senator Hoffman's comments and questioned using
the word "preserve" in reference to the PFD program. He
emphasized Alaskans needed to understand that without
action, the PFD would no longer exist. He thought it was
unrealistic to discuss cuts that would reduce the budget to
meet current revenue levels. He thought there was
substantial room for cuts, but thought a paradigm shift was
needed and other means had to be considered to solve the
fiscal problem.
Senator Olson referred to the comments by Senator Dunleavy
and related that his constituents had felt significant
effects from recent budget cuts. He mentioned cuts to the
Department of Public Safety, and communities that were
dependent upon a village public safety officer (VPSO). He
discussed cuts to the Department of Corrections. He
discussed children that would be affected and cuts to the
Head Start program. He relayed concerns regarding a 5
percent cut to Behavior Health in the Department of Health
and Social Services. He spoke to the increased rate of
suicide in the state and thought the cuts would have a
direct negative impact.
Senator Bishop commented that there was two types of
spending: one that provided services, and "good" spending
that created wealth.
9:50:45 AM
Co-Chair MacKinnon addressed the reduction to behavioral
health services, and asked Ms. Pitney to discuss an
increase to spending and cost shift that would result in
additional services through Medicaid expansion. She
mentioned a grant that would be helping schools with
suicide prevention. She discussed her work on the Suicide
Prevention Council, and referenced using the grant funds to
do larger programs with school districts in the state.
Ms. Pitney shared that behavioral health grants to
particular non-profits were exchanged for coverage for
individuals who would use behavioral health centers. She
noted that there would be a significant business change as
the centers shifted from direct state grants to getting
Medicaid funding attached to individuals. She thought that
over time there would be changes to the delivery system.
She continued that with Medicaid expansion, there was a
population that could access behavioral health that could
not in the past.
Co-Chair MacKinnon expressed appreciation for the candid
conversation and varying perspectives offered by the
committee members. She thought it was important for
Alaskans to be aware that everyone was working toward
resolution.
9:54:02 AM
Ms. Pitney discussed the document "FY 2017 10-Year Plan,"
(copy on file). She referred to page 2, and addressed Table
1, "FY2017 Expenditure Summary and Fiscal Plan Direction,"
which she stated would provide direction to the
administration's expectations for UGF spending. She
discussed the three categories of UGF operating budget
spending: education; 'health, safety, and justice'; and
'transportation and other agencies'. She pointed out the
column listing the FY 17 budget request; and columns
displaying the percentage and monetary change between FY 16
to 17, and FY 15 to FY 17. Additionally, there was a column
listing planned total change in funding by FY 19. She noted
that the spending plan for education included no increase
or decrease after the FY 17 budget, with the intent to
preserve education. The other two categories would see
continued reductions. She pointed out a 27 percent
reduction to date in the 'transportation and other
agencies' category, for a total of almost $200 million in
savings; as well as continued reductions to follow. She
detailed that the reductions would be made through changes
in services, changes in funding sources, and efficiencies.
9:58:06 AM
Ms. Pitney continued to discuss Table 1, pointing out the
subcategory of "Other Expenses and Investments" which
included oil and gas tax credits. She conveyed that the
administration wanted to bring the oil and gas tax credits
spending to a steady $100 million. She noted that the
current year's budget included $73 million with transition
funds for reform. She addressed debt and retirement, which
included financing pension obligations and a constrained
general obligation bond approach that would fund a capital
program of approximately $250 million per year.
Additionally, the same funding category would also finance
the gasline. She discussed community revenue sharing, which
would be restored to $50 million in FY 17 and then to $60
million by FY 19. She characterized the administration's
plan as a very flat revenue plan, with inflation-only
growth and very constrained government spending. She noted
that the plan would push all previously state-funded
development costs back to communities, while preserving
community revenue sharing. She pointed out a significant
change in funding to communities.
Ms. Pitney continued discussing fund capitalization and
transfers, noting that there was a small category of
renewable energy funding. She pointed out a small capital
expenditure of $195 million (including justice reform),
$190 million of which was for real capital items. She
stated that if the state funded the capital budget by debt,
it could get to a steady level of approximately $75 million
for items that were not bondable. If the state chose not to
fund by debt, and funded with cash, the amount would change
to $250 million with only a small decrease on the debt
service side.
Ms. Pitney discussed the key investments to include the
gasline project, justice reform, the rural engagement
program, and other priorities yet to be determined. She
asserted that other priorities would include smart money
investments that the state had to preserve for, and would
offset some of the state's savings.
10:01:49 AM
Senator Hoffman discussed the community revenue sharing
program, and referred to the current balance of $150
million with a three-year draw. He thought the
administration would have a supplemental request of $35
million. He noted that to restore the funding to $60
million in FY 19 as the table indicated, an $80 million
addition would be needed to achieve the payout. He was
unable to see how the revenue sharing would be funded as
explained on the document.
Senator Hoffman asked about funding levels listed on the
UGF operating budget section of the table. He noted that FY
16 to FY 17 listed a reduction of $140, and the current
year's reduction was $100 million. He wondered how the $100
million reduction (outlined in the governor's state of the
budget address) compared with the $140 million reduction
listed on the table.
Ms. Pitney explained that the $140 million was inclusive of
the investments listed on the table, and that UGF spending
was reduced by $140 million. She furthered that a
combination of agency operating increases totaled
approximately $40 million for a net reduction of $100
million UGF spending.
Ms. Pitney addressed Senator Hoffman's question about
revenue sharing, outlining that the administration had
proposed $35 million in additional funding to allow for a
$50 million payout in FY 17. The additional funds were part
of the operating budget bill. She specified that it would
take an additional $80 million to achieve restoration to
$60 million the following year, and it was the
administration's intent to capitalize by $60 million and
increase the payout over time.
Senator Hoffman asked what Ms. Pitney anticipated as a
payout to communities, and advised that one of the concepts
of the revenue sharing program was to stretch the payouts
over three years in order to inform communities for
budgeting purposes in the second and third years.
Ms. Pitney stated that if the fund was capitalized by $60
million by the end of FY 17, the payout would be $53
million and then increase incrementally in the following
years.
Senator Hoffman thought it was problematic that an increase
was being proposed while other departments were being asked
to take reductions or remain steady (including education).
He thought that looking at the complete budget, all
components should be participating in the reductions. He
noted that in future years, restoration of the $60 million
payout for revenue sharing would require increased
spending. He emphasized that he was a very strong supporter
of the revenue sharing program, but believed that there
should be some belt tightening.
10:07:24 AM
Senator Olson asked if the administration had contemplated
changing the Public Employees' Retirement System (PERS)
subsidy financing rate with communities in order to gain
savings.
Ms. Pitney stated that the administration was in strong
support of maintaining the state's on-behalf pension
obligation payment and 22 percent PERS rate.
Co-Chair MacKinnon referred to the original revenue sharing
bill, and recalled that the program was intended to shrink
when funds were less available. She recognized the
importance of revenue sharing for rural communities without
taxing authority. She had difficulty with the
administration's approach of setting an expectation of
receiving additional funds when the state was facing such a
significant budget shortfall. She expressed willingness to
assist in re-writing the revenue sharing portion of state
statute. She stated that she could not personally support
an increase to revenue sharing at the current time.
10:10:17 AM
Senator Dunleavy asked about the funding for the gasline
project, and wondered if the action had been taken during
the recent special session, or if the request was for an
additional $38 million.
Ms. Pitney explained that the $38 million was the FY 17
funding amount for the agencies working on the gasline. The
supplemental amount in the special session had been for the
FY 16 funding for the gasline.
Senator Dunleavy asked for clarification regarding the
action taken in the fall during the special session.
Ms. Pitney stated that there had been three funding
components in the fall, including the TransCanada buyout.
Senator Dunleavy asked about the total funds from the
action in the fall.
Ms. Pitney specified that the total supplemental had been
$157 million, $144 million of which was for the AKLNG
project, and $13 million was associated with agency
operating costs. She continued that the $38 million was
consistent with the $13 million.
Senator Dunleavy clarified that the $38 was additional to
the amounts she listed, and was not part of the vote in the
fall.
Ms. Pitney answered in the affirmative.
Senator Bishop asserted that he and the committee would
revisit the $38 million request after the subcommittees had
finished work and the full finance committee was meeting on
the budget.
Co-Chair MacKinnon found it interesting that the
administration was requesting one-time funding for what
could be ongoing costs.
10:12:42 AM
Vice-Chair Micciche stated that he was a huge supporter of
revenue sharing. He thought it was essential to change the
program to fund critical needs for rural communities rather
than what had been funded in the past. He asked Ms. Pitney
to explain the philosophy of the administration regarding
increasing the investment in revenue sharing.
Ms. Pitney asserted that the administration was taking a
forward-looking perspective on the communities and the
local government. She continued that under the plan, the
state would transition to a very strict allowance. She
emphasized that the amount of funding and assistance local
government had thus far enjoyed would not be available in
the future. She thought the revenue sharing program was
important and could balance with the lack of community
grant programs in the future. She reiterated that the
budget being presented was tight, with a flat revenue
structure; and it would keep a local government capable of
managing itself as it took on more of the funding burden.
Vice-Chair Micciche asked if the administration planned on
tightening the criteria as to how the funds would be spent.
He shared that communities in his district had experienced
reduction in services. He discussed the dichotomy of
funding a community center versus law enforcement and other
critical services. He asked if the administration would
come forward with legislation to provide a critical service
criteria for municipal revenue sharing.
Ms. Pitney explained that under the plan, the intent was to
fund the current community revenue sharing model. She
opined that it was important to have strong local
governments, especially considering the fiscal climate. She
noted that in addition to community revenue sharing, there
had been funds for community support flowing out of
discretionary funds from each legislator, as well as from
the governor. She discussed the difficult choice that
communities were faced with as they balanced priorities
with diminished funding, and thought the topic of critical
service criteria was worth additional conversation.
10:17:50 AM
Senator Hoffman agreed that he would like to see community
revenue sharing go forward. The communities that he
represented did not have the luxury of community centers;
rather, the communities depended upon revenue sharing for
as much as 90 percent of their income. He surmised that in
larger areas of the state, revenue sharing only comprised 3
percent to 5 percent of a community's income. He thought it
was important to examine the importance of revenue sharing
in different areas of the state. He continued that the need
for services in rural Alaska from the revenue sharing
program was very minimal. He hoped to see a possibly scaled
down version of the program that would allow the
communities to keep their municipal doors open, rather than
providing vast levels of service. He opined that it would
be a waste of dollars and a beaurocratic nightmare to try
and stipulate what the dollars were needed for and how they
could be spent.
Vice-Chair Micciche clarified that he had earlier
referenced spending criteria for communities because of the
increase in the investment in municipal revenue sharing
rather than for the program as it currently was.
Co-Chair MacKinnon communicated that the committee was
poised to work with the administration on a new community
revenue sharing program. She had not observed much support
in the committee for increasing investment in the program
in the current fiscal climate, although she recognized the
need (specifically in smaller communities with no taxing
authority) for some kind of state assistance.
Co-Chair MacKinnon inquired as to what strategic moves the
administration would attempt in order to avert the fiscal
cliff. She referred to a veto of tax credits from the
previous session, and expressed willingness to discuss the
merits of tax credits further. She discussed the impact of
tax credits on the economy and the job market.
Co-Chair MacKinnon outlined concerns of the committee, and
detailed the criteria it would use to examine budget
proposals.
10:23:53 AM
Senator Bishop asserted that not only did tax credits
affect one third of the state workforce, but also drove 73
percent or 74 percent of the state's revenue. He suggested
that the items in the expenditure summary being presented
were worthy of much more discussion.
Co-Chair MacKinnon referred to groups that were organizing
in order to encourage the legislature to act on balancing
the budget. She thought cuts were needed to right-size
government before implementing additional revenue measures.
She commented on education spending, and mentioned federal
government education spending statistics published in an
article in the Alaska Dispatch News ["Alaska's education
spending still outpaces the rest of the US by far" by Erica
Martinson, 2/2/16]. She mentioned a news article that
purported Alaska had low educational standing and results.
She referred to the governor's comments on education
reform, and expressed a desire to understand the intent of
the administration. She thought that education spending was
not achieving the desired results.
Ms. Pitney explained that there would be a group convening
on the subject of education, and it would be open to
dialogue and have legislative participation. She suggested
that if one were to examine spending in other agencies, it
would be similar to spending in education. The asserted
that the administration wanted to find efficiencies, and
bring education spending down over time in a considered
fashion.
10:28:22 AM
Co-Chair MacKinnon expressed appreciation for the challenge
of improving the education system. She relayed that she had
had met with classroom teachers to discuss challenges they
were facing. She recognized the struggle of individual
teachers and referred to national and international
performance statistics. She reiterated her own and the
committee's support for education and a desire to see
higher performance.
Vice-Chair Micciche discussed the varying viewpoints on the
economy in Alaska. He expressed support for some of the
governor's plan, and opined that elements of the plan went
too far towards preserving government as it currently
functioned. He thought parts of the plan reached out to
industry, and parts of the plan reached out to individual
Alaskans. He thought that the committee wanted to move
toward less government and more dollars left in the pockets
of Alaskans. He wanted to keep industry working to employ
Alaskans by being creative on reducing costs. He related
that his constituents were willing to support use of the
earnings reserve and a sustainable draw. He thought the
plan did not reflect a balance between reducing government
and using savings and revenue measures.
10:32:57 AM
Ms. Pitney stated that balance was an important component,
and the plan was intended to be a starting point for debate
and discussion. She discussed finding the right size of
government and having transparent dialogue. She asserted
that $250 million was not a significant capital program for
the state.
Vice-Chair Micciche stated that due to the significantly
lowered price of oil, the state had to look at the private
sector and focus on finding a balance.
10:35:05 AM
Ms. Pitney drew attention to page 14, and pointed out Table
8, "Projected Savings Balances Under the New Sustainable
Alaska Plan." She noted that many of the proposals for
savings in the plan would take effect at the end of the
current fiscal year and would be reflected in the FY 16
column. She directed attention to the row "Total Savings
Beginning of Year," which reflected the total savings
balance and did not differentiate between the CBR and the
SBR.
Ms. Pitney specified that in FY 15 the state had a starting
balance of $15.8 billion in the combined savings of the CBR
and the SBR. At the beginning of FY 16 there was a savings
balance of $10.3 billion.
Co-Chair MacKinnon asked about the location of a $3 billion
deposit in to PERS.
Ms. Pitney detailed that there had been a $3 billion
deposit into PERS and the Teachers Retirement System (TRS),
which she characterized as a significant policy decision.
She explained that the deposit had reduced the state's on-
behalf payments from a range of $600 million to $800
million down to approximately $250 million; and there was
another $2.7 billion to fill the gap.
Ms. Pitney continued, sharing that in the beginning of the
current fiscal year, the savings balance was $10.3 billion.
In the beginning of FY 16 the plan established draws on
savings; including $3.6 billion to fill the deficit, a $3
billion deposit into the ERA to accommodate the PFPA and
the sustainable draw, and $1.2 billion for oil and gas tax
credits. The end-of-year savings balance was estimated to
be approximately $2.7 billion, which would become an asset
base from which the state could draw almost $190 million in
interest in 2017 if it drew an average rate of 7 percent.
She added that the administration planned to draw $426
million to balance the savings.
Ms. Pitney continued to discuss the table on page 14,
highlighting that the savings balance was shown to drop to
as low as $2.4 billion and rise up to over $3 billion. She
pointed out that the plan maintained an ongoing savings
level and allowed the state to sustainably take $100 to
$150 million annually as a revenue draw. She emphasized
that preserving the savings account was an underpinning
facet of the plan.
10:40:14 AM
Co-Chair MacKinnon discussed cuts to the budget and the
influence that legislators had with the statutorily
required three-quarter vote to access the CBR. She
referenced the proposed $426 million draw (off of a
proposed $2.7 billion CBR balance) and hypothesized that if
a change did not occur, there would be individuals who
would pressure for more spending by using the vote as
leverage.
Ms. Pitney stated that the dynamic of the CBR was a
constitutional issue and the required three-quarter vote
would be in effect in FY 17. She referred to continued
discussion on the matter.
Co-Chair MacKinnon suggested that if the state did the
reverse of what was being proposed, and money was directed
to the CBR, the same scenario would be true.
Commissioner Hoffbeck stated that in the current year,
there was no way to avoid the necessity of the three-
quarter vote to access the CBR. He mused that gaining
consensus to move larger funds, such as moving $3 billion
from the CBR to the ERA, was more difficult than an annual
vote for an average draw of $150 million. He noted that the
ultimate goal of the plan was for the state not to be so
dependent upon the CBR that it could be leveraged as
heavily.
10:44:09 AM
Co-Chair MacKinnon believed that the 7 percent draw
depicted on the table was overly optimistic, and the amount
of expected return should more accurately be 4.25 percent.
She cautioned that lowered funds needed to be managed
differently and thought that diminished savings balances
could not draw the same interest rates. She asked if the
administration had considered co-locating and pooling all
the state assets under the Permanent Fund Corporation
(PFC), utilizing its experience in portfolio management,
and eliminating all investment management within DOR. She
acknowledged that the investors at DOR at times had higher
returns than those of the PFC.
Commissioner Hoffbeck stated that a conversation had taken
place regarding the concept of an Alaskan investment
corporation that would manage not only the permanent fund
but also retirement funds and some ongoing funds used for
government operations. He stated that it was an active and
continuing discussion.
Vice-Chair Micciche expressed appreciation for the plan
that was brought forward, and surmised that some parts
would be successful and some would not.
10:48:03 AM
Senator Dunleavy thanked Ms. Pitney and Commissioner
Hoffbeck. He clarified that it would be very difficult to
close the fiscal gap through cuts alone, but believed that
reductions should be focused on in the short term. He said
he was a supporter of the Goldsmith model, but thought it
needed to be flexible. He was concerned that if the hard
work was not done making reductions, the state would never
achieve the needed cuts.
Senator Bishop thought it would be interesting to model and
observe what a $200 million capital construction budget
would do in the economy, with a hypothetical income tax or
sales tax applied. He wanted to see return on investments
and how funds moved through the economy to create wealth.
Co-Chair MacKinnon thanked Ms. Pitney for working on behalf
of the administration and the people of Alaska. She
expressed appreciation for Commissioner Hoffbeck's
participation. She noted that many constituents had
contacted member's offices, and the questions around the
committee table had been reflective of their concerns.
Co-Chair MacKinnon discussed the schedule.
ADJOURNMENT
10:52:19 AM
The meeting was adjourned at 10:52 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 139 020216 OMB FY2017 10-year plan.pdf |
SFIN 2/3/2016 9:00:00 AM |
SB 139 |
| SB 139 020216 Senate Finance - NSAP DOR-OMB.pdf |
SFIN 2/3/2016 9:00:00 AM |
SB 139 |