Legislature(2017 - 2018)SENATE FINANCE 532
01/18/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Presentation: Overview Fy 18 Operating Budget | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 18, 2017
9:03 a.m.
9:03:53 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:03 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Lyman Hoffman, Co-Chair
Senator Natasha von Imhof
Senator Click Bishop, Vice-Chair
Senator Mike Dunleavy
Senator Peter Micciche
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Pat Pitney, Director, Office of Management and Budget,
Office of the Governor.
SUMMARY
^PRESENTATION: OVERVIEW FY 18 OPERATING BUDGET
Co-Chair MacKinnon introduced the committee members.
9:05:07 AM
Co-Chair Hoffman recounted that the state had gone through
its' savings accounts in the previous four years and spent
in excess of $13 billion. Four years previously, the state
started with a balance of $16 billion, and he considered
that the legislature was in the final hours to make
monumental changes in order that Alaskans could continue to
enjoy state services. He thought it would be challenging
and felt confident that the Senate, organized under Senate
President Pete Kelly, had the capability to address the
state's financial concerns. He spoke to the extensive
finance background of the members. He thought the people of
Alaska should continue to put pressure on the legislature
to take action. He looked forward to working with the
committee, the other legislative body, and the
administration.
Senator Dunleavy commented on the short time remaining to
balance the budget, and hoped that the legislature would
coalesce around a multi-component approach. He thought that
the Senate had come up with a good start for looking at the
budget. He remarked that it was not possible to get out of
the fiscal crisis without budget cuts. He emphasized that
the state could not support the size of the current
government. He looked forward to more discussion on the
concept of a revised appropriation limit. He thought it
would require a multi-faceted approach to solve the fiscal
crisis.
Vice-Chair Bishop emphasized that new revenue was necessary
to solve the fiscal gap. He mentioned the over $2 billion
in deferred maintenance costs and an industry starting to
go into recession. He reiterated the importance of deferred
maintenance. He looked forward to working with the
committee to keep the state moving forward.
He9:08:30 AM
Co-Chair MacKinnon discussed the agenda. She discussed the
work of the support staff to the Senate Finance Committee.
Co-Chair MacKinnon noted that each member's office had a
team to assist with the work of the committee. She
introduced members of her staff.
Co-Chair Hoffman introduced his staff.
Senator Micciche introduced his staff.
Senator Olson introduced his staff.
Senator Dunleavy introduced his staff.
Senator von Imhof introduced her staff.
Vice-Chair Bishop introduced his staff.
9:11:53 AM
AT EASE
9:13:30 AM
RECONVENED
Co-Chair MacKinnon thanked groups including Gavel to Gavel,
and Legislative Information Office. She thanked the
Legislative Finance Division.
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced herself and her staff.
She thanked the committee for putting her presentation on
the agenda of the first meeting. She looked forward to
working with the committee throughout the legislative
session. She speculated that serious conversations would be
necessary to solve the fiscal crisis.
Ms. Pitney discussed the presentation "FY2018 Budget
Overview" (copy on file). She showed slide 2, "Alaska's
Budget in Household Terms":
Income has dropped more than 80%
• Your annual income dropped from $80,000 to
$16,000
Spending has been reduced 44%
• You have been able to reduce your rent or
mortgage, heat, food, every day travel, and
vacations. You stopped building your cabin,
stopped remodeling, and you'll keep your old car.
• Expenses have been cut from $80,000 to $45,000
Savings has one year remaining
• You had $130,000 in the bank, but now only
$25,000
Investment accounts have been growing steadily
• You have $500,000 in an IRA and you need to
decide whether to use it and how much you can
prudently use
Ms. Pitney discussed the analogy described on the slide.
She stated that the analogy was a translation of the
state's revenue and expenses to a smaller scale.
9:17:38 AM
Ms. Pitney displayed slide 3, "Governor Walker's FY2018
Fiscal Plan":
To foster safer communities, resource development, and
economic security requires sustainable and balanced
budgets long term, and to that end the Governor's
FY2018 budget is comprised of three necessary
elements:
1. Continue to reduce state spending
2. Draw from Permanent Fund earnings to support vital
state services and protect the dividend
3. Generate more revenue
Ms. Pitney observed that the three components on the slide
were very similar to the budget introduction from the
previous year. She noted that while the administration had
included one revenue measure (a motor fuels tax), it would
take more revenue measures to close the fiscal gap.
Ms. Pitney turned to slide 4, "FY2018 Budget by All Fund
Sources," which showed a pie chart labelled with fund
sources that she thought would set the context for the
total budget. She noted that the Unrestricted General Fund
(UGF) category was most frequently discussed, however there
were other fund sources.
Ms. Pitney reviewed the funding categories on the pie
chart. She specified that 30 percent of the overall state
budget came from federal funds; which were almost equally
split between the Department of Transportation and Public
Facilities (DOT), Medicaid financing, and all other federal
programs. She stated that 7 percent of the budget was from
Other State Funds such as Permanent Fund Corporation
management fees, Retirement Board management fees, the
Alaska Housing Finance Corporation (AHFC), International
Airport funds, and other funds. Another 10 percent of the
overall state budget came from Designated General Funds
(DGF), which included tuition and fees, Alaska Marine
Highway fees, and quasi-endowments from things such as the
Power Cost Equalization Fund and the Higher Education Fund.
The Permanent Fund Dividend (PFD) accounted for 7 percent
of the total, and UGF accounted for 42 percent of the total
budget.
Ms. Pitney showed slide 5, "FY2018 Unrestricted General
Fund Spending Without Dividends": $4.3 Billion," which
showed a bar graph depicting the years 2013 through 2018.
She explained that the graph showed the trend of the
state's UGF spending, which went from $7.6 billion in 2013
down to $4.33 billion in 2018. The graph showed both
operating and capital expenditures, and revealed a $27
million decrease in UGF from the previous year.
9:20:25 AM
Ms. Pitney discussed slide 6, "FY2018 Governor's Budget -
Changes From FY2017 Management Plan," which showed a
spreadsheet with a summary of where reductions had been
taken from FY 17 to FY 18. She noted that she would not go
into great detail on the slide, as the end of the
presentation would address the figures in the summary. She
drew attention to the UGF column, and specified that the
major reduction was $127 million in the non-formula area of
agency operating expenditures. She pointed out that the
increases were largely in the statewide components;
including debt, retirement, and oil and gas tax credits.
She continued that that the $127 reduction to agency
operating was reduced to a $46 million operating reduction
and a $27 million total. She pointed out that it was
possible to see on the slide where other reductions and
additions were placed.
Senator Micciche asked Ms. Pitney to return to slide 4. He
observed that the UGF spend was $4.3 billion, the total
with the PFD was $10.2 billion, and there was a $5.8
billion difference. He looked at slide 5, and wondered if
the proportion would be about the same (60 percent 'Other
Spend' and 40 percent UGF). He wondered about the total
spend represented on slide 5 being overlaid on slide 4.
Ms. Pitney answered in the negative, and drew attention to
the categories of Federal Funds, other state funds, and DGF
as listed on slide 4. She explained that the funds had been
increasing slightly. She pointed out that in the years 2013
and 2014, the GF fund proportion would be closer to 60
percent rather than 40 percent.
Senator Micciche indicated he would like to view a slide of
what he described as a combination of slides 4 and 5. He
commented on budget reductions made by the committee over
the years since 2013. He thought there had been significant
reductions for three years. He thought spending should
continue to be curtailed. He thought the proposed slide
would help elucidate the proportion of federal funds and
other funds were coming in to the budget.
9:24:09 AM
Ms. Pitney turned to slide 7, "FY2018 Governor's Budget -
Changes From FY2017 Management Plan," which showed a
spreadsheet. She described the slide as a slightly
different view of the budgetary change between FY 17 and FY
18. She explained that there had been agency reductions in
spending, agency additions, higher cost pressures, and fund
source changes. She pointed out the Agency Operating
Subtotal; as well as the $76 million increase to the Oil
and Gas Tax Credits, Debt Service, and Regional Educational
Attendance Area (REAA). The Operating Budget Subtotal was
reduced by approximately $50 million, with a $20 million
increase in Capital Additions. She added that there was a
$27 million net change in the UGF budget from FY 17 to FY
18.
Ms. Pitney thanked the Senate and House for work on
Medicaid reform and criminal justice reform, which had
resulted in some of the largest proposed budget reductions.
She gave examples of agency reductions through negotiated
furloughs as well as a "pay freeze" bill. She mentioned a
reduction in the Alaska Marine Highway System.
Ms. Pitney continued discussing slide 7, specifying that
budget additions were due to an increase in the employee
healthcare rate, as well as some justice reform
reinvestment items. She explained that $69 million of the
fund source change was from the introduction of a motor
fuels tax which was directed at DOT highway maintenance,
the Marine Highway system, and the state airport system.
She noted that shifts to federal funds (as part of Medicaid
reform) and fee increases (in the Department of Fish and
Game and the Department of Natural Resources) comprised the
remaining fund source change. She summarized that all the
cost reductions in the proposed agency operating budget
were largely offset by the statewide items that were
formula-driven.
9:27:06 AM
Ms. Pitney reviewed slide 8, "Spending on Major Items
FY2013 Compared to FY2018," which showed a bar graph that
demonstrated change over time. The graph compared FY 13,
which represented a spending peak; FY 15, which showed when
the current administration came into office; and the FY 18
proposed budget. She pointed out that the 'Agencies Without
K-12' category had reduced spending from over $3 billion to
under $2.5 billion. She noted that K-12 spending in FY 18
was only slightly higher than it was in FY 13, and below
where it was in FY 15.
Ms. Pitney continued discussing slide 8, noting that the
retirement and debt service component on the graph
reflected a decrease in the retirement contribution. The
deposit into the retirement account had reduced the state's
on-behalf payments for the Public Employees' Retirement
System (PERS) and the Teachers Retirement System (TRS). She
noted that the payments were increasing. She noted that the
capital budget had been as low as it could go in order to
be able to meet the federal matching funds. She agreed with
Vice-Chair Bishop's previous comments regarding the
inevitability of funding deferred maintenance.
Ms. Pitney spoke to the graph on slide 8, noting that the
FY 18 spending of $74 million shown for oil and gas tax
credits represented the minimum requirement. The Permanent
Fund Dividend (PFD) spending for FY 18 was shown to be
above the FY 13 amount, but lower than in FY 15.
Co-Chair Hoffman inquired about the anticipated payout for
individual PFDs under the proposed FY 18 budget.
Ms. Pitney informed that individual dividends were budgeted
to be $1000.
9:29:38 AM
Senator Micciche considered that the proposed budget
included a couple of categories of revenue that may or may
not occur. He referred to SB 128 [a bill that passed the
previous session and related to the Alaska Permanent Fund
Corporation (APFC) and the earnings from the Permanent
Fund], and assumed that if a similar bill did not pass both
bodies in the current session that the governor would plan
a similar veto as the previous year. He discussed the motor
fuel tax increase, and asked if the Department of Revenue
(DOR) had produced two budgets to reflect either the
substantial increase in revenue or the lack thereof.
Ms. Pitney stated that the administration would make
decisions based on what happened with the budget, and hoped
that there would not be a financial crisis to consider at
the end of the session. She shared that the administration
had produced one budget with the assumption that the
revenue measures would both pass. If the measures did not
pass, it would almost deplete the state's remaining
savings, with the exception of approximately $1 billion.
She stated that $1 billion in the Constitutional Budget
Reserve (CBR) was not a prudent level of savings for the
state. She mentioned best practices as advised by
professional finance organizations, which would recommend
(given the volatility of the state's revenue) that the
state keep one year's reserves of $5 billion in the CBR,
with a minimum balance of $2 billion.
Senator Micciche did not disagree with Ms. Pitney, and
pointed out that if the two additional revenue measures did
not pass the legislature, it would constitute an
approximately $770 million additional gap in the proposed
budget.
9:32:56 AM
Senator Dunleavy asked how the budget being presented would
help private economy. He thought it was clear how the
administration's budget would help the government sector.
He thought that some could argue that the proposed budget
was light on reductions; and suggested that the state would
be asking more of individuals, businesses, and corporations
of the state to support the size of government. He
mentioned the high unemployment rate in the state.
Ms. Pitney stated that the administration was using state
resources in the budget as much as possible to match
federal funds. She emphasized that federal funds in
transportation served the design and construction
community, which equated to jobs in the private economy.
She discussed matching Medicaid funding for health services
and the jobs created in the medical professions throughout
the state. She discussed maintaining the PFD, which had a
positive impact on retail. She mentioned community revenue
sharing, which had a benefit to the overall economy. She
asserted that 46 percent of the operating budget was
distributed to organizations, individuals, and communities.
She was encouraged by recent Senate Labor & Commerce
Committee meetings that pertained to the economics of the
state, and looked forward to revisiting the discussions.
9:36:01 AM
Senator Dunleavy referred to the governor's veto of part of
the funding for the PFD, which had removed close to $700
million from the private economy. He wondered how the
transaction had supported the economy of Alaska, as many
lower income Alaskans spent the dividends within the state.
Ms. Pitney stated that the $700 million in question would
pay for future programs that individuals throughout Alaska
depended upon; such as healthcare, education, and roads. In
doing so, the administration had preserved the ability to
provide necessary state services.
Co-Chair Hoffman mentioned community revenue assistance,
and referenced language on slide 3 that referred to
fostering safer communities. He recounted that the previous
year the Senate had proposed to reduce the Community
Revenue Sharing program, and the governor had supported a
payout of $60 million. The Senate had considered that the
state could not afford the program while considering the
state's finances. He recalled that the governor had not
included funding for continuation of the program, and the
Senate had changed the program from revenue sharing to a
Community Assistance Program. He expressed that the concept
behind the change would give communities a commitment that
they would be receiving funds for three years.
Co-Chair Hoffman pointed out that the governor's newly
proposed budget did not contain a provision to keep the
funding at the $90 million level required for the
continuation of the program. He wondered about the
administration's policy with regard to the funding level of
the Community Assistance Program. He asked if it was the
administration's intent to phase out the fund, or if it
planned to add $60 million to the program the following
year to assure the communities would be funded for the
subsequent three years.
9:40:29 AM
Ms. Pitney indicated that the intent of the administration
was to put forth $60 million to fund the program the
following year with the assumption that the funds would be
available. She commented that without significant steps
towards a balanced long-term budget, the program would not
fit within the administration's overall approach to state
spending.
Co-Chair Hoffman asked about Ms. Pitney's definition of
"stable footing," when she had described future state
budgets. He asked if a re-writing of the PFD program would
put the state budget on what she termed to be stable
footing.
Ms. Pitney asserted that it would take at least the
measures that had been proposed in the governor's budget,
but perhaps even more, as there was a remaining $900
million gap. She reiterated that the administration wanted
to see a long-term, stable, and balanced budget.
Co-Chair Hoffman responded that the Senate Finance
Committee, more so than any other committee or
administration, had taken the task of developing a long-
term stable budget very seriously. He took issue with the
administration's assertion that it would foster safer
communities and maintain community assistance payments; as
the proposed budget did not include the $30 million to
maintain the community assistance program. He thought the
proposed budget would warn communities that there would be
a 33.3 percent reduction in the program. He thought the
proposal seemed to be a complete reversal of what had been
previously communicated. He thought it would be very
difficult to put the state on stable footing. He noted that
any department that faced a same-sized reduction would
cause a significant out-cry. He did not think the proposal
maintained the commitment to the communities that had been
made by the state. The Senate had envisioned giving
communities a three-year commitment, while the proposed
budget only gave a two-year commitment.
9:44:27 AM
Co-Chair MacKinnon thought the proposed budget prioritized
the replacement of a ferry over stabilizing funding to
smaller communities. She thought the budget fell short in
other areas. She recognized that that the proposed budget
was a work in progress and an opportunity to collaborate.
She mentioned long hours spent in the previous session to
prioritize security for local communities while working
toward stabilizing the state's economy. She mentioned tax
credits.
Senator Dunleavy asked if the governor supported capping
the size of government through a revised appropriation
limit that was currently in the constitution.
Ms. Pitney stated that the topic of capping the size of
government had not been discussed. She thought there could
be an active discussion on the topic during the current
legislative session.
Senator Dunleavy discussed the reduction of the PFD, and
wondered if it was the philosophy of the administration
that it knew how to spend the people's money better.
Ms. Pitney expressed that the philosophy of the
administration was to find stability for all of Alaska. She
stated that the administration anticipated a long-term
average of $1000 for dividends. She emphasized an over-
arching theme of stability for the state.
9:46:59 AM
Senator Micciche noted that the legislature had passed a
bill pertaining to the Community Assistance Program the
previous year. He reiterated his view that the proposed
budget had approximately $770 million in "phantom" revenue
that had not yet passed the legislature, while also
eliminating $30 million in spending for the program. He did
not disagree that the other associated major pieces of
legislation needed to pass. He opined that there were
inconsistencies in the proposed budget that would be
difficult for the legislature to deal with. He had
supported the bill that reduced expenditures to the
Community Assistance Program. He thought that if a piece of
legislation had gone through both bodies and been signed by
the governor, it should be in the budget.
Ms. Pitney understood the points expressed by Co-Chair
Hoffman and Senator Micciche. She informed that there had
been a long discussion regarding the Community Assistance
Program. She described a forward-funding mechanism for
funding the Community Assistance Program. She expressed
that the matter was open for discussion, and relayed that
the governor was supportive of the program.
9:50:58 AM
Co-Chair MacKinnon suggested that if the governor supported
the program, it would be funded in the proposed budget.
Co-Chair Hoffman reiterated that the previous year the
governor had supported $60 million for the program, and the
Senate had taken a conservative approach and only funded
$30 million. He furthered that the governor had signed a
bill with a three-year commitment to the program. He
thought it seemed as though the program was being used as a
carrot in order to get legislation passed.
Co-Chair MacKinnon stated that the Senate was ready to work
with the administration. She thought that community revenue
sharing should have been included in the proposed budget,
and thought there were additional items missing from the
budget that might be being used for political advantage.
She asserted that the Senate would take up the things that
would benefit the people of the state. She shared that the
Senate was trying to set politics aside, and focus on
completing the work of the session.
9:54:05 AM
Ms. Pitney displayed slide 9, "FY2018 Unrestricted General
Fund Operating Spending Without Dividends: $4.2 Billion,"
which showed a bar graph. She noted that the graph showed
the peak spending year of FY 14 with $6.1 billion in
expenditures, which dropped to $4.2 billion in agency
operating expenditures for FY 18.
Ms. Pitney discussed slide 10, "Unrestricted General Fund
Agency Operating Budgets FY2002 - FY2018 in Nominal
Dollars," which showed a bar graph depicting agency
operating budgets not including statewide items such as
debt service and tax credits.
Ms. Pitney reviewed slide 11, "Budget Guidance to
Agencies":
Among the issues that departments were asked to
consider as they evaluated their budgets:
•Is it required by a constitutional mandate?
•Is it required by a legislative mandate?
•Does it leverage other resources?
•Does it pay for itself or make money for the state?
•How utilized is the service?
•What is the impact on the statewide economy?
•How effective would it be to privatize or be absorbed
by another agency? Would it be less expensive if
privatized?
Ms. Pitney asked members to feel free to discuss the points
on slide 11 with commissioners during the upcoming finance
subcommittee process.
Ms. Pitney displayed slide 12, "All Agencies Are Making
Reductions," which showed a bar graph entitled,
'Unrestricted General Fund Reduction by Agency - FY15
Management Plan to FY18 Governor." She noted that all
agencies had seen reductions. She drew attention to the
Department of Commerce, Community and Economic Development
(DCCED) and DOT; the agencies that had been reduced the
most. She specified that tourism marketing was absent from
the graph's data. She noted that there were only a few
agencies that had not been reduced by at least 20 percent.
She elaborated that the Department of Health and Social
Services (DHSS) had a 15 percent reduction, which
constituted the largest monetary reduction over the time
frame represented on the graph.
Ms. Pitney continued on slide 12, and noted that the
reduction to the Department of Education and Early
Development (DEED) reduction was largely due to the removal
of a one-time funding addition from FY 15.
Co-Chair MacKinnon noticed that Ms. Pitney had stated that
tourism marketing funding was not addressed on the slide.
She wondered if the excluded data would result in a higher
or lower reduction total. She noted that the proposed
budget for the current year moved the tourism funding to
the capital budget.
Ms. Pitney discussed the change in spending for DCCED and
directed attention to the FY 15 and the FY 17 figures. She
explained that without normalizing the tourism budget,
there would be an over 70 percent reduction. She stated
that the tourism budget was an in-house operation until the
previous year, at which time it transitioned to a named
recipient grant to the Alaska Travel Industry Association.
Co-Chair MacKinnon informed that the documents being
considered could be found online.
9:58:06 AM
Ms. Pitney looked at slide 13, "FY2018 Unrestricted General
Fund Agency Operating Budget Reflecting Priorities," which
showed a pie chart representing the agency operating
budget. She directed attention to the blue portion of the
pie, which included K-12 education payments to
communicates, the University, and the Alaska Vocational
Technical Center (AVTEC). She specified that there had been
a 9 percent decrease from FY 15. She pointed out that the
category of 'Health, Life, Safety, Justice' was reduced by
13 percent and comprised 44 percent. The category included
Alaska State Troopers, DOC, Courts, public defenders; and
reflected recent justice reform efforts. All other agencies
were shown as being reduced by 41 percent. She felt that
the graph showed where the majority of reductions were
being taken.
Co-Chair MacKinnon explained that the reason the Senate had
mentioned cost drivers in the press conference the previous
day, was because the administration had made cuts to all
areas except those considered "major cost drivers." She
discussed the cost of K-12 education, Medicaid, and DOC.
She wanted the general public to know that Medicaid reform
and criminal justice reform were undertaken because the
Senate believed that lives would be saved. She expressed
concern about opioid abuse and incarceration. She asserted
that the Senate was trying to deploy resources in a manner
to save lives versus saving money. She relayed that the
issues would be brought up for discussion during the
upcoming legislative session.
Ms. Pitney agreed with Co-Chair MacKinnon's statement
regarding saving lives, and stated that the administration
was trying to achieve cost containment.
Ms. Pitney discussed slide 14," Ongoing Cost Containment
Efforts Continue to Reduce Spending":
•2500 fewer state employees since FY2015
•State employee savings through eliminated pay
increases, furloughs, and healthcare cost passed to
employees
•Executive branch travel reductions
•Reduced and consolidated leases
Ms. Pitney specified that the proposed budget showed a
travel reduction of $17 million since FY 15. Leases had
been reduced by $3 million, and the state had reduced its
footprint by 100,000 square feet.
10:02:18 AM
Vice-Chair Bishop stated that the previous year the
committee had discussed the reduction in state employees,
and inquired if the 2,500 fewer employees mentioned on the
slide had been vacant positions.
Co-Chair MacKinnon added that there was a perspective of
positions with associated funds.
Ms. Pitney indicated that the reduction represented
paychecks and real bodies in seats. She furthered that the
Department of Labor and Workforce Development provided a
monthly report with the relevant data.
Ms. Pitney displayed slide 16, "Position Reductions," and
noted that the table on the slide listed 2,259 position
reductions - 795 of which were in the current budget
proposal. She referred to Co-Chair MacKinnon's comments
about positions with funding. She commented that the
administration had a list of position control numbers
(PCNs), only some of which were funded.
Ms. Pitney showed slide 15, "FY2002 - FY2017 State
Employees," and calculated that the state employment level
was the same as 2002.
Senator Dunleavy considered that the committee had been
discussing the issue of position reductions for the past
few years. He asked for further detail relating to the
"2,500 fewer state employees" listed on slide 14. He
wondered if there was a way to observe true realized
savings from the elimination of the positions and inquired
if any of the savings had been shifted to funding
contractors.
Ms. Pitney detailed that the savings from the eliminated
positions was roughly $250 million.
10:06:09 AM
Ms. Pitney went back to slide 16. She referred to Senator
Dunleavy's question about position deletions and
contractors. She noted that more detailed information on
the executive branch level was available, but information
on other areas was not available at the same level of
detail.
Senator Dunleavy asked if the 2,500 positions had been
full-time, year-round positions with an average of $100,000
attached to each position.
Ms. Pitney indicated that $100,000 per employee was an
average and not all the positions in question were full-
time or year-round.
Senator von Imhof asked how many actual pink slips had been
given. She recalled that Ms. Pitney had reviewed the same
presentation with Commonwealth North, and at that time had
stated that there had only been 40 to 50 people that had
been laid off.
Ms. Pitney specified that in the first budget year, there
had been 37 individuals given pink slips; and in the next
budget year there had been 40. She detailed that 80 pink
slips had been delivered. Some individuals had chosen
retirement prior to the execution of the layoff, and others
chose to resign. She furthered that the administration
worked very hard to manage reductions through attrition.
She discussed hiring practices. She discussed the timing of
the budget and listing of positions earmarked for deletion.
More positions would be added to the list when the
legislature began discussing budget reductions. She
discussed the process of attrition, and the cost of layoff
of employees.
10:10:53 AM
Senator von Imhof had researched the number of position
reductions and had estimated it to be 1,200 less than was
presented.
Co-Chair MacKinnon asked for Ms. Pitney to return with
refined numbers. She discussed development of PCNs. She
expressed concern with the numbers being presented, and
discussed practices in the private sector. She discussed
the need for standardized numbers, and asked for Ms. Pitney
to provide a detailed description of employee types. She
discussed increased spending on unemployment insurance and
Medicaid spending, and the importance of jobs. She asked
for a detailed overview of slide 14, with supporting
documentation and dollar amounts.
10:15:16 AM
Senator Micciche commented that the committee had engaged
in the same discussion multiple times. He thought that it
was in the administration's best interest to provide more
detail. He discussed the oil and gas industry, and
commented that companies in the industry did the best not
to hand out pink slips. He expressed the importance of
understanding how agency reductions would translate into
cutting employees. He thought information in greater detail
would help all parties engaged in the budget process.
Co-Chair MacKinnon asked members to provide written
comments or questions to her office for submission to the
Office of Management and Budget (OMB).
10:18:17 AM
Ms. Pitney turned to slide 17, "Ongoing Cost Containment
Efforts Complex State Policy Considerations":
•Justice Reform
•Health Care
•Medicaid expansion
•Medicaid reform
•Employee health plans
•Healthcare authority feasibility
•Private health insurance market
•Education
•System reform process
Ms. Pitney expressed her appreciation for the previous
mention of saving lives and containing future costs. She
discussed changes to the DOC budget that included both
reductions and additional costs, and working towards
keeping long-term costs down. She thanked the body for
Medicaid reform. She commented that healthcare was a
pervasive cost driver in the state, and mentioned a
healthcare authority feasibility study that the
administration was working on. She hoped there would be
further dialogue pertaining to healthcare in which multiple
viewpoints were examined.
10:22:03 AM
Ms. Pitney continued discussing slide 17, and relayed that
DEED Commissioner Michael Johnson was preparing to begin a
reform process looking at innovation and quality education
for every student. She furthered that the legislature would
be invited to participate in the process. She added that
education was also a major cost driver in the state, and
better quality was desired.
Senator Dunleavy noted that the title of the slide had
included the words "ongoing cost containment" and assumed
that the education system reform process would constitute a
reduction in the cost of education.
Ms. Pitney stated that there were additional cost
pressures, and the administration wanted to extract the
highest quality for the money spent. She was not sure it
was possible to spend less on education, but thought it was
possible to receive education of a higher quality. She
summarized that cost containment and increased quality were
the overarching expectations of the system reform.
Senator Dunleavy thought that the title of the slide
indicated that the system reform process was in fact an
ongoing cost containment effort. He suggested that the
bullet be moved to a different slide.
Ms. Pitney presented slide 18, "Ongoing Cost Containment
Efforts: K-12 Education":
K-12 UGF formula is 29% the UGF budget
K-12 UGF formula $1.26 B
Base student allocation, in AS 14.17.470,
FY15 $5,830
FY16 $5,880
FY17 $5,930
FY18 $5,930
•From FY2017, $6.2 million increase due to increased
student counts and decrease in the Public School Trust
Fund
•Education Commissioner Johnson is beginning an
education system reform process
Ms. Pitney pointed out that the Base Student Allocation
(BSA) had not changed, however there was an expected
increase in student population as well as the number of
students with special needs. The previous year the state
had utilized the Public School Trust Fund at a rate that
was higher than reasonable, which accounted for the
decrease in the fund.
10:25:27 AM
Ms. Pitney discussed slide 19, "Ongoing Cost Containment
Efforts Reorganizations":
•Shared Services
•Information Technology (IT) Consolidation
•Department of Transportation Optimize Project
Delivery
Ms. Pitney explained that all departments had engaged in
reorganization efforts to deal with constrained budgets.
She mentioned the shared services approach to back-office
functions, which was reflected for the first time in the
proposed budget. She noted that 70 positions were being
moved from other agencies into the Department of
Administration (DOA) for new shared services, which would
also include some existing DOA personnel. The shared
services organization in the budget would show 140
positions.
Ms. Pitney continued discussing shared services. She
explained that while the positions were transferred from
the agencies, the agencies would retain the associated
funds and buy services from the shared services
organization. She expected a 10 percent decrease in cost to
departments, which was reflected in the budget. The
following year the decrease was expected to be 30 percent.
The shared services organization was starting with five
functions. She looked forward to more detailed discussion
on the topic, and noted that mature shared services
organizations could often save as much as 50 percent of
operating costs.
Vice-Chair Bishop relayed that he would contact Co-Chair
MacKinnon after the meeting to discuss the possibility of
the committee engaging in a deeper dialogue pertaining to
shared services.
Ms. Pitney continued discussing slide 19, noting that
information technology (IT) consolidation was similar to
that of shared services, and promoted having IT as a more
strategic part of state operations. She relayed that DOT
was contracting out more design functions with the goal of
getting more for the money that was spent.
10:28:40 AM
Vice-Chair Bishop communicated that he was not in favor of
contracting out DOT's functions and wanted to have a deeper
discussion on the matter.
Co-Chair MacKinnon inquired about the economics of
contracting out DOT's functions and wondered about outcomes
in other states. She understood that 55 to 60 percent of
the existing design team was already by contract. After
communicating with individuals from DOT, she had understood
that there may be a morale issue with some of the changes
that that had been implemented. She hoped that the
administration would reach out to DOT to gain further
understanding on the matter, and looked forward to a
detailed analysis of the economics of the new policy.
Ms. Pitney acknowledged Co-Chair MacKinnon's request.
Ms. Pitney reviewed slide 20, "Statewide Obligations":
•Oil and gas: Statutorily required amount increased to
$74 million
•School debt reimbursement and REAA funding: Restored
veto, FY2018 increase $40 million
•Retirement payments on behalf of municipalities and
school districts: Amount is based on an actuarial rate
which is predicted to grow significantly in coming
years
•Community assistance: Per legislation, payout has
been reduced by 50% since FY2015, will continue to
require a $30 million annual appropriation to maintain
current payout level
•Maintaining private insurance viability: Keeps
insurance costs low for individuals purchasing
insurance through private market and enables current
insurer to remain in Alaska, $55 million
Ms. Pitney summarized that slide 20 reflected areas in
which the administration felt cost pressures rising. She
noted that some of the funding for retirement payments came
from the Higher Education Fund. She informed that the
current budget cycle was the last opportunity to use the
fund for any items other than the scholarship program so as
to maintain the program in perpetuity.
10:31:31 AM
Co-Chair MacKinnon asked Ms. Pitney to remind the committee
how much vetoed tax credit obligation was on the books. She
wanted a summation of the amount that the governor had
vetoed over the previous two years, as well as any new
receipts for tax credits resulting in unpaid bills.
Ms. Pitney stated that based on statute, there were no
unpaid bills; however there were companies that had tax
credits in hand.
Co-Chair MacKinnon interjected that the legislature had
authorized spending which the governor had vetoed. She
reiterated her request for a summation of the numbers.
Ms. Pitney stated that the veto in FY 16 had been for $200
million, and the veto the previous year was down to the
statutory minimum and was for $480 million.
Co-Chair MacKinnon asked if the committee could have
confidence that the governor would not veto the funding for
the statutorily required payment.
Ms. Pitney stated that the governor had not vetoed the
statutorily required payment the previous year.
Co-Chair MacKinnon asked Ms. Pitney to provide the number
of what was remaining to be paid in tax credits.
Ms. Pitney estimated that there was an outstanding amount
of $700 million owed in tax credits. She expected $1.1
billion by the end of FY 18.
Co-Chair MacKinnon asked if the number was based on the
statutory payment calculation.
Ms. Pitney replied that the amount was a sum of the accrued
cashable credits, and did not count credits that offset tax
obligation.
Co-Chair MacKinnon asked about school debt reimbursement,
and referred to the "restored veto" listed on the slide.
She wondered if the proposed budget included the $40
million that was previously vetoed, or if a veto was
undone.
Ms. Pitney stated that the administration had not restored
the funds vetoed in FY 17, but had included the state
obligation for debt reimbursement and the Regional
Education Attendance Area (REAA) funding in FY 18. The FY
18 budget was $40 million higher than FY 17, because of the
veto.
10:34:26 AM
Senator Dunleavy referred to the bottom of slide 20, and to
a $55 million bill the legislature received in the waning
days of the previous session. He wondered if the
administration would be requesting funds to continue to
subsidize insurance.
Ms. Pitney specified that the FY 17 budget and the FY 18
budget had each included $55 million for private insurance
viability. She characterized the funding as a "two-year
experiment." She thought there was federal activity
present, and that there were many moving parts to consider
such as federal waivers. She relayed that the topic was
part of an ongoing discussion, and was not able to surmise
what would happen in FY 19.
Senator Dunleavy could not recall if the discussion the
previous year was for the funding to be year to year.
Co-Chair MacKinnon recollected that the legislature had
received the request for $55 million in funding, and she
had considered that the $55 million was for two years. She
recalled that when she had checked the spending status of
the $55 million, she that there was savings. She expressed
a need to see an accounting of the expenditure of the
funds. She recounted that the committee had requested the
administration to provide a plan. She discussed the
Affordable Care Act, which had ceased to provide grants for
individuals. She recounted that during the third special
session the legislature had discussed 500 high-risk
individuals and the difficulties of obtaining insurance.
She would look to Commissioner Sheldon Fisher and DCCED to
hear more details on the matter.
10:37:51 AM
Senator Dunleavy asked if there had been guarantees made on
the part of the insurance companies when the appropriation
was made to stabilize insurance. He wondered if the
companies could have received the funds and then later exit
the state, or were bound to stay in the state and provide
insurance.
Ms. Pitney informed that the state was down to one
insurance carrier in the private insurance market. She
clarified that the insurance stabilization was not for only
the 500 high-risk individuals, but was also for any person
that did not have employer-covered healthcare. She noted
that the group included some who had a federal subsidy
based on income (that did not qualify for Medicaid). She
estimated that there was 25,000 individuals who purchased
insurance through a private company. The funding allowed
for insurance premiums not to go up by 40 percent, but
rather only by 7 percent. She emphasized that the state
needed to look at the issue holistically, and thought maybe
the healthcare authority study would assist in finding the
right balance and direction.
Senator Dunleavy wondered about the nature of the agreement
with insurance companies. He asked if there was a guarantee
that an insurance company would stay in the state, or if it
was a year-by-year agreement.
Ms. Pitney indicated that DCCED Commissioner Chris Hladick
and Deputy Commissioner Fred Parady could provide an in-
depth view of the contracts and expectations. She was
certain there had been several layers of due diligence.
Ms. Pitney showed slide 21, "Examples of Direct State
Funding," which showed a data table. She had previously
mentioned that 40 percent of state funding was grants that
went to communities rather than staying at the state level.
She detailed that the table gave a community view of some
of the various larger programs that were included in the 40
percent.
10:40:57 AM
Ms. Pitney looked at slide 22, "Revenue Measures":
FY2018 Governors Proposal
•Permanent Fund Protection Act
•Motor Fuels Tax Increase
Office
Ms. Pitney noted that the two revenue measures were in the
proposed budget. She added that the Permanent Fund
Protection Act (PFPA) mirrored a bill that had passed the
Senate, and thanked the members for their part in the
process. She explained that the motor fuels tax was a
multi-phased increase. She estimated that the PFPA would
solve between 70 percent and 75 percent of the budget gap.
The motor fuels tax increase would bring an additional $40
million in revenue for FY 18, and another increase of $40
million in FY 19. At the end of the implementation, the
fuel tax would generate approximately $120 million. With
the two revenue measures, there would be just short of a
$900 million revenue gap. She hoped to work with the
legislature on additional revenue measures, to include a
broad-based tax and bridge the fiscal gap.
Senator Dunleavy thought it seemed as though there had been
a reversal of philosophy. The previous year there had been
money moved into the Permanent Fund and discussion of
endowments, and in the current year money was being moved
out of the Permanent Fund and into the CBR. He thought it
would take more discussion to understand what the
administration was trying to accomplish.
Co-Chair MacKinnon reminded that the presentation was a
budget overview, and that the committee would engage in
topics at a deeper level at a later time.
10:43:22 AM
Ms. Pitney showed slide 23, "FY2015-2018 Funding by Type,"
which was an illustration of DGF and UGF. She pointed out
that the draw from the Permanent Fund Earnings Reserve
Account (ERA) would begin in 2017, and continue into 2018.
The graph indicated that in FY 16 there was not a draw from
the ERA.
Co-Chair MacKinnon asked if the administration was
repurposing the funds into the CBR, and if the CBR would
grow if the legislature approved the administration's
proposed budget.
Ms. Pitney explained that the CBR would go to $5 billion in
FY 17, and assuming spending stayed relatively steady,
would grow over time. She thought that the CBR balance
could address some capital budget needs in later years. She
asserted that the CBR would be healthy, and would increase
along with the ERA.
Ms. Pitney showed slide 24, "Future Reserve Balances" which
showed what the CBR balance would be under the
administration's proposed plan. She explained that the
graph depicted estimates considering an inflation-only
growth model in the agency budgets and retirement. She made
note of stability in the ERA balance, and slight increases
in the CBR balance. She reiterated that the figures assumed
a very constrained capital budget, so it was difficult to
say what the CBR balance would be - however, at the
proposed spending level, the investment earnings would
allow the funds to grow. She thought the proposed plan
would preserve the overall value of the Permanent Fund,
while the status quo could threaten the value.
Ms. Pitney turned to slide 25, "Additional Materials":
Additional Materials
•Condensed Budget Comparison FY2015, FY2017, FY2018
•FY2018 Fiscal Summary
•OMB Home Page
•https://www.omb.alaska.gov//
Ms. Pitney directed attention to two documents: "Condensed
Budget Comparison FY2015, FY2017, FY2018;" and "State of
Alaska - Fiscal Year 2018 Governor Fiscal Summary" (copies
on file).
Co-Chair MacKinnon discussed the agenda for the following
day.
ADJOURNMENT
10:46:49 AM
The meeting was adjourned at 10:46 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 011817 OMB Condensed Budget Comparison.pdf |
SFIN 1/18/2017 9:00:00 AM |
Operating Budget |
| 011817 OMB FY18_Fiscal_Summary_Detail_12-15-16.pdf |
SFIN 1/18/2017 9:00:00 AM |
Operating Budget FY18 |
| 011817 OMB Presentation to Senate Finance- Fiscal Plan and Budget Overview 1-18-17.pdf |
SFIN 1/18/2017 9:00:00 AM |
Operating Budget FY 18 |