Legislature(2019 - 2020)SENATE FINANCE 532
01/29/2020 09:00 AM Senate FINANCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Lesgislative Finance - Fy21 Fiscal Overview | |
| 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 29, 2020
9:00 a.m.
9:00:57 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:00 a.m.
MEMBERS PRESENT
Senator Natasha von Imhof, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Lyman Hoffman
Senator Donny Olson
Senator Bill Wielechowski
MEMBERS ABSENT
Senator David Wilson
ALSO PRESENT
Senator Cathy Giessel; Pat Pitney, Director, Legislative
Finance Division; Lacey Sanders, Analyst, Legislative
Finance Division; Alexei Painter, Analyst, Legislative
Finance Division.
PRESENT VIA TELECONFERENCE
SUMMARY
LESGISLATIVE FINANCE - FY21 FISCAL OVERVIEW
Co-Chair Stedman informed that the committee would continue
the financial review of the states current financial
situation. He explained that the Legislative Finance
Division (LFD) was the non-partisan arm of the legislature.
He asked the director to speak to her background and
experience.
9:03:54 AM
Senator Olson introduced constituent Chuck Degnan in the
gallery. Mr. Degnans father was in the Alaska Territorial
Legislature. Mr. Degnan himself was a past representative
who had sat on the House Finance Committee. Mr. Degnan had
encouraged Senator Olson to run for office.
^LESGISLATIVE FINANCE - FY21 FISCAL OVERVIEW
9:04:44 AM
PAT PITNEY, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed her background. She started her service career at
the University, serving over 23 years in a variety of
budget positions. She had worked as the director of Office
of Management and Budget under Governor Walker. She was
interested in the fiscal status of the state and was ready
to contribute to solutions for the state.
Co-Chair Stedman noted that this was Ms. Pitneys third day
on the job and all resources would be made available for
her to move forward in her position.
9:06:06 AM
Ms. Pitney introduced her staff.
9:06:32 AM
Ms. Pitney shared the presentation, "Fiscal Overview,"
(copy on file).
Ms. Pitney addressed Slides 2 and 3, "Presentation Outline"
and "Where have we been?":
• Where have we been?
• Last session
• Where are we now?
• Where are we going?
• Oil prices and UGF revenue began declining in
FY13 and plummeted by FY15
• Traditional UGF revenue has declined from $9.5B
in FY12 to $1.5B by FY16
• UGF budget has declined 44% - $7.8B to $4.4B
• Budget deficits have averaged $2.6B
• Nearly half (44%) of the UGF Budget each year
9:07:12 AM
Ms. Pitney advanced to Slide 4, "Unrestricted General Fund
Revenue/Budget History," which showed a line graph overlaid
by a bar graph depicting, in nominal dollars, the state
budget from 1976 to present, with revenue projections out
to FY28. She noted that the graph did not contain the
permanent fund dividend (PFD). She drew attention to the
middle years from 2005 to 2012, when the state experienced
tremendously high revenue. The orange bars showed the money
put into savings, which had allowed the state to manage
through the previous 7 years of income decline. She
stressed the importance of the savings structures that had
allowed for a cushion. She stressed that absent other
actions, the CBR would be depleted by the middle of 2020.
Ms. Pitney continued to speak to Slide 4. She drew
attention to the out-year revenue, indicated in green and
purple on the chart. She said that the green represented
normal oil fund revenue. The purple represented the funds
provided by the percent of market value (POMV) from the
permanent fund. She thought going forward, the funds could
be more stable than in the past because of less volatility.
9:09:41 AM
Co-Chair Stedman wanted to point out that in years 2005 -
2012 it was notable that there were substantial capital
budgets, relative to the past, but the savings component
had been larger than the capital component. He also pointed
out that in the late 1980s and 90s there had been "anemic"
capital budgets, which had resulted in increased deferred
maintenance. He mentioned the significant deferred
maintenance started being addressed in 2005, when the major
maintenance list for K-12 had been paid down. He detailed
that the list the following year had exceeded the previous
year, even though the K-12 maintenance had been paid down.
He expected that the minimal capital budget of present
would lead to similar increases in deferred maintenance.
9:12:52 AM
Ms. Pitney turned to Slide 5, "Unrestricted General Fund
Revenue and Budget," which showed a line graph overlaid by
a bar graph depicting revenue with the overlay of the
Permanent Fund Dividends (PFD) and including a narrowed
timeline. She pointed out that in FY16 through FY18, only
funding for the PFD had been used from the ERA, which was
why the grey bar was smaller in those years. In 2019 it
was possible to see the implementation of the POMV draw.
She pointed out the FY19 and FY20 appropriations had
exceeded available revenue, although significantly less
than FY16 through FY18. She said that due to the provision
proposed by the governor in FY21, the deficit line had
grown to $1.5 billion.
Co-Chair Stedman asked whether the PFD proposed in the
governors budget was the statutory PFD of approximately
$3,000.
Ms. Pitney answered in the affirmative.
Co-Chair Stedman asked whether the FY 20 PFD was
approximately $1600.
Ms. Pitney answered in the affirmative.
Co-Chair Stedman thought that the billion-dollar difference
in the two budgets could be attributed to the PFD.
Ms. Pitney agreed.
Co-Chair Stedman thought it should be recognized that the
current fiscal years proposed budgeted PFD resulted in a
significant deficit number on the slide.
9:15:32 AM
Ms. Pitney considered Slide 6, "End-of-Year Reserves
Balances," which showed a bar graph that showed the SBR and
the CBR. She pointed out that in FY13, there was just over
$16 billion in the two reserves. Under the proposed budget,
without accounting for supplemental spending, the two
accounts would drop to less than $1 billion in FY 21;
accounting for supplementals left less than $500,000 in
reserves. She stated that the current years proposed
deficit of $1.5 billion would mean that the reserves would
be completely exhausted by FY22, if no budgetary action was
taken on the governors proposed budget.
Co-Chair Stedman explained that the supplemental budget was
implemented in the middle of the fiscal year to adjust the
current year's budget to make sure there were no unmet
obligations and fix any oversights or errors. He used the
example of forest fire funding and funding for Medicaid. He
understood that it would not be prudent for the committee
to ignore supplementals.
Ms. Pitney stated that the supplementals, especially for
fire protection and Medicaid, was essentially money already
spent. She said that ignoring the supplementals did not
release the state from the obligation to pay.
Co-Chair Stedman referenced past discussion of
supplementals and believed that the expenses should be
considered when discussing year-to-year change. He warned
the FY20 supplemental budget would be colossal.
9:18:49 AM
Ms. Pitney displayed Slide 7, "Last Session":
? Governor proposed $980 million UGF Operating budget
reduction
? Governor proposed $992 million increase to PFDs
? Legislature accepted $146 million of Governor's
proposed Operating budget reductions
? Governor vetoed an additional $205 million from the
Operating budget
? Total Operating budget reduction from FY19 was $351
million
? Legislature passed PFDs similar to FY19
Ms. Pitney added that the governor's proposed $980 million
reduction was made shortly after he took office. She
calculated that the reduction from the previous year was
closer to $100 million.
9:20:58 AM
Ms. Pitney highlighted Slide 8, "Progression FY19 to FY20
Budget," which showed a data table giving an example of the
kind of reports available from LFD.
9:21:32 AM
LACEY SANDERS, ANALYST, LEGISLATIVE FINANCE DIVISION, spoke
to Slide 13, "Major UGF Changes FY20 to FY21 Gov," which
showed a data table depicting the major unrestricted
general fund changes from where the legislature left in
FY20, compared to the governors FY21 budget proposed
changes. She walked through a high-level summary of
proposed changes to some agencies.
Ms. Sanders addressed an approximately $52 million increase
to the Department of Corrections. The proposed increase
consisted of $17.8 million in funding for a contract to
send prisoners out of state and did included a $16.7
million reduction for the closure of the Palmer
Correctional Center. The request included $30 million
associated with HB 49. Additionally, there was an increase
$21.3 million, which had been PCE funds but were replaced
with UGF by the governor.
9:23:31 AM
Ms. Sanders addressed an overall reduction of $20 million
to the Department of Education and Early Development
(DEED). She stated that the overall K-12 foundation formula
funding was an increase of $19 million, which was split
between $10 million UGF and $9 million in Public School
trust funds, not reflected on the graph. The one-time
appropriation in FY20 of $30 million was removed for FY21,
there was also a reduction for the removal of Pre-K grant
funding. She noted a change in Mount Edgecumbe School
funding for $4.6 million reflected a fund source change;
the funding would be moved out of the agencys operating
budget and into K-12 Foundation Program. She continued to
the Department of Health and Social Services, which showed
and overall increase of approximately $134 million. She
said that $128 million was to restore reductions made in
FY20 to Medicaid and included $8.3 million for adult
dental. She shared that there was an increase of $7.4
million in adult public assistance associated with the
maintenance of effort (MOE) calculation.
Ms. Sanders continued to address Slide 13. There was a $5
million increase for Pioneer Homes, as well as an $11.4
million fund source change from UGF to Marijuana Education
Treatment (MET) funds. She continued to the Department of
Public Safety, there was a $12.8 million UGF increase that
consisted of adding 36, full-time positions and $10.3
million to increase trooper capacity. She related that
there was an $873,000 increase, with 7 positions, for the
new Anchorage Emergency Communications Center, as well as
$1 million for staffing needs to address the backlog in
laboratory services.
9:26:20 AM
Ms. Sanders addressed the University of Alaska (UA) budget,
which had a proposed reduction of $25 million allocated as
follows:
$9 million for University of Anchorage
$13.75 million for University of Fairbanks
$1.75 million to Statewide Services
9:26:59 AM
Ms. Sanders explained that under Statewide Items the debt
service was an overall UGF change of approximately $15
million and consisted of two significant changes: $10.6
million increase for general obligation bond payments, as
well as a decrease of $27 million due to the removal of the
oil and gas tax credit bond debt services payments for
FY20. The governors proposed budget did not include
funding for debt service payments of oil and gas tax
credits for FY21. She shared that the issue would be
explored in a future slide. She continued to state
assistance to retirement, which reflected an increase of
$37.6 million; $44.5 million increase for PERS, and a
reduction of $6.2 for TRS. She stated that total agency
operations for state-wide increase was approximately $178
million. The governors budget proposed a full statutory
dividend, resulting in an increase of $865 million in FY20,
resulting in a total budgetary change from last years
budget of over $1 billion.
9:28:41 AM
Co-Chair von Imhof considered the proposed changes to DEED.
She asked whether the one-time $30 million in funding had
been included in the FY20 budget.
Ms. Sanders stated there was a $20 million appropriation in
FY19, and a $30 million appropriation in FY20. She
continued that LFD considered the latter appropriation
valid and would consider it in the numbers.
Co-Chair von Imhof understood that the legislature fully
funded education the previous year, including the $30
million, which the governor had not vetoed.
Ms. Sanders replied in the affirmative.
9:29:44 AM
Senator Olson asked about the changes to DPS and the 17 new
positions.
Ms. Sanders stated that DPS was reflecting 36 new
positions.
Senator Olson asked about the vacancy rates of troopers.
Ms. Sanders offered to provide the information later.
Senator Olson requested justification for the new position
request.
Ms. Sanders understood that DPS was increasing its
recruitment and needed additional funding to support more
troopers.
9:30:43 AM
Co-Chair Stedman stated there would be a subcommittee
discussion on the matter. He asked about the Anchorage Call
Center and new positions at that facility. He hoped to
gather further information from the department. Co-Chair
Stedman asked LFD to return and update Slide 13, once the
forthcoming supplemental budget was released. He hoped LFD
could update the numbers with the addition of the expected
supplemental numbers, with a focus on three-year trend
cycles. He said that he hoped that the reductions that had
been made to DHSS in the previous years budget would be
neutralized in the supplemental budget.
9:33:09 AM
Senator Hoffman asked about the $30 million in one-time
education funding. He lamented that the funds had not been
disseminated, which had resulted in the administration
arguing that the appropriation was illegal, which the court
had disputed.
Ms. Sanders stated that the $20 million was distributed to
school districts before FY19 had ended. She understood that
the $30 million was still being held by the administration.
9:34:12 AM
Co-Chair Stedman requested the date of the dissemination of
the $20 million.
Ms. Sanders said she would provide the information to the
committee.
9:34:34 AM
Ms. Pitney referenced Slide 14, "Tax Credit Payment
Options," which showed a bar graph of tax credit options.
She reiterated that there was no funding in the governors
budget for the tax credit payments. The graph provided two
options. She noted there was an ongoing court case
regarding the legality of bonding for tax credits. She
explained that bonding for the tax credits (represented by
the blue bar) was to take a cost neutral approach to
stabilize the budget across years. The plan assumes a 15-
year payback on the bonds, at approximately $55 million, if
the bonds were let, and the credit were paid through the
bonds approved by the legislature on spring of 2018. The
red bar showed $166 million in obligation for FY21, if the
bonds were not let, dropping to $100 million over the next
several years to $20 million in FY28. She said that the
question was still under litigation and should be resolved
within the next 90 days.
9:36:25 AM
Co-Chair Stedman emphasized that the state did not have a
payment for the tax credits in the FY20 budget.
Ms. Pitney clarified that in FY20 there was $27 million
appropriated, which would be enough to go through the bond
purchasing process for FY20. She reiterated that for FY21
the credits were not included in the governors budget.
Co-Chair Stedman thought if the bonds were not followed
through, the state would be significantly under the
statutory payment calculation, with $20 million already
appropriated, and would have a large amount in the current
fiscal year that would have to be addressed through a
supplemental budget.
Ms. Pitney believed the $166 million considered both
obligations.
9:37:53 AM
ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION,
confirmed that that $166 million was the statutory
calculation for FY21, the calculation for FY20 would be
$135 million. He said that if the bonds did not proceed,
the statutory number for FY20 would be $135 million. He
said that the $127 million could be repurposed for that,
but the existing appropriation had been specifically for
debt service and not for purchase of tax credits.
Co-Chair Stedman stressed that there was an overall
additional expense of $115 million. He said that if the
bond package was not supported by the court the $115
million would be added to the supplemental budget. He
warned that the FY20 supplemental budget could be as high
as $400 million. He said that the FY21 budget was $166
million short for the obligation and he awaited direction
from the court. He said that if the court upheld the bonds
the debt services should be footnoted in the summary
reports from OMB and LFD as an obligation because it
impacted cash flow and would not disappear. When the bonds
were issued the state would be impacted. The stressed the
importance that the legislature and the public be cognizant
of the costs.
9:41:11 AM
Senator Wielechowski was sure the topic would be discussed
at length. He thought there was a significant question as
to how the tax credit payments were calculated. He said
that the statute based the calculation on 10 or 15 percent
of the production taxes; production taxes for 2020 were
$372.6 million, while the slide reflected a payment of $
166 million. He took issue with the way the credits were
being calculated. He pointed out that the statute relating
to paying the credits was a discretionary statute, and was
not mandatory, in contrast to school debt bond
reimbursement, which had recently been eradicated. He
argued that picking and choosing which statutes to follow
would prove to be problematic.
Co-Chair Stedman thought the point Senator Wielechowski had
raised had been discussed at the table. There were
differences of opinion in the legislature as to how to
calculate the dividends: gross tax or net tax. He stressed
that the legislature had the power to appropriate. He
thought there may be an appropriation request if the bonds
did not go forward.
9:43:58 AM
Co-Chair von Imhof recalled that in the previous
administration there had been a proposal that included a
discount to the state. She appreciated the graph on Slide
14. She thought the legislature could have flexibility
moving forward.
9:44:49 AM
Ms. Pitney turned to Slide 15, "Short Fiscal Summary -
FY20/FY21 Gov," which showed a data table, which was a
simpler comparison of UGF and all other funds from FY20 to
FY21.
Ms. Sanders addressed Slide 15. She noted a decrease of
approximately $150 million in general fund revenue between
FY20 and FY21. She pointed to a slight increase to the POMV
draw. There were miscellaneous adjustments to account for
the carry-forward and royalties for a total overall revenue
change of a decrease of $100 million. She said that the
appropriations had been broken down into the three largest
categories: capital, operating, and permanent fund. She
said that there was a $178 million increase in the
operating budget that consisted of both agency operations
and statewide items. She stated that the capital budget was
flat funded from the previous year and the overall increase
to the PFD appropriation was $865 million. She directed the
committee to the bottom of the slide and noted that LFD
provided in the fiscal summary to the committee a pre-
transfer surplus/deficit, which allowed the committee to
see where the state was prior to moving money from any
other funds. She relayed that the state had a deficit of
$1.5 billion, compared to last year when the state had a
deficit of $364 million, which was paid for with $172 from
the SBR and $140 million from direct appropriations from
the CBR. She referred to the right-hand side of the slide,
which showed reserve balances and reflected changes in
savings.
9:48:02 AM
Co-Chair Stedman thought there would be a robust discussion
at the table as to what account balance should be targeted
for the CBR. He said that the SBR took a majority vote to
access, while the CBR took a three-quarter vote of the
legislature to access. He added that the CBR was the only
fund that had an account balance of any significance. He
believed that the committee would continue to struggle with
what the CBR balance should be; anywhere from $1 billion to
$2.5 billion. He stated that the committee would be seeking
advice and recommendations on the issue moving forward.
9:49:24 AM
Co-Chair von Imhof looked at the ERA balance on Line 19 of
the slide. She thought it was important to point out that
the ERA balance related to the POMV draw. She said that if
the ERA was depleted in excess of the 5 percent POMV, then
the draw would decrease.
9:50:09 AM
Ms. Pitney asserted that a $500 million draw, over 5 years,
reduced the total POMV draw by $150 million annually, in
perpetuity.
9:50:38 AM
Senator Hoffman thought the presentation and the comments
by Co-Chair von Imhof begged the question of additional
revenues, which he thought needed to happen if the state
wanted government as it presently existed. He pointed out
that there was considerable debate about the size of the
PFD. He thought that even with a reduced dividend the state
would face deficit spending. He believed that if that state
faced that fact that additional revenue was needed and that
the CBR should not be depleted, serious discussions on
substantial revenue measures should be had by the committee
and the legislature as a whole.
9:52:16 AM
Senator Bishop referenced Co-Chair von Imhof's question and
thought it was important not to overdraw the POMV. He
supported Senator Hoffmans comments.
Co-Chair Stedman looked at Line 18 and the targeted balance
of the CBR, which he understood did not consider the
possibility of a substantial supplemental budget.
Ms. Pitney noted that the amount also did not consider any
of the tax credit obligations.
Co-Chair Stedman requested LFD to create a slide that
included the supplemental numbers, and a slide that
illustrated the possible assumptions for the tax credit
obligation.
Ms. Pitney informed that there was a forthcoming slide that
would speak to the tax credit obligation.
9:54:09 AM
Ms. Pitney considered Slide 16, " Short Fiscal Summary
FY18/FY21 Gov," which looked at the UGF FY18 through FY21.
Ms. Sanders stated that the slide followed the same format
as the previous slide but provided more information in
terms of the historical look-back.
9:54:55 AM
Ms. Pitney displayed Slide 17, "Swoop Graph - UGF Only,"
which included all GF appropriations for FY 20 and FY 21.
The main purpose of the graph was to show the magnitude of
the PFD relative to other formula programs, and the impact
of filling the deficit with program reductions. She noted
that 17 agencies would have to be eliminated in order to
balance the budget and pay the current PFD. If the deficit
was filled by a reduction in the PFD, the resulting per
person dividend would be approximately $650.
9:56:40 AM
Co-Chair von Imhof reminded committee members that the
capital budget was anemic and hoped that if any budget
should increase it would be the capital budget. She
stressed the importance of investing in community and
providing jobs. She expressed concern for the size of the
deferred maintenance backlog. She understood that the PFD
was important but considered that the capital budget was
equally important.
9:57:47 AM
Co-Chair Stedman noted that if the 17 agencies were removed
it would include the Governors Office and the Legislature.
There would be no one to appropriate a PFD, or anything
else; prisons would be empty, courts and police would not
exist, oil and gas permits would not be issued, and fishing
openings would shut down. He considered the fate of
education and public assistance. He appreciated the
magnitude graph.
9:58:53 AM
Senator Hoffman thought another way to look at the slide
was potentially if the PFD was reduced to $1600, the state
would still be short. He reiterated that the state needed
to look at additional revenues. He did not think the people
of Alaska should be balancing the state's checkbook.
9:59:48 AM
Co-Chair von Imhof addressed the red bar, which depicted
the FY 20 Management Plan. She thought that incorporating
the supplemental into the graph would reflect the red and
blue bars matching up. She warned that all revenue ideas
had unforeseen consequences. She expressed concern about
the economic repercussions of issuing any taxes.
10:01:08 AM
Senator Olson commented that there were other ways to raise
revenues than an income tax.
10:01:33 AM
Co-Chair Stedman asked that the updated slide be included
in the requested future supplemental presentation.
10:01:43 AM
Ms. Pitney highlighted Slide 18, "K-12 Aid to School
Districts," which showed a bar graph that was a view of K-
12 education funding since 2011. The funding was flat, and
student enrollment had not increased significantly; a 1.3
percent growth rate over the past 10 years.
10:02:34 AM
Ms. Pitney looked at Slide 19, "K-12 Formula Funding, FY
88-FY 21," which was an inflation-adjusted view of
education funding.
10:03:04 AM
Senator Bishop asked Ms. Pitney what multiplier was used
for the inflation adjustment.
Ms. Pitney informed that the Anchorage consumer price index
(CPI) had been used as a multiplier.
Co-Chair Stedman asked Ms. Pitney to bring the information
to the committee.
10:03:46 AM
Ms. Pitney stated that she was highlighting large formula
programs because they had not grown with inflation over the
last 5 years.
10:04:03 AM
Ms. Pitney addressed Slide 20, "Medicaid Services
Appropriation," which showed a bar graph showing funding
for Medicaid Services, overlaid with enrollment figures.
She said that from FY15 to FY21 there had been no real
growth in the program. She noted the red line represented
enrollment, with expansion; the purple line represented
traditional enrollment. She pointed out the significant
increase in the traditional Medicaid enrollees from FY15 to
FY21, while the appropriation to the program has decreased.
She pointed out the GF component and noted that the federal
component comprised 65 percent of the total.
Co-Chair Stedman asked about enrollee numbers.
10:05:31 AM
Co-Chair von Imhof thought it was important to extrapolate
for the next three to four years and believed that the
Medicaid expansion population match would go down. She was
curious about the effect of changing matching rates for
various programs. She did not know if the matching rates
were changing, but thought it was important to consider.
Co-Chair Stedman thought that the issue could be considered
in subcommittee and brought back before the committee.
10:06:50 AM
Ms. Sanders stated that the traditional Medicaid enrollee
projection for FY21 was 220,000; expansion consisted of
59,640, totaling 260,000 enrollees.
10:07:26 AM
Ms. Pitney advanced to Slide 21, "CBR Access and Headroom":
• Typically, CBR Access for balancing the budget
has been limited to the bills passed that session
• However, restricting access to specific bills
caused problems for any sort of Supplemental
appropriations
• "CBR Headroom" is included to allow additional
appropriations beyond the enacted acts up to a
limit
• E.g. for FY20 the limit is $250 million
Ms. Pitney stated that in the appropriation bills, because
the CBR required a three-quarters vote, there was typically
an amount reserved for using the CBR in the appropriation
year. The limit for this current year was $250 million. She
said that the headroom provided for supplementals to be
passed on a simple majority vote. If the supplementals
exceeded the headroom, a three-quarter vote would be
required to access the CBR to pay for the supplementals.
10:08:33 AM
Ms. Pitney looked at Slide 22, "FY20 Supps and CBR
Headroom," which showed a table depicting what LFD believed
were the items that could of impact; the tax credit
information was not included on the table. She drew
attention to Line 22, which showed the CBR balance at $487
million.
Ms. Pitney noted that the supplementals highlighted on the
slide included $146 million for DHSS, $105 million for fire
suppression and capital redistricting project. She pointed
to school debt reimbursement, Regional Educational
Attendance Area (REAA) funds, and community assistance
programs totaling $100 million. She stressed that the
picture was dire and warned of the impact the supplemental
budget could have on the CBR.
Co-Chair Stedman queried the school debt and the REAA Fund
on Line 13.
Ms. Pitney stated that the amount was included as a
discussion item. If there was the desire to follow statute
on those issues for FY20, the slide reflected the added
cost.
Co-Chair Stedman understood that the line reflected full
debt reimbursement for the current fiscal year.
Ms. Pitney responded in the affirmative.
Co-Chair Stedman stated that the line item had been part of
the veto override issue in previous days.
Ms. Pitney replied in the affirmative.
Co-Chair Stedman asked about Community Assistance listed on
Line 14 of the slide.
Ms. Pitney stated that in FY20 there had been no
appropriation for community assistance. She related that
the items had been listed for discussion purposes.
10:12:21 AM
Co-Chair Stedman stated that the numerics on the slide
would be updated in the following two days when the
supplemental budget was published. He understood that under
the scenario reflected on the slide the CBR would drop to
under $500 million.
Ms. Pitney answered in the affirmative.
10:13:00 AM
Senator Bishop asked whether the school bond debt shown on
Line 13 anticipated 100 percent payment.
Ms. Pitney stated that the slide reflected 100 percent
payment.
10:13:53 AM
Senator Wielechowski asked about the $6 million request for
the Alaska Psychiatric Institute. He asked whether the
state was still paying $1 million per month for Wellpath.
Ms. Sanders shared that the Wellpath contract had been
reduced to $700 thousand per month.
10:14:52 AM
Ms. Pitney spoke to Slide 23, "Where are we going?
? Status quo scenario presented to show the magnitude
of the fiscal problem
? LFD policy neutral regarding method of addressing
? CBR empty in FY22 requiring ad hoc draws from ERA
? ERA empty by FY30
? Out-year deficits range from $1.8 -$2 billion each
year
Ms. Pitney noted that the slide reflected where the state
would be headed under the governors proposed budget.
10:15:19 AM
Mr. Painter referenced Slide 24, "LFD Fiscal Model and
Status Quo," which showed a snapshot from LFD's fiscal
model that projected out ten years and showed the impact of
the governors budget. He noted that the revenue
assumptions came from the revenue source book issued by the
administration and were the official Department of Revenue
assumptions. The governor's budget was run with inflation
and a full statutory dividend. The model assumed $250
million in supplementals for FY20, and $50 million going
forward which had been the assumption used in previous
years.
Mr. Painter drew attention to a graph on the top left,
which showed the UGF revenue in the budget. The blue bars
showed traditional revenue, the green showed the POMV draw,
and the orange bars showed draws from savings accounts (SBR
and CBR). The red bars showed additional draws from the
Permanent Fund needed to balance the budget. He qualified
that the LFD assumed in their modeling that when all the
savings accounts were drained, in order to balance the
budget, the ERA would be used because it is the largest
account. He stated that the black line showed the budget
without the dividend; the dotted line included the
dividend.
10:17:52 AM
Mr. Painter noted that the bottom left graph showed reserve
balances, including the ERA. The orange bar showed the CBR
balance under the proposed budget. The green bar showed the
ERA balance, which despite unplanned draws stayed steady
for a few years. He discussed inflation proofing.
10:19:44 AM
Co-Chair von Imhof looked at the graph on the upper left
and noticed that the green bar peaked just above the black
line, indicating a surplus just before paying a dividend.
Mr. Painter responded that if zero dividends were paid
there would be a surplus for the entire charted period.
Co-Chair von Imhof surmised that all the graphs would
change if a dividend were not paid out and that the overall
financial picture would improve. She thought it was an
interesting concept to ponder.
Co-Chair Stedman wanted to discuss the 'Budget Reserves'
graph on the left-hand side. He asked whether it was safe
to assume that if the state continued under the status quo
the earnings reserve would be depleted by 2029.
Mr. Painter said that, based on the trends reflected on the
slide, there would be no earnings reserve for FY30.
Co-Chair Stedman asked what would happen after the ERA was
depleted.
Mr. Painter relayed that the state could begin drawing from
other accounts but that the financial crisis would be
compounded.
10:22:05 AM
Mr. Painter addressed the graph 'Dividend Check' on the
upper right-hand side of the slide, which showed possible
dividend amounts per recipient. The red line showed the
status quo without unplanned draws and the purple line
showed the status quo scenario with unplanned draws. He
pointed out that the two bars diverged, which was due to
the unplanned draws reducing the value of the ERA. He spoke
to the graph 'Permanent Fund,' which compare the FY20 total
balance of the fund, growing with inflation. The purple
showed the principal and the green showed the ERA. He noted
that as the ERA vanished, the value of the fund would be
unable to keep up with inflation.
Mr. Painter addressed the graph on the lower left, 'Payout
for Dividends and General Fund,' which showed how much of
the POMV payout would go to dividends in the general fund.
10:23:51 AM
Senator Wielechowski thought the model was interesting. He
wondered whether it was possible to add the likelihood of a
recession to the model. He estimated that it was highly
likely to have a 20 percent to 30 percent drop in the
following five years.
Mr. Painter thought the model described by Senator
Wielechowski was too complex to release to the public but
suggested that it could be made available to legislators.
He said that additional investment return scenarios, based
on actual historical periods, could be made available. He
said that if a statutory dividend were to be paid, a short-
term dip in earnings would reduce the budget deficit, even
as it reduced the ERA. He said that negative earning
scenarios sometimes showed odd interaction with the
dividend calculation and the POMV draw.
Co-Chair Stedman stated that the Alaska Permanent Fund
Corporation (APFC) would be before the committee in the
following days and would help run additional scenarios
involving different expectations of economic activity.
Particularly, Senator Wielechowskis question about the
sensitivity of the ERA and the dividend. He noted that the
LFD model was linear, and life was not linear.
Co-Chair Stedman wanted LFD to provide additional
information including upcoming supplemental numbers. He
thought supplementals in the $100 million range were not
too uncommon. He requested a 5 to 10-year lookback at
supplemental numbers.
10:27:26 AM
Ms. Pitney showed Slide 25, "QUESTIONS?" The slide showed
the web address and options for subscribing to email
notifications from LFD. She related that the committees
concerns had been noted and updates would be provided to
members. She invited legislators to contact Mr. Painter to
work with the model under various assumptions to clearly
understand the drivers of the current fiscal situation.
Co-Chair Stedman asked whether the model on Slide 24 was
held in-house at LFD and was not publicly disseminated.
Mr. Painter agreed that due to the complexity, and possible
misinterpretation of the model, the model was not generally
shared with the public.
Co-Chair Stedman recommended keeping the model in-house. He
thanked the presenters for their work. He thought the
forthcoming supplemental budget release would highlight the
great difficulties the state had in controlling some of the
economic drivers embedded within the operating budget.
ADJOURNMENT
10:30:39 AM
The meeting was adjourned at 10:30 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012920 LFD SFC Presentation.pdf |
SFIN 1/29/2020 9:00:00 AM |
SB 152 |