Legislature(2021 - 2022)SENATE FINANCE 532
02/01/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| 10-year Plan | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
February 1, 2022
9:04 a.m.
9:04:27 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:04 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Natasha von Imhof
ALSO PRESENT
Neil Steininger, Director, Office of Management and Budget,
Office of the Governor.
SUMMARY
^10-YEAR PLAN
9:06:35 AM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, discussed the presentation, "State
of Alaska; Office of Management and Budget; 10-Year Plan
Overview; Senate Finance Committee; February 1, 2022" (copy
on file). He looked at slide 2, "What is the 10-Year
Plan?":
AS 37.07.020(b): "?The Governor shall also submit a
fiscal plan with estimates of significant sources and
uses of funds for the succeeding fiscal years."
The 10-Year Plan must include:
-Significant sources of funds (revenue)
-Significant uses of funds (operating, capital,
statewide items)
-Projected balances of savings accounts
Sources and uses of funds must balance while
providing for essential state services and
protecting economic stability
Assumptions should be clearly articulated so policy
makers can understand and evaluate the projections
Mr. Steininger pointed to slide 3, "10-Year Fiscal
Outlook." He stated that the slide was an overview of the
plan. He remarked that he would detail each section in the
upcoming slides.
9:10:36 AM
Co-Chair Stedman understood that there would not be enough
of a cushion in the CBR when there may be a situation when
the CBR is needed to backfill the budget.
Senator Hoffman remarked that the plan would not include a
three-quarter vote to spend the CBR in FY 22 and FY 23,
which was a stumbling block for the legislature for many
years.
Co-Chair Bishop wondered whether the $1.8 billion assumed
the $400 million for Higher Education remained in the CBR.
Mr. Steininger replied in the affirmative.
Mr. Steininger addressed slide 4, "Sources of Funds:
Revenue Outlook":
UGF Revenue Assumptions
Traditional UGF Revenue 12/15/21: Fall 2021 Revenue
Sources Book, Department of Revenue
Traditional UGF Revenue 1/19/22: January Revenue
Outlook, Department of Revenue
POMV Total: Fall 2021 Revenue Sources Book, Department
of Revenue
POMV Draw for Government: Half of POMV Total (Other
half toward PFDs)
Revenue Adjustments
Carryforward: Balance of unspent multiyear
appropriations carried forward into FY22
Undesignated Savings (SBR): FY22 direct
appropriations from the Statutory Budget Reserve
Federal Revenue Replacement: FY22 enacted and
FY23 proposed Federal COVID-19 funds for revenue
replacement
9:14:44 AM
Co-Chair Stedman wondered whether the plan included the 5
percent of market value (POMV).
Mr. Steininger replied in the affirmative.
Co-Chair Stedman wondered why the Office of Management and
Budget (OMB) chose the payout calculation, rather than the
statutory payout.
Mr. Steininger responded that that the fifty-fifty payout
was displayed, because the 10-year plan reflected the
policy proposals of the governor.
Co-Chair Stedman stated that the Legislative Finance
Division (LFD) would provide projections based on current
statutes and policies.
Mr. Steininger replied that the SBR was no longer
considered sweepable.
Co-Chair Stedman wondered whether there was an opinion from
the Attorney General on that issue that would be presented
to the committee.
Mr. Steininger replied in the affirmative, and agreed to
provide further information.
Co-Chair Stedman expressed concern regarding the ensuring
that the procedures related to the accounts did not
experience changes.
Senator Hoffman requested a Plan B, if the current
lawsuit related to the Higher Education Fund was
successful. He assumed the lawsuit outcome would have
significant implications to the current plan.
Mr. Steininger replied that if the outcome of the court
case was that the Higher Education Fund was not subject to
the sweep, it would reduce the final CBR balance by roughly
$400 million.
9:21:36 AM
Senator Hoffman wondered how that would reflect the 10-year
plan.
Mr. Steininger replied that it would slightly reduce UGF
expenditures.
Senator Hoffman requested another slide related to a plan
B, based on the possible outcome of the lawsuit.
Co-Chair Stedman stressed that $1 billion was not adequate
to take care of the state during a downward turn in oil
prices. He asked about the Alaska Marine Highway System
(AMHS).
Mr. Steininger stated that the plan showed that the AMHS
was supported by federal revenues.
9:27:16 AM
Co-Chair Stedman wondered whether there would be a proposal
for a mechanism to move the AMHS money forward.
Mr. Steininger replied that the work was yet to be done
about the technical issue to ensure the enactment of the
AMHS proposal.
Co-Chair Stedman was not interested in being politically
leveraged in order to receive a plan for the AMHS. He noted
that it was not comfortable for the communities that relied
on the marine highway to wonder whether the system would
continue to function. He wondered how the supplementals
were built into the plan.
Mr. Steininger replied that there was an assumption in the
out years that supplementals would net out over time with
lapsed amounts from agency operating budgets.
Co-Chair Stedman stressed that the committee budgeted
Medicaid as requested by the administration, but there was
an add back of all the reductions. He queried the
supplemental expectation in the current year and the other
expectations.
Mr. Steininger agreed to provide that information, and
stated that there would be a supplemental request from the
Department of Corrections (DOC).
9:34:56 AM
Co-Chair Stedman understood that there were unforeseen
issues that resulted in the supplemental requests. He asked
for a range of supplemental requests, perhaps based on the
year prior.
Mr. Steininger replied that the supplemental budget had
around $20 million total requests. He stated that the
supplemental projections presented were about netting the
difference between supplemental and lapsed budgets.
Co-Chair Stedman stated that LFD would present a ten-year
history of supplemental budgets.
Senator Hoffman wondered whether the outgoing years had a
GO bond match for the capital budget. He stressed that the
deferred maintenance plan would continue to increase.
Mr. Steininger responded that the projection forward within
the ten-year plan for UGF capital spending was the baseline
request to match federal funds.
9:41:11 AM
Senator Hoffman remarked that he was attempting to show
that within the projection, there was only a reflection of
going with the match, but capital expenditures would
continue to increase over time.
Co-Chair Stedman felt that there would be a repeat of
similar concerns about deferred maintenance that had
occurred fifteen years prior.
Co-Chair Bishop stated that there would be a hearing on
deferred maintenance.
Co-Chair Stedman wondered whether the Capital Income Fund
was sweepable.
Mr. Steininger replied in the affirmative.
9:45:13 AM
Senator Wielechowski wondered whether the governor no
longer supported a statutory PFD.
Mr. Steininger replied that the proposal from the
administration was for a 50/50 dividend.
Senator Wielechowski surmised that the governor longer
supported a statutory PFD.
Mr. Steininger replied that the administration's position
was that if there was no statutory PFD, there needed to be
an adjustment to the law through a constitutional
amendment.
Senator Wielechowski wondered whether there was an analysis
of how the revenue and expenditure outlook would be if
there was a statutory dividend.
Mr. Steininger agreed to provide that information.
Co-Chair Stedman spoke of stress testing and variables.
Senator Wielechowski asked how the governor planned to
balance the budget if he included a full statutory
dividend.
Mr. Steininger said that consideration of how to balance
the budget with aspects that diverge from the proposed plan
would not normally have engagement from OMB.
Co-Chair Stedman requested a 10-year plan under current
statutes.
Mr. Steininger agreed to provide the information.
Co-Chair Stedman noted that there were statutes in place
for the PFD and other funds and it was important that the
committee take those into consideration in discussions.
Senator Wielechowski stated that he was confused about why
the governor would assume something that was not in
statute.
Co-Chair Stedman hoped that people understood that current
statutes.
Mr. Steininger spoke to the nature of a 10-year plan. The
10- year plan was a reflection of the governor's fiscal
policy over the next ten years. The revenue outlook was not
a baseline projection without consideration of the
governor's plan. He said he was not at the table to present
baseline assumptions.
Co-Chair Stedman retorted that the members needed to know
what direction the state was headed.
9:53:36 AM
Mr. Steininger pointed to slide 5, "Uses of Funds: Agency
Operations":
Agency Operating Expenditure Assumptions
K-12 Formula: Flat in FY24, 1.5 percent annual
expenditure growth applied in FY25+
Population projections indicate a mostly flat
student age-population over projection period
Growth factor allows for potential post-pandemic
shift back to brick-and-mortar schooling
Medicaid: Flat in FY24, 1.0 percent annual expenditure
growth applied in FY25+
Projections in line with population growth with room
for provider rate increases
Other Formula: Flat in FY24, 1.5 percent annual
expenditure growth applied in FY25+
Agency non-formula: Flat in FY24, 1.5 percent annual
expenditure growth applied in FY25+
He shared that population projection showed flat for the
next 10 years. He was applying an expenditure growth
greater that the expansion of population. He said that the
Medicaid budget had been flat form FY23 to FY 24 and that
the growth rates were not a projection on inflation. He
said that the flat UGF in the Medicaid budget had been
beneficial to the state but that more people were using the
program due to the pandemic. He said that the changes in
state expenditures were reflective of cost restraint and he
thought that pragmatic decision would need to be made in
order to balance state budgets.
Senator Olson spoke to the numbers on the slide and asked
about the federal dollars the state had received over the
last six months. He asked about inflation in the projection
and why the significant inflation the state was currently
experiencing had not been reflected in the slide.
Mr. Steininger repeated that pragmatic decisions would need
to be made by future administrations.
10:00:32 AM
Co-Chair Bishop mentioned inflation. He said that education
had not seen an increase outside of the BSA in years. He
observed that the better agreement of forecasted numbers
moving forward, which resulted in smaller supplemental
budgets, should be the goal.
Co-Chair Stedman said that several presenters had spoken of
increased inflation. He said that decades ago an OMB
director had predicted zero growth, which had proved
untrue. He understood that there had been some negotiations
with salary issuers in Anchorage School District.
Mr. Steininger said that the proposal was to keep the BSA
flat.
Co-Chair Stedman said that salary increases in certain
departments should be discussed.
Mr. Steininger agreed that there were salary agreements
under discussion, reflected on line 6 of the slide.
10:05:19 AM
Co-Chair Stedman surmised that it was 2 percent for the
upcoming two years.
Mr. Steininger replied in the affirmative, but was only
within DOC.
Co-Chair Stedman asked for a definition of Teams.
Mr. Steininger replied that he did not recall the salary
negotiation, but recalled that it was related to the
teachers at Mt. Edgecumbe.
Co-Chair Stedman felt that the 1.5 percentage rate was too
low.
Mr. Steininger displayed slide 6, "Uses of Funds: Statewide
Expenditures":
Statewide Expenditure Assumptions
Debt: Department of Revenue Debt Manager projections
plus $20.7m additional GO bond debt service in FY24+,
Municipal School Bond Debt Reimbursement at 50 percent
statutory level in FY24+, assumes continuation of
moratorium on new debt
Retirement: State Actuary projection for PERS/TRS
assuming no contributions to overfunded health trusts,
other retirement contributions held flat at $4.6m
Oil and Gas Tax Credits: Department of Revenue
projection for statutory calculation; liability fully
addressed in FY26
Disaster Relief Fund: Fixed annual deposit of $5.0m in
FY24+
Regional Educational Attendance Area (REAA) Fund:
Fixed at 50 percent statutory level in FY24+
Other Fund Capitalizations/Transfers: Assumed zero in
FY24+
Oil and Hazardous Substance Prevention and
Response transfers listed in FY22 are reflected
as DGF in FY23 forward
10:11:07 AM
Co-Chair Bishop wondered whether the 17.5 going forward was
only at 50 percent.
Mr. Steininger replied in the affirmative.
Senator Hoffman remarked that when the Kasayulie case was
settled, the courts included the funding for the regional
attendance education areas to fund rural schools. He
stressed that rural schools did not have the ability to
vote to build schools, unlike urban schools. He stressed
that rural schools were put at second class by not
fulfilling the courts agreement.
Co-Chair Stedman pointed out that there was already a
request to LFD for a calculation about the issue.
Senator Hoffman thanked the administration for funding for
the Napakiak School.
10:20:10 AM
Co-Chair Stedman agreed.
Co-Chair Bishop remarked that inside the REAA, the funds
could be used for major maintenance.
Senator Wielechowski wondered why the governor was going to
"violate the law" on school debt bond reimbursement to pay
only 50 percent of a mandatory statute, the PFD, and rural
school funding, but 100 percent of the discretionary
statute of credits to oil companies.
Mr. Steininger replied that the decisions on the items were
about weighing the decisions individually. He stressed that
they were not connected decisions.
Senator Wielechowski wondered whether the governor proposed
to change the statutes for the school debt bond
reimbursement and REAA fund.
Mr. Steininger replied no.
Co-Chair Stedman requested the data on the school debt bond
reimbursement and the value of the overall outstanding
bonds. He asked about areas of the reductions.
Mr. Steininger replied that there was a report about
various policy interventions of Medicaid.
Co-Chair Stedman stressed that the committee wanted to
examine beyond 12 months, but rather years into the future.
Senator Wielechowski wondered whether there would be
between a $1 billion and $2 billion deficit if there was
adherence to the school bond debt reimbursement and REAA
statutes.
Mr. Steininger replied in the affirmative.
10:30:51 AM
Senator Wielechowski stressed that there was a proposal to
violate mandatory statutes in order to balance the budget.
Mr. Steininger addressed slide 7, "Uses of Funds: Capital
Expenditures":
Capital Budget Assumptions
Capital Budget: UGF capital expenditures held flat in
FY24+, other capital financing mechanisms assumed;
match for federal infrastructure bill currently not
included
Other Spending Assumptions
Supplementals and Lapse: Supplementals assumed to net
with lapsed funds in out years
Recent investments in baseline funding for fire
suppression and prevention reduce projected
supplemental needs
Co-Chair Bishop pointed out that the baseline increase
would see approximately $36 million in additional match.
Co-Chair Stedman remarked that there would not be capital
budgets that were as low as the plan was implying.
Mr. Steininger looked at slide 8, "Savings Balances":
CBR Balance Assumptions
FY21 Sweep: FY22 beginning balance reflects estimated
$490.4m from sub-funds of the general fund swept to
the CBR based on pre-audit estimates and will be
adjusted when final financial reports are available
Earnings: 2.25 percent returns
Deposits: Fall 2021 Revenue Sources Book projections
Surplus/(Draws): UGF revenue less UGF expenditures
10:36:24 AM
Senator Wilson wondered whether the administration had done
and in depth look at some of the funds that were swept and
the reason for creation of the funds.
Mr. Steininger replied there was work to determine whether
a fund was included in the sweep list.
Senator Wilson recalled that there had been conversations
about how funds were used when the money would be swept for
use in the general fund.
Mr. Steininger agreed to provide further information.
10:41:55 AM
Mr. Steininger addressed slide 9, "Durable Fiscal Reform:"
Constitutional Reforms
-SJR 5: Appropriation Limit
-SJR 6: 50-50 PFD Split
-SJR 7: Voter Approval for State Tax
Future Budget Topics
-Alaska Marine Highway System reshaping and transition
-Medicaid cost containment
-Post-sweep transition of designated funds use
-Government efficiencies
Legislative Reforms
-SB55 Passed SLA2021
10:44:47 AM
Co-Chair Stedman wondered whether lower costs would put
more pressure on payments in the agencies for pensions.
Mr. Steininger replied that the mechanism would work by a
salary adjustment associated with the percent of payroll
that wend to the retirement systems funds.
Senator Hoffman wondered whether the administration still
stood behind the revenue sources to fully fund the 50/50
PFD split.
Mr. Steininger replied that the administration did not
intend to introduce revenue measures or taxation.
Co-Chair Bishop stressed that chasing the oil fairy never
ends well.
Co-Chair Stedman discussed the afternoon meeting's agenda.
ADJOURNMENT
10:52:12 AM
The meeting was adjourned at 10:52 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 020122 OMB 10-Year Plan Overview SFIN.pdf |
SFIN 2/1/2022 9:00:00 AM |