Legislature(2021 - 2022)SENATE FINANCE 532
04/20/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB121 | |
| SB199 | |
| SB243 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 199 | TELECONFERENCED | |
| += | SB 121 | TELECONFERENCED | |
| *+ | SB 243 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
April 20, 2022
9:05 a.m.
9:05:16 AM
CALL TO ORDER
Co-Chair Bishop called the Senate Finance Committee meeting
to order at 9:05 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Senator Jesse Kiehl, Sponsor; Alexei Painter, Director,
Legislative Finance Division; Erin Shine, Staff, Senator
Click Bishop.
PRESENT VIA TELECONFERENCE
Tiffany Larson, Director, Spill Prevention and Response,
Department of Environmental Conservation; Jennifer Currie,
Chief Assistant Attorney General, Department of Law; Connor
Bell, Fiscal Analyst and Economist, Legislative Finance
Division; Curtis Thayer, Executive Director, Alaska Energy
Authority; Bert Houghtaling, Self, Big Lake.
SUMMARY
SB 121 PFAS USE & REMEDIATION; FIRE/WATER SAFETY
SB 121 was HEARD and HELD in committee for
further consideration.
SB 199 PERM FUND; PERMANENT FUND DIVIDEND
SB 199 was HEARD and HELD in committee for
further consideration.
SB 243 RAISE POWER COST EQUALIZATION
SB 243 was HEARD and HELD in committee for
further consideration.
SENATE BILL NO. 121
"An Act relating to pollutants; relating to
perfluoroalkyl and polyfluoroalkyl substances; relating
to the duties of the Department of Environmental
Conservation; relating to firefighting substances;
relating to thermal remediation of perfluoroalkyl and
polyfluoroalkyl substance contamination; and providing
for an effective date."
9:05:59 AM
Co-Chair Bishop relayed that it was the second hearing for
SB 121. It was the committees intention to hear a
presentation from the Department of Environmental
Conservation (DEC) and then hear from the sponsor.
9:06:49 AM
TIFFANY LARSON, DIRECTOR, SPILL PREVENTION AND RESPONSE,
DEPARTMENT OF ENVIRONMENTAL CONSERVATION (via
teleconference), discussed SB 121. She defined that
polyfluoroalkyl substances (PFAS) was a family of 5,000 to
10,000 manmade chemical compounds that were carbon-bonded
to fluorine, which was one of the strongest bonds known to
exist. She continued that PFAS were water, oil, and heat
resistant, and water soluble. Additionally, PFAS persisted
in the environment and bioaccumulated and magnified. She
stated that while the department had some concerns with the
bill, DEC appreciated the sponsor Kiehl bringing attention
to the very important topic.
Ms. Larson discussed what DEC had done in the absence of
legislation to protect the environment, which included
listing PFAS and Perfluorooctanoic acid (PFOA) as hazardous
substances. She cited that in 2016, Alaska was one of the
first states to promulgate soil and groundwater cleanup
levels for two PFAS compounds. In 2019 the department
incorporated (through its technical memo) the use of a
lifetime health advisory at of 70 parts per trillion for
PFOA and PFOS, individually or combined. Since 2018, DEC
and the Department of Transportation and Public Facilities
(DOT) had been voluntarily testing drinking water wells at
airports required to use aqueous reforming foam. As part of
the effort, there were procedures developed for alternate
drinking water when needed.
Ms. Larson asserted that DEC was actively working on the
issue and had published a strategic road map in fall of the
previous year. There was a science advisory board reviewing
documents for PFAS and PFOA that would likely set a lower
lifetime health advisory. The draft report was expected to
be released the following May and was expected to reduce
the lifetime health advisory by an order of magnitude, at
or near 7 parts per trillion or lower.
Ms. Larson noted that in fall of 2022, the Environmental
Protection Agency (EPA) expected to issue a proposed
rulemaking for the National Primary Drinking Water Act
regulations for PFOA and PFAS, with the final rule in 2023.
In winter of the current year, the EPA expected to publish
its ambient water quality criteria and begin identifying
PFAS in categories versus regulating in a compound-by-
compound basis. She reiterated that there were 5,000 to
10,000 compounds in the PFAS family, so science was moving
towards categorical regulation. In the summer of 2023, the
EPA would have a final rulemaking, designating PFOA and
PFAS in the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), known also as
Superfund.
9:10:27 AM
JENNIFER CURRIE, CHIEF ASSISTANT ATTORNEY GENERAL,
DEPARTMENT OF LAW (via teleconference), wanted to discuss
four legal issues with the bill. She highlighted that there
were two distinct ways that DEC could identify a hazardous
substance under state law, by the definition of hazardous
substance or by listing a hazardous substance in its
promulgating regulation. She recounted that in instances
where DEC had found a substance as hazardous according to
definition and not by regulation, there had been
responsible parties that had tried to eliminate liability
by arguing the substance was not in regulation as
hazardous. She suggested that listing hazardous substances
in statute would lead to responsible parties trying to
avoid liability by claiming that a valid determination of
another hazardous substance must be in statute.
She discussed DEC's required disposal of PFAS as proposed
in the bill and cited the potential creation of
contaminated sites that could cause future state liability.
She mentioned the federal governments sovereign immunity
from lawsuits and the difficulty of obtaining a waiver. She
contended that any provision that named the federal
government under state statute would be subject to
challenge unless there was a valid waiver from Congress,
and it was likely the state would have to enter into costly
litigation to hold the federal government liable.
Ms. Currie continued her testimony. She pointed out that it
was unclear as to whether the bill declared PFAS substances
as hazardous substances under state law, as it was only
referred to as PFAS substances. She noted that DEC's
liability statues only imposed joint and several liability
upon the release of hazardous substances.
9:13:37 AM
Ms. Larson discussed challenges that existed with DEC in
implementing the bill. She mentioned the lack of a database
for the firefighting foam (containing PFAS) used in the
state. She mentioned potential liability associated with
disposal of PFAS. She asserted that there was no mechanism
for DEC to accept, handle, or dispose of any amount of
PFAS. She asserted that the bill would require DEC to apply
unnecessary and expensive administrative procedures without
changing the monitoring requirement. She stressed that DEC
had and used the authority to require responsible parties
to respond to PFAS contamination, and to regulate hazardous
substances. She thought to statutorily declare any
substance as a pollutant could jump ahead of the science,
and could also take the decision-making out of the hands of
DECs technical experts.
Ms. Larson relayed that the department understood the
publics concern regarding PFAS, and the desire to have
clear lines of safety. She continued that the scientific
community was still working to determine the critical
levels of PFAS in food, water, and bodies, and she
emphasized that the bill would not make the process happen
any faster.
Senator Wilson wondered if the committee could get Ms.
Larson's and Ms. Currie's testimony in writing.
Co-Chair Bishop requested the testimony in writing.
9:16:53 AM
Senator Olson thought the state was facing a significant
chemical issue. He remarked that he liked the fact that the
state had firefighting foams that were effective. He asked
Ms. Larson about any alternatives she would propose in
order to mitigate damage to future generations from the use
of PFAS. He referenced the past use of asbestos.
Ms. Larson thought Senator Olson was asking if there was an
alternative firefighting treatment substance.
Senator Olson asked what Ms. Larson's alternative was to
the proposed legislation.
Ms. Larson did not have an alternative to put forward, but
thought it was important that the state fell in line with
science and gave researchers the ability to find the best
way to regulate the substances. She reiterated that there
were somewhere between 5,000 and 10,000 compounds in the
PFAS family and contended that if the state continued to
address the issue on a compound-by-compound basis, the
conversation would last for generations. She asserted that
the scientific community was putting forward a concentrated
effort towards investigating the substances, and one of the
efforts was to categorize the substances into a category
based on research. She thought the best path forward was to
follow the science and allow the substances to be
categorized.
Senator Olson mentioned the sovereign immunity and
differences between the state and federal levels of
government. He asked Ms. Currie about her area of law
expertise.
Ms. Currie stated she had been practicing law in the
Department of Law's Environmental Section for 17 years,
prior to which she had practiced environmental law for 5
years and worked in litigation for approximately 7 years.
Senator Olson asked Ms. Currie what she perceived as the
best public policy pathway to protect the public from PFAS.
Ms. Currie was prepared to speak to legal issues but
declined to address questions related to policy and thought
the agency could better address the topic.
Senator Olson observed that people who had voiced
opposition to the bill had made it apparent that there was
no alternative other than changing statute. He emphasized
the importance of addressing the problem.
9:21:41 AM
Senator Wielechowski heard DEC say that PFAS was listed as
"hazardous" by the state. He asked what hazards the
department had found were associated with exposure to PFAS.
Ms. Larson relayed that once the department would take the
human health toxicological data and list PFAS as a
hazardous substance, it would allow the department to
regulate the substance and talk about ultimate disposal
options.
Senator Wielechowski relayed that he was trying to gauge
how hazardous the department believed PFAS to be and what
kind of human health problems exposure caused.
Ms. Larson did not have a list of potential health problems
caused by exposure to PFAS. She detailed that DEC used the
EPAs and Agency for Toxic Substances and Disease
Registrys assessments. She offered to provide a follow-up
in writing.
Senator Wielechowski assumed that the department had listed
PFAS as a hazardous substance and would be interested in
knowing what the department believed the hazards to be. He
mentioned the concern expressed over AS 46.033.45 (b) by
the Department of Law, in that the department could get
potentially involved in litigation with the federal
government. He asked what agencies of the federal
government required release of a fire-fighting substances
containing PFAS.
Ms. Larson believed the Federal Aviation Administration
(FAA) required testing of PFAS substances at federally
certified airports.
Senator Wilson asked about current state mapping of PFAS-
contaminated sites.
Ms. Larson stated that there was a map published on the DEC
website that identified all contaminated sites. Upon
reporting, the sites were added to the database, and there
was 100 percent mapping of known sites.
Senator Wilson asked about the sites that were not known
and asked for an estimation of the ratio of known to
unknown sites.
Ms. Larson could not speculate about unknown sites.
9:26:02 AM
SENATOR JESSE KIEHL, SPONSOR, appreciated the conversation
and DECs contribution to the discussion. He asserted that
DEC had made some contributions over the years and the
problems that the state had arose from two things. He
asserted that the levels that DEC had set (for two
chemicals only) were set at a much higher level than was
safe. He agreed with a previous testifier from DEC who
testified that the best was to protect health was to list
thousands of the chemicals by class at lower levels, but
the bill did not do so. He emphasized that the research was
abundantly clear regarding PFAS substances, and there were
still some questions about a class. The bill involved
substances about which there was no question.
Senator Kiehl thought it was important to note that nothing
in the bill would prevent DEC from setting lower limits,
nor from regulating classes of chemicals.
Co-Chair Bishop thought he had heard Ms. Larson say that by
May it appeared the level would go from 70 parts per
million to 7 parts per million.
Senator Kiehl deferred to DEC in predicting what the EPA
would do. He noted that the bill proposed to set limits for
the two substances and 8 parts per million and 16 parts per
million as the highest amounts the state could allow. He
cited that research showed with even more risk the limits
could go lower.
Senator Kiehl objected to DEC's notions that the
legislature should never declare anything hazardous by
statute, which he thought the legislature did all the time.
He cited that the DEC statutes declared crude oil (in
uncontrolled release the environment), DDT, and other
pesticides as hazardous. He emphasized that the bill did
not propose a new or novel approach. He was sure that
potentially responsible parties might come to court with an
argument about other pollutants as the Department of Law
had suggested. He thought the department would also say
that the arguments had been unsuccessful in the past. He
deferred to the department regarding the history of
litigation.
9:30:15 AM
Senator Kiehl addressed the question of whether the bill
should speak to federal agencies that required the releases
being jointly and severally liable. He noted that the
subject had been vigorously discussed in the Senate
Resources Committee, and members of the committee had felt
strongly that the party that required spilling of the
substance into the environment should share joint and
several liability. The provision did not reduce the states
ability to recover the costs of clean drinking water for
Alaskans from other parties. He referenced the committee
addressing lawsuits and emphasized that the provision in SB
121 was not significantly different than many things the
legislature had done in challenging wrongdoing by the
federal government.
Senator Kiehl summarized that there were other important
provisions in the bill that would not be solved when the
EPA got around to a more protective health standard. He
mentioned protection for local fire departments and their
liability, and the phase-out for the oil and gas industry.
He referenced Senator Olson's remarks about safe
replacements for fire-fighting foams for everything save
for the oil and gas industry.
Senator Kiehl reminded that the bill gave the fire marshal
the ability to only trigger the firefighting foam phase-out
when there was a safe alternative available. He discussed
the up to 25 gallons of substance take-back and provide a
way for small communities to get rid of the foam. He
emphasized that the state had a lot of PFAS foam. He
mentioned the large amounts of PFAS that DEC had warehoused
at airports.
Co-Chair Bishop set an amendment deadline of Friday April
22, at five oclock.
SB 121 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 199
"An Act relating to use of income of the Alaska permanent
fund; relating to the amount of the permanent fund
dividend; relating to the duties of the commissioner of
revenue; and providing for an effective date."
9:33:33 AM
Co-Chair Bishop relayed that it was the third hearing for
SB 199, and the committee would consider fiscal modelling
scenarios presented by the Legislative Finance Division
(LFD).
9:33:52 AM
AT EASE
9:34:15 AM
RECONVENED
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed the presentation "Fiscal Modeling: Senate Finance
Committee Scenarios; Senate Finance Committee, April 20,
2022; Legislative Finance Division" (copy on file). He
advanced to slide 2, "Outline":
?Review of LFD Modeling Baseline Assumptions
?Comparison of Senate Finance Committee Assumptions to
LFD Baseline
?Fiscal Models Using Committee Assumptions
Mr. Painter detailed that the comparison of committee
assumptions was different than the previous time he
presented in order to reflect changes in the budget since
that time.
9:35:00 AM
Mr. Painter spoke to slide 3, "Review of LFD Modeling
Baseline":
? Legislative Finance's fiscal model is designed to
show policy makers the longer-term impact of fiscal
policy decisions.
? The baseline assumptions are essentially that
current budget levels are maintained, adjusted for
inflation. Policy changes are then applied against
that baseline.
? Our default is to assume that statutory formulas
will be followed.
This includes a statutory PFD beginning FY23.
Mr. Painter referenced slide 4, "Review of LFD Modeling
Baseline (cont.)":
Revenue Assumptions
? LFD's baseline revenue assumptions are the
Department of Revenue's Spring Revenue Forecast.
This assumes $101 oil in FY23, following
futures market thereafter.
DNR oil production forecast projects that
Alaska North Slope production will increase from
502.3 thousand barrels per day in FY23 to 576.6
thousand barrels per day in FY31.
? For the Permanent Fund, we use Callan's return
assumption of 5.86% total return in FY22 and 6.20%
thereafter.
Mr. Painter noted that the spring forecast was about a
month old and the current futures market was very close to
the spring forecast with a little flattening. He considered
the spring forecast to be appropriate for use in the
modelling.
Mr. Painter turned to slide 5, "Review of LFD Modeling
Baseline (cont.)":
Spending Assumptions
? For agency operations, these scenarios assume the
Governor's FY23 amended budget grows with inflation
(2.25%).
? For statewide items, the baseline assumes that all
items are funded to their statutory levels beyond
FY23.
This includes School Debt Reimbursement, the
REAA Fund, Community Assistance, oil and gas tax
credits.
? For the capital budget, we assume the Governor's
FY23 capital budget grows with inflation (2.25%)
? For supplementals we assume $50.0 million per year.
This is based on the average amount of supplemental
appropriations minus lapsing funds each year.
? For the PFD, we assume a statutory dividend is paid
annually beginning FY23.
Mr. Painter considered slide 6, "LFD Modeling Baseline,"
which showed two bar graphs entitled 'UGF Budget/Revenue'
and 'Budget Reserves; FY-ending Balance.' He mentioned that
at the top there was a line showing the surplus/deficit in
millions starting with FY 22 going to FY 31. The black
numbers indicated surpluses in FY 22 through FY 24, and
projected deficits from FY 26 and beyond. He highlighted
that the graph on the left showed budget and revenue, with
revenue shown in blue bars for traditional revenue from
petroleum and non-petroleum sources and green bars for the
percent of market value (POMV) draws. The other colors
signified other draws from various savings accounts, most
notably in yellow there was the Constitutional budget
Reserve (CBR) and Statutory Budget Reserve (SBR), the
states main savings accounts.
Mr. Painter explained that the graph on the right showed
savings accounts end-of-year balances, with the yellow
showing combined CBR/SBR and the green showing the realized
value of the Earnings Reserve Account (ERA). He summarized
that the slide showed that with a statutory PFD that would
pay about $4,200 per person in FY 23, there would be a
surplus (based on the governors amended budget) of about
$700 million, but by FY 25 there would be a deficit due to
projected oil price declines. The deficit would start at
about $300 million, changing to between $500 million and
$800 million in subsequent years. Because of the surpluses
in early years, savings accounts would grow by up to $5
billion by the first year, so even with deficits the state
would not need ERA overdraws for the scenario.
9:39:11 AM
Mr. Painter displayed slide 7, "Senate Finance Committee
Scenarios":
Committee Chair asked for modeling with the following
assumptions that differ from LFD's baseline:
? Capital budget baseline of $400 million (instead of
$195.4 million)
? All oil revenues resulting from ANS prices beyond
$100/barrel deposited into Permanent Fund
? Agency operations assume FY23 SCS2 budget growing at
2.25%.
? Assume expiring federal funds are replaced with UGF
and PERS healthcare is funded after FY23
? Varying PFD scenarios: statutory PFD, 50% of POMV,
and SB 199 with trigger passing and failing.
? Deficits are first filled with K-12 Forward Funding.
CBR/SBR deficit draws only occur after the entirety of
Forward Funding is used to fill deficits.
Mr. Painter discussed the assumptions for the committees
requested modelling scenarios. He noted that when looking
at the probabilistic model, the surplus size flattened out
a bit because at a certain point the surplus from high oil
prices got deposited into the Permanent Fund, which
depressed the top of the range. He mentioned a stress test
scenario that had agency budget growth at 5 percent, which
was roughly equal to the amount the Senate Committee
Substitute (CS) grew versus the FY 22 budget. He noted that
in the CS, the PERS healthcare funding for FY 23 was
deposited into the Pension Fund, but the scenario assumed
it would go into the Healthcare Fund in future years.
Mr. Painter explained that the bill had a Permanent Fund
Dividend (PFD) amount that would change based on a
triggering mechanism that considered the presence of $800
million in new revenues enacted. He would show scenarios
with the new revenue and without.
Mr. Painter looked at slide 8, "SCS2 Budget":
The SCS2 budget has significant changes from the
Governor's amended budget, including:
? $60m FY22 supplemental appropriation to oil and gas
tax credit fund.
? $1,215m for Forward-Funding K-12 in FY23. Modeling
assumes this funding is reduced to fill deficits.
? Added $27m UGF to offset state agencies' increased
fuel costs.
? Added $300m FY22 supplemental ARPA revenue
replacement. Remaining $186m used in FY23.
Mr. Painter detailed that one of the uses of American
Rescue Plan Act (ARPA) funding was to replace lost
Unrestricted General Fund (UGF) revenue.
9:44:06 AM
Mr. Painter highlighted slide 9, "SCS2 Fiscal Summary,"
which showed a table. He noted that SB 199 would have a
50/50 dividend. He pointed out key figures on the table
that left a roughly balanced budget: the ongoing pre-
transfer surplus of $937 million in FY 22, and $43 million
in FY 23. There was some use of savings that generated
additional surplus, which in FY 22 resulted in $1.2 billion
post-transfer surplus, and in FY 23 resulted in a bit over
$200 million in surplus. He pointed out a combined total of
about $3.5 billion for SBR and Constitutional Budget
Reserve (CBR) balances. When added to the K-12 forward
funding, there was close to $4.7 billion of liquid savings
that could be used to fill future deficits.
Mr. Painter addressed slide 10, "Comparison of Senate
Finance - Scenario to LFD Baseline," which showed a table.
He noted that the LFD baseline essentially represented the
governor's budget growing with inflation. In FY 23, there
was a $1.7 billion difference due in part to one-time K-12
forward funding. On an ongoing basis, the assumption
difference was about $450 million of additional spending,
with half in capital expenditures and half in operating
expenditures.
Senator von Imhof asked if the blue bars on the bar graph
showed the governors budget and asked if the amount
included all the different amendments that had been
proposed in the previous four months.
Mr. Painter answered in the affirmative and noted that the
amount included the federal infrastructure bill and the
amendments for recent salary adjustments.
Mr. Painter advanced to slide 11, "Oil Prices, FY22 to
Date," which showed a line graph entitled 'ANS West Coast
Price.' He explained that the spring forecast had shown oil
price at its peak, and it had been volatile since. Earlier
in the year the prices were lower, with a ramp-up before
the Russian invasion of Ukraine. He highlighted that when
looking at the fiscal modelling scenarios, the spring
forecast assumed that oil prices would return to the pre-
war level within a few years. He noted that volatility
scenarios would show oil price at significantly higher and
lower ranges.
9:48:46 AM
Senator von Imhof noted that the slide started showing the
price of oil in July 2021 and thought if the graph been
started two years prior it would have reflected greater
volatility. She thought it was important to note that
volatility in the price of oil was commonplace and
mentioned the amount available to spend currently as
compared to two years previously.
Mr. Painter thought Senator von Imhof had made a good
point. He noted that the price of oil had briefly been zero
two years previously, and then touched $125/bbl. He thought
when looking at scenarios and modelling, one could consider
the extreme cases of volatility that had already occurred.
Senator von Imhof asked to go back to slide 10. She looked
at FY 23, and thought it was important to note that the
committee proposed to fund several things that the
governors budget had not, such as the Regional Educational
Attendance Area (REAA) Fund, community assistance, and
deferred maintenance. She thought the committee proposed to
fund items that had not been funded for many years.
Co-Chair Bishop answered "yes." He noted that there was
also a supplemental included in the total.
Mr. Painter stated that the supplemental was not included.
He explained that the major difference in the lines on the
graph was the K-12 forward funding of $1.2 billion. Much of
the additional spending used UGF for the Alaska Marine
Highway System (AMHS) and $400 million proposed for the
capital budget.
Senator von Imhof asked to confirm that the largest chunk
of additional spending proposed by the committee was $1.2
billion for forward funding education.
Mr. Painter looked at slide 12, "Stress Tests":
? Two types of stress tests performed:
Budget stress test: grow agency operations and
capital budget by 5% per year instead of 2.25%
Revenue stress test: use probabilistic modeling
to simulate a range of possible oil prices and
investment returns
? For each PFD scenario, we will show the non- stressed
model output and the two stress tests
Mr. Painter discussed consideration of inflation rates.
9:52:56 AM
Mr. Painter showed slide 13, "Stress Test: 25th Percentile
Example":
? Example of a single case, for which 25% of total
cases see greater overall deficits.
? Example case has average oil price of $77 and
average Permanent Fund return of 7.0%
Mr. Painter pointed out the volatility on the graph. He
directed attention to the graph on the right entitled
'Permanent Fund Total Return,' and commented that even
though there were decent years in later years, the value of
the Permanent Fund was reduced. He thought the sequence of
returns for the fund was quite important rather than just
considering a straight average. He noted that oil
volatility and the sequence of returns in the model were
not favorable. He thought deterministic modelling could be
misleadingly positive versus the actual impact of
volatility in the real world.
Mr. Painter referenced slide 14, "Statutory PFD - SFIN
Baseline (2.25% Growth)," which showed two bar graphs. He
explained that the scenario included the committee
assumptions. He pointed out items on the bottom of the
slide that indicated the cost of the PFD in the scenario
and the amount per person.
9:56:24 AM
CONNOR BELL, FISCAL ANALYST AND ECONOMIST, LEGISLATIVE
FINANCE DIVISION (via teleconference), addressed slide 14.
He explained that the slide depicted a scenario showing a
statutory PFD with a 2.25 percent growth rate of agency
operations and capital budget. The scenario included a
deficit of $1.1 billion in FY 23, which was higher in the
following years because of the $1.2 billion in K-12 forward
funding discussed earlier. He highlighted the grey bar on
the graph. The forward funding was shown as an expenditure,
and later several hundred million of the funding amount was
used to fill deficits in FY 23. He pointed out the brown
portion of the bar that showed ARPA revenue replacement
filling the first few hundred million of the $1.1 billion
pre-transfer deficit. There were smaller deficits after FY
23, with deficits growing and then unplanned ERA draws
beginning in FY 28. He pointed out that the graph on the
right, 'Budget Reserves,' showed that the CBR hit the
minimum balance of $500 million in FY 27, after which the
unplanned ERA draws began.
Mr. Bell turned to slide 15, "Statutory PFD - SFIN Baseline
(5% Growth)," which showed an identical slide to slide 14,
with the exception of 5 percent budget growth in agency
operations and capital expenditure. He explained that the
FY 23 budget was the same as the previous scenario, with
the difference between the slides compounding over time.
The deficits grew significantly, up to $2.2 billion by the
end of the period. The K-12 forward funding reduction
filled the FY 23 through part of the FY 25 deficits, after
which the CBR and SBR were relied on until FY 27 when you
could see ERA overdraws. The realized ERA balance fell to
about $7 billion by FY 31 due to the sustained overdraws to
the fund.
Senator von Imhof thought slide 14 and slide 15 indicated
that inflation had a significant impact on expenses and
could not be ignored. She was reminded of the importance of
inflation-proofing the Permanent Fund corpus. She thought
the committee should consider inflation growth rates. She
thought it was wise to model different inflation rates
because it was material.
10:00:53 AM
Mr. Bell considered slide 16, "Statutory PFD - Revenue
Stress Test," which showed the statutory PFD in the
probabilistic scenario.
Mr. Painter addressed slide 16 and pointed out the median
deficit each year shown on the top. The left-hand graph was
on a previous slide. The blue bar in the middle represented
the median scenario, the green bars represented the 25th
and 75th percentile scenarios, and the black line
represented the 10th and 90th percentile. He expected the
vast majority of scenarios would fall within the lines. He
pointed out that in FY 23 there was a bunching up where
the median, the 90th percentile, and the 75th percentile
were shown in the same place because the impact of the $100
per barrel draw into the Permanent Fund. Since the baseline
forecast going forward was reduced, there was less
compression in the graph.
Mr. Painter addressed the graph on the right, which showed
the range of fiscal year-end realized ERA balances. The
bottom of the slide showed a table with CBR and SBR balance
probabilities, which were below a certain amount. In FY 23,
there was a 100 percent probability that the combined CBR
and SBR values were below $4 billion, and by FY 31 there
was a 90 percent probability. The other probability was
that the CBR and SBR would be below $500 million. For the
models, LFD assumed that there would be at least $500
million as a balance, so the scenarios had to overdraw the
ERA. The scenario could also be interpreted as the
probability of an ERA overdraw. In FY 23 the probability
was fairly low at 21 percent, but the figure increased over
time (as the revenue risk increased) to somewhere around 60
percent.
10:04:34 AM
Mr. Bell displayed slide 17, "50% of POMV to PFD - SFIN
Baseline (2.25% Growth)," which showed the same three
scenarios except for the 50/50 PFD, which was half of the
POMV draw from the Permanent Fund. The first graph showed a
baseline of 2.25 percent annual growth for agency
operations and capital expenditures. The FY 23 budget was
roughly balanced. He noted that there was an assumption of
$50 million in supplemental budget expense in FY 23, which
would not show up in the fiscal summary. He noted that
there was higher spending in FY 23, and FY 24 showed a
significant surplus, which fell into deficits starting in
FY 26. The forward-funding reduction was sufficient to
cover the deficits through FY 28, after which began CBR and
SBR draws in FY 29. There were no overdraws from the ERA in
the scenario. He drew attention to the combined balance of
CBR and SBR and realized ERA was over $20 billion by the
end of the period.
Senator Wilson commented that with the 50/50 PFD scenario,
a low budget and modest revenues showed that the scenario
could work.
Co-Chair Bishop referenced the following slide.
Mr. Bell highlighted slide 18, "50% of POMV to PFD - SFIN
Baseline (5% Growth)," which showed a slide identical to
slide 17 but for 5 percent in annual growth of agency
operations and capital spending. He highlighted that the
$12 million FY 23 deficit was the same, with a roughly
balanced budget. The deficit started to grow based on the
different compounding spending growth. He pointed out
deficit growth up to over $1 billion by FY 28 and then up
to $1.6 billion to $1.7 billion by the end of the period.
Due to the significant reserves balance in the earlier
period, the ERA was only overdrawn in the last two years of
the scenario. He cited that the CBR/SBR and forward-funding
reductions filled the deficits through FY 29.
10:08:03 AM
Mr. Bell looked at slide 19, "50% of POMV to PFD - Revenue
Stress Test," which showed two graphs: 'Surplus/(Deficit)
by Fiscal Year,' and 'Range of FY-End Realized ERA
Balances.' He cited that median surplus and deficit shown
was similar to what was shown two slides previously, but
the amounts differed in later years. He pointed out that on
the lefthand graph the median and 75th percentile were
roughly the same with the assumption that any oil price
over $100/bbl would be deposited into the principal, which
was only forecast for the first year. After FY 23, about 50
percent of the scenarios modelled showed between roughly $1
billion to $1.2 billion in deficits ranging to about $500
million to $1.5 billion in surpluses. The right-hand graph
showed the median realized ERA balance slowly declining,
with the ERA going to zero in the percentile.
Mr. Bell noted that in the absence of any ERA overdraws, it
was still possible for the account to draw towards zero as
in the more negative scenarios, such successive low
Permanent Fund returns, and other factors combined with a
poor market. He explained that it did not require ERA
overdraws for the ERA to draw down to zero. At the 75th
percentile the scenario showed the realized ERA balance
growing up to and beyond $30 billion. He pointed out that
the bottom row of figures showed the CBR/SBR balance
probabilities.
10:11:49 AM
Mr. Bell addressed slide 20, "SB 199, Trigger Succeeds -
SFIN Baseline (2.25% Growth)," which showed SB 199, first
depicting three different models with the assumption that
the bills trigger provision succeeded and $800 million in
new revenue was instituted in FY 27. The funds would be
added to the baseline revenue assumption for each year.
Under the scenario the PFD would be 25 percent of the POMV
draw until FY 27, after which the PFD would grow to 50
percent of the POMV. He noted that the bottom of the slide
showed the PFD at $1600 per person in FY 27, growing to
$3200 per person in FY 28 when there was a change in the
PFD formula. There were surpluses throughout the period,
with no need for ERA overdraws or use of the SBR and CBR.
Senator Wilson considered the history of the legislature
and the history of legislative spending in significant
revenue years. He asked if LFD felt that the numbers would
stay static. He wondered if there was a historical spending
ratio that could be applied to the models.
Mr. Painter thought the current year's budget could be used
an example of what Senator Wilson was referencing; the
growth was at 5 percent and the capital budget was growing
significantly. He continued that starting in FY 05 and
going through FY 14, the state operating budget had grown
by an average of almost 8 percent per year. He acknowledged
that the legislature had chosen to increase spending in
times of greater revenue, which he emphasized was a policy
choice that LFD could not predict. He added that there were
still significant surpluses during the period, but spending
also grew faster than inflation.
Co-Chair Bishop made the point that some of the spending
went towards the deferred maintenance backlog. He asked how
much of the 8 percent went to deferred maintenance.
Mr. Painter clarified that the eight percent increase was
from the agency operations portion of the budget. He noted
that some of the 8 percent of agency growth had gone into
daily maintenance, but not necessarily into deferred
maintenance. By FY 04, there had been about 15 years of
flat or declining budgets. There was quite a bit of
deferred growth. He noted that employee wages had not been
increased in several years, and there was faster growth in
contracts than previous years. He referenced pent-up demand
for spending as a result of multiple years of flat budgets.
10:16:15 AM
Co-Chair Stedman referenced the mention of salary and
benefit increases in all three branches of government. He
thought the committee had to make some decisions. He
thought there was upward pressure. He commented on the
previous flat inflation and the current inflation spike. He
thought it was most likely that the inflation trend would
continue for several years. He thought the slide showed an
optimistically low rate of inflation. He thought the
committee should take the inflations effect into account.
Mr. Bell advanced to slide 21, "SB 199, Trigger Succeeds -
Budget Stress Test (5% Growth)," explained that slide 21
was similar to the prior slide but for the 5 percent growth
assumption in agency and capital spending. In the scenario,
there were strong surpluses during the first several years,
but beginning in FY 28 there were deficits. The deficits
were filled by the K-12 forward-funding reduction for the
first two years, after which the CBR and SBR filled the
deficits. There were no ERA overdraws required and the
ending CBR/SBR combined balance was about $8 billion at the
end of the period. He noted that the PFD amount was
depicted on the bottom on the slide and pointed out that it
jumped up to 50 percent of the POMV in FY 28 like the prior
slide. He noted that the orange bars on the graph on the
left showed the $800 million in new annual revenue as part
of the plan.
10:20:27 AM
Mr. Bell showed slide 22, "SB 199, Trigger Succeeds -
Revenue Stress Test," which included the $800 million in
new revenue and the 25 percent POMV dividend that jumped to
50 percent in FY 28. With the probabilistic modeling, in FY
23 there was a range of a $1 billion deficit to an $800
million surplus. He pointed out that since any revenue over
$100/bbl went to the Permanent Fund principal, the maximum
surplus would be $830 million. The following three years
showed a range of $2.5 billion to zero surplus. The jump-up
in FY 27 was due to the institution of the first year of
the $800 million in new revenue while the higher PFD had
not started yet. Beginning in FY 28 there was a similar
range of between $300 million to $500 million in deficits
and $1.5 billion surpluses in half of the cases. The graph
on the right showed that there were only ERA overdraws in
about 1 percent or 2 percent of cases per given year. There
was still some chance of the ERA going to zero if there
were poor returns, but there was also a plausible
likelihood of the ERA exceeding $30 billion. The
assumptions also showed a high likelihood (about 93
percent) that the CBR/SBR combined total became greater
than $4 billion in the later years.
Mr. Bell spoke to slide 23, "SB 199, Trigger Fails - SFIN
Baseline (2.25% Growth)," which modelled the bill effect
assuming the trigger failed, no new revenue was instituted,
and the PFD was 25 percent of the POMV for all years. He
pointed out the PFD per-person amount at the bottom as
$1,200 in FY 23, growing to about $1,700 per person in FY
31. There were surpluses shown throughout the period, with
the 2.5 percent growth assumption. The combined reserve
balances exceeded $30 billion by the end of the period, and
there was no reserve draw required.
10:23:50 AM
Mr. Bell discussed slide 24, "SB 199, Trigger Fails -
Budget Stress Test (5% Growth)," which showed the same
model as the previous slide but with 5 percent growth
rather than 2.5 percent growth. He cited deficits starting
in FY 28, with healthy reserves balances and about $100
million to $500 million in deficits per year.
Senator von Imhof thought the previous two slides showed
how inflation affected the long-term forecast. She thought
it was important for the committee to consider at least a
decade or two. She remarked on the compounding effect of
inflation. She emphasized that she had a problem with
taxing people in order to pay a dividend. She pointed out
that SB 199 had a taxation component in order to pay a
dividend.
Mr. Bell showed slide 25, "SB 199, Trigger Fails - Revenue
Stress Test," which showed a 25 percent POMV dividend for
all years, with the probabilistic modelling. He noted that
the median surplus and deficit was similar to three slides
prior. The graph on the left, 'Surplus/(Deficit) by Fiscal
Year' showed that in FY 23, one could see the deficit range
from $1 billion to $800 million in surplus until FY 27. The
range was similar throughout the period, with a balanced
budget to a few hundred million in deficits ranging up to
over $2 billion or more in surpluses in 50 percent of the
cases in each year. There was only about a one or two
percent chance of requiring ERA overdraws in the scenario.
The chart on the right was similar to that of three slides
previously since there were no ERA overdraws.
10:27:01 AM
AT EASE
10:29:02 AM
RECONVENED
Co-Chair Bishop relayed that the amendment deadline for SB
199 was noon the following day.
SB 199 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 243
"An Act relating to power cost equalization; and
providing for an effective date."
10:29:29 AM
Co-Chair Bishop relayed that it was the first hearing of SB
243. It was the committee's intention to hear a bill
introduction, consider public testimony, and set the bill
aside.
10:29:52 AM
ERIN SHINE, STAFF, SENATOR CLICK BISHOP, read a bill
introduction:
SB 243 proposes to raise the maximum kilowatt-hours
available to residential customers for Power Cost
Equalization relief?from 500 kilowatt-hours a month to
700 kilowatt-hours.
In your bill file you will find an analysis provided
by the Alaska Energy Authority assumes that all
residential customers can utilize?the additional 250
kilowatt-hours, SB 243?will add approximately $16
million?to the yearly PCE payment.
Alaska's PCE program was established in 1984 and
provides?economic?assistance?to communities?and residents
of rural electric utilities where the cost of
electricity?can be three to five times higher than for
customers in more urban areas of the state.
The PCE program was further established?to assist rural
residents at the same time state funds were used to
construct major energy projects to assist more urban
areas.? As most urban and road connected communities
benefit from major state-subsidized energy projects.
Rural communities? not on the road system that are
dependent on diesel fuel do not benefit from the
large, subsidized energy projects, and PCE is a cost-
effective alternative to provide comparable rate
relief to rural residents. ?The program reimburses the
utility for credits it extends to its customers.
The PCE program?is funded by earnings of the PCE
Endowment Fund, which the last Market Value as of
March 31st, 2022, was $1.1B, provides that five
percent of the fund's three-year monthly average
market value may be appropriated to the PCE Program.
As you may be aware the percent of market value draw
on the PCE Endowment Fund not only funds PCE but also
Community revenue sharing or community assistance, the
renewable energy grant fund, the bulk fuel revolving
loan fund or the rural power system upgrades.
Ms. Shine noted that bill packets contained a document from
the Alaska Energy Authority (copy on file), which was an
analysis that assumed if adding $16 million to the yearly
PCE payment if all residential customers could utilize the
additional 250 kilowatt hours. She reminded that the POMV
draw on the Power Cost Equalization (PCE) Endowment Fund
not only funded PCE but also the Community Assistance
Program and the Rural Energy Grant Fund. According to the
calculations done by LFD, it would take approximately a
$320 million appropriation to capitalize the PCE Endowment
Fund to continue funding the waterfall programs from the
draw.
10:32:14 AM
Senator von Imhof asked if more money went towards the PCE
program, less funding would go towards Community
Assistance.
Ms. Shine stated there was still a statutory formula that
would be followed that was outlined in AS 42.45.085. There
were certain triggers in the fund. She stated that the
money that would go to the PCE Fund would fund the
residential program first, after which the waterfall
programs would be funded. The fund would need to be
capitalized with some additional funds for the payments.
Senator von Imhof understood that the residential program
would be the first item paid from the fund. She thought
there was a consequence in that the trigger and other items
mentioned in statute might not have adequate funding.
Ms. Shine noted that the executive director of the Alaska
Energy Authority (AEA) was available for questions. She
believed that the fund would be fine for the next couple of
years.
Senator Hoffman stated that he had asked the LFD director
to come up with a number to keep the fund intact. The
number that Ms. Shine had mentioned in her presentation to
achieve no changes in the programs would be $320 million.
Senator von Imhof asked if the funding would be an
additional $320 million in a grant to the PCE Fund.
Senator Hoffman stated that the funds would be directed to
the endowment.
Co-Chair Bishop relayed that the fund had a current balance
of $1.1 billion, and the $320 million would be added to the
endowment for a rough total of $1.4 billion.
Senator von Imhof understood that others were looking at
adding funds to other endowments like the Higher Education
Trust Fund. She mentioned a homeless trust fund and a
deferred maintenance fund. She thought there were many
competing priorities.
10:35:52 AM
CURTIS THAYER, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY
(via teleconference), noted that the information provided
by Ms. Shine was correct. It was estimated that the program
would cost an additional $15.7 million per year by going
from 500 to 700 kilowatts. There would be no additional
administrative costs on the part of AEA. He offered that
the last five years, the Endowment Fund earnings had ranged
from $48 million to $155 million. The first bucket of money
was the PCE Program, which was budgeted at roughly $32
million, but there was budget language that allowed for the
amount to increase based on the true cost.
Mr. Thayer mentioned community assistance at a cost of $30
million. The only year that the Community Assistance
program was not fully funded was in FY 20, when the
earnings from the PCE Endowment Fund were only $48 million.
There was a cascading waterfall of funding for one of three
items: rural power houses, the Rural Energy Fund, and
capitalization of the Revolving Loan Fund. He discussed
AEAs recommendation to the legislature about using $25
million in funds. He could not comment on the $320 million
identified by LFD.
Co-Chair Bishop asked if bumping up the kilowatts to 750
was a new idea.
Senator Hoffman stated that the 750 kilowatts was the
original amount that was utilized when the program was
initially contemplated.
10:38:23 AM
AT EASE
10:38:29 AM
RECONVENED
Co-Chair Bishop OPENED public testimony.
Mr. Thayer stated he was available for questions. He stated
that it would be easy for AEA to enact the change proposed
in the bill. He noted that the fiscal note assumed that
everyone in the program would use the 750 kilowatts, which
meant the fiscal note was a very conservative estimate of
what the additional cost would be.
Co-Chair Stedman asked for Mr. Thayer to discuss the
community portion for non-residential homes and whether the
amount was capped.
Mr. Thayer explained that the PCE Program was for
residential customers only in the PCE-eligible community,
and for community buildings up to a certain kilowatt. The
program was not for commercial buildings or for commercial
enterprises.
Co-Chair Stedman had heard a concern that one of the choke
points was the community buildings, which seemed to consume
more power and need more relief versus homes. He asked if
Mr. Thayer could shed light on the issue.
Mr. Thayer stated that the issue had been of concern to
AEA. He continued that AEA was currently undertaking an
audit of all 193 communities in order to better understand
what community buildings had been built since the last
audit.
Co-Chair Stedman asked if the topic of community buildings
should be a component of the legislation. He wondered if
the legislature was ignoring part of the problem in rural
Alaska by not accounting for rural buildings.
Mr. Thayer noted that the program did account for community
buildings. He emphasized that AEA needed to work with
communities to identify new or additional community
buildings that were not currently in the PCE program
system. He acknowledged that some community buildings were
missing, and emphasized that AEA was reaching out to every
community for the information, which would take most of the
summer.
10:42:35 AM
BERT HOUGHTALING, SELF, BIG LAKE (via teleconference),
spoke in opposition to the bill. He did not agree with
adding funds to the PCE program. He thought the state was
catering to certain individuals. He wished that legislature
would address those that had suffered during the pandemic.
He was against increasing any funding for the PCE Program.
He mentioned federal funds.
10:44:22 AM
Co-Chair Bishop CLOSED public testimony.
Senator Wilson asked for more information regarding the
five-year plan of increase to the PCE Program and how it
would affect the endowment. He asked how the increase would
be funded.
Co-Chair Stedman thought that the committee could consider
building the endowment up over time if the bill were to
become law. He mentioned the option of having a trigger
based on the price of oil. He thought there could be
flexibility in funding the proposed increase to the
program. He acknowledged that $300 million was a
significant amount of money.
Senator Wilson wondered how the other waterfall programs
would be affected if there was not an increase.
Senator Hoffman preferred to fully fund the endowment so
that the Community Assistance Program and other programs
were fully funded. He thought there was merit to Co-Chair
Stedman's comments but considered that delaying the fund
increase would cause a loss of focus. He reminded that the
33rd legislature and the future governor was unknown. He
thought the committee should give serious consideration to
fully funding the endowment to at least $300 million.
10:48:04 AM
AT EASE
10:50:34 AM
RECONVENED
Co-Chair Bishop set an amendment deadline for Friday, April
22, at five oclock.
SB 243 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:51:16 AM
The meeting was adjourned at 10:51 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 121 Support Szczepanski PFAS.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 121 |
| SB 121 Support Sylvester PFAS.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 121 |
| SB 121 Support Miller.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 121 |
| SB 121 ACC testimony on SB 121 - April 12.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 121 |
| SB 121 Support PWSRCAC.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 121 |
| SB 243 Sectional Analysis ver. B 4.19.22.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 243 |
| SB 243 Supporting Document - AEA PCE Analysis from 500 to750.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 243 |
| SB 199 SFIN Fiscal Modeling Presentation 4-20-22 UPDATED.pdf |
SFIN 4/20/2022 9:00:00 AM |
SB 199 |