HOUSE BILL NO. 30 "An Act relating to performance reviews, audits, and termination of executive and legislative branch agencies, the University of Alaska, and the Alaska Court System; and providing for an effective date." 1:31:39 PM REPRESENTATIVE MIKE CHENAULT, introduced HB 30. He declared that HB 30 was an investment in Alaska's future. He stated that the performance audits had been in statute since 1977, but the statute did not allow the program to continue. He stated that a bill was introduced in 2009 that would have reinstated the program. That bill passed the House, but did not get taken up in the Senate. If that bill had passed, the first department on the list of audits was the Department of Corrections (DOC). He felt that performance audits were necessary, in order to accurately review and approve a budget. He felt that HB 30 would provide effective changes to the budgeting process. He stressed that the job of legislators was to ensure that funding was accurate for the right service or project. He added that it was not the legislature's job to micro manage the departments. He declared that HB 30 would cause a review of current department administrations; and compare those to the best practices from other states and experts in order to effectively and efficiently meet constitutional mandates. He remarked that revenue projections had changed significantly; oil production had dropped; and the state was at the mercy of oil price changes. The State loses an equivalent to $1 billion, when the price of oil drops by $10 a barrel. He stressed that HB 30 would start the process that would significantly enhance the ability to handle the responsibility of the finances of Alaska. Co-Chair Stoltze pointed out that HB 30 would be referred to a subcommittee, before it would be considered for passage from the House Finance Committee (HFIN). 1:36:48 PM SHARON KELLY, STAFF, REPRESENTATIVE CHENAULT, explained HB 30. She referred to the Sponsor Statement (copy on file). In 1977 the Alaska State Legislature found there was a need for an effective and regular system of scrutinizing the programs and activities of all State agencies, boards and commissions. The legislature further found that the establishment of a system for periodic review by the public, the executive and legislative branches of certain state agencies, boards and commissions would help the governor and the legislature determine the need for the continued existence of each. Under AS 44.66, this review has continued since 1977 for boards and commissions. The dates to review programs and agencies of the state ended in 1983 and were never reenacted. Low oil revenues contained budget growth from the early Eighties to 2004. State revenues grew dramatically when the price of oil rose in 2004, and the budget grew accordingly. The current legislative budget process mainly looks at increments and without a regular system of scrutiny, annual budgets continue to grow. Other states have incorporated performance reviews that have resulted in significant budgetary savings. This legislation will renew the effective and regular system of scrutiny of our departments by authorizing performance reviews. The legislation has been crafted to model some of the aspects of the Texas Sunset Commission reviews, but utilizes minimal staff and outsourced independent contract work to complete the process under the auspices of the Legislative Audit Division. The information provided by these reviews will include authority, accountability, effectiveness, efficiency and necessity of departments and their programs. The report, along with draft legislation to fix issues, will provide the House and Senate Finance Committees with in-depth information needed to fund state budgets appropriately. Alaskans will be the ultimate beneficiary of these reviews. This process will ensure that our governmental agencies are working for Alaskans in an efficient manner. 1:38:23 PM Ms. Kelly explained the difference HB 30, and the bill that was introduced to the legislature two years prior: HB 166. She stated that two changes were proposed by the legislative auditor, and one was a technical date change. The first change in Section 1 stated that the savings calculations that resulted from implemented audit recommendations would be completed by the Legislative Finance Division (LFD). The second change was in Section 6, page 6, line 30, which changed the word, "will" to "may" of items that would appear in the final report. That change would give LFD the flexibility to adopt the report elements for each department, as determined necessary and/or appropriate. She restated that the last change was to move the dates two dates forward. The order of department reviews was agreed upon in the subcommittee work of HFIN two years prior. Vice-Chair Neuman wondered Legislative Budget and Audit (LB&A) had the authority to review the audits for budget analysis. Ms. Kelly replied that HB 30 provided the opportunity for LB&A to review the department increments, so the subcommittees can analyze the information. Vice-Chair Neuman assumed that LB&A already had the authority to effectuate performance audits within the departments. Ms. Kelly replied that LB&A had the authority to have an audit request presented to them. In 1977, a periodic review was set in statute. The statute did not continue, because the statute did not carry forward. Unless the performance audits were written in statute, some departments' audits may be overlooked. Vice-Chair Neuman felt that performance audits were necessary, but he expressed concern regarding the authority power of LB&A. Co-Chair Stoltze declared that he would not have signed on as a cosigner of the bill, if it were a constitutional amendment to amend the legislature's appropriation powers. He felt that HB 30 would enable another agency to carry out the audits. 1:43:23 PM Representative Chenault agreed, and reiterated Co-Chair Stoltze's comments. Representative Edgmon looked at page 4 of HB 30, and wondered if there was any consideration towards advancing the auditing schedule. Ms. Kelly responded that it was possible to advance the auditing schedule. She shared that the departments with the largest budgets were the Department of Health and Social Services (DHSS), the University of Alaska (UA), the Department of Education and Early Development (DEED), and the Department of Transportation and Public Facilities (DOT). She stated that the first on the list was Department of Natural Resources (DNR), because it had a medium sized budget. The reason for this decision was to ensure some experience, before auditing the larger departments. Representative Munoz noted that the fiscal note indicated three full time staff by FY 15; and $1 million in contractual fees. She wondered why there was an additional $1 million in contractual fees. Ms. Kelly replied that LB&A prepared the fiscal note, with the intent to have some performance auditors on staff. She furthered that the bill gave the ability to use experts in the field to get the experience of the best practices. 1:48:58 PM Co-Chair Austerman looked at page 6 of the bill, and queried the changes from the previous year's similar bill. Ms. Kelly replied that page 6, line 36 stated that "in the report, the review team may"; in the prior bill that phrase said that "in the report, the review team will." She explained that the change was made at the request of LB&A, so the final report could only highlight the large and important legislative items. Co-Chair Austerman mirrored Representative Edgmon's concerns related to the auditing schedule. Representative Costello wondered what the funds for out of state travel would specifically be used toward. Ms. Kelly replied that the legislative auditor added the out of state travel funding to the fiscal note in case there was a need to examine another state's system. Representative Gara expressed support of HB 30. He surmised that the bill would not affect the governor's budget. Ms. Kelly agreed. Representative Gara looked at page 5, lines 7 through 14 of the bill. He wondered what programs would be examined, if there was not a possible 10 percent cut under the bill's standards. Ms. Kelly replied that it was a guideline, in order to provide a possible list that would cut the department by 10 percent, and then the legislature would determine where the cuts could be made. 1:53:48 PM Representative Gara wondered what would happen if the agency could not find 10 percent worth of cuts. Ms. Kelly pointed out that all information submitted to the legislature would state that the financial plans would be prioritized. She remarked that the manager prioritizes the program, but could argue that the items that were low on the list were still constitutionally mandated. Representative Gara wondered if a provision could be added that would require the department to explain why it could not find 10 percent of the programs unnecessary. Representative Chenault replied that the criteria was merely a guideline, so the department would be urged to prioritize there programs. 1:58:00 PM Representative Gara reiterated his desire for a provision that allows the department the ability to explain their reasoning for not making specific cuts to programs. Ms. Kelly responded that the intent of the bill was to ask departments to objectively examine their budgets, and identify 10 percent. She understood that there were larger items that could not be cut, but there was nothing that mandated a requirement of the legislature to decrease those programs. Co-Chair Stoltze stressed that there should always be a benchmark for the departments' budgets. Representative Kawasaki wondered where and how the performance metrics would evolve. Ms. Kelly replied that the metrics would evolve in the process of the legislative auditor looking at the way that other states' metrics evolve. She pointed out that there were various metrics that states utilize, and the legislative auditor would determine if those metrics applied to Alaska. Representative Kawasaki wondered what would happen if the governor's metric was in conflict with the legislature. Representative Chenault responded that it was the privy of the legislature to construct a bill, and furthered that he would like to work with DOA to come to an agreement based on continuity. 2:03:38 PM Co-Chair Stoltze remarked that the governor could not "veto money into the budget." He pointed out that the legislature's primary role was appropriation, and it should be a collaborative effort. Vice-Chair Neuman looked at page 4, line 5 of the bill, and suggested the words "have to" instead of the words "may" and "shall." He looked at the fiscal note, and wondered if the department would be restricted to the personnel that were already in place, while the performance audit was conducted. Ms. Kelly responded that OMB agreed that there may be added work, but they agreed to move forward with a zero fiscal note. She remarked that the fiscal note may evolve. Co-Chair Stoltze suggested language about direction related to managing the performance audits. Representative Chenault thanked the committee, and looked forward to developing a proper way to conduct the performance audits. Co-Chair Stedman appointed Representative Costello to be the subcommittee Chair for the Performance Audits subcommittee; with members: Representative Austerman, Representative Wilson, and Representative Gara. HB 30 was HEARD and HELD in committee for further consideration. 2:08:35 PM AT EASE 2:09:21 PM RECONVENED Co-Chair Stoltze handed the gavel to Co-Chair Austerman.