HOUSE FINANCE COMMITTEE February 17, 2000 1:40 P.M. TAPE HFC 00 - 36, Side 1 CALL TO ORDER Co-Chair Mulder called the House Finance Committee meeting to order at 1:40 p.m. PRESENT Co-Chair Mulder Representative Foster Vice Chair Bunde Representative Grussendorf Representative Austerman Representative Moses Representative J. Davies Representative Phillips Representative G. Davis Representative Williams Co-Chair Therriault was absent from the meeting. ALSO PRESENT Annalee McConnell, Director, Office of Management and Budget, Office of the Governor; Joan Brown, Fiscal Analyst, Office of Management and Budget. SUMMARY HB 343 "An Act making and amending capital, supplemental, and other appropriations and reappropriations; making a reappropriation under art. IX, sec. 17c, Constitution of the State of Alaska, from the constitutional budget reserve fund; making appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." HB 343 was heard and HELD in Committee for further consideration. HOUSE BILL NO. 343 "An Act making and amending capital, supplemental, and other appropriations and reappropriations; making a reappropriation under art. IX, sec. 17c, Constitution of the State of Alaska, from the constitutional budget reserve fund; making appropriations to capitalize funds; ratifying certain expenditures; and providing for an effective date." Co-Chair Mulder provided members with a spreadsheet analysis of HB 343 from the Office of Management and Budget, dated 2/7/00 (copy on file). ANNALEE MCCONNELL, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR reviewed the Governor's supplemental request. When the Governor took office there was over $100 million dollars in "pared-down" supplemental items pending. The Governor made it one of his top priorities to reform the overall supplemental budget process. The Governor concluded that the situation of under- funding budgets that would obviously require supplemental appropriation was unsatisfactory. Most formula programs have been funded at a level consistent with projections in the FY00 budget. Funding for disasters and fire suppression was retained in the supplemental budget. Expenses for fire suppression and disasters exceeded the amount included in the FY 00 budget plan. The average amounted needed for fire suppression over the past five years has been $11.7 million dollars. Ms. McConnell noted that $21 million dollars are needed in the FY 00 budget to cover thirteen entitlement programs that were insufficiently funded, including pupil transportation. Pupil transportation was $2.1 million dollars short. Estimates for pupil transportation costs are based on a 3.5 percent growth factor. This was exceeded in three school districts: Fairbanks, Anchorage and Kenai. She observed that there is limited competition in those areas. There is no cost control element on a straight reimbursement basis. Ms. McConnell observed that there were savings in some areas of the FY 00 budget. She noted that K-12 enrollment was below the anticipated level. Authorization for education foundation formula funding was $12.4 million dollars over the FY 00 required amount due to decreases in enrollment and a $7.9 million dollar increase in federal aid. This will offset other areas in the supplemental including student transportation. Ms. McConnell referred to other areas were savings offset supplemental costs. The total supplemental amount will be within the budgeted amount, with the exception of disaster expenses for the on-going Central Gulf disaster. Savings in the Temporary Assistance to Needy Families (TANF) block grant can be used to fund $1.5 million dollars in daycare assistance grants, to meet the commitments to people coming off of welfare. Approximately $3.1 million dollars earmarked for Y2K funding was not needed and will be used to offset the $4.5 million dollar shortfall in the longevity bonus program. Federal funds were used to supplant state funds in front line social workers and subsidized adoption. Ms. McConnell referred to power cost equalization (PCE). The funding package for PCE was a combination of the funds remaining in the PCE Fund ($2.2 million dollars), 60 percent of the four-dam pool revenues ($5.5 million dollars), interest earnings ($200 thousand dollars), and the National Petroleum Reserve-Alaska (NPRA) grant ($7.8 million dollars). The Administration has recommended that the one time additional dividend from Alaska Industrial Development and Export Authority (AIDEA) be applied to the PCE Fund. That way it can be used if it is needed this year or in the next year. Representative Williams asked for more information regarding PCE funding. Ms. McConnell explained that 60 percent of four-dam pool revenues is approximately $5.5 million dollars. This funding has previously gone to self-help projects, which have been completed. Ms. McConnell provided members with a spreadsheet of estimated costs for the on-going, Central Gulf storm disasters (copy on file). Funding for the disasters was included in section 1, without an identified amount. She noted that as of 2/11/00, $16.3 million dollars in costs have been identified. This includes the cost of clearing avalanches by the Department of Transportation and Public Facilities and the Alaska Railroad Corporation (ARRC). This also includes expenses associated with the restoration of power and telephone service. Expenses were divided into three categories: public assistance (infrastructure costs), individual assistance costs and business losses. Public assistance is a category used by the Federal Emergency Management Agency (FEMA) and totals $13 million dollars. Each category was divided into reported and verified expenses. Verified expenses have been verified by teams working with FEMA as being eligible for FEMA disaster funds. Only $7.9 million dollars have been verified to date, but they expect additional verifications by the FEMA teams. The majority of the individual costs were in Cordova. These expenses include temporary housing for people who were evacuated and have not been allowed to return to their homes due to avalanche danger. Business loss was minimal. She observed that verified costs of $9.8 million dollars were transmitted to the President. This amount will be updated as more costs are verified by FEMA. Representative J. Davies questioned why items included in the verified column were not also included in the reported column. Ms. McConnell replied that they should have been reported in both. Representative G. Davis observed that a lot of individuals were stranded in Girdwood. He questioned if their expenses will be reimbursable. Ms. McConnell did not know. Programs were intended to cover actual loss of homes or business as opposed to lost income. There were some people that chose to go to hotels when other free housing choices were available. Ms. McConnell noted that the President has declared a FEMA disaster and the state of Alaska will be eligible for reimbursement. Representative J. Davies asked if there has been discussion regarding a fast track supplemental. Ms. McConnell noted that past fast track supplementals have not been considered. Disaster funding could be separated. She emphasized that it would be better to move the entire supplemental request as fast as possible. She observed that the administration has tried to separate items that could be part of the next year's budget. Items included are strictly for the current fiscal year. Representative J. Davies had the impression that there are some items that need to be done soon. He suggested that there be some separation. Ms. McConnell noted that there have been inquiries regarding Power Cost Equalization (PCE) and childcare assistance. She observed that NPRA grant funding would not be available until April. If the Administration does not receive clarification on the supplemental request, individuals that are currently receiving childcare assistance will have to be cut off. She noted that there are sizable wait lists for childcare assistance. The Administration is proposing to fund childcare assistance through excess in the TANF block grant. She observed that the increase in childcare assistance is tied to the decrease in welfare; there is excess in the TANF block grant because the caseload is being reduced. Representative Foster referred to section 9d, pupil transportation. Ms. McConnell explained that school district estimates are based on a annual 3.5 increase in cost. The cost of pupil transportation increased by more than 3.5 percent in Anchorage has been higher. Fairbanks was $2.6 million dollars over and Kenai was $750 thousand dollars over the estimated amount. Other school districts have come in slightly over or under. Representative Foster noted that student enrollment was down and asked the difference in student enrollment. Ms. McConnell observed that the overall change in pupil count was 3,100 under the projected amount. Changes in state policy regarding correspondence school counts affected the estimate. She emphasized that school districts were caught by surprise. Representative Austerman asked if it is possible to get information on pupil transportation contracts for Kenai, Anchorage and Fairbanks. She explained that there is not as much cost control in areas without competition. The contract amount is reimbursed. Representative Austerman expressed concern that contracts were negotiated for a higher amount than was budgeted. Ms. McConnell clarified that a 3.5 percent growth rate was used for projection purposes. State statutes provide that the reimbursement will be for the actual contract amount. Contracts exceeded the estimated amount. Representative Austerman questioned if "may" or "shall" is used in the statutes. He pointed out that school districts have been aware of the state's budget difficulties. Representative G. Davis observed that a reduction in students equated to an increase in pupil transportation. Representative J. Davies noted that the contracts were negotiated before student population was determined. He emphasized that contractors make commitments to schedules and that it takes time to respond to a change in student numbers. Ms. McConnell clarified that school districts normally negotiate for their contracts. She pointed out that there is no cost control mechanism built into the state's process. Representative Williams questioned if there was a supplemental for pupil transportation in FY 99. Ms. McConnell stated that there was not a problem in FY 99. Vice Chair Bunde clarified that labor contracts were renegotiated in FY 00. Representative Grussendorf emphasized that private carriers provide the service. He pointed out that fuel costs have escalated. Representative Phillips stressed the importance of a standard for cost control and questioned if there is a cost variance in different areas of the state. Vice Chair Bunde observed that Anchorage maintains its own fleet of buses and drivers to control costs. Representative J. Davies pointed out that new schools in Fairbanks resulted in an increase in the number of routes. There are some students that must travel by bus for an hour and a half each way. He maintained that the Fairbanks School Board is conservative and drives a hard bargain. Representative Grussendorf noted that there was a jump in pupil transportation in FY 98. Representative G. Davis referred to section 4h, satellite infrastructure. There was a $100 thousand dollar fund shift from interagency receipts to general funds. Ms. McConnell explained that interagency receipt authority was included with the assumption that funding would come from the university. The university did not receive the funding. This portion was not related to university needs. Representative Williams referred to section 9c, foundation formula. Ms. McConnell clarified that $11.811.2 million dollars of the amount authorized for education foundation formula funding was not required. She reiterated that some areas needed more funds than were authorized. This area needed less and can help cover cost of the supplemental. This is the only area were there was a reduction from the authorized amount to what was actually needed. In response to a question by Representative Austerman, Ms. McConnell reiterated that the state would receive FEMA reimbursement for the disaster. The federal government will pick up the larger percentage of what is fundable. Representative Austerman referred to NPRA funding. He did not think it was likely that the state would receive additional NPRA funding. Ms. McConnell observed that the application for NPRA funding total $71 million dollars. Approximately $40 million dollars are available. She emphasized that the process is not finished. She observed that funding for PCE would be needed in the next fiscal year. Representative Austerman questioned if the Governor anticipated offering a long-term financial plan for PCE. Ms. McConnell noted that discussions regarding the future of PCE are still occurring. She acknowledged the need for a long- term solution. Representative Austerman observed that there was no firm offer in FY 00 for purchase of the four-dam pool. He expressed support for a PCE endowment. Ms. McConnell stressed that the Administration is looking at all possibilities. HB 343 was heard and HELD in Committee for further consideration. ADJOURNMENT The meeting adjourned at 2:29 p.m. House Finance Committee 6 2/17/00