HOUSE FINANCE COMMITTEE February 16, 2012 1:37 p.m. 1:37:17 PM CALL TO ORDER Co-Chair Stoltze called the House Finance Committee meeting to order at 1:37 p.m. MEMBERS PRESENT Representative Bill Stoltze, Co-Chair Representative Bill Thomas Jr., Co-Chair Representative Anna Fairclough, Vice-Chair Representative Mia Costello Representative Mike Doogan Representative Bryce Edgmon Representative Les Gara Representative David Guttenberg Representative Reggie Joule Representative Mark Neuman Representative Tammie Wilson MEMBERS ABSENT None ALSO PRESENT James Armstrong, Staff, Representative Bill Stoltze; Karen Rehfeld, Director, Office of Management and Budget, Office of the Governor; Pat Shire, Director, Enterprise Technology Services, Department of Administration; Laura Achee, Legislative Liaison, Alaska Permanent Fund Corporation, Department of Revenue. SUMMARY HB 283 BUDGET: CAPITAL HB 283 was HEARD and HELD in Committee for further consideration. HB 307 SUPPLEMENTAL/CAPITAL/OTHER APPROPRIATIONS HB 307 was HEARD and HELD in Committee for further consideration. DISCUSSION OF THE GOVERNOR'S FY 2013 BUDGET AMENDMENTS: Karen Rehfeld, Director, Office of Management and Budget ^DISCUSSION OF THE GOVERNOR'S FY 2013 BUDGET AMENDMENTS HOUSE BILL NO. 283 "An Act making and amending appropriations, including capital appropriations and other appropriations; making appropriations to capitalize funds; and providing for an effective date." HOUSE BILL NO. 307 "An Act making supplemental appropriations, capital appropriations, and other appropriations; amending appropriations; repealing appropriations; making appropriations to capitalize funds; and providing for an effective date." 1:39:00 PM JAMES ARMSTRONG, STAFF, REPRESENTATIVE BILL STOLTZE, relayed that amendments had been incorporated in the members' binders and that an updated fiscal summary incorporating the FY 12 supplemental and governor's amendments had been provided. All legislative offices would continue to have access to CAPSIS (Capital Project Submission Information System) until February 27, 2012 at 5:00 p.m. Co-Chair Stoltze noted that CAPSIS was an electronic system for capital project submissions. Mr. Armstrong explained that there had been 424 different accounts, 1,579 projects, and $4.6 billion entered into FY 12 CAPSIS. Communities had finished their FY 13 submissions several weeks earlier and at the time the request total had been $3.8 billion. Co-Chair Stoltze believed the total would ultimately surpass the prior year submission request total. Co-Chair Thomas asked whether there had been any harbor requests. Mr. Armstrong would provide an answer the following Monday. Co-Chair Stoltze turned the gavel over to Co-Chair Thomas. 1:41:49 PM Co-Chair Thomas asked for a review of proposed operating budget amendments. KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, spoke to the amendments as a capital and operating package. Representatives from each department were available to answer specific questions. The total proposed operating and capital budget amendments for FY 13 were $34,258.3 million and were broken out as follows: Unrestricted General Fund $23,486.0 million Designated General Fund $494.5 million Other Funds $2,456.6 million Federal Funds $7,821.2 million Ms. Rehfeld detailed that capital budget amendments made up $14.823.7 million of the total $34.258.3 million; $10,943.6 million was unrestricted general fund. The operating amendments represented $19.4 million of the total. She explained that of the $23.5 million unrestricted general fund (operating and capital combined) request, $10.2 million was for the Alaska Land Mobile Radio (ALMR) emergency response system; $8.7 million of the total was a capital budget request and $1.5 million was an operating budget request. She provided detail related to the ALMR system: · The goal of ALMR is to build a secure network that will provide each agency with reliable communications, which will enhance emergency response, personnel safety, and operational capabilities. · The Department of Defense (DOD) transferred ownership of 13 ALMR sites effective January 1, 2012 and another 28 sites July 1 to the State of Alaska. As a result, the state will be responsible for 41 more sites in addition to the 37 it already owns starting July 1, 2012. · A recently completed report commissioned by DOA found: o ALMR is providing a value for users - federal, state, and local o ALMR is the best value, there are no other viable alternatives · Operating funding is necessary to perform onsite preventative maintenance inspection (PMI) and necessary repairs to keep sites operational. Ms. Rehfeld discussed Department of Administration (DOA) capital budget funding in the amount of $3.5 million for specific hardware and software upgrades for the current system. 1:45:23 PM Ms. Rehfeld specified that four individual departments had requested capital funding to upgrade their systems for the Federal Communications Commission narrow band requirements that would take place on July [January] 1, 2013 [Department of Public Safety (DPS), Department of Corrections (DOC), Department of Health and Social Services (DHSS), Department of Natural Resources (DNR)]. There were two other new items for DNR: (1) program receipts for wildland fire-fighting aircraft maintenance and; (2) statutory designated program receipts for large dam projects application and review. Ms. Rehfeld highlighted a $1.8 million capital budget request from DPS for Alaska Justice Advanced Exchange program development, which was a multi-agency justice information exchange system that interfaced with all criminal justice systems. Two items had inadvertently been omitted including $100,000 for the federal Help America Vote Act, and the DHSS State Health Information Gateway. Ms. Rehfeld addressed National Petroleum Reserve Alaska grants. She relayed that Department of Commerce, Community and Economic Development (DCCED) went through a competitive process to determine the grant awards. The FY 13 award amount had been slightly revised and was included in the amendment packets. She relayed that there had been a couple of technical corrections to project titles and descriptions; there had also been a scope change. 1:47:21 PM Co-Chair Stoltze asked about the dynamics of the federal government transfer related to ALMR. He noted that a significant amount of money had been invested in the system. Ms. Rehfeld replied that the U.S. Department of Defense (DOD) had developed ALMR and was still a significant user, but the mission had shifted. There were some community and small first responder locations, but federal and state agencies were the primary users of the system. The Department of Administration was in the process of developing a cost share model that would require participation from the federal and state agencies. In addition to the system upgrades request in the capital budget amendment, DOD would provide between $4.3 million and $4.8 million. Co-Chair Stoltze thought that the transfer was more appropriately described as a shift of costs by the federal government. Co-Chair Thomas wondered whether it was possible to ensure that radio frequencies were locked in once they were designated. Ms. Rehfeld deferred the question to the departments. She noted an answer would be provided. Representative Doogan referred to an operating request of $1.1 million for DOA, an operating amendment of $1.5 million, capital amendments of $2.9 million in DNR and $1.6 million in DPS. He referenced Ms. Rehfeld's testimony and asked about the fourth agency she had highlighted. Ms. Rehfeld replied that the capital budget request included $3.5 million for DOA hardware and software upgrades for the system. There were four agencies requesting assistance for the narrow band compliance requirements including, $470,000 for DOC, $297,500 for DHSS, $2.960 million for DNR, and $1.470 million for DPS. Representative Doogan surmised that the total was over $11 million. Ms. Rehfeld replied there was $10.2 million in amendments in addition to the amount in the FY 13 budget. 1:53:31 PM Representative Guttenberg discussed that fire departments in his district had been unhappy about the change to the ALMR system. He thought the state might need more options to negotiate with the federal government. He wondered whether DOD or DPS had a priority related to the allocation of costs for the system. He asked how DOD or DPS would be impacted if the system was discontinued. He wondered whether the possibility had been factored into an allocation of expenses. Ms. Rehfeld was not aware of a prioritization. She explained that access to the ALMR system was vital to first responders. She detailed that a cost allocation plan that recognized some small but critical users of the system would probably not be implemented until the FY 14 budget cycle; the plan would work to capture some of the larger users, but not to disadvantage smaller users. Over the last several years the Alaska Municipal League (AML) and smaller fire service areas had expressed concerns related to the ability to manage costs while remaining part of the system. She believed progress had been made and that opportunities would be available to all of the users. Representative Guttenberg recognized the importance of the system, but the allocation was not available because it had not been developed yet. The system was extremely important for other users in addition to AML and the fire departments. Representative Neuman informed the committee that additional information would be provided from the budget subcommittee on the issue. He referenced a survey that had polled 25 of the 107 users; out of 16,720 responses approximately 6,700 had been from DOD. He believed the issue went back to 2009; there had been requests to determine how the cost sharing program would break out amongst users, which had not been completed. He emphasized the importance of obtaining the detail on how costs would split amongst state, federal, and municipal users. He detailed that some municipalities were not able to spend $2,000 to $5,000 per handheld unit. 1:58:05 PM Co-Chair Thomas recognized the importance of the system and had been working to get a handle on the issue for the past six years. Representative Neuman believed that there was a need for the program. He expressed concern that the system would be phased out in approximately 2025 after approximately $117 million was invested. The subcommittee had asked the department about phasing in a new program and the costs associated with its implementation. Co-Chair Thomas noted that six years earlier the state did not have the cash it had now. Representative Gara did not believe that enough information would be obtained during the budget subcommittee process. He was frustrated that local emergency responders had been told to purchase equipment for the current ALMR system when the administration had been tasked with looking at alternative options. He believed an analysis on system alternatives should have been completed sooner. He wondered whether the long-term cost was approximately $10 million per year until 2025. Ms. Rehfeld replied that it would be helpful for the DOA to provide him with its report on ALMR. There had been significant analysis on the system, which included prior costs, costs going forward, and alternatives. Representative Gara explained that during the subcommittee process DOA had told legislators that alternatives to ALMR had been analyzed and were no good. 2:01:21 PM Representative Doogan thought that the proposed ALMR funding was roughly an 800 percent increase from the prior year. Ms. Rehfeld responded that the costs would go to the four departments mentioned earlier in order to bring them into compliance with the narrow band requirements. Representative Doogan understood that the expenses represented capital costs. He communicated that nothing made him confident that there would not be a similar amount of capital costs in the years to come. He thought it looked like a financial mistake had been made and he wondered how long and how much the state would have to pay for it. He did not believe other members of the legislature or the administration could be very happy with the situation. Vice-chair Fairclough asked whether the legislature could anticipate the need for additional funds because the number of sites would be increased on July 1, 2012. Ms. Rehfeld believed that upgrades for additional sites were incorporated into the current numbers. Vice-chair Fairclough asked whether the increased costs would be ongoing. Ms. Rehfeld answered that system operation and maintenance costs would be ongoing. 2:04:44 PM Representative Joule sited testimony that 78 sites had been transferred and queried the total number of sites. Ms. Rehfeld deferred the question to other departments. Representative Joule wondered how long the transition would go on. PAT SHIRE, DIRECTOR, ENTERPRISE TECHNOLOGY SERVICES, DEPARTMENT OF ADMINISTRATION, replied that the state had previously owned and maintained 37 sites. There were 41 additional sites moving to state ownership. He clarified that most of the equipment owned by the military was already located inside state telecommunication system shelters. Representative Joule asked whether there were other sites that would be transferred in addition to the 41 scheduled for transfer. Mr. Shire replied in the negative. Representative Wilson asked what would happen if the state elected to not take responsibility for the remaining sites. Mr. Shire answered that studies conducted in 2009 and 2011 indicated that the system would become unstable. He elaborated that the system would no longer be safely suitable for DPS, DOT, and the Division of Forestry, which were three of the primary daily users; the troopers currently used the system for their daily dispatch. The military had indicated that it would turn some of the switches off so that it could not be held responsible for a failure to the system. Representative Wilson thought the federal government was planning to continue using the locations; she wondered how much of the system it planned on using. Mr. Shire replied that according to a letter from several years past, the army wanted to continue using the system. He detailed that the Military Assistance to Civil Authorities (MACA) program under the Stafford Act required the military to divest its ownership of the gear while maintaining use privileges or to discontinue use of the system if it became unstable and did not provide items like security and encryption. 2:08:29 PM Ms. Rehfeld highlighted items on the "Governor's FY 2013 Capital Budget Amendments" spreadsheet (copy on file): · Item 1 was related to the ALMR · Item 2 changed the title from Borough of Ketchikan to "City" of Ketchikan · Item 3 included grant allocations under the National Petroleum Reserve-Alaska; individual awards were listed in the bill and the dollar amount had been reduced by $503,000 based on new estimates · Item 4 reflected the ALMR compliance under DOC · Items 5 and 6 were connected to school construction major maintenance projects; $24 million had been included in the original budget and a $69,972 project had been added for K-12 school mechanical and electrical upgrades · Item 7 provided funds to polling place accessibility under the federal Help America Vote Act · Item 8 funded ALMR upgrades for DHSS · Item 9 added $3.6 million for state improvements to the Health Information Gateway (exchange of electronic health records), which had inadvertently been omitted from the original budget · Item 10 provided funds to DNR for narrow band requirements · Item 11 included $500,000 in general program receipts to fund wildland fire-fighting aircraft maintenance · Item 12 used $506,000 in statutory designated program receipts to fund the large dam projects application review and certificates of approval; the funding would allow continued work on Red Dog and Lynn Creek · Item 13 allocated $1.8 million to Alaska Justice Advanced Exchange program development; the item represented an important piece of the criminal justice system and allowed different systems to exchange information · Item 14 funded DPS ALMR upgrades · Item 15 made a technical correction to a project description · Item 16 changed the University of Alaska Anchorage (UAA) WWAMI - Lab Upgrade and Additional Space Needs title to UAA Health - Health Upgrade/Renovation and Additional Space Needs 2:13:03 PM KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, highlighted items on a spreadsheet titled "Governor's FY 2013 Operating Budget Amendments" (copy on file). The operating amendments totaled $19.4 million including $12.5 million in general funds. She explained the spreadsheet included several items from the FY 12 supplemental budget that had been reconsidered in the FY 13 amendments. Other items included in the spreadsheet were: · $3,785.6 million for the Judicial Retirement System past service costs · $2.0 million for Trauma Care Fund capitalization · ($2.1 million) reduction in debt service due to refinancing · $1.5 million ALMR - operating · Technical corrections for several items that resulted in net zero changes Ms. Rehfeld explained that there were a few proposed efficiency transactions related to Executive Order 116, which would move the DHSS Hearing and Appeals Office to the DOA Office of Administrative Hearings. Other additional requests included three in-house investment management positions for the Alaska Permanent Fund Corporation (APFC) that would result in significant savings and a $500,000 request from the Alaska Mental Health Trust Authority (AMHTA) for a patient centered medical homes competitive pilot project. 2:16:15 PM Ms. Rehfeld explained that pages 1 through 12 of the spreadsheet reflected the operating numbers changes, pages 12 through 14 reflected language changes, page 14 included the AMHTA item, and pages 15 through 16 included technical corrections. Page 1, items 1 through 6 boiled down to three transactions. She explained that general funds had been retained in the Administrative Hearing Office that needed to be distributed to several agencies; the state paid for costs and agencies were billed. Ms. Rehfeld discussed that items 7 and 8 on page 2 were related to the Executive Order 116 transfer. Item 9 included $75,000 for the DOA Division of Retirement and Benefits. She elaborated that currently the division did not have general fund resources for items that were not related to retirement system funds (e.g. management of the political subdivision health contract, legal expenses, consultant fees, research and analysis on proposals, legislation, and other). Item 10 provided funds to DOA. Items 11 and 12 proposed funding for the Office of Public Advocacy (OPA) and Public Defender Agency (PDA) related to caseload increases. Item 13 proposed a $62,000 increment for the addition to the Lower Yukon Alaska Regional Development Organization (ARDOR); without the additional funding money provided to the existing ARDOR would be diluted. 2:19:59 PM Representative Doogan asked whether the absence of the increment for new ARDORs would require any of the new organizations to be funded with money designated for the existing organizations. Ms. Rehfeld replied in the affirmative. She believed that money would be prorated across existing agencies if the increment was not funded. Representative Neuman communicated his understanding from a budget subcommittee that PDA had sealed cases that had resulted in a caseload reduction and cost decrease. He queried the reason for item 12 that proposed funding for agency caseload increases. Ms. Rehfeld deferred to DOA to sort through any discrepancy between the item on the spreadsheet and the subcommittee hearings; it was her understanding that the item was necessary. Representative Neuman indicated his intent to bring the issue to the committee at a later time. 2:22:14 PM Ms. Rehfeld moved to item 14 related to funding for community jails; funding had also been included in the FY 12 supplemental budget. Vice-chair Fairclough wondered whether there was a $5 million overhead related to item 14. Ms. Rehfeld referred the committee to page 14 of the backup (copy on file) and replied that there was a $5,000 overhead for item 14. Ms. Rehfeld discussed that item 15 included a correction to the total amount available related to the Permanent Fund Dividend (PFD) felon funds that were appropriated for physical health care. Item 16 addressed a transfer related to the Human Rights Commission and the administrative hearings that had been discussed earlier in the meeting. Vice-chair Fairclough shared that she had traveled with Representative Joule to Washington D.C. to lobby on behalf of Alaskans for the consideration of the Alaska National Wildlife Refuge (ANWR). She notified the committee that Congress had just passed an energy bill that included ANWR; she appreciated its work on the issue. She recognized the issue would be a challenge in the U.S. Senate. 2:24:38 PM Ms. Rehfeld pointed to items 17 and 18 that proposed funding for the state and tribal portions of the Low Income Home Energy Assistance Program (LIHEAP) and the Alaska Affordable Heating Program; funding had also been included in the FY 12 supplemental budget in the same amount. The numbers were expected to be modified due to winter and price changes and would be communicated when new information became available. Co-Chair Thomas asked about the total LIHEAP amount. Ms. Rehfeld responded that with the proposed amendment the total FY 13 budget would be $31.7 million. Representative Wilson requested a cost breakdown by community. Ms. Rehfeld would ask the department to provide the information. Ms. Rehfeld moved to item 19 that requested $350,000 in program receipts for specialty newborn screening clinics; funding had also been included in the FY 12 supplemental budget. She furthered that demand for the clinics had increased. Items 20 through 22 were all related to the transfer contemplated in Executive Order 116 from DHSS to DOA. Item 23 included an increase of $168,000 in designated general funds for the Workers' Compensation Benefits Guarantee Fund; funding had also been included in the FY 12 supplemental budget to address increased legal costs associated with the entity. Item 24 corrected the fund source from American Recovery and Reinvestment Act (ARRA) to federal receipts. Items 25 through 27 resulted from a change in the required match rate for armories in Kodiak, Ketchikan, and Kenai; a proposed request was also included to continue operations at the Bethel armory and a correction had been made to the electrical usage at Eielson Air Force Base. Item 28 removed $75,000 in funding from the governor's request for Interior Alaska cemetery operations, given that the project had been delayed. She relayed that the costs would begin in FY 14. 2:28:18 PM Representative Guttenberg believed the time frame for the cemetery funding was appropriate. Ms. Rehfeld directed attention to item 29 that reflected a $143,100 decrease in National Guard and Naval Militia Retirement System (NGNMRS) based on its actuarial evaluation. Item 30 provided $260,000 to DNR for the Horticultural Evaluation Program. She explained that the United States Division of Agriculture had recently closed its agricultural research service in Alaska (materials had gone to the plant materials center); the funding would continue the work for commercial plant producers in the state. Item 31 proposed $75,000 for DPS dispatch services in Kotzebue. Item 32 included $1.9 million for the Bureau of Highway Patrol; the item was related to federal highway safety funds for non-DUI related activities. Ms. Rehfeld addressed item 33 that proposed funding for a transfer related to administrative appeals. Item 34 showed a decrement for DPS related to unrealizable revenue from a variety of sources. Line 35 proposed a $200,000 increase in general funds to maintain current services; a funding request for the item had also been included in the supplemental budget. Item 36 included a transfer for administrative hearings. Item 37 removed $120,000 related to a cigarette tax stamp; the manufacturer had agreed to delay the increase in price due to push back from state governments. Item 38 moved $77,000 in bankcard compliance costs from the language section to the numbers section of the budget. Item 39 moved $265,300 in general funds for the child support enforcement efforts 34 percent federal match from the language section to the numbers section. Items 40 and 41 proposed an increment to fund three APFC in-house investment manager positions, which would reduce management fees and increase efficiency. 2:32:21 PM Representative Gara asked whether item 40 would save money by reducing the number of external investment managers. Ms. Rehfeld responded that the APFC estimates showing potential savings related to the in-house positions would be provided to the committee. Representative Guttenberg pointed out that savings may occur in the Department of Law if more positions were brought in-house. Ms. Rehfeld discussed items 42 and 44 that related to insurance costs for rural airport contracts. An adjustment had been made to how costs were calculated, which allowed for a $175,000 reduction to the Central region and a slight increase of $21,300 for the Northern region. Representative Neuman asked about contractor costs under item 42. He wondered whether the state had been over charging on leases to independent operators who rented space on state land. He asked whether operators would see a reduction in their bills if they had been over charged. Ms. Rehfeld replied that item 42 was related to insurance costs. She would have the department follow up with an answer. Vice-chair Fairclough referred to costs that appeared to be duplicated for salary or Cost of Living Adjustments (COLA) at APFC; the governor had included an increment for the item in the FY 13 budget and APFC had also made the request. She had expected to see a reduction related to APFC as a result of the duplication. LAURA ACHEE, LEGISLATIVE LIAISON, ALASKA PERMANENT FUND CORPORATION, DEPARTMENT OF REVENUE, replied that the items represented two different increases: one was the 2 percent COLA that went to all state employees; the other increase was for the board approved salary management program that allowed APFC to fully staff the office and to provide merit increases. Vice-chair Fairclough asked for the information to be provided to the Legislative Finance Division as it was currently listing the items as duplicates. Ms. Achee agreed to follow up with the division. 2:38:09 PM Ms. Rehfeld discussed that item 43 on page 10 represented a $121,100 increment to fund a Barrow airport manager position. She elaborated that Barrow was one of the only certified airports in the state without an on-site manager. The Department of Transportation and Public Facilities (DOT) had requested general funds for an existing position that would be transferred to Barrow. Representative Gara asked for clarification on the fund source related to the Barrow airport manager. Ms. Rehfeld explained that DOT had a vacant position that had previously been funded by a non-general fund source; the position would be transferred to Barrow and could not be funded with the prior funding source. Ms. Rehfeld communicated that items 45 through 54 (pages 10 through 12) were related to the University of Alaska. Item 47 related to a university five-year mentoring grant for urban areas; the grant totaled $14.9 million and the university was requesting federal receipt authority for the project. Item 49 included $5 million in federal receipt authority for Pell grants; a request in the same amount had also been included in the FY 12 supplemental budget request. She explained that all of the other transfers in federal funds were aligning the university's federal authorization. She detailed that there was a total addition of $7.5 million in federal authority in the proposed amendments. Ms. Rehfeld highlighted several proposed language amendment items on page 12. Item 57 was related to the catastrophic reserve; one section related to sweeping certain funds into the reserve at the end of the year and a second section that appropriated $5 million into the reserve. She explained that the second section was not necessary and should be deleted. Item 58 related to child support services was deleted from the language section and moved to the numbers section of the budget. Item 59 appropriated $2 million to the Trauma Care Fund that would allow hospitals to complete their work towards becoming certified in the four levels of trauma care. Item 60 related to bank card compliance costs was deleted from the language section and moved to the numbers section of the budget. The decrement of $431,400 related to NGNMRS was not required at the present time and was deleted (Item 61). Item 62 added $3.7 million to fund the JRS past service liability per the request of the Court System; the normal cost rates for JRS had been included in the December budget. Items 63 through 67 related to a reduction in debt service costs due to refinancing. 2:43:51 PM Ms. Rehfeld directed attention to item 70 that provided $500,000 in funding for four mental health pilot programs with AMHTA authorized receipts. Pages 15 and 16 included very technical corrections and did not alter any numbers in the budget. Item 78 was the only exception; a decrement of $1.5 million in ARRA carry-forward funds was removed, given that the funds would no longer be available after the end of the year. She added that the carry-forward amount would be known at a later date. She advised the committee that other budget related documents were available on the OMB website. Co-Chair Thomas thanked OMB for providing the backup materials. Vice-chair Fairclough did not see funding included for a Department of Military and Veterans Affairs (DMVA) program that would attract military veterans with an opportunity to attend school free of charge. 2:47:01 PM Ms. Rehfeld replied that the administration had become aware of the issue. She explained that the educational benefits had been transferred to the University of Alaska a few years earlier; she relayed that the university and DMVA were discussing the issue. Co-Chair Thomas discussed the schedule for the following week. HB 283 was HEARD and HELD in Committee for further consideration. HB 307 was HEARD and HELD in Committee for further consideration. ADJOURNMENT 2:48:36 PM The meeting was adjourned at 2:48 PM.