HOUSE FINANCE COMMITTEE April 17, 2015 10:27 p.m. 10:27:31 PM CALL TO ORDER Co-Chair Thompson called the House Finance Committee meeting to order at 10:27 p.m. MEMBERS PRESENT Representative Mark Neuman, Co-Chair Representative Steve Thompson, Co-Chair Representative Dan Saddler, Vice-Chair Representative Bryce Edgmon Representative Les Gara Representative Lynn Gattis Representative David Guttenberg Representative Scott Kawasaki Representative Cathy Munoz Representative Lance Pruitt Representative Tammie Wilson MEMBERS ABSENT None ALSO PRESENT Joe Michel, Staff, Representative Steve Thompson; Sana Eire, Assistant Commissioner, Department of Health and Social Services; Jeff Ottesen, Director, Division of Program Development, Department of Transportation and Public Facilities. PRESENT VIA TELECONFERENCE SUMMARY SB 26 BUDGET: CAPITAL HCS CSSB 26 (FIN) was REPORTED out of committee with a "do pass" recommendation. Co-Chair Thompson reviewed the agenda for the meeting. CSSB 26(FIN) "An Act making and amending appropriations, including capital appropriations, supplemental appropriations, reappropriations, and other appropriations; making appropriations to capitalize funds; making appropriations under art. IX, sec. 17(c), Constitution of the State of Alaska, from the constitutional budget reserve fund; and providing for an effective date." 10:28:27 PM Co-Chair Neuman MOVED to ADOPT the proposed committee substitute for CSSB 26(FIN), Work Draft 29-GS1781\L, Martin, 4/17/15. JOE MICHEL, STAFF, REPRESENTATIVE STEVE THOMPSON, addressed the changes in the committee substitute (CS). He referenced page 14, line 9 that added $25 million in federal receipts for the Juneau access project. He moved to page 27, line 22, and noted that the Medicaid Services line was reduced from $40 million to $30 million. He turned to page 35, Section 17, line 23 and read: (4) to the Department of Corrections, not more than seven percent of the total amount appropriated; Mr. Michel reported that the language regarded fuel triggers. He relayed that the former Section 20 was removed from the bill and was a fund transfer in the amount of $13.3 million, which was appropriated from the general fund to the Alaska Housing Capital Corporation account. He drew attention to Section 29, beginning on page 42, subsection 27 (line 4, page 45) which contained the addition of $175 thousand to the Department of Environmental Conservation (DEC) appropriation for Naknek. He elaborated that the previous Section 30 was removed which contained a reappropriation of the unexpended and unobligated balance not to exceed $850 thousand of the estimated balance of $2 million from the Department of Health and Social Services (DHSS) Fairbanks Virology Lab for the Municipality of Anchorage's Domestic Violence and Sexual Assault (DVSA) program. The money was going to be returned to DHSS but the item was removed from the budget. He cited Section 35 beginning on page 48, line 9) that was a DOT reappropriation for the Inter-Island Ferry Authority for its northern route service. He pointed to Section 36 (page 48, line 24) and remarked that the Norton Sound Health Corporation funding for feasibility planning and design work for the Behavioral Health and Wellness Center was removed. He identified that Section 37 (beginning on page 48, line 29), the governor's reappropriation of $900 thousand was reduced to $725 thousand and of that amount, $175 thousand was appropriated to Arctic Power for promoting Arctic energy issues. He concluded with the last change found on page 61 that extended the 13th Avenue Gateway Elementary Improvements for one year. Representative Gara asked whether any language related to the Constitutional Budget Reserve was included in the bill. Co-Chair Thompson replied that language had been inserted but was subsequently removed. Mr. Michel concurred with Co- Chair Thompson. Representative Gara cited the cut to Medicaid Services found on page 27 and asked for more information. Co-Chair Thompson replied that the original figure was $92 million, which was reduced to $40 million and combined with the current reduction totaled $30 million. 10:36:54 PM SANA EFIRD, ASSISTANT COMMISSIONER, DEPARTMENT OF HEALTH AND SOCIAL SERVICES, responded that the money included in the $30 million was a supplemental request from the department. Representative Gara asked whether the department agreed with the item. Ms. Efrid responded affirmatively. Representative Gara asked about the removal of the reappropriation for domestic violence and sexual assault. Mr. Michelle explained that the transaction related to the FY 2015 budget; DHSS funded the money to the DVSA project. The money was reappropriated back to DHSS in the FY 2016 budget and the reappropriation was currently being removed in the CS. Co-Chair Thompson asked for more information regarding the $25 million in federal receipts for the Juneau access road and the $45 million appropriation for the Knik Arm Bridge project and what the consequences were of not including the appropriations. JEFF OTTESEN, DIRECTOR, DIVISION OF PROGRAM DEVELOPMENT, DEPARTMENT OF TRANSPORTATION AND PUBLIC FACILITIES, answered that both of the projects remained under the governor's administrative order number 271 and the appropriations could only be accessed if the order was lifted and "several downstream steps were accomplished." He explained that the Juneau access project had to complete the National Environmental Policy Act (NEPA) record of decision. The Knik Arm Bridge project had to complete the Transportation Infrastructure Finance and Innovation Act (TIFIA) application and await approval. He expounded that the federal agencies reacted to any hesitancy shown by the state once a plan was approved. The appropriations would assist the process of moving forward on the projects if the administrative order was lifted. Co-Chair Thompson asked whether the appropriations would negatively affect any other Statewide Transportation Improvement Program (STIP) projects. Mr. Ottesen responded in the negative and stated that the appropriations were demonstrating "intent" and were not expected to be expended in FY 2016. Co-Chair Thompson asked whether the federal government could take the money back if the funds were not appropriated. Mr. Ottesen informed the committee that each year the Department of Transportation and Public Facilities (DOT) was federally required to have enough projects ready and eligible to use federal funding or the funding would be rescinded and reappropriated to another state. He added that projects were complex and sometimes took several years and could get easily stalled in the process. The department's challenge was to have enough projects ready to retain the federal monies and the two large projects would assist DOT in the process. Co-Chair Thompson asked whether some of the two project's federal dollars could be used for other projects on the STIP using a STIP amendment. Mr. Ottesen answered that the department's challenge was not having enough eligible projects for the available funding. He voiced that DOT was averaging approximately $100 million to $150 million during the course of one fiscal year in excess money from projects that were being completed under-budget. He delineated that the unused project funding was referred to as "de- obligations." The department must expend the funds on another federal project within the same fiscal year. He maintained that the de-obligations allowed the mega projects to move forward without impacting the "regular" program projects. 10:44:08 PM Representative Gattis asked whether the funding was in a "use it or lose it" situation. She wondered whether the department lost federal funding in the past based on the de-obligation scenario. Mr. Ottesen responded in the negative. However, he worried that DOT was likely to lose some funding in the future. Representative Gara asked whether the Juneau Access project and the Knik Arm crossing were ready to receive funds. Mr. Ottesen replied that the projects were not currently ready but it was acceptable if the projects were ready in FY 2016, FY 2017, or FY 2018. Representative Gara asked whether DOT had considered expanding the "most dangerous highway in Alaska;" the road between Anchorage to Portage. Mr. Ottesen responded that DOT had several Seward Highway projects. He articulated that the projects were complex due to several factors including the endangered beluga whales, Chugach State Park "4(f)" issues, active utility line, an active railroad line, and active traffic during construction. The factors were slowing down the preliminary work by several years. Representative Guttenberg asked whether the money was appropriated in the previous year's budget. Mr. Ottesen responded in the affirmative and added that DOT requested funding authority on a sustained basis to demonstrate intent. Representative Guttenberg discussed how the STIP worked. He thought that when DOT accepted federal money for a specific large project subsequently, the STIP was reassessed and other projects were displaced lower on the STIP and were delayed for one or two years. Previously funding for the Juneau Access project moved other projects down the list displacing projects that have been in the planning process for one or more years and displacing other projects indefinitely. He expressed concern that accepting the large project funding "constantly" displaced and delayed other projects that were "in the works for a long time" and were closer to being ready. Mr. Ottesen responded that the question was "complex" and the department played "a zero sum game." He explained that some projects on the STIP slow down as the fiscal year progresses either due to permitting or other issues. The STIP displacement process that Representative Guttenberg referred to was "very real" but was driven largely by "the facts on the ground of individual project progress" rather than any indiscriminate decision making process by the department. The motivating factor for DOT was not losing the funding to another state. In essence, any shovel ready project on the STIP displaced another project on the STIP. He discussed the fact that historically a large project took money away from other projects on the STIP. He exemplified the year the marine highway vessel the M/V Kennicott was built and a large portion of federal funding was allocated to the project in one fiscal year, at the expense of other projects. Presently, the department discovered ways to "moderate" the pace of project construction to keep each project's spending relatively small compared to the fiscal year's total program spending. He added that DOT did not "necessarily" expend funding at the same pace the legislative authority was requested. He commented that DOT was "very mindful of managing the program" in a way that was inclusive of every part of the state. 10:51:45 PM Representative Guttenberg commented that in some ways Mr. Ottesen agreed with him. He related from personal experience that he saw a project in Fairbanks, "ready to go" listed on the STIP for approximately ten years, only to be displaced year after year. The contractors involved invested in equipment in preparation for the project, but were delayed year after year. He reiterated his concern about new project money displacing other projects on the STIP "…that people are waiting for… year after year." Mr. Ottesen restated the problem differently. He pointed out that currently although over half of the federal fiscal year was over only one third of the federal funding was obligated. Therefore, two-thirds of the federal funding must be obligated in less than half of the time left. He emphasized that the problem was that the projects themselves were not ready and eligible for funding and had not passed off on the many requirements imposed on DOT by federal, state, and local governments. Co-Chair Thompson suggested that Representative Guttenberg pursue questioning the Fairbank's project at a later time. Co-Chair Neuman asked whether the two projects added in the CS affected any other projects on the STIP. Mr. Ottesen replied in the negative. Co-Chair Thompson asked for clarity about the Inter-Island ferry reappropriation. Mr. Ottesen explained that the funding was reappropriated from a completed project that had left over funds. He furthered that there were two ferry terminals built with federal funding that passed through DOT for the Inter-Island Ferry Authority (IFA). One was located in Coffman Cove on Prince of Wales Island and the other was located in South Mitkof on Mitkof Island. Subsequently, the IFA decided not to operate out of the two locations due to cost factors. Therefore, the state was facing repayment of the $27 million in capital costs for the two terminals. The federal government required operating out of the terminals or repaying the money. The department agreed to operate marine highway vessels out of both terminals beginning in May 2015, but due to the marine highway budget cuts the service was "impossible to deliver." The department decided that the only other solution to avoid repayment of the $27 million was to subsidize the IFA to provide the service to the two terminals. 10:57:17 PM Co-Chair Neuman commented that Mr. Ottesen had worked for DOT for over 27 years and expressed gratitude for his service to the state. He remarked that it was a privilege to work with him over the years and commended him for his many years of exemplary service. Co-Chair Thompson echoed the same sentiments. Representative Pruitt asked how many years the state would have to operate out of the two ferry terminals. Mr. Ottesen answered that the terminals were 13 years old and that 20 years was considered a useful life for the project; the obligation would last another 7 years. He detailed that $500 thousand times 7 years amounted to $3 million versus $27 million for the full costs of the project. ^AMENDMENTS Representative Gara MOVED to ADOPT Amendment 1: Page 14, line 23 [SAME]: Delete all material. Page 14, line 26 [line 27]: Delete "109,920,000" [84,920,000] Insert "155,220,000" Adjust fund sources and totals accordingly. Co-Chair Neuman OBJECTED. Representative Gara explained that the amendment reverted back to the Senate version numbers for the Federal Surface Transportation program receipt authority, which removed the $45 million in receipt authority for the Knik Arm Crossing. He believed that it was time to give up on the project because of the excessively high costs. He offered that the first phase costs of the project was roughly $1 billion. Phase 2 and the new or upgraded approach roads would bring the project costs to $1.7 billion. Co-Chair Neuman maintained his objection. Representative Guttenberg stated that Administrative Order 271 halted any projects that would obligate the state and wondered how the receipt authority could be spent if the order was not lifted. He also objected to the receipt authority because he believed the money would displace other projects on the STIP. He emphasized his concern about other projects in the state being displaced farther down the list or removed due to the addition of the Knik Arm and Juneau Access projects. He wanted to understand what projects would be displaced or removed from the STIP with the addition of the receipt authority for the projects. He strongly supported Amendment 1. Co-Chair Neuman stated that he just heard comments that were in opposition from the departments comments in regards to the issue. He restated that the department assured him that no other project on the STIP would be affected by the inclusion of the two projects in the CS. He reiterated the comments stated by Mr. Ottesen. A roll call vote was taken on the motion. IN FAVOR: Kawasaki, Gara, Guttenberg OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis, Neuman, Thompson The MOTION FAILED (3/8). Representative Gara WITHDREW Amendment 2. Representative Guttenberg MOVED to ADOPT Amendment 3: Page 17, following line 24: Insert new material to read: "APPROPRIATION GENERAL ITEMS FUND UAF Engineering Building (HD 1-5) 8,000,000 8,000,000" Adjust fund sources and totals accordingly. Co-Chair Neuman OBJECTED. 11:08:27 PM Representative Guttenberg explained that Amendment 3 maintained the work on the next phase of the engineering building on the University of Alaska Fairbanks (UAF) campus. Without the funding, the contractors would leave the project making startup more costly when funding was appropriated to finish the project. The $8 million kept the project in tact at a minimal level. He voiced that the funding was included in the governor's supplemental budget. Co-Chair Neuman asked whether the $8 million would come from the general fund. Representative Guttenberg responded in the affirmative. Representative Kawasaki thanked Representative Guttenberg for making the amendment. He communicated that the University of Alaska Anchorage (UAA) project "jumped" ahead at the expense of the UAF project. The future of the state relied on engineers and he felt the project was important for both campuses. He concurred that halting the construction now would impose much higher restart costs. He voiced that the funding would complete two classrooms and the building would operate unfinished until the $30 million additional needed was appropriated to complete the project. Representative Gattis understood the request and acknowledged that every legislator had projects needed in their areas. However with a fiscal crisis looming in the state she could not support the amendment due to lack of funds. A roll call vote was taken on the motion. IN FAVOR: Guttenberg, Kawasaki, Gara OPPOSED: Gattis, Munoz, Pruitt, Saddler, Wilson, Edgmon, Neuman, Thompson The MOTION FAILED (3/8). 11:13:44 PM Representative Gara MOVED to ADOPT Amendment 4: * Sec. A. LEGISLATIVE INTENT. It is the intent of the legislature to appropriate education funds at the same level as would be distributed through the foundation formula under AS 14 .17.410 to keep school funding even with the fiscal year 2015 education appropriation, including the one-time funds appropriated by sec. 32(b) and (c), ch. 18, SLA 2014, adjusted for inflation. * Sec. B. DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT. (a) The sum of $32,243,700 is appropriated from the general fund to the Department of Education and Early Development to be distributed as state aid to school districts according to the average daily membership for each district adjusted under AS 14.17.410(b)(l)(A) - (D) for the fiscal year ending June 30, 2016. (b) The sum of $37,000,000 is appropriated from the general fund to the Department of Education and Early Development to be distributed as state aid to school districts according to the average daily membership for each district adjusted under AS 14.17.410(b)(l)(A)-(D) for the fiscal year ending June 30, 2016. (c) The amount necessary to fund the base student allocation at $5,880 under AS 14.17.4 70 is appropriated from the general fund to the Department of Education and Early Development for the fiscal year ending June 30, 2016. *Sec. C. Section A of this Act takes effect June 30, 2015. *Sec. D. Section B of this Act takes effect July 1, 2015. Co-Chair Neuman OBJECTED. Representative Gara explained Amendment 4. He noted the amendment maintained the education funding at last year's level including inflation. He believed the education cuts would result in the loss of hundreds of teachers across the state. He stated that when academic opportunities were cut the students lost a level of education that could not be reclaimed when funding was increased. The amendment restored the $47 million that was removed by the Senate. He wanted students to have the resources necessary to succeed in school. Representative Wilson believed that the funding belonged in the operating budget and would not support the inclusion of education funding in the capital budget. Representative Kawasaki asserted that the capital budget represented the "opportunity" for the committee to restore the education funding that was removed by the Senate. He did not want to rely on a six member conference committee to restore the funding and felt it was the appropriate vehicle to "do the right thing today." Representative Munoz agreed with Representative Wilson that the capital budget was not the proper vehicle for education funding but fully supported the intent of the amendment. 11:18:53 PM Representative Edgmon echoed Representative Munoz's sentiments and reminded the committee that three members of the committee sat on the operating budget conference committee and requested that the three members carry the "strong message forward" to restore the education funding in the operating budget. Co-Chair Neuman maintained his objection. A roll call vote was taken on the motion. IN FAVOR: Gara, Guttenberg, Kawasaki OPPOSED: Gattis, Munoz, Pruitt, Saddler, Wilson, Edgmon, Thompson, Neuman The MOTION FAILED (3/8). 11:20:03 PM Representative Gara MOVED to ADOPT Amendment 5: Page 60, following line 14: Insert a new subsection to read: "(e) The unexpended and unobligated balances of the appropriations made in sec. 4, ch. 16, SLA 2013, page 105, lines 22 - 24, and sec. 4, ch. 18, SLA 2014, page 87, lines 10 - 11, lapse into the general fund on June 30, 2015." Page 60, line 19: Delete "and 41" Insert "41, and 43(e)" Co-Chair Neuman OBJECTED. Representative Gara explained Amendment 5. The amendment removed the unobligated funding for the Susitna-Watana Hydroelectric Project from Alaska Energy Authority (AEA) and returned $6 million to the general fund. He believed that the Susitna-Watana Hydroelectric Project was a $6 billion project that would most likely never be built due to the exorbitant costs. He felt that the legislature should focus on the natural gasline project and apply some of the project funding to education. Representative Pruitt felt that it was appropriate to retain the money for the project in the AEA account and urged the members to vote no on Amendment 5. Co-Chair Neuman thought that the decision to continue with the project should be reexamined in the future but supported retaining the funding as part of the decision making process. Representative Guttenberg pointed out that the project was included under Administrative Order 271 and the money was not able to be expended on the project. He did not believe the project was going to move forward this summer and did not want to leave the $6 million sitting in a fund when it could be used for education and other needs. Representative Kawasaki relayed a story from personal experience about his discovery in 2008 that the project would benefit Fairbanks energy needs and subsequently supported the project. However, with the fiscal crisis looming "it was a matter of priorities" to reappropriate the funding for more realistic projects of greater need in the present. He remarked that the hydroelectric project was "stalled." A roll call vote was taken on the motion. IN FAVOR: Gara, Guttenberg, Kawasaki OPPOSED: Munoz, Pruitt, Saddler, Wilson, Edgmon, Gattis, Thompson, Neuman The MOTION FAILED (3/8). 11:26:40 PM Representative Gara MOVED to ADOPT Amendment 6: Page 60, following line 14: Insert a new subsection to read: "(e) The unexpended and unobligated balance of the appropriation made in sec. 1, ch.16, SLA 2013, page 12, lines 20 - 25, lapses into the general fund on June 30, 2015." Page 60, line 19: Delete "and 41" Insert "41, and 43(e)" Co-Chair Thompson OBJECTED. Representative Gara explained Amendment 6. He noted that the amendment would eliminate the $17.3 million of unobligated funds for the Bragaw Extension road project in Anchorage. He opined that the project was controversial, of questionable benefit, and was unaffordable for the state. The money was better prioritized for educational needs. He addressed the argument that the extension could cut one to three minutes of time off of an ambulance drive to a hospital. He delineated that Anchorage ambulances had the capability to turn red lights to green, which negated the time saving argument. Representative Pruitt voiced that "sometimes your ambulance is your car" and the few minutes "could mean a lot." The road could be the lifeline in an emergency scenario. He acknowledged that the project was controversial but felt that it was necessary to enhance the north/south traffic flow. He asked the committee to vote no for the amendment. Vice-Chair Saddler asserted that he opposed the amendment in favor of quicker access to the hospital in an emergency situation. Representative Kawasaki initially did not think that the extension project was controversial. He shared that he received letters from local Anchorage community councils in opposition to the project and wanted to respect the local communities' requests. He supported reprioritizing the funding for other priority needs. Co-Chair Neuman maintained his objection. A roll call vote was taken on the motion. IN FAVOR: Gara, Guttenberg, Kawasaki OPPOSED: Edgmon, Gattis, Munoz, Pruitt, Saddler, Wilson, Neuman, Thompson The MOTION FAILED (3/8). 11:31:39 PM Co-Chair Thompson explained the sponsor requested a technical correction on (motion to amend the amendment to $50thousand from $100 thousand) Amendment 7 to change $100 thousand to $50 thousand. Representative Gara MOVED to ADOPT Amendment 7: Page 46, following line 21: Insert a new subsection to read: "(e) The sum of $100,000 is appropriated from the general fund to the Department of Health and Social Services, office of children's services, for foster and adoptive parent recruitment advertising for the fiscal years ending June 30, 2016, and June 30, 2017." Page 60, line 19: Delete "28 - 39" Insert "28, 29, 30(a) - (d), 31 - 39" Co-Chair Neuman OBJECTED. Representative Gara explained Amendment 7. He reported that in prior capital budgets approximately $50 thousand to $100 thousand was included to advertise for adoptive or foster parents. He declared that the state had a "massive shortage" of adoptive parents. He believed that the amendment would save the state money and "was a small investment." He offered that if only two children were adopted due to advertising the children's removal from foster care would save the state the costs of the amendment and savings on social workers. Representative Guttenberg remarked that Representative Gara was a tireless advocate on behalf of foster care. He elaborated that the small investment to keep the program intact was a huge cost saver in the future for social services, public safety, and educational costs. He urged support of Amendment 7. 11:36:04 PM Representative Wilson discerned that the capital budget was not the appropriate vehicle for the amendment and would vote no for Amendment 7. Representative Gara remarked that the funding for the advertising had always been in the capital budget but would try to include it in the operating budget. Representative Gara WITHDREW Amendment 7. Representative Wilson MOVED to ADOPT conceptual Amendment 8: Page 39, lines 25-31 Delete $5,000,000 for Barnette Magnet School's phase 4 renovations. Co-Chair Neuman OBJECTED for the purpose of discussion. Representative Wilson reported that the conceptual amendment removed the $5,000,000 reappropriation for phase 4 renovation at the Barnette Magnet School in Fairbanks. She detailed that the school was initially listed as number 5 of the school construction fund list and the governor's proposed capital budget funded school construction projects through number 4 for a total of $10,867,503. She maintained that the project was not more important than the other school's needs on the list that was not funded. She understood that the Fairbanks North Star Borough was going to bond for the project and even though inclusion in the capital budget would save the local constituents money she did not support the idea of prioritizing the project and funding it in this manner. Representative Kawasaki spoke against conceptual Amendment 8. He asserted that the project was important and the number one priority for the school district and borough. He noted that the project moved up to number 5 from the 10th position on the major maintenance list. Phase 4 completion was guaranteed in 2007 when the project was initiated. The $5,000,000 funding was not enough (half of the amount) for completion, but the project would procure local support. The borough planned to bond for the phase 4 renovations. He pointed out that SB 64 (An Act Relating to School Bond Debt Reimbursement - Enacted 4/25/2015) placed bonding for the project in "jeopardy" since the bill eliminated the state match. He opposed the conceptual amendment. 11:42:03 PM Representative Guttenberg spoke in opposition to the amendment. He relayed that he contacted the borough and was told that bonding for the project was not certain; the decision to bond had not been made. He recounted that the project was number 5; the next project on the list. The method of adding it to the capital budget by a legislator "reaching out and advancing it" was entirely appropriate and was "done all of the time" by the legislature. Co-Chair Neuman removed his objection. Representative Kawasaki OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Gattis, Munoz, Pruitt, Saddler, Wilson, Edgmon, Thompson, Neuman OPPOSED: Gara, Guttenberg, Kawasaki The MOTION PASSED (8/3). Co-Chair Neuman move MOVED to REPORT HCS CSSB 26 (FIN) out of committee with individual recommendations. There being NO OBJECTION, HCS CSSB 26 (FIN) was REPORTED out of committee with a "do pass" recommendation. 11:45:38 PM AT EASE 11:48:03 PM RECONVEYNED Co-Chair Thompson discussed the agenda for the following morning ADJOURNMENT 11:48:43 PM The meeting was adjourned at 11:48 p.m.