Legislature(2025 - 2026)SENATE FINANCE 532
02/19/2025 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB72 | |
| Presentation: Three Year Budget Outlook – Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 72 | TELECONFERENCED | |
| *+ | HB 65 | TELECONFERENCED | |
SENATE FINANCE COMMITTEE
February 19, 2025
9:01 a.m.
9:01:25 AM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
Senator Donny Olson, Co-Chair
ALSO PRESENT
Bill O'Leary, President and CEO, Alaska Railroad
Corporation; Meghan Clemens, Director of External Affairs,
Alaska Railroad Corporation; Senator Cathy Giessel;
Representative Louise Stutes; Preston Carnahan, Vice-
President of Destinations, Royal Caribbean Group; Alexei
Painter, Director, Legislative Finance Division.
PRESENT VIA TELECONFERENCE
Kat Sorensen, City Manager, City of Seward; Jillian
Simpson, President and CEO, Alaska Travel Industry
Association.
SUMMARY
SB 72 RAILROAD CORP. FINANCING
SB 72 was HEARD and HELD in committee for further
consideration.
PRESENTATION: THREE YEAR BUDGET OUTLOOK LEGISLATIVE
FINANCE DIVISION
Co-Chair Hoffman discussed the agenda. He noted that the
committee would consider invited and public testimony for
SB 72 before setting it aside. He recalled that the
committee had heard the bill the previous session. He noted
that the committee would consider a three-year budget
overview from the Legislative Finance Division (LFD).
SENATE BILL NO. 72
"An Act authorizing the Alaska Railroad Corporation to
issue revenue bonds to finance the replacement of the
Alaska Railroad Corporation's passenger dock and
related terminal facility in Seward, Alaska; and
providing for an effective date."
9:03:02 AM
BILL O'LEARY, PRESIDENT AND CEO, ALASKA RAILROAD
CORPORATION, introduced himself. He spoke to a presentation
entitled "Seward Passenger Dock & Terminal Replacement
Project" (copy on file).
Mr. O'Leary showed slide 2, "Mission Statement" and
summarized that the Alaska Railroad Corporation (ARC)
mission statement could be summarized through safety,
service, profitability, and economic development. He
thought ARC's request for support of a project in Seward
fit with the mission statement perfectly.
9:04:52 AM
MEGHAN CLEMENS, DIRECTOR OF EXTERNAL AFFAIRS, ALASKA
RAILROAD CORPORATION, spoke to slide 3, "ARRC SEWARD
PASSENGER DOCK: NEED FOR REPLACEMENT"
• Current Seward dock facility is rapidly approaching
end of useful life
• Seward cruise port is critical infrastructure for
Alaska's travel industry:
205,240 passengers cruised to or from Seward in 2024,
many adding on travels in Southcentral and Interior
Ms. Clemens noted that the current Seward dock dated back
to the 1960's and was approaching the end of its life. She
recounted that the Royal Caribbean Group (RCG), together
with a local developer, had approached the railroad with a
proposal for a new passenger dock and terminal facility in
Seward. She relayed that with legislative approval, ARC
could purchase the facilities and plan for a ribbon-cutting
in spring of 2026. The company hoped for bond authorization
to advance the project.
Ms. Clemens advanced to slide 4, "PLANNED INVESTMENTS IN
SEWARD MARINE INFRASTRUCTURE":
• $137 million passenger dock and terminal replacement
(seeking ARRC bond authorization)
• $25 million freight dock expansion (funded by MARAD
grant and ARRC match)
MS. Clemens discussed the freight dock expansion project
and noted that the passenger dock was one of three docks
that ARC owned in Seward. She pointed out the dock facility
shown on the slide.
Ms. Clemens spoke to slide 5:
• Double berth pier with floating barge dock will be
able to accommodate wide range of vessels, including
side-loading marine highway vessels
• ARRC invested additional $1.8 million to enhance
transfer span for light freight
Ms. Clemens detailed that the proposed dock would be much
longer and would be able to accommodate two ships at one
time. She presumed that cruise ships would be the expected
main customer base for the facility, but ARC was looking
for the new infrastructure to accommodate a broader range
of vessels. She noted that an enhanced transfer span would
help free up the adjacent dock for other uses.
Ms. Clemens referenced slide 6, which showed a photograph
of the Seward Cruise Terminal. She described the terminal
as key infrastructure for the community and noted that it
was the largest community facility in Seward. The new
terminal was planned to be larger, and ARC looked forward
to it being a local option for city events.
9:09:17 AM
Ms. Clemens showed slide 7, which showed an aerial view of
the project area. She noted that RCG signed a 30-year Pier
Usage Agreement, which was critical the revenue bonds that
ARC was seeking legislative approval for. She cited that
the bonds were not an obligation of the state but would be
backed solely by the railroad and the 30-year peer usage
agreement. She noted that ARC would own the new facility
and RCG would have preferential berthing rights on one side
of the dock, with other cruise lines hopefully calling on
Seward as well.
Ms. Clemens spoke to slide 8, "FUNDING & TIMELINE":
2022: $60 million in bond authorization approved.
2024: Requested additional $75 million bond
authorization.
HB122 passed by Legislature eight minutes after close
of session; not recognized as legal bill passage by
bond counsel or Governor.
Fall 2024: $45 million EPA Clean Ports Grant awarded
to City of Seward to support Seward dock
electrification and city utility infrastructure
improvements for shore power; $5 million match
provided by dock developer.
2025: Re-seeking additional $75 million bond
authorization.
Fall 2025: Dock replacement construction begins.
Spring 2026: New dock and terminal complete.
Ms. Clemens directed attention to the spring 2026 estimated
completion date for the new dock and terminal. She
reiterated that the current dock was rapidly approaching
the end of its useful life. She thought the project was
currently on schedule to meet the deadline pending the
timely bond authorization from the legislature.
Co-Chair Hoffman noted that Senator Cronk had jointed the
meeting and recognized Senator Cathy Giessel.
Mr. O'Leary reviewed slide 9, "KEY POINTS":
Bonds issued by ARRC are not a liability of the state,
and no state dollars will be used for repayment.
ARRC bonds will be secured by a 30-year pier use
agreement with anchor tenant Royal Caribbean Group;
annual revenue guarantee is sized to cover debt
service.
The new dock and terminal facility will support the
next 50 years of industry growth and visitor demand,
with economic impacts spanning Southeast, Southcentral
and Interior Alaska.
Mr. O'Leary noted that the anchor tenant and revenue
guarantee would not only cover the debt service, but also
the operations and maintenance of the facility. He
emphasized the project's statewide impact.
Co-Chair Hoffman recognized that Representative Louise
Stutes was present.
9:13:33 AM
PRESTON CARNAHAN, VICE-PRESIDENT OF DESTINATIONS, ROYAL
CARIBBEAN GROUP, introduced himself. He noted that RCG had
about 65 ships globally, and brought about 10 to Alaska. He
commented on a great working relationship with ARC and the
city of Seward. He considered that the project was in line
with some of RCG's sustainability pillars, including
community resilience.
Senator Kiehl noted that the testifiers previous to Mr.
Carnahan had both used the word "guarantee." He asked Mr.
Carnahan to comment on his understanding of RCG's level of
commitment to making payments even if something untoward
happened.
Mr. Carnahan explained that the guarantee was a legal,
binding contract for RCG to provide a minimum amount of
revenue to the railroad as the owner of the port. The
contract was legally binding, included annual revenue, and
had already been executed.
Senator Kiehl pondered the revenue guarantee as being
"sized" to the debt service. He asked about details
pertaining to the revenue guarantee.
Mr. O'Leary cited that the guarantee was sized such that no
other ships came to the dock, the debt service and
operations/maintenance would be paid to ARC. He noted that
the corporation was actively marketing the dock and hoped
to have other tenants or customers.
Co-Chair Stedman wanted to thank the railroad for thinking
beyond the cruise lines and considering getting freight
into the main corridor of the state where 70 percent of the
population lived. He thought the state needed to keep
Seward and Whittier in mind for moving goods in case of
anything happening in Anchorage.
Co-Chair Hoffman listed individuals for invited testimony.
9:18:00 AM
KAT SORENSEN, CITY MANAGER, CITY OF SEWARD (via
teleconference), testified in support of the bonding
authority for the dock and terminal project in Seward. She
relayed that Seward was the home of an economic and
transportation hub in the state. She noted that the
proposed terminal was designed for year-round use and would
be used by the community. She mentioned the Seward Music
and Arts Festival. She mentioned the inclusion and economic
benefits of shoreside power infrastructure. She discussed
economic benefits of cruise ships.
9:20:04 AM
JILLIAN SIMPSON, PRESIDENT AND CEO, ALASKA TRAVEL INDUSTRY
ASSOCIATION (via teleconference), relayed that the Alaska
Travel Industry Association (ATIA) had over 625 members,
and strongly supported the dock replacement project. She
stressed the urgent nature of the project. She discussed
the importance of cruise visitors as part of Seward's
economy. She discussed economic activity in the state as a
result of cruise tourism. She noted that the new dock would
allow for a larger class of ships.
9:21:47 AM
Co-Chair Hoffman OPENED public testimony.
9:22:04 AM
Co-Chair Hoffman CLOSED public testimony.
Co-Chair Hoffman set an amendment deadline for the
following day at 5 o'clock p.m.
SB 72 was HEARD and HELD in committee for further
consideration.
9:22:22 AM
AT EASE
9:23:48 AM
RECONVENED
Co-Chair Hoffman relayed that the presentation from LFD
would provide a three-year overview of the budget requested
by the committee.
^PRESENTATION: THREE YEAR BUDGET OUTLOOK LEGISLATIVE
FINANCE DIVISION
9:24:14 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
discussed a presentation entitled "FY25 FY28 Fiscal
Outlook" (copy on file).
Mr. Painter looked at slide 2, "Outline
• Revenue Outlook
• Agency Operations Cost Drivers
Formula items (K-12, Medicaid, etc.)
Non-formula items
• Statewide Items
• Capital Budget
• FY25-FY28 Scenarios
Mr. Painter spoke to slide 3, "FY25-FY28 Revenue Outlook:
DOR 2024 Fall Forecast," which showed a table of revenue
outlooks for FY 25 through FY 28, and a graph of oil price
forecast comparison. He made note of the percent of market
value (POMV) revenue increasing between FY 25/26 and FY 27.
The spike in the value of the Permanent Fund in FY 21 was
still being factored in, but would level off in FY 28. The
traditional oil revenue was driven by the two factors of
oil price and North Slope oil production shown on the
table. He noted that Department of Revenue's (DOR) forecast
called for oil around $70 per barrel (bbl) dipping to
$69/bbl in FY 27 and FY 28. Production was forecast to
increase back over 500,000 barrels per day (bpd) by FY 28
as new fields came online.
Mr. Painter noted that the graph on the bottom on the slide
compared DOR's fall forecast (shown in blue) with the Brent
futures market as of the previous week (shown in red), and
the Energy Information Agency's (EIA) Short-term Energy
Outlook (STEA). The fall forecast closely mirrored the
futures market as of the previous week. He noted that the
EIA STEO had forecasted a significant reduction in oil
prices going forward. It had forecasted that Oil Producing
and Exporting Countries (OPEC) would increase production,
but demand would not increase enough to prevent a price
decline.
Mr. Painter observed that the EIA forecast showed oil down
in the mid-60's by the middle of FY 26, versus the other
forecast almost up to $70/bbl. He commented on the
significant revenue impact on Alaska by a price change of
$5/bbl. He commented that at current prices, every dollar
of change in the price of oil signified a change of $35
million to $40 million for the state. He surmised that if
oil prices were around $65/bbl rather than $70/bbl it would
be a difference of $200 million in state revenue. The
spring revenue forecast from DOR would be available the
following month and would likely be based on the futures
market in early March. He noted that prices had remained
fairly constant.
Co-Chair Hoffman noted that DOR had informed the committee
that it would make its presentation on the fourteenth of
March.
9:27:59 AM
Mr. Painter referenced slide 4, "Sources of Revenue
Uncertainty
• Oil prices: at current prices, each dollar change in
the price of oil is about $35-40 million in revenue.
• Oil production and expenses: while not as volatile
as prices, both oil production and producer costs can
change from year to year and impact revenue.
• Investment returns: if the Permanent Fund
underperforms its projection by 1% in FY25, FY27
revenue is reduced by about $8 million and FY28
revenue is reduced by about $16 million.
• Federal revenue: reductions in federal funds to
programs like Medicaid could greatly impact the
State's overall revenue. In the FY25 budget, federal
funds exceeded general funds, and in FY26 they total
$6.1 billion.
Mr. Painter mentioned producer expenses, which could affect
state revenue significantly even at a level price. He
discussed the five-year averaging utilized by the POMV
draw. He discussed how the state was somewhat insulated
from investment returns as a driver of state revenue, but
there could be an impact on the Earnings Reserve Account
(ERA) balance.
Mr. Painter addressed the volatility in federal revenue,
which was the state's largest revenue source in FY 25.
Changes to federal allocations for programs could
significantly affect the amount of revenue the state had to
carry out appropriations. In some cases, he thought the
state could have to step in with funds.
Co-Chair Hoffman made note of increased influence from Elon
Musk in the federal budget process, and thought there were
substantial cuts contemplated. He did not know what to
expect from the rise of the Department of Government
Efficiency (DOGE) but did not think it would be good for
the state.
9:31:54 AM
Mr. Painter turned to slide 5, "Significant One-Time Items
in FY25 Budget":
• Of the items above, the only one repeated in the
Governor's FY26 budget is $5 million for the
University of Alaska's R1 research.
• The Governor's budget includes $6.1 million for
child care assistance grants related to SB 189, which
expanded eligibility for the needs based child care
grant program. The $7.5 million one-time item in the
FY25 budget was directed to providers.
Mr. Painter noted that the table at the top of the slide
listed significant one-time items in the FY 25 budget. He
thought it was important to point out that the University
of Alaska's (UA) R1 research was funded the previous year,
but by a different fund source. He highlighted $10 million
in Alaska Marine Highway System (AMHS) backstop funds, as
the difference between the budgeted federal authority and
the maximum federal grant rules. The governor had not
included the funds. He thought a similar provision would
probably be needed in the current year in order to run a
full ferry schedule.
Mr. Painter made note of the $7.5 million for the childcare
grant program from the previous year, which was not
repeated in the governor's budget. He highlighted that the
governor's budget included a $6.1 million childcare related
item.
Mr. Painter spoke to the $7.3 million of K-12 additional
pupil transportation funding outside the formula. The item
was not in the governor's budget but was in his education
bill. He mentioned $5 million for tourism marketing that
was in the operating budget the previous year as UGF. The
item was not in either budget from the governor.
Co-Chair Hoffman thought it should be noted that the total
of the items was $220 million, which would probably be met.
He added that the $174 million for K-12 outside the funding
formula was related to a $680 Base Student Allocation (BSA)
increase. There was legislation pending to make the amount
state law.
9:36:03 AM
Mr. Painter considered slide 6, "Agency Operations: Formula
Programs":
• Formula programs comprise nearly half of the UGF
budget. This includes K-12 funding above the statutory
formula that is distributed according to the formula.
• Other UGF formula programs include the Alaska
Pioneer Home Payment Assistance, Office of Childrens'
Services Foster Care and Adoption/Guardians programs,
Adult Public Assistance, Child Care Benefits, Tribal
Assistance, and Senior Benefits.
• Formula programs are dictated by statute and by
rates set out by the departments, often in
coordination with the federal government. There is
less control of the amounts through the appropriation
process than for nonformula programs.
Mr. Painter thought it was useful to understand how formula
programs and non-formula appropriations grew differently.
In FY 25 management plan, K-12 formulas made up 29 percent
of the budget, Medicaid formula made up 15 percent, and
other formulas made up 4 percent. Nearly half the current
year's budget was comprised of formula programs.
Mr. Painter displayed slide 7, "K-12 Funding Legislation
and Trends":
• The FY25 budget included $174.7 million in funding
above the Foundation Formula (equivalent to $680 in
the Base Student Allocation) and $7.3 million above
the Pupil Transportation formula ($182.0 million
total).
• The Governor proposed two major K-12 bills this
year: SB 66 (Tribal Compacting) and SB 82 (Education
Omnibus). In the House, HB 69 would increase the BSA
over the next three years.
• In FY26, the projected K-12 formula amount went down
by $28.7 million UGF, primarily due to a lower student
count. Based on the Department of Labor's demographic
projections, this may continue over the next several
years.
Mr. Painter highlighted a table at the top of the slide
that showed the cost of three K-12 funding bills. He
highlighted that HB 69 was moving through the other body
and would increase funding by an estimated $325.6 million
in FY 26, with larger amounts in the following two years
for a total of nearly $1.5 billion above the current
formula across the three years. He discussed the governor's
two separate education bills, including SB 82 the
"education omnibus" bill. He detailed that SB 66 was
related to tribal compacting and had a significant fiscal
note with $17.45 million in FY 26 and $12 million in the
out years. The omnibus bill was $116 million in FY 26 and
over $181 million in FY 27. The big jump in expense was for
a teacher bonus program that would start in FY 27. While
the governor did not have K-12 outside the formula funding
in his budget, he was introducing bills that would equate
to about a combined $193 million in FY 27 if implemented.
Mr. Painter relayed that that the next few slides would
address the trends in the existing funding. He cited that
in the current year the projected K-12 formula amount went
down by $28.7 million. The biggest reason was lower student
count. He noted that demographic projections from the
Department of Labor and Workforce Development (DLWD)
expected the trend to continue. He made note of increased
required local contribution due to rising property values,
which would decrease the state's contribution. Another
factor was federal impact aid.
9:40:39 AM
Mr. Painter highlighted slide 8, "Student Count (ADM),
FY11-26," which showed a bar graph. The blue portion of the
bars signified students in "brick and mortar" schools,
while the red portion denoted correspondence students. He
directed attention to the total average daily membership
(ADM), which peaked in FY 17. Since FY 26, the state was
down 4.3 percent. There were very different trends between
the student types, with correspondence increasing by over
86.6 percent since FY 17. The non-correspondence students
decreased by 13.7 percent.
Mr. Painter continued that the change in student type had
accelerated during the Covid-19 pandemic, but the trend
began prior to the pandemic. He pointed out an increased
multiplier for correspondence students in FY 15. He thought
it was significant due to the fact that correspondence
students were funded differently than non-correspondence
students. The move to correspondence meant less money to
school districts. He considered that analysis was
complicated by the differing student types. The BSA could
go up but less funding might be available due to a change
in the type of students.
9:43:26 AM
Co-Chair Hoffman thought analysis was further complicated
by the fact that less students were attending brick-and-
mortar schools, and many districts faced the problem of not
enough students in schools and subsequent school closures.
Mr. Painter thought Co-Chair Hoffman made a great point and
cited that 18 districts were under the hold harmless
provision because of experiencing a five percent drop in
brick and mortar schools. He noted that the change was a
long-term trend and noted that in FY 15 there were 20
districts under the hold harmless provision. He noted that
the impact currently was greater because the reduction was
happening in larger population districts. He thought the
change could be accelerating but it was not a new problem.
Mr. Painter looked at slide 9, "K-12: Impact of Factors per
Non-Correspondence ADM, FY11-26," which showed a bar graph
depicting the impact of formula adjustments on different
adjustments to the ADM. He relayed that the legislature had
changed the statutory factors a number of times to change
what the multipliers were, most notably between FY 09 and
FY 13. Even though the factors had not changed since FY 13,
the impact of the factors had increased.
Mr. Painter described the factors/multipliers to achieve an
adjusted ADM (AADM). He summarized that in FY 26 the
schools would receive 16.5 percent more with the same BSA
because of changes in the factors. He thought one notable
item was the rise of special education intensive students,
which had risen by 11,000 by FY 15. The change was
significant because the students each counted as 13 times
the regular BSA, which influenced the amount of money
districts received. He made note of shifting cost
structures in districts, and explained that special
education student funding had requirements and the students
incurred higher expenses.
9:47:39 AM
Senator Kaufman asked if there were studies that showed
what drove the increase in intensive special education
student numbers.
Mr. Painter relayed that the Department of Education and
Early Development (DEED) had put out a request for
proposals (RFP) the previous fall for a contractor to look
into the issue.
Co-Chair Hoffman explained that the factors related to the
foundation formula may change, but the formula remained the
same.
Mr. Painter thought the multiplier of 13 for intensive
special needs students had been changed a couple of years
prior to the bill in FY 15. He affirmed that the multiplier
had not changed in over a decade, but the number of
students the multiplier affected had changed.
Mr. Painter addressed slide 10, "Medicaid UGF Funding
• From FY15 to FY18, Medicaid spending declined
primarily due to Medicaid reform efforts.
• Due to a temporarily higher FMAP and reduced
utilization during the COVID-19 pandemic, spending
dropped even further in FY20 and FY21.
• As the enhanced FMAP has gone away and utilization
has returned to normal, spending has increased. Based
on DOH's 12/15/25 projection, the FY26 need is $134.2
million (21.9%) higher than FY23.
Mr. Painter addressed the graph on slide 10, which showed
the Unrestricted General Funds (UGF) for Medicaid going
back to FY 15. He noted that the graph showed actuals
rather than budgeted numbers that were projected. He
observed a rise in FY 19, then a drop during the Covid-19
pandemic. Since that time, the number had gone up
significantly. Based on the projection, the FY 26 budget
would be nearly 22 percent higher than the FY 23 budget for
Medicaid. The item was a significant cost driver in the
budget.
9:50:57 AM
Mr. Painter advanced to slide 11, "Non-formula Agency
Operations":
• Non-formula agency operations were relatively flat
from FY17 through FY22, after significant reductions.
Since FY22, they have increased by $498.6 million
(25.8%), an average annual growth rate of 5.9%.
Inflation over that period was a cumulative 18.0%.
• Cost drivers include health insurance costs,
employee pay, inflationary impacts on commodities and
services costs, and program expansion. In addition,
temporary COVID funds offset some general fund
expenditures from FY21-23.
• The impact of the statewide salary survey are
unknown. UGF funding for executive branch salaries are
about $661 million in FY25, so each 1% of across-the-
board salary increases costs about $6.6 million.
Mr. Painter noted that agency operations had grown faster
than inflation over the past few years. He mentioned that
some of the program expansion was opening things that had
been previously closed due to downward pressure on the
budget. He mentioned increased funding for state aircraft
and vehicles that had been able to be reduced temporarily.
He noted that there were still some significant federal
funds that were offsetting general fund expenditures,
mostly for AMHS. The funds were temporary. He noted that
expenditures were reappearing for items that had been
temporarily funded by Covid funds that had now diminished.
He used the example of airport funding. He discussed the
potential scale of salary increases.
9:54:25 AM
Mr. Painter looked at slide 12, "Statewide Items
• State Assistance to Retirement (PERS and TRS) is
projected to increase from $220.0 million in FY26 to
$284.4 million in FY27 based on the June 30, 2023,
valuation.
The draft June 30, 2024, valuation indicates
that the actual rate may go down based on
positive investment performance in FY24, so the
true increase will likely be less than that.
• State debt payments are expected to stay flat, but
school debt reimbursement is projected to go down
based on established school debt.
The moratorium on new debt is scheduled to end
on July 1, 2025. The fiscal impact of this is
unknown, but it would likely impact debt
reimbursement amounts starting in FY27 and REAA
fund capitalization amounts in FY28.
LFD fiscal modeling typically assumes $7.8
million per year of new debt based on historical
averages. However, the true amount could be
higher due to pent-up demand or could be lower
due to the State's history of not always making
full payments.
Mr. Painter commented that many statewide items were driven
by external formulas. He noted that the governor's
education omnibus bill proposed to extend the moratorium on
school debt reimbursement by several years. He discussed
the potential of new debt after FY 27. He noted that
several municipalities had significant impacts after school
debt reimbursement was vetoed. He highlighted that the
future debt was an uncertainty in budget projections going
forward.
Co-Chair Hoffman pondered a hypothetical school with an
approved $50 million voter-approved debt. He asked what
percentage the state was obligated to pay under current
law.
Mr. Painter relayed that depending upon the qualifying
features of the project, the amount was 40 percent or 50
percent.
Co-Chair Hoffman commented that it was substantial for the
state to be responsible for 50 percent of the $50 million
school.
Mr. Painter noted that the obligation would include
interest, which could be sizable even with a low interest
rate.
9:58:52 AM
Mr. Painter showed slide 13, "Deferred Maintenance
• In FY25 the State had a $2.4 billion deferred
maintenance (DM) backlog.
• The University of Alaska accounted for over $1.5
billion (63%) of that, in part due to more rigorous
standards for tracking maintenance issues than the
rest of the executive branch.
• Based on an estimated $9 billion asset value (as of
2022, excluding the University) if Alaska spent 2% of
that on the backlog, we would need to spend $180.0
million on deferred maintenance. The Governor's FY26
budget has $20.0 million in statewide the deferred
maintenance appropriation and $6.0 million for Public
Building Fund deferred maintenance.
This does not account for the eventual need to
replace aging specialized facilities, such as
Pioneer Homes and prisons. These large projects
could potentially be handled through bonding.
It also does not account for line-of-business
technology systems, which need to be replaced as
technology changes. The Governor's FY26 budget
includes $19.5 million for IT projects.
It also does not account for school
construction and major maintenance.
Mr. Painter noted that OMB had just sent an updated
deferred maintenance list. He discussed a review of
deferred maintenance evaluations. He pondered how much
deferred maintenance should be funded and made note of the
deferred maintenance backlog. He noted that deferred
maintenance could not be handled through bonding, although
facility replacement could be. He discussed the need for
budgeting for IT projects. He mentioned DEED's separate
list of school construction and maintenance.
Mr. Painter referenced slide 14, "FY25 Deferred Maintenance
by Agency," which showed a bar graph showing deferred
maintenance backlog amounts by agency, not including the
University. The graph was from a new list from OMB. He
pointed out that the Department of Transportation and
Public Facilities (DOT) had the two largest items with its
own agency facilities and $210 million for Public Building
Fund facilities, which was up considerably. There were
other agencies with significant amounts of deferred
maintenance backlogs including the Department of Natural
Resources (DNR), particularly in the Parks Division, with
public cabins. He highlighted the Department of Corrections
(DOC), with most of its prisons built in the previous
century. He highlighted the Department of Family and
Community Services (DFCS), which had pioneer homes built in
the 1980s and even one in the 1930s.
10:04:56 AM
Mr. Painter turned to slide 15, "Operating Budget Federal
Funding Outlook
• The federal funding outlook is uncertain for
programs like Medicaid due to proposed budgetary
changes by Congress. The House indicated up to $880
billion of cuts to Medicaid and SNAP. One discussed
change is reducing the FMAP for the Medicaid expansion
population to the regular Medicaid rate. We estimate
that would cost Alaska around $250 million.
• The Alaska Marine Highway System's (AMHS) operating
budget in FY26 includes $76.5 million of federal
authority for the fourth of five years of federal
grants under the Infrastructure Investment and Jobs
Act (IIJA).
The actual amount of the federal grant for FY26 is
not yet known, and will likely not be known until
after the legislative session.
In FY28, if that federal funding is not extended,
general funds would have to supplant those federal
funds to avoid a service reduction.
Mr. Painter discussed proposed budgetary changes to
Medicaid by Congress. He noted that Medicaid expansion
currently covered over 70,000 people, at a 90 percent
federal reimbursement rate that cost the state around $50
million. If the reimbursement rate went down to the regular
51.5 percent rate, there would be a significant change in
the state's budget. He discussed timing of federal grants.
He noted that the federal government was known to be
currently holding back grants. He discussed plans to save
AMHS funds, which had later been expended for ongoing
maintenance. Income was lower than expected due to
decreased sailings. He had attended a DOT finance
subcommittee meeting and seen a projected balance of the
AMHS Fund that was negative in FY 27. He thought there was
significant uncertainty the legislature might have to
address in the next few years.
10:08:40 AM
Mr. Painter considered slide 16, "Capital Budget Federal
Funding Outlook
• AEA's Grid Resilience and Innovation Partnership
(GRIP 1) project requires $143.0 million of State
match from FY27-32. In FY26, the Governor's budget
requests $1.5 million. If spread evenly, this
remaining cost would amount to $23.8 million per year
in the future.
The federal funds for this project have been
frozen by President Trump's administration.
• IIJA increased capital funds available for DOT's
highways and aviation, AEA's renewable energy projects
(although these funds have been frozen), and DEC's
Village Safe Water program. When IIJA expires in FY27,
it is unclear whether the higher funding levels will
continue.
Mr. Painter noted that the state had not received the grant
for Alaska Energy Authority's (AEA) GRIP 2 funding. The
GRIP 1 project was on hold due to frozen funds. There was
$1.5 million in the governor's FY 26 budget for a portion
of the matching funds. The plan had been to come up with
the matching funds over time, and there was $143 million of
matching funds that needed to come in future years. He
noted that there had been discussion about bonding and
other means to cover the cost of the matching funds. The
project outlook was unclear. He made note of a 20 percent
increase in highway funds, but a larger than 20 percent
increase in costs.
10:11:09 AM
Mr. Painter displayed slide 17, "Long-Term State Needs,"
which showed a table of items including the deferred
maintenance backlog, school major maintenance, school
construction, the Harbor Matching Grant, the Renewable
Energy Fund, the top 25 Bulk Fuel Projects, Rural Power
System Upgrades, and pension past service liability. He
highlighted $7.1 million for the Harbor Matching Grant but
noted that harbor projects tended to come up throughout the
year, so the amount was not the whole long-term need. The
Bulk Fuel and Rural Power System Upgrades were both ongoing
with a mix of federal and state funds. The amount of funds
in the governor's budget was a 50/50 split with federal and
state matching funds. He specified that $7.4 pension past
service liability that was amortizing through FY 39 and was
an ongoing cost in the budget.
Mr. Painter highlighted slide 18, "FY25 Supplemental
Budget
• Before supplementals, there is an $81.5 million
deficit in FY25 based on the Fall 2024 Revenue
Forecast.
• The Governor's UGF supplementals so far total $97.5
million.
• Additional supplemental items are expected in DOC
and for Fire Suppression but have not yet been
received.
• The legislature did not enact any deficit-filling
language for FY25 last session. The Governor proposes
filling the deficit from the CBR.
Mr. Painter explained that the governor had a fast-track
supplemental bill, a regular supplemental bill, as well as
supplemental items in the governor's operating budget
itself. It was unclear the vehicle the legislature may use
to fund supplementals, but he thought in either case there
was some need to fill a deficit in the current year.
10:14:39 AM
Mr. Painter looked at slide 19, "Senate Finance FY26 Budget
Scenario
• The Senate Finance Co-Chairs requested a scenario to
envision what the final FY26 budget could look like.
This does not reflect final decisions and is
illustrative only.
Mr. Painter clarified that the committee's budget scenario
was not intended to reflect how much money the committee
wanted for things, but to illustrate how large the budget
may end up.
10:15:11 AM
Mr. Painter addressed slide 20, "SFIN FY26 Budget
Scenario," which showed a table of the budget scenario for
FY 26. He highlighted the UGF revenue forecast, which after
subtracting the governor's operating budget and fund
transfers left about $1.26 billion to spend on other items.
There was $19.6 million factored into the scenario for a
Medicaid projection. There was a placeholder in the amount
of $29.4 million for new contracts that was not a part of
the governor's amended budget yet. The amount was based on
assuming a 3 percent increase for 9 labor unions that were
up for contract renewal. He thought the actual number could
be significantly higher or lower.
Mr. Painter noted that the co-chairs had requested the
inclusion of a $680 BSA increase, whether inside the
formula or outside. The amount was slightly lower than the
previous year due to a lower student count. Additionally,
the co-chairs requested $7.3 million for pupil
transportation to match the previous year. For community
assistance, the scenario reflected $6.7 million. The total
distribution to communities would add up to $30 million.
Mr. Painter continued to address items in the budget
scenario, including $10 million for childcare. The one-time
item was $7.5 million the previous year, and there were
expiring federal funds. For fire suppression, the $27.7
million increase above the governor's budget was reflective
of an average year of usage of fire suppression activity.
He noted that the governor's budget now included four
different appropriations into the Disaster Relief Fund,
with the governor's amended budget and three different
supplementals and an appropriation in FY 26.
Mr. Painter highlighted line 12 of the budget scenario,
which reflected $10 million in AMHS backstop funds to match
FY 25. There was also an increase to $76.5 million in FY 28
to account for the anticipated end of IIJA funding for the
item. For the capital budget, the assumption was $300
million. The governor's capital budget was $282.4 million,
and the governor's amended budget increased the amount by
$11.6 million for a total of $293 million. He considered
the scenario just rounded up the governor's budget.
Mr. Painter continued that there were zero dollars for
legislative additions in the budget scenario, to reflect
that there were not necessarily district projects included.
There was $50 million added for various deferred
maintenance, school construction and major maintenance, and
University deferred maintenance appropriations on top of
the governor's budget; which would total $350 million for
the capital budget between the two combined items. There
was a placeholder of $20 million for 'other changes' which
could include the salary study or other unknowns. He noted
that the governor's budget included only $12.4 million of
increases without the Medicaid item accounted for in line
4.
10:20:05 AM
Mr. Painter looked at line 18 of the budget scenario, which
showed a PFD amount of $950 million. The amount was 25
percent of the POMV draw and would pay an estimated $1,419
per recipient. In total, all the additions in lines 4
through 18 added up to $1.6 billion and left a deficit of
$347 million. If the budget added a placeholder for future
supplementals of $50 million, it would add up to deficit in
FY 26 of $397 million.
Co-Chair Hoffman thought the two items that had received
the most discussion throughout the building were line 6 (a
$680 BSA increase that was a status quo amount), and line
18(the 75/25 PFD, which was also the status quo from the
previous year). He commented that the committee had asked
what the FY 26 budget would look like reflecting the
decisions from the previous year. He commented that more
importantly, if the legislature adopted the budget the
people of the state had expected the previous year, there
would be a $400 million deficit, showing the gap the state
would have with a status quo budget as compared to FY 25.
10:22:13 AM
Co-Chair Stedman asked to go back to slide 17 and the table
on long-term state needs. He shared a concern about pension
past service liability for $218 million. He thought
regardless of other bills in circulation, the state would
have to spend about two and a half times the $218 million
in order to pay off the liability by 2039. He thought an
earlier slide had mentioned the $218 million going up to
$260 million or $280 million. He thought the concern needed
to be expressed to the Alaska Retirement Management (ARM)
Board that the liability had not gone down in a decade. He
hoped that over the following months the discussion would
take place with the ARM Board. He commented on the
magnitude of the amount of unfunded liability and lamented
the inability to move the liability down to free up some
needed cash flow. He pondered that the state might not be
struggling with the BSA if the liability had been gotten
under control.
Mr. Painter advanced to slide 21, "FY26-28 SFIN Scenario
• Assumes existing schedules for statewide items, adds
$7.8m placeholder for new school bond debt starting in
FY27.
• Agency operations and the capital budget grow with
inflation (2.5%) over FY26 levels (from scenario on
previous page).
• $50.0 million supplemental budget placeholder in
FY26 and beyond.
Co-Chair Hoffman commented on the second bullet point and
thought agency operations and capital budget growth had
been in the double digits in recent years. He thought the
inflation number was very conservative.
Mr. Painter thought a previous slide showed that agency
operations had grown faster than inflation over the past
few years, and inflation had been higher than 2.5 percent
as well.
Co-Chair Stedman clarified that the growth had not been
equally spread across agencies and mentioned the Department
of Health, the Department of Corrections, and the
Department of Public Safety as having had the most growth.
Mr. Painter agreed.
10:26:03 AM
Mr. Painter looked at slide 22, "SFIN FY25-28 Scenario,"
which showed a table with budget scenarios for FY 25
through FY 28. He addressed supplementals on line 13 and
noted that there was a placeholder of $50 million for FY
25. He pointed out that the governor's current supplemental
request was at $84.2 million, which had not been
anticipated when the scenario was created. He thought the
$139 million budget deficit could be significantly larger
depending on the governor's amended supplemental budget.
For FY 26 there was a projected $397 million deficit as
shown on the previous page. The table showed items growing
with inflation for FY 27, and the agency operations and
capital budget (including the 75/25 PFD) still going
forward. The state would end up with a $436 million deficit
in FY 27, which jumped up $582 million in FY 28. The amount
jumped up in part to the assumption that AMHS funds would
go away that year.
Mr. Painter thought Co-Chair Hoffman had wanted to point
out that the current legislature had to deal with the FY 25
deficit in addition to the FY 26 deficit. The combined
deficit was $536 million across two years.
Co-Chair Hoffman thought the slide reflected the point that
there was a trend of increased deficit that was substantial
under status quo assumptions. He considered that if the
legislature was to turn the trend around, there would have
to be major reductions or increased revenue. He clarified
that the committee did not propose to use the CBR,
primarily it was for "rainy day" expenditures. He wanted to
impress upon people the magnitude of the deficit in the
current year. There were assumptions made for FY 26 through
FY 28, but the state needed to determine what level of
services it wanted, including for education. He emphasized
that the state was going to meet its obligations, it needed
to consider new revenues.
10:30:15 AM
Co-Chair Stedman agreed with Co-Chair Hoffman's comments.
He commented on line 13 and supplementals. He thought the
number had changed by $20 million between lunch time and
dinner time the previous day.
Mr. Painter affirmed that LFD had received the governor's
amended budget the previous evening, which had included
some significant increases for supplementals. One notable
increase was an additional $11 million for the Disaster
Relief Fund, on top of the two existing appropriations the
governor had for the fund in FY 25. Some supplementals were
anticipated, such as funds for fire suppression (that were
a little larger than anticipated), and funds for DOC. There
were more items than were built in than before LFD had seen
the amendments. He thought OMB would be before the
committee to present the amendments in detail. He noted
that he had not looked at the items in depth as of yet.
Co-Chair Hoffman commented that the legislature had an
obligation to pass a balanced budget.
Senator Kaufman thought reductions were needed.
ADJOURNMENT
10:32:43 AM
The meeting was adjourned at 10:32 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 021925 SFIN FY26-28 Fiscal Outlook.pdf |
SFIN 2/19/2025 9:00:00 AM |
|
| SB 72 Support Letter - City of Seward - Seward Dock.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Seward Dock Bond Bill - Letter of Support - Senate Finance - ARRC 1.21.25.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 ATIA Resolution Supporting Seward Dock_FINAL.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 RCG Bond Bill Support Letter - Senate Finance - January 2025.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Resolution of Support City of Seward 2.27.23.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Support Letter - Seward Dock - Kenai Peninsula Borough.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Bill Presentation.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Sectional Analysis version A 2.4.2025.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |
| SB 72 Transmittal Letter 1.23.2025.pdf |
SFIN 2/19/2025 9:00:00 AM |
SB 72 |