Legislature(2007 - 2008)SENATE FINANCE 532
01/23/2008 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 125 | TELECONFERENCED | |
CS FOR HOUSE BILL NO. 125(FIN)
"An Act relating to budget planning and a fiscal plan
for the State of Alaska."
Co-Chair Hoffman MOVED to ADOPT the Senate Finance CS to
CSHB 125, labeled 25-LS0546\V, Cook, 1/21/08.
Senator Dyson OBJECTED. He explained that the section the
new CS deletes seems to do no harm and is helpful. He
wondered why it should be deleted. Co-Chair Stedman
reported that the language was removed to make the fiscal
plan more specific.
Senator Dyson MAINTAINED his OBJECTION. He pointed out that
the CS is a working document and the suggested changes are
important to work through.
Co-Chair Hoffman reported that the sponsor of the bill
recommended the changes.
Senator Elton thought it would be helpful to list what those
changes were. Senator Dyson agreed.
DARWIN PETERSON, STAFF, CO-CHAIR STEDMAN, walked through the
changes made by the Senate Finance Committee in the
Committee Substitute. He explained that the first change is
on page 2, line 9, following the word "including", the
language "but not limited to" is deleted. The reason behind
the change is due to a memo from Legislative Legal Services
dated March 15, 2007.
9:12:54 AM
Mr. Peterson related that the second change is on page 2,
following line 11. He thought that this was the change that
Senator Dyson was referring to. Sections 4 and 5 from the
previous version of the bill were deleted. These sections
included a litany of recommendations for the governor to
consider when putting together a fiscal plan. Mr. Peterson
maintained that some of those recommendations have merit,
but the language is suggestive and doesn't require the
governor to actually do anything. Statutes should be a
mandate, not a proposal. Mr. Peterson offered to work with
the sponsor and the committee to vet all proposals and see
which ones should be included in law.
Mr. Peterson explained that the third change is found on
page 3, subsection 7, line 16, following "governor's budget
workbooks". The words "at least seven days before the
legislature convenes in a regular session" were added. The
purpose of that change was to conform to the new reporting
dates which became law last session when the legislature
passed HB 171 to accommodate a 90-day session.
Mr. Peterson related that the last change is on page 6,
lines 13 and 16. Dates were changed to conform to the new
reporting requirements resulting from HB 171.
9:15:15 AM
Senator Dyson MAINTAINED his OBJECTION. He said his
preference was that Sections 4 and 5 remain in the bill.
Senator Dyson WITHDREW his OBJECTION.
There being NO further OBJECTION, version V of HB 125 was
adopted by the committee.
9:16:38 AM
REPRESENTATIVE MIKE HAWKER, SPONSOR, concurred with Senator
Hoffman's comments. He stated agreement with the proposed
changes to the bill. He spoke of a need to provide a focus
on fiscal planning for the state of Alaska. He talked about
preparing for the future. He emphasized that the bill is
intended to create a foundation as to "how the state can
conduct itself into the future."
9:18:24 AM
Representative Hawker related that the bill is sponsored by
the House Ways and Means Committee, which has attempted to
take personalities out of the bill process. He reported
that many interest groups are in agreement that the state
must have a long-term fiscal plan. Representative Hawker
maintained that rather than a fiscal plan, the state needs a
planning process, which is what HB 125 does.
9:20:55 AM
Representative Hawker reported that during research for such
a plan, it was discovered that the Executive Budget Act
(EBA) includes a requirement for the Governor to annually
submit a "financial plan" for the state. The Office of
Budget and Management (OMB) reported that that has not been
done.
Representative Hawker explained that the bill revises parts
of the EBA and addresses this oversight. It removes the
"financial plan" language and requires the Governor to
submit a fiscal plan in a very clear and simple statement.
It mandates that the Governor submit a fiscal plan along
with the budget. It would be the foundation; a projection
and estimate of the significant sources and uses of funds
for the succeeding ten fiscal years.
9:23:57 AM
Representative Hawker used the term "sources and uses of
funds" to describe how all of the state's resources should
be evaluated. He maintained that "income" and "expenses"
are not specific enough. There are several sidebars on the
degree of information requested. He stressed that
expectations should not be overly optimistic when looking
ten years into the future. He emphasized that the financial
plan should be sufficiently inclusive of significant sources
and uses of funds. The bill was crafted to ask for
reasonable projections, not detailed budget information. He
thought that this activity could be accommodated by existing
state resources. He did not think the addition of one
position in OMB was unreasonable.
9:27:49 AM
Representative Hawker referred to an important aspect of the
bill on page 2, line 6, where the projection tool "must
balance sources and uses of funds." It should demonstrate
that the state is living within its means. He pointed out
that when there are multiple sources of funds, the financial
plan has to also reconcile the balances of those funds.
Each year a review of the budget would be done in the
context of the ten-year reality of where state funds are
going to come from, where they are going to be sourced, and
where they are going to be used.
9:29:56 AM
Representative Hawker recalled a joint committee meeting
several days previous where the budget proposal was
addressed. The budget proposal showed how money was moved
amongst funds. He questioned whether it reflected the
totality of the expenditures being committed. HB 125 bill
would use the information developed by the two finance
committees and would be a good addition to the budget
process. The ten-year plan would focus on making ends meet.
9:31:37 AM
REPRESENTATIVE BOB ROSES, commented that the House Ways and
Means Committee had a very comprehensive, non-partisan
discussion about this bill. He shared a personal experience
from small business budget planning. He maintained that
looking forward ten years allows the state to re-adjust for
long-term planning. He spoke strongly in support of the
bill.
9:34:17 AM
Senator Elton inquired about Section 5 where it says "the
legislature shall consider the governor's proposed
comprehensive operating and capital improvement programs and
fiscal plan if it is required under AS 37.07.020(b)". It is
required for three of the four years of a governor's term.
He thought there was a fundamental difference between the
operating and budget plan and a fiscal plan. Saying "you
shall consider" implies that action should be taken in the
same way as is done for the operating and capital budgets.
Senator Elton reported that there is confusion in line 4, on
page 6, where it says "the presiding officer of each house
may refer the fiscal plan to one or more committees. If the
fiscal plan is referred, the first committee of referral
shall hold at least one hearing on it". Senator Elton said
he cannot recall anywhere in law a requirement that a
committee chair shall hold a hearing. He requested more
information about the differences in the ways the
legislature is being asked to deal with the fiscal plan
compared to the operating and the capital budgets. He also
wanted more information about the language used in the
requirement of a hearing.
Representative Hawker responded that those points were
raised during the House Ways and Means Committee process.
He concurred with Senator Elton's concerns. Other committee
members felt that a legislative response should be mandated
because it prevents future legislatures from doing what they
will with the document. The provision on legislative review
was a result of strong opinion regarding commitment on the
legislature's part.
Representative Hawker added that the bill states that the
governor, during the first year of a term, does not have to
prepare the fiscal plan. He questioned if the first year of
a governor's term should be exempted. He disagreed with the
majority in his committee on this point.
9:40:46 AM
Senator Dyson commented that proceeds from the gas pipeline
or "first gas" are at least 10 years down the line. He
thought that the fiscal plan would need to consider that
issue. He wondered why the fiscal plan requirement did not
go beyond a 10-year period.
9:42:24 AM
Representative Hawker responded that the 10-year time period
is arbitrary and could be changed. It was chosen after
looking at oil price projections by the Department of
Revenue and after conversations with OMB, who had comfort
with a 10-year period. A critical need is addressing the
window when limited resources are available and costs are
shifted from the federal government to the state. He opined
that there would be profound policy challenges.
Senator Dyson referred to "missions and measures" on page 3,
line 4, and again on page 4. He referred to Alaska Statute
37.07.050 where missions and measures are found. He termed
it a "genius system with the accountability." He thought
the legislature and the governor should be bound by the
mission statements within the statutes and the departments
should be held accountable for the measures. He questioned
what page 3, line 4, "the legislature's mission" refers to.
9:46:13 AM
Representative Hawker responded that Section 3 of the bill
is the statutory authority and direction given to OMB. It
refers to existing statute and is in the bill because there
were technical changes that needed to be made. The bill
should not affect existing statute. Representative Hawker
thought that the issue of missions and measures merited
separate consideration.
Senator Dyson recommended that the Senate Finance Committee
consider that issue. He maintained that the state has not
been following the law and should take it seriously and
should force the administration to comply with existing law.
He stated strong support for not ignoring existing statute.
Senator Stedman agreed that the committee could take a look
at that issue, but that it may be a separate item for
discussion. Senator Dyson stressed that the Senate Finance
Committee should obey the law, define the role of
government, and hold the administration accountable.
9:50:24 AM
JOHN BOUCHER, SENIOR ECONOMIST, OFFICE OF MANAGEMENT AND
BUDGET (OMB), OFFICE OF THE GOVERNOR, thanked Representative
Hawker and the House Ways and Means Committee for its work
on HB 125 and for involving OMB in the discussion.
Mr. Boucher reported that the administration and OMB have
been actively involved in the discussion about bringing
long-range planning to the forefront. He noted that ACES
intent language devoted a portion of the anticipated
additional resources to the development and implementation
of a long range fiscal plan.
He said that, conceptually, the administration believes that
a fiscal plan should be a useful tool, and that any plan or
process developed as a result of this legislation should be
flexible enough to quickly respond to changes in the
fundamental realities that face Alaska's economy. OMB's
overarching desire is that the plan or process avoids
becoming a bulky annual exercise that sits on a shelf and is
ignored.
Mr. Boucher reported that from OMB's perspective it is
paramount to clarify what the objective of the plan or
planning process is. For example, from a high-level vantage
point, the need for Alaska to be conservative when it comes
to long-term spending commitments or outlining the magnitude
of the potential challenges involved in finding additional
sources of revenue can be outlined in a relatively short
presentation. OMB supports the concept of having the
legislature weigh in on a plan. He noted that previous
administrations have gone beyond the planning phase and
proposed legislation packages that attempted to implement
solutions to the fiscal gap. These options were ultimately
not accepted by the legislature. It would be ideal to have
the plan stimulate discussion about policy directions.
Mr. Boucher turned attention to a subject that he deemed
worth deliberating; whether or not the resources spent on a
macro level fiscal plan might be better spent working on
targeted solutions to major spending issues, like Medicaid,
or retirement system issues. He emphasized that OMB is
supportive of the concept of fiscal planning and is willing
to work with the legislature "to get from here to gas".
He reported that conceptually the administration supports
the idea of a fiscal plan, but does not want to see a
document made that sits on the shelf. He questioned the
goal of the plan, whether it is to "get the state to gas" or
something else.
Mr. Boucher supported the concept of having the legislature
weighing in on a plan. The plan should stimulate discussion
on policy changes.
Mr. Boucher questioned whether the resources spent to
develop a plan might be better spent on something else.
Overall, the administration is supportive of the development
of a fiscal plan.
9:55:55 AM
Senator Elton agreed with Mr. Boucher that the plan should
be a useful document. He believed the fiscal plan should
inform the operating and capital budgets as presented by the
executive branch and should be considered by the legislature
as it deliberates on those budgets. It should have a
deadline for the governor to meet so that the legislature
can have the plan in place to use when dealing with the
budget. Mr. Boucher said there has been discussion about
the mechanics of developing the document and consideration
of "marrying this up with the Revenue Sources book." The
challenge is to forecast beyond the six or seven year cliff.
He agreed that "the revenue looking forward" is important.
9:59:02 AM
Senator Hoffman agreed with the "cliff" idea. He brought up
the fact that in six or seven years the Permanent Fund would
be more than $50 billion. He noted the current political
reluctance to access the Fund. He suggested determining the
public purpose of the Fund. He stated support for spending
from the Fund, but not at the expense of the dividend
program. He wondered what the administration's take on the
role of the Fund in the future might be. Mr. Boucher said
he could not speak for the Governor. He thought there was
no immediate need to look at spending the earnings reserve
today. Senator Hoffman thought that at some point a fiscal
plan would need to address how the Fund will be used. He
wondered what the target growth of the Permanent Fund should
be and if inflation proofing should be kept at the same
level. He questioned if the Fund was only a dividend
program or a source of revenue to bridge the gap between the
cliff in 6 or 7 years and when the state gets the first gas.
10:02:50 AM
JACK KREINHEDER, SENIOR POLICY ANALYST, OFFICE OF MANAGEMENT
AND BUDGET, OFFICE OF THE GOVERNOR, suggested that this
topic would be addressed at a future joint Senate and House
Finance Committee hearing. Co-Chair Stedman agreed that
these topics would be taken up later on during this session.
10:04:15 AM
Co-Chair Stedman thought that HB 125 would help keep the
government out of the Permanent Fund. He stated that that
was also his personal goal.
Senator Dyson asked what the intention of the committee was
regarding HB 125. Co-Chair Stedman responded that the bill
would be discussed by a variety of committees and have full
support by both sides and avoid conference committee.
Senator Dyson restated his question. He wondered if the
bill would guide this year's work on this year's budget.
Co-Chair Stedman thought that was optimistic and the soonest
it would be utilized would be next year.
10:07:56 AM
Senator Elton commented that if the purpose of the bill is
to have informed discussions within the executive branch as
they prepare the budget and to help the legislature as they
consider the budget, it would be helpful to have a timeline
for when the financial plan should be done. He voiced doubt
that the bill could be applied to this budget process or
even next year's.
10:09:00 AM
Co-Chair Stedman requested information about the differences
between the old and the new fiscal notes. Last year's
fiscal note was $11,800 higher for an additional employee
and did not include the addition of a computer.
Mr. Kreinheder addressed the new fiscal note from OMB. The
reduction in personal services is due to changes in the PERS
retirement system. The direct cost on to personal services
budget is a 22 percent rate instead of the full actuarial
rate. Co-Chair Stedman requested that explanation in
writing.
Mr. Kreinheder pointed to an additional operating expense of
$1,500 needed for a computer and other equipment, which was
overlooked when preparing last year's fiscal note. He
explained the request for one new position needed in order
to work on a formal annual fiscal plan. The Department of
Health and Social Services spent over $200,000 just to try
to project future Medicaid costs, for example. Mr.
Kreinheder recalled the history of staffing reductions at
OMB from 13 to 2 positions.
10:14:27 AM
WAYNE STEVENS, PRESIDENT, CEO, ALASKA STATE CHAMBER OF
COMMERCE, read from a statement:
The Alaska State Chamber of Commerce urges the
legislature to adopt a comprehensive fiscal policy.
The State Chamber recognizes that the first problem in
adopting a comprehensive fiscal policy is to have a
common definition of what is a fiscal policy. While
the State Chamber recognizes that no policy can bind
future legislatures, the policy should reflect long-
term sustainability and the best combination of the
following considerations.
Economic development and business opportunities need
some level of fiscal certainty. That certainty can
only be accomplished with a comprehensive fiscal plan
which addresses state spending in times of shortfall
and identifies essential priorities.
A comprehensive fiscal policy should use the operating
budget from FY 06 as the base operating budget and hold
future increases to no more than 3 percent per year.
A comprehensive fiscal policy should seriously consider
a two-year budget cycle based on funding essential
government services.
The Alaska State Chamber of Commerce supports saving
the FY 2008-2009 general fund surplus in the
Constitutional Budget Reserve to pay back past
withdrawals used to cover previous budget shortfalls.
The Alaska State Chamber does not support depositing
surplus funds into the Permanent Fund unless the
deposit is linked to the passage of a percent of market
value management plan.
A comprehensive fiscal policy shall recognize the
complex dependency of locally delivered services that
are funded through state revenue sharing and factor
that into the policy.
A comprehensive fiscal policy should address the
PERS/TERS issue making this state obligation
actuarially sound.
A comprehensive fiscal policy should include the
utilization and sustainability of the Constitutional
Budget Reserve.
A comprehensive fiscal policy should adopt the percent-
of-market (POMV) management tool for the Alaska
Permanent Fund.
A comprehensive fiscal policy should reasonably
anticipate scenarios of growth predicated on realistic
resource development and its affect on budgets.
A comprehensive fiscal policy should not preclude the
continuation of the Alaska Permanent Fund Dividend
program.
No additional business taxes should be enacted by the
legislature until a fiscal plan is developed. Further,
the State Chamber reiterates that fiscal discipline and
legislative accountability must precede any new taxes.
The Alaska State Chamber of Commerce strongly supports
HB 125. State fiscal planning has been a top priority
of the State Chamber for many years. We believe the
state needs stability in its budget planning as
volatile state revenues create unforeseeable budget
gaps and revenue excesses. Any smart business plans
for future years through detailed planning of revenues
and expenditures, with adjustments made each year.
Amending Alaska Statutes regarding the Executive Budget
Act, HB 125 assigns a long-term fiscal plan requirement
to the Governor's duties of providing yearly budgets.
Under HB 125, the Governor's fiscal plan reaches
forward 10 years into the future, showing legislators
and the public what to expect in lean years and in
years of excess. The bill may fall short of enacting
an actual fiscal plan; however, HB 125 will provide for
a constantly evolving framework-a fiscal plan, for the
legislature and the public to follow as budgets are
enacted from year to year.
With new legislators every two years, a volatile oil
market, a PFD citizenry, and a new governor every four
years, the bill hurdles many of the states political
quagmires that may prevent adopting a long-term fiscal
plan. Simply, requiring that a plan be submitted each
year along with a budget, creates a first in Alaska,
fiscal planning. The Alaska State Chamber strongly
advocates for HB 125 and we hope the bill will move
quickly through the legislative process.
10:19:55 AM
MARIE DARLIN, AARP, referred to last year's letter of
support for HB 125. She spoke strongly in support of this
year's improved bill. She voiced concern about the need for
more municipal funding.
CSHB 125(FIN) was heard and HELD in Committee for further
consideration.
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