Legislature(2015 - 2016)HOUSE FINANCE 519
02/04/2016 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB293 | |
| Fy 17 Budget Overview: Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 293 | TELECONFERENCED | |
| += | HB 256 | TELECONFERENCED | |
| += | HB 257 | TELECONFERENCED | |
| += | HB 255 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE BILL NO. 293
"An Act making supplemental appropriations, capital
appropriations, and other appropriations; making
reappropriations; amending appropriations; repealing
appropriations; and providing for an effective date."
1:34:39 PM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, addressed the supplemental budget.
She referenced handouts titled "FY2016 Supplemental
Summary" dated February 1, 2016 and "FY2016 Supplemental
Bill." She relayed that the supplemental was lean and
included less than 30 transactions. The two largest
requests were for fire suppression funding at $47.5 million
Unrestricted General Fund (UGF) and a request associated
with the Permanent Fund Dividend.
Co-Chair Neuman asked Ms. Pitney to go down the list of
requested increments.
1:36:28 PM
Ms. Pitney addressed the handout titled "FY2016
Supplemental Bill." She began with a request of $450,000
for the Division of Finance for a statewide single audit
increase (line 2). She elaborated that the funding was for
a payment to the Division of Legislative Audit; the cost
had been $300,000 for the past 10 years, but the division
had submitted a bill of $750,000 effective FY 16.
Co-Chair Neuman asked why the cost had increased.
Ms. Pitney answered that the increase was not due to
additional work. She explained that in the past the
$300,000 had been a set amount collected for the audit. She
believed that in the difficult budget cut environment, the
division was charging more on an hourly basis; based on the
hours worked the cost was $750,000. She noted that the
increase had been unexpected.
Co-Chair Neuman clarified that the reason for the
expenditure was that the legislature passed legislation for
audits on individual departments. He asked for verification
that the money was for expertise in the departments to
conduct the audits.
Ms. Pitney clarified that the request was related to
routine general audit work, not the DHSS audit work. She
moved to line 3 related to funds (an increase of $118,000)
for the Office of Public Advocacy for increased caseload
and litigation costs. She elaborated that the past fall the
office had experienced a significant caseload. The heavy
caseload included costs related to the "Fairbanks Four"
case, which had taken place in a high-intensity time-frame
[a recent legal case involving four individuals released
from jail based on a turned over decision]. Lines 4 and 5
included increases for receipt authority [for appointed
counsel] for Designated General Funds (DGF). The requests
included funding estimated to be collected for work on
behalf of individuals the departments did not have receipt
authority for. The requests would increase GF receipt
authority to capture funds collected above budgeted
authorization; it was estimated that the funding would be
available due to the estimated Permanent Fund Dividend
amount.
1:39:43 PM
Ms. Pitney addressed line 6 for the Department of
Corrections (DOC). She elaborated that the department
received money from the federal government for federal
prisoners. The increment represented the amount the state
could collect for federal related prisoners, which would
offset the UGF costs; the state was reimbursed for housing
federal prisoners. Line 7 included a technical correction
to add the fiscal note for the Alaska Safe Children's Act
Task Force support costs of $10,000. She elaborated that
the fiscal note had come at the end of the last session and
the Legislative Finance Division had categorized it as a
missed technical issue. Line 8 was a grant for the Air
Quality Division of the Department of Environmental
Conservation for diesel emission reductions. She detailed
that the grant would allow certain entities to purchase
cleaner diesel equipment; there was no match required and
no ongoing costs to the program.
Ms. Pitney addressed formula cost increases for subsidized
adoption and foster care (lines 9 and 10). The increments
were strictly based on the formula associated with the
number of children in subsidized adoption and foster care.
She noted that the two increments were the next largest
items in the supplemental request following the increment
related to fire suppression.
1:41:58 PM
Ms. Pitney moved to lines 11 through 14 that included
increases to juvenile justice facility staffing. The
Division of Juvenile Justice had an adjustment of roughly
$1 million annually for the past 7 years. The adjustment
had been added to the FY 17 base request; the item had not
always been a supplemental because prior to the current
year, the commissioner of the Department of Health and
Social Services (DHSS) had the ability to move money across
appropriations up to a certain amount - the funding had
been covered mid-year under that ability to shift funding.
She explained that before the commissioner had the ability
to move money, the $1 million adjustment had appeared
almost annually in the supplemental budget. She informed
the committee that the administration hoped to never make
the request again because going forward it was included in
the base budget. Line 15 gave receipt authority to DHSS to
collect over collection of [Statutory Designated Program
Receipts] from Medicaid school-based claims.
1:43:59 PM
Ms. Pitney spoke to lines 16 through 18 related to DOL.
Line 16 was associated with pending tobacco cessation
litigation, which was a multi-state arbitration. The
request would use tobacco funds for increased attorney time
associated with the litigation. Lines 17 and 18 related to
work DOL conducted on behalf of the Alaska Oil and Gas
Conservation Commission (AOGCC) and the Regulatory
Commission of Alaska (RCA); the increments requested
receipt authority payment for the workload associated for
legal work. She elaborated that AOGCC and RCA collected
fees from the industry to cover costs. Line 19 related to
fire suppression activity related to declared emergencies.
She highlighted a major fire that had occurred in the
Wasilla area. She explained that the $47.5 million
represented costs incurred in the 2015 fire season. The
funds had already been spent; if the upcoming fire season
was bad there could be additional costs in FY 16.
Ms. Pitney addressed lines 20 through 22 associated with
the Department of Revenue (DOR) Treasury Division for
external management fees due to better-than-expected
performance in the Retiree Health Insurance Fund, Public
School Trust Fund, and Power Cost Equalization Endowment
Fund. Lines 23 through 26 related to the Department of
Transportation and Public Facilities (DOT) and represented
DGF and other fund requests to accept receipts collected in
the various components (airport leasing in the Central,
Northern, and Southcoast regions); the request would match
receipt authority with the available funding, measurements,
and standards.
1:48:25 PM
Ms. Pitney moved to line 29 and 35 related to the Alaska
Land Mobile Radio (ALMR) system. Line 35 was a
reappropriation of approximately $1.3 million and line 29
was a request for $1 million; the total would provide $2.3
million to meet the necessary software and hardware
upgrades to maintain the ALMR system in the short-term.
Beginning in FY 18, the administration anticipated costs in
the range of $5 million per year to maintain the state's
emergency communications system. She noted that DNR, the
Department of Military and Veterans Affairs (DMVA) and the
Alaska State Troopers all used the ALMR system. Line 30
included a request for emergency repairs of failing water
lines at the Anvil Mountain Correctional Center. She
elaborated that the past spring the center spent $700,000
in deferred maintenance funding to patch the water lines;
the center had to drop the number of prisoners and ration
water to keep the facility open (there were about 100
prisoners in the center on a daily basis). She stated that
$1,084 would be required for a long-term fix. Line 31
included an increment for the emergency repair of the
Eklutna overpass; after insurance settlements there
remained a $344,000 need to cover the one-time emergency
repair.
1:50:41 PM
Ms. Pitney moved to the language section beginning on line
35, which started with a reappropriation for ALMR. Line 36
was a reappropriation from the completed Tanana River
Bridge project to the Alaska Railroad Corporation for
positive train control upgrades. The state would receive a
match against Federal Transit Administration money to
finish the positive train control upgrades required by
federal law. The state received at 90 percent match on the
funding; the project would reappropriate roughly $1.7
million to complete the $17 million project. Lines 37 and
38 were judgements and settlements through DOL. Line 40 was
a two-part request. She explained that given the governor's
Permanent Fund Protection Act, the Permanent Fund Dividend
was estimated to be $700 million, which would be taken from
the fund's earnings reserve account. She detailed that the
dates for the appropriation in the FY 16 bill listed the
appropriation for dividends paid during FY 16. She
elaborated that the FY 16 dividends had already been paid;
therefore, the language was technically incorrect. The
increment corrected the error and would appropriate money
for the fall 2016 dividend.
1:54:09 PM
Ms. Pitney addressed line 41 that contained lapse of
appropriations and retroactive language consistent with
language required for the supplemental. The language
section also included an effective date.
Co-Chair Neuman pointed to lines 9 and 10 related to foster
care. He wondered why the items (particularly line 10) were
not included in the base budget. He reasoned that the
administration knew the items were anticipated to grow and
had been growing.
Ms. Pitney explained that the issue reflected her
inexperience in the FY 16 budget. She noted that the FY 17
budget included an increase that more closely matched the
expected foster care cost. She explained that it was a
formula-driven amount based on the number of children in
the system.
Co-Chair Neuman asked why the amount in line 9 [$2.8
million] had not been anticipated with a fiscal note. Ms.
Pitney asked for clarification.
Co-Chair Neuman referenced language on the spreadsheet that
the Office of Children's Services (OCS) anticipated a 19
percent increase in the number of children. He recalled
that the legislature had allocated additional money in the
past to add OCS staff. He wondered why the money had not
been included when the appropriation had been made to cover
the costs.
Ms. Pitney believed the prior funding was associated with
helping with the high OCS caseload. She did not believe the
increase in children needing service had been anticipated.
Co-Chair Neuman replied that he would follow up with Ms.
Pitney at a later time.
Representative Gara asked for verification that the request
on line 9 was associated with the daily base rate paid to
foster families ($30 for a child without special needs up
to over $100 for a child with special needs).
Ms. Pitney replied that the line item was reflective of the
per person cost associated with the children receiving the
care.
Representative Gara asked for verification that the
increment was for money going to foster families. Ms.
Pitney replied in the affirmative.
Representative Gara referred to the description of the
increment on the spreadsheet that used the term "special
needs." He discussed that the number of foster children had
increased from 2,500 to 2,800. He noted that the
supplemental went towards paying for the extra children in
the system. He asked for verification that the money was
not only for special needs children. Ms. Pitney replied in
the affirmative. The amount represented the total cost of
the formula program associated with foster care.
Representative Gara asked for verification that the funds
would not go to additional staff. Ms. Pitney replied in the
affirmative.
1:57:45 PM
Representative Gara asked if the supplemental reflected the
current formula meaning approximately $1.4 million would be
allocated to pay the Permanent Fund Dividend.
Alternatively, he asked if the supplemental anticipated the
passage of the governor's proposed change to the Permanent
Fund Dividend.
Ms. Pitney replied that the supplemental assumed the
passage of the governor's proposal on the Permanent Fund
Dividend.
Representative Gara had never seen a budget based on
legislation that had not been adopted. He reasoned that
there was currently a formula on the books specifying what
the dividend would be. He acknowledged that the number
would change if a bill passed, but he wondered why the
budget would include a dividend amount for a formula that
had not been adopted.
Ms. Pitney replied that the proposal represented the
governor's budget plan. She stated that the governor's
budget reflected most of the governor's proposals. She
spoke to the specific item and explained that the budget
language had specified that the amount was appropriated for
FY 16 dividends. She explained that FY 16 dividends had
already been paid.
Representative Gara asked for verification that the
increment [line 40 of supplemental summary spreadsheet] had
nothing to do with the FY 17 dividend. He thought he had
heard Ms. Pitney say that the amount of the projected
dividend appropriation was being changed based on the
passage of the governor's new dividend plan for FY 17.
Ms. Pitney answered that the governor's proposal related to
the Permanent Fund Dividend change would come under the FY
17 amendments of $700 million.
Representative Gara asked if the governor's FY 17 budget
reflected dividend payments based on current statute or
based upon the passage of the governor's bill. Ms. Pitney
replied that it would be the dividend amount on the
governor's proposal.
Representative Gara thought that was odd and did not
believe it had occurred in the past.
2:00:56 PM
Co-Chair Thompson did not see the $200 million veto in oil
and gas tax credits. He wondered how the state would deal
with the issue.
Ms. Pitney answered that the plan for the oil and gas tax
credits was outlined in the governor's proposed oil and gas
tax credit reform bill. The bill anticipated the Oil and
Gas Tax Fund would cover FY 16 through FY 18 earned tax
credits, assuming the passage of the reform bill. The FY 17
governor's budget included $73 million, which was the
minimum statutorily required amount. Assuming the reform,
there would be $1 billion for the credits expected to be
earned in the current system, which the administration
expected to be closed at the end of FY 16. Credits earned
through the end of FY 16 would be paid in FY 16 through FY
18. There would also be $200 million to capitalize an
Alaska Industrial Development and Export Authority (AIDEA)
oil and gas infrastructure development loan fund.
Co-Chair Thompson asked if $200 million would go towards
paying the debt incurred when the governor had vetoed the
$200 million in credits. He mentioned the $1 billion tax
credits that would come due and wondered if the state would
owe $1.2 billion. He noted that the state currently owed
$200 million.
Ms. Pitney replied in the negative. She clarified that the
$1 billion included the $200 million in the current year,
$500 million to $600 million in the following year, and
$300 million to $400 million the year after.
Co-Chair Thompson asked for verification that the $200
million was the current debt. Ms. Pitney answered in the
affirmative.
Co-Chair Thompson referred to a reappropriation of $1.6
million in the remaining funds from the Tanana Bridge
project (the project had come in under the bid) to the
positive train control. He explained that the previous year
the Railroad Corporation had come to the legislature for an
additional $55 million. The legislature had authorized the
railroad to bond its own bonds with no state obligation for
$38 million. The legislature had told the railroad to not
make any other requests related to positive train control.
However, the current request was for another $1.6 million.
He did not believe it made sense to ask for additional
funds.
2:04:57 PM
Ms. Pitney replied that the difference between $55 million
and $38 million was $17 million. The state had the
opportunity to pay for the $55 million with 90/10 Federal
Transit Administration matching funds. The reappropriation
provided the 10 percent state match to complete the $55
million.
Co-Chair Thompson thought the federal transportation
dollars the state was slated to receive in the next two
years would go towards making bond payments. He furthered
that the legislature had been told no money would be owed
by the state.
Ms. Pitney replied that they were talking about two
different sets of federal transportation money. The
payments for the $38 million would come out of the
corporation's annual amount. The line item in the
supplemental was outside the corporation's normal funding,
which had a 90/10 match and would allow the completion of
the [positive train control] project.
Co-Chair Thompson asked for verification that the funds
could be used against the positive train control. Ms.
Pitney replied in the affirmative.
Co-Chair Neuman asked if the Railroad Corporation still
needed the full [$38 million] bonding authority. Ms. Pitney
answered in the affirmative. She stated that it was a $55
million completion - the $38 million plus the $17 million
equaled the $55 million.
Representative Kawasaki pointed to line 2 and surmised that
the Division of Legislative Audit had requested additional
money from the Department of Administration (DOA), Division
of Finance for the completion of an audit. He asked how the
situation had happened.
Ms. Pitney answered that the annual payment to the Division
of Legislative Audit had been $300,000 for a minimum of 10
years. She explained that a recent memorandum of agreement
specified an increase from $300,000 to $450,000 [the total
bill was $750,000]. She remarked that it was short notice
given the constraints facing all departments. She stated
that the amount would be included in an amendment assuming
that it would be the cost charged going forward.
2:07:55 PM
Representative Kawasaki wondered if the administration felt
it was being gouged by the legislature. Ms. Pitney replied
that the charge was probably consistent with the hours the
audit required. The administration had anticipated that the
cost would be $300,000, but it had increased to $750,000.
She furthered that it could not be accommodated within the
regular budget given the short timeframe. She believed the
Division of Legislative Audit was only trying to cover the
costs it was incurring during tighter budgetary times.
Representative Kawasaki referred to line 19 related to fire
suppression activity. He thought the number was substantial
[$47.5 million]. He asked if the item had been under-
budgeted or if it had been a bad year. He wondered about
projected cost for the next year.
Ms. Pitney answered that fire suppression was not typically
budgeted; it was more experience related and had
traditionally been a supplemental request. She relayed that
it had been a high fire year. Accurate budgeting for fire
suppression would be fairly difficult. She explained that
unused funds allocated to fire suppression rolled forward
to the next year because of the unpredictable nature.
2:09:49 PM
Ms. Pitney noted she had inadvertently missed a $48.8
million ratification of the prior year's fire suppression
activity (line 46). She explained that the figure
represented the amount that had not been budgeted the
previous year (FY 15). She elaborated that it had been the
practice to include the item in the supplemental budget.
She reasoned that the practice could change; she thought a
$40 million place holder on any given year was not an
unreasonable expectation.
Representative Kawasaki looked at lines 29 and 35 related
to ALMR. He stated that the funding was currently fixed in
the DOA budget. He did not know how many millions of
dollars the state paid in maintenance each year. He
wondered why the item was listed as a one-time capital
request.
Ms. Pitney answered that the funding would go towards
software and hardware upgrades and fixing the equipment for
the statewide emergency communication system ALMR. The
increment was a one-time capital request. Separately there
were operating funds for ALMR in DOA's budget, which was
responsible for maintaining the system. System users were
DNR, DMVA, and many municipalities. She stressed that the
increment did not reflect the last cost into the system;
the system was expensive. She furthered that there was over
$30 million in additional system needs for upgrades,
radios, and so forth; the requests would begin in $5
million to $6 million increments in FY 18. She emphasized
that ALMR was the backbone of the emergency communication
system in the state. She noted that the administration was
asking if alternatives existed.
2:12:49 PM
Representative Kawasaki did not believe the committee had
ever reviewed the unallocated cuts made by the legislature.
He thought it felt out of place to talk about supplementals
before understanding what happened with the unallocated
cuts from the prior year.
Representative Guttenberg pointed to line 16 related to
tobacco cessation litigation. He referred to language in
the description that the administration was studying the
impact of the supplemental request for an FY 17 budget
amendment. He wondered if settlement costs had been
received; if so, he asked where they had gone. He queried
whether additional settlement funds received went into the
General Fund or other.
Ms. Pitney answered that all settlement costs went into the
General Fund or the Constitutional Budget Reserve. The
money did not offset first the litigation cost.
Representative Guttenberg asked if they were seen as
receipt authority for those funds. Ms. Pitney replied in
the negative. The funds went straight into the revenue
bank; otherwise it would mean an appropriation of General
Fund before the funds were used.
Representative Guttenberg asked how the settlement funds
were categorized when they were received back from
litigation. He asked if the funds were listed as the
authority to receive the funds back from litigation.
Alternatively, he wondered if the funds were lumped into
the General Fund. Ms. Pitney replied that she would follow
up.
Co-Chair Neuman requested a report on the fund including
how much it was generating and where the money was going.
Representative Guttenberg was also interested in how the
settlement funds were accounted for.
Co-Chair Neuman asked to receive the same information for
the alcohol fund.
Representative Guttenberg spoke to the additional cost for
external management fees under DOR (lines 20 and 21). He
asked if the management fees were based on better than
expected returns on funds. He asked if the increase was
appropriate for the returns.
Ms. Pitney replied in the affirmative.
Representative Guttenberg asked how much better the
performance was. Ms. Pitney would follow up with
information from DOR.
2:16:38 PM
Representative Wilson pointed to line 9 related to the
increase in foster care funds. She stated that the
description read that OCS anticipated a 19 percent increase
[in the number of children receiving foster care special
needs funds]. She stressed that the number was huge. She
asked for verification that the increment was based on
anticipated growth and not current foster homes.
Ms. Pitney replied that the number was based on the number
of children who had entered the system throughout the past
fall. Based on the current figures, the administration
anticipated a 19 percent increase by the end of the fiscal
year.
Representative Wilson was bothered by the situation. She
stated that following the funding increase provided to OCS
the previous year, the agency had taken many more children
into the system (children she believed could be somewhere
else). She pointed to an increment on line 10 in response
to an increase in subsidized adoptions and guardianships.
She referred to recent testimony from OCS that how much
extra funding may be needed for a child was negotiated
between OCS and the adoptive and/or guardian parent. She
wondered if the increment was anticipated. She wondered if
a deal was open-ended and the state received a bill at the
end.
Ms. Pitney replied that the item on line 10 was based on
the number of children in the process and the amount of
money associated with each of those individuals. She
explained that as there were more identified children in
the foster care or subsidized adoption systems, the cost
based on the formula amount increased.
Representative Wilson countered that the item on line 10
was not a formula program, but was an addition to the
formula for guardianship and/or adoption. She furthered
that if the child had no special needs the additional cost
was zero, but the number increased for children with
intensive medical needs or other. She requested to see
actual numbers to give meaning to the 19 percent increase
(line 9). She pointed to line 10 and stated that the
contracts were negotiated between the potential adoptive
and/or guardian parent with OCS. She reiterated that it was
not a formula. She wondered how the numbers had been
determined.
Ms. Pitney replied that she could follow up with exact
numbers.
2:20:23 PM
Representative Wilson remarked on the 19 percent increase
in foster children. She noted that she did not see the
Public Defender's Office listed in the supplemental and
reasoned that 90 percent of the parents in the OCS process
had public defenders. Additionally, she did not see a
request reflecting a need for more guardians ad litem or
for the attorney general's office. She noted the committee
had heard the previous day how much more the things were
costing. She wondered if there would be increases in the
areas she listed.
Ms. Pitney replied that all offices were receiving
pressures as General Fund reductions were made and as
service requirements were either staying the same or
increasing. The state was doing the best it could to serve
the population.
Representative Wilson stated that the legislature must have
given the DHSS a lot of money if the department could
absorb a 19 percent increase in its workload. She did not
believe 19 percent of the state's children needed to be
leaving their homes. She was disturbed by the high number
and had many constituents involved in related issues. She
believed the department needed to come up with alternatives
to taking children out of their homes and breaking up
families. She stressed that the families did not get put
back together; the impact was seen in other areas such as
the correctional system. She thought it was awful.
Representative Gattis referred to line 20 related to
increased external management fees in the DOR Treasury
Division. She found the better-than-expected returns to be
surprising because her personal investment portfolio had
gone down. She wondered about the investment managers who
had provided increases to funds under DOR. Once the numbers
were received she wanted to explore the issue further. She
turned to line 29 related to ALMR. She wondered why the
funds had not been requested in the budget and why they had
been included in the supplemental.
Ms. Pitney replied that the funds had been requested by the
Department of Public Safety (DPS) through DOA as part of
the budget process. As costs were scrutinized, the
administration asked the departments to find what they
could to mitigate the cost for the system and the necessary
upgrade (it was a vendor-based system). Subsequently the
departments came back with the reappropriation that did not
meet the needs, nor did the $2.3 million. The original
request had been $5 million. The administration had
communicated to the departments that due to tough financial
times the departments should determine how to use the
amount of money to keep the system going.
2:23:53 PM
Representative Gattis noted that the ALMR increment was in
her finance subcommittee budget and she would look into the
issue further. She moved to line 31 related to the Eklutna
overpass, which she was familiar with. She referred to the
increment description and observed that the overpass had
been hit in 2010, but had become an FY 16 supplemental. She
remarked that six years had gone by. She asked why the
funding was being requested at present instead of in the
past. She wondered if the insurance settlement had gone
through a private carrier or a company.
Ms. Pitney replied that the remaining cost was the amount
left after dealing with the company's insurance. She
detailed that the work had been completed and then the
disagreement had occurred. She continued that the
disagreement had been worked through and the increment
(line 31) was the remaining project funding required after
all of the settlements.
Representative Gattis asked if the insurance had come
through a company and if the state could have gone to the
company for the difference. She reasoned that the company's
vehicle had hit the overpass. She asked if the company was
in business.
Ms. Pitney replied that she could provide details about the
settlement. The increment in the supplemental was the
amount remaining after reaching the agreement with the
company and its insurance carrier.
Representative Gattis understood. She was looking anywhere
possible to get compensation from the party responsible for
the damage.
Co-Chair Neuman asked why the company had not paid for the
entire cost of the damage. He understood that it was an
insurance settlement.
Ms. Pitney did not know the specifics of the parties
involved, but the amount reflected what was left after the
settlement.
2:27:06 PM
Vice-Chair Saddler echoed Representative Wilson's concerns
related to the 19 percent foster care increase (line 9). He
remarked that the increase was huge. He stated if there was
something going on that necessitated the increased cases it
was something the legislature needed to know about. He
noted that the description stated there was no increase in
the governor's amended budget. He wondered why the $2.6
million request would not get built into the base budget if
the need would be continuing.
Ms. Pitney answered that the amount was not in the amended
budget; it was an increase put in the FY 17 proposal.
Vice-Chair Saddler pointed to lines 24 through 26, which
indicated an increase of approximately $700,000 on airport
leasing. The committee had heard from the commissioner of
DOT that the department had not modified its lease rates.
He wondered if some airports had received increases in
lease rates or if the increase was a result of increased
leasing activity.
Ms. Pitney answered that "it is in the receipt authority,"
which resulted in the ability to utilize the receipts.
Vice-Chair Saddler asked if it was predicated on an
anticipation of more leasing or higher rates. Ms. Pitney
replied that it was predicated on money the department was
collecting in the current year based on FY 16 rates.
Vice-Chair Saddler asked for verification that there had
been no change in rates. Ms. Pitney could not guarantee
that there had been no rate increases at any of the
airports. She elaborated that the increment was not
predicated on a wholesale rate increase; it was based on
rates paid in the current year. She explained that
previously, the receipt authority had been below the amount
of revenue collected.
Vice-Chair Saddler stated that he hoped the FY 17 DOT
budget would increase the receipt authority on account of
increased leasing rates.
2:29:33 PM
Representative Gara made corrections related to the foster
care increments. He discussed that the legislature had
funded additional staff positions in OCS the previous year
due to understaffing. Since that time, the number of
children in foster had increased from 2,500 to 2,800. He
stressed that the number had increased by 1,100 over the
past six years. He stated that OCS had gotten more
aggressive about taking children out of their homes, which
was something the committee could discuss with the agency.
He stressed that the number of children taken out of their
homes had been increased over a six-year period; the
increase was not related to the 27 new positions hired the
previous year. He specified that the new staff had not been
hired to take more children out of their homes. He remarked
that the extra staff had been taken up by the increase in
300 kids. He stated that the fact that there were more kids
in the system was terrible. He spoke to the increase in
subsidized adoptions and guardianships on line 10. He
believed the increase was a good thing in some ways; it
meant kids were getting out of the foster care system and
into permanent homes. In order to encourage people to adopt
kids out of the foster care system, the state subsidized
the adoption cost.
Representative Gara referred to the $1.6 million increment
for the Alaska Railroad Corporation. He remarked that the
railroad ran autonomously. He believed the entity used
every single penny provided, continued to come back to the
legislature for more money, and the legislature never saw
how the money was spent. He asked if the administration had
determined whether the railroad could cover the cost for
the positive train control system.
Ms. Pitney answered in the affirmative. She specified that
the cost had been $55 million; the railroad had bonded
using its revenue for $38 million of the total. The state
had secured a 90 percent (federal) match if the state could
come up with the remaining 10 percent. The reappropriation
from a completed project allowed the state to obtain the
federal matching funds. Out of a $55 million commitment,
the railroad was locating all but $1.6 million. She
explained that the federal [positive train control]
requirement was significant and the train system did not
have that many passengers.
Representative Gara thought there was a project underway
that was building a longer rail line to Point Mackenzie. He
thought completion of the project would not happen for
quite some time; therefore, he wondered if that project had
some unspent money that could be borrowed to pay for the
positive train control system.
Ms. Pitney replied that it was possible. She noted that the
Point Mackenzie project was not complete and the
administration had looked for remaining funds in a
completed project.
2:33:42 PM
Representative Wilson asked if the state could loan the
money to the railroad and the railroad could pay the state
back in receipts (like it was doing with the bonding
portion). Ms. Pitney answered that the legislature could
work with the railroad to determine if the option was
possible.
Representative Wilson thought a loan may be a good option.
She recalled that an Interior delegation had used about $80
million and had no capital projects. She remembered hoping
the $1 million would come back to the state.
Co-Chair Neuman asked for verification that the governor's
budget amendments would be received by day 30 of the
current legislative session (particularly the amendments
allocating unallocated reductions).
Ms. Pitney replied that the task represented significant
work. The administration was progressing towards that date.
Co-Chair Neuman noted the amendments were needed.
HB 293 was HEARD and HELD in committee for further
consideration.
2:34:45 PM
AT EASE
2:37:02 PM
RECONVENED
^FY 17 BUDGET OVERVIEW: DEPARTMENT OF NATURAL RESOURCES
2:37:25 PM
ED FOGELS, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, introduced the PowerPoint Presentation: "State
of Alaska Department of Natural Resources House Finance
Budget Overview" dated February 4, 2016 (copy on file). He
addressed an organizational chart on slide 3 that included
the commissioner, two deputy commissioners, and division
directors. He turned the meeting over to Commissioner
Myers.
2:38:17 PM
MARK MYERS, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
began with slide 4 and specified that the department's
mission was to develop, conserve, and maximize the use of
Alaska's natural resources consistent with the public
interest. He reported that the state's submerged and
surface lands accounted for 160 million acres (bigger than
the State of California). He detailed that the state had a
world-class resource endowment; it ranked in the top 10 in
its mineral and oil and gas endowment (the best in the
Arctic). He highlighted the state's timber, agriculture,
land, and water; the state contained about 40 percent of
the country's surface water. He noted that Minnesota had
10,000 lakes, whereas Alaska had 3 million. The state also
had 12,000 rivers. He shared that the state's resource
endowment empowered the state's economy. The department's
first core service was responsible commercial development
and use of state land and natural resources, consistent
with the public interest, for long-term wealth and
employment. He detailed that the service was very specific
to the economic development that comes with the lands for
renewable (e.g. tourism) or non-renewable (e.g. oil, gas,
and mining) resources. He explained that together the items
formed the state's economy. He noted that development on
federal land in the state was very restricted (there were
over 200 million acres of federal land in Alaska);
therefore, most development occurred on state land or on
the 44 million acres of Alaska Native land. The state was
very dependent on its lands for the development of its
economy. Much of the state's economy not directly related
to the development of resources, was dependent on the
associated economic development. He explained that
community development in forestry and agriculture brought
in significant money to local communities and built
sustainability. He referred to an external study showing
that Alaska was unique in its level of endowment; it also
had the highest return on its land than in any other state.
Commissioner Myers continued to address slide 4. He relayed
that people tended to think of DNR as a primarily
regulatory agency. He explained that DNR was primarily a
commercial, economic development agency; it was responsible
for resource and royalty management and ensuring the
availability of capital coming out of the resources for tax
purposes. He explained that the state's tax structure was a
product of the state's resource development and royalties.
The department was very sensitive to the state's ability to
rationally and prudently develop its land.
Commissioner Myers discussed that DNR's second core service
was to mitigate threat to the public from natural hazards
by providing comprehensive fire protection services on
state, private, and municipal lands; and through
identifying significant geologic hazards. He communicated
that the past year had been the second largest wildfire
year on history (approximately 5.1 million acres had
burned). The largest wildfire year had been 2004 when 6.6
million acres burned. He stated that fires would increase;
the cost of fighting fires probably represented the
department's largest budget item. The department did much
of the work with hazards and risks related to earthquakes,
landslides, floods, coastal erosion, volcanic eruptions,
and other. He referred to a 7.1 earthquake in Anchorage and
landslides in Sitka as examples. The department conducted
work - largely through its geological survey - to
understand, mitigate, and warn the public about the
hazards.
Commissioner Myers addressed the department's third core
service: to provide access to state lands for public and
private use, settlement, and recreation. The department
sold land for agricultural and public settlement uses.
Additionally, the department made sure state land was
available for things like a small dock permits and other.
He mentioned providing access across lands and referred to
problems with the federal government related to the issue.
The department's fourth core service was to ensure
sufficient data. He detailed that the agency used
substantial geological data and all types of other data
necessary to manage lands and to work with other
stakeholders for environmental impact studies and
permitting processes. He pointed to a pie chart on slide 4
and noted that the largest portion of DNR's budget went to
economic development.
2:43:26 PM
Commissioner Myers highlighted land ownership on slide 5. A
map illustrated the checkerboard nature of the state's
landscape; the state's lands were shown in pink. He
explained that connecting the lands, gaining access across
federal lands, and managing the remoteness of the land was
not inexpensive. He noted that the department had to visit
the sites; the majority of state land had no road or
airport access. He addressed DNR office locations on slide
6. The slide included a map with office locations indicated
by red dots. He elaborated that the map reflected the
complexity and variation in the landscape (from arid
deserts to temperate rainforest); the resources in the
areas varied extremely. The state was the least mapped and
most poorly understood places in the world. He equated the
lack of understanding about the remote areas of Alaska with
the bottom of the ocean. He explained that data
acquisition, understanding, evaluating, and maximizing
value required DNR to do a fair amount of work.
Commissioner Myers addressed the 7 major divisions
beginning on slide 7. He spoke to the Division of
Agriculture; Division of Forestry; Division of Geological
and Geophysical Surveys; and the Division of Mining, Land
and Water (which had been three separate divisions in the
past, but had been combined for efficiency).
Co-Chair Neuman asked Commissioner Myers to provide budget
numbers when going through the divisions.
Commissioner Myers returned to the Division of Agriculture,
which had 39 positions and accounted for about 3.7 percent
or $7 million ($2.8 UGF) of the department's overall
budget. The Division of Forestry had 234 positions and
accounted for 22.6 percent or $43 million ($24 million
UGF). He detailed that 88 percent of the division's budget
went to fire suppression; the remaining funds went to
forest management and timber sales for forest harvests. He
noted that the amounts did not include the governor's
supplemental fire budget. The Division of Geological and
Geophysical Surveys (DGGS) accounted for 4.4 percent or
$8.5 million ($4.4 million UGF) of the department's total
budget. He specified that it was probably DNR's most
leveraged division; it was dependent on more than 40
percent outside funds used for research (slide 8). The
Division of Mining, Land and Water (DMLW) was the
department's largest division with 205 employees and
accounted for $26 million ($9.6 million UGF) of DNR's total
budget.
Commissioner Myers moved on to the Division of Oil and Gas,
which was DNR's most lucrative economic division and the
most technical with the highest level of more expensive,
highly skilled geologists, engineers, commercial analysts,
and other (slide 9). The division had 111 employees and
accounted for 11.6 percent or $22 million ($8.9 million
UGF) of the department's budget. The Division of Parks and
Outdoor Recreation (DPOR) operated the largest park system
in the country with 133 positions and accounted for 8.6
percent or $16 million ($3.2 million UGF) of the
department's total budget. He detailed that the division
was becoming independent of state UGF with volunteers
outnumbering employees approximately 8 to 1. He elaborated
that the division was about 40 percent independent of UGF
in terms of its ability to raise money on fees for use of
facilities. He relayed that there was proposed legislation
that would allow the department to sell parks merchandise;
with the additional revenue, the department hoped the
division would become 50 percent independent on UGF.
2:47:30 PM
Commissioner Myers spoke to the Division of Support
Services, which accounted for 6.8 percent or $13 million
($5.6 million UGF) of DNR's total budget (slide 10). One of
the division's responsibilities was running the Recorder's
Office, which was a crucial function for the state and was
mostly self-funded. The division was also responsible for
running the department's information technology (IT)
infrastructure, human resources, and managing sales and
other contracts. He noted that Administrative Services only
accounted for $2.3 million UGF, the remaining funds went to
IT. He moved to slide 11 and relayed that the Office of the
Commissioner was a relatively small portion of the
department's budget. A relatively large new (in the last
several years) portion of the department's budget was the
North Slope Gas Commercialization (NSGC). The agency was
mostly self-contained, but did receive direct support from
other divisions such as the Division of Oil and Gas for
work on the gasline. He detailed that the agency had 21
positions, 5 of which were filled with state employees,
several were unfilled, and the remainder were filled with
contractors.
Commissioner Myers addressed the Office of Project
Management and Permitting (OPMP). There had been a strong
desire within the legislature and administration to
accelerate permitting. The goal was to make permitting
easier, more coordinated, and more efficient, without
compromising the process. The faster the projects could be
permitted, the better it was for economic development. He
continued that the better and stronger the process, there
was less public concern and less litigation. The office's
total budget was $7.7 million ($912,800 UGF); about $5.6
million of the budget was funded by project applicants. The
office permitted large projects and worked with federal and
other state agencies to provide coordination.
Commissioner Myers discussed the Alaska Mental Health Trust
Land Office, which was a pass through office that reported
to the Alaska Mental Health Trust Authority (AMHTA) board.
The office's function within DNR was to manage the AMHTA
lands to return the value for mental health programs. He
highlighted performance measures showing the mining, land,
and water permit backlog on slide 13. The legislature
allocated significant funding in FY 12 and FY 13, which had
visibly helped to reduce the backlog to about 1,000 (down
from a peak of 2,600). In 2015, 93 percent of the permit
applications were granted within the year. He relayed that
the improvements went in tandem with the Unified Permitting
Program with the goal of creating a single application
structure for permitting and processing permits.
Commissioner Myers continued to speak to performance
measures on slide 14. The slide included a graph showing
OPMP coordinated projects, which had continued to increase
over the past three years (primarily in oil and gas
projects shown in red). He noted the projects were user-
desired and funded. He explained that large mining,
transportation, and renewable energy projects liked to use
the service. The UGF allocated to OPMP went towards helping
the department evaluate the changes in federal permitting
processes and make state comments back when it thought new
federal standards were problematic. The information was
provided to the commissioner and governor's office. For
example, the process had been used recently in response to
the Obama Administration's structural permitting changes to
things like mining, oil and gas, and general land use
management.
Commissioner Myers addressed the FY 16 budget on slide 16.
He detailed that UGF allocated to DNR had been reduced by
$7.6 million (approximately 10 percent) and 76 positions.
He referred to a handout provided to committee members
listing all of the deleted positions ["Department of
Natural Resources FY2016 and FY2017 Position Deletions as
of February 2, 2016" (copy on file)]; the handout listed
whether people had been in the deleted positions, whether
they retired, let go, or moved to another job within the
organization. He noted that the handout also provided a
breakout of job classification (i.e. professional,
clerical, or technical). He knew there had been questions
about whether the positions represented real bodies. He
asked a colleague to elaborate on the topic.
2:52:51 PM
FABIENNE PETER-CONTESSE, DIRECTOR, DIVISION OF SUPPORT
SERVICES, DEPARTMENT OF NATURAL RESOURCES, directed
attention to the position deletion handout and explained
that the department had removed 76 positions in FY 16 (one
of which had been transferred to the Department of
Transportation and Public Facilities (DOT)). She detailed
that 41 of the positions had been vacant, 34 had been
filled, 22 people had been laid off, 9 people had retired,
and 3 took lateral transfers. The department had also
removed all of the funding for the positions, which totaled
$4.4 million. The department currently had 12 positions
slated for deletion in FY 17 (at present 2 of the 12
positions were filled). She specified that approximately 34
percent of the eliminated positions were at the
expert/professional level; the individuals in the positions
were highly educated, specialized, and difficult to
replace. She highlighted that 39 percent of the positions
were at the technical level and 26 percent were at the
entry level. She added that the handout broke the
eliminated positions out by location and division (the
details of every position were on the second page).
Commissioner Myers continued to address slide 16 titled
"DNR FY2016 Budget Cut Highlights." The department's
overall philosophy in managing the cuts was to avoid the
elimination of major programs, which included forestry and
agriculture. He remarked that the elimination of forestry
and agriculture would have nasty effects on communities.
There were parts of agriculture that directly related to
other areas such as the invasive plants program, and
inspections for agriculture/timber export. He detailed that
there was codependency between divisions and the department
wanted to ensure position cuts in one area did not damage
other programs. The department had decreased certain
capacities in programs knowing it would hurt, but with the
goal of avoiding breaking anything; the method had been to
go down to the director level and work the issues
systematically to try to manage cuts the best it could. He
added that the cuts were real and had resulted in
programmatic effects. In FY 16, 4 positions including 2
scientists evaluating coal/geothermal/energy resources had
been cut from DGGS; additionally, the airborne geophysical
survey program had been eliminated. He explained that no
new airborne geophysical data had been collected (the data
helped the state understand its mineral attribution), but
there was a small amount of LIDAR [Light Detection and
Ranging] from DOT and other areas that DNR had helped to
process.
Commissioner Myers highlighted that 9 positions in the
Division of Oil and Gas had been cut by the restructuring
of work processes. The department had hit some of its
analytical capacity, which made him uncomfortable, but it
was a result of the time. He discussed the importance of
understanding the West Coast market and tanker
transportation costs related to the royalty negotiations
and reopeners, in terms of "leaving it in value." He
explained that reopeners with companies had brought up
millions of dollars. The commercial staff had been kept as
intact as possible. He explained that much of the
commercial capacity had been used on the gasline, but it
had not been funded by the gasline; therefore, the
supplemental budget had provided funding to put 2
commercial positions back in.
2:56:45 PM
Co-Chair Neuman asked Commissioner Myers to move onto the
governor's highlights.
Commissioner Myers moved to slide 18 titled "DNR FY2017
Governor Budget." He explained that position cuts in the FY
17 budget resulted in a 9 percent change in net employees
from FY 16. The slide showed that historically DNR had not
really grown from year-to-year [the chart began with FY
07]. The number of permanent full-time employees had peaked
in FY 07 and had decreased since that time. He elaborated
that in order to make workload adjustments the department
had hired many more temporary part-time positions. He
communicated that DNR had already been managing effectively
to workload by not filling full-time positions, but its
staff had been decreased by 70 positions since 2007 (about
9 percent full-time). The department's total employees were
down by about 100. The department did not have any
increases in employees.
2:58:12 PM
Ms. Peter-Contesse pointed to slide 19, which included a
highly detailed matrix showing how the budget scenarios
were developed between the FY 16 management plan and the FY
17 governor's budget. She believed slide 20 was a more
useful way of looking at the budget. She began with the
bottom line, which showed the FY 16 management plan to FY
17 governor's budget increased by 43 percent in UGF
(primarily related to the AKLNG gasline project), a 14
percent overall increase, and a 1.3 percent increase in
people. She explained that excluding AKLNG, the
department's budget was down 7.5 percent in UGF and 2
percent overall. She specified that DNR's budget was down
16.5 percent and 8 percent in personnel between FY 15 and
FY 18. The next couple of slides included the specifics of
the "ins and outs"; the outs were mostly the one-time items
that come out for adjusted base (e.g. Seed Potato Program,
Mount McKinley Meat and Sausage, the unallocated reduction,
and other). The governor's FY 17 budget resulted after
factoring in all of the items and adding the of the
governor's increments and decrements.
Commissioner Myers addressed details on slide 21 titled
"DNR FY2017 Budget Highlights: Reductions." He reiterated
his earlier statement that the department had worked to
avoid the elimination of any major programs. The department
had looked at areas where it could try to make some
decreases. He began with the Division of Oil and Gas and
explained that reductions had been made to best interest
finding, lease sale preparation, public record requests for
oil and gas, communications, and other. Two positions had
been cut from the division. He noted that the cuts did not
mean best interest findings would be eliminated, but they
would not be as thorough. There was some risk with the
approach, but the department was faced with either making
the cut or canceling lease sales, which it chose not to do.
The department had also looked at ending the exploration
licensing program, but did not want to do that at the
current time. Within DGGS, the department had reduced
production and content of the annual mineral report, would
no longer attend mineral and energy trade shows (the state
received interest from mineral and oil and gas companies at
trade shows, but it could no longer afford to attend), and
had reduced software licensing costs. He noted that from
2013 there were 16 new independent companies in the oil and
gas arena in Alaska since 2013; some of that increase was
attributable to DNR's ability to present companies with
technical data at tradeshows (e.g. NAPE and APG
tradeshows).
3:01:31 PM
Mr. Fogels addressed the remainder of the departments on
slide 21. The governor's budget proposed to reduce the DMLW
stewardship budget by $363,000, which would reduce its
ability to send employees out into the field to monitor
activities the department had permitted. Additionally, it
would reduce the division's ability to maintain high-use
sites such as the Knik public use area and the Kasilof
River. He explained that the department may not have the
ability to pump out the sanitary facilities as often. The
Division of Forestry would reduce annual road maintenance
in some of the state forests. He explained that roads may
be graded every other year instead of annually.
Additionally, one long-term administrative position would
be eliminated. The governor's budget would eliminate the
Citizen's Advisory Commission on Federal Areas, which would
eliminate two positions. Funding would be reduced for Parks
Management and Access; a position would be moved into the
federally funded Boating Safety Program, which would reduce
DNR's ability to issue permits on state park land.
Additionally, one part-time Kodiak state parks system would
be eliminated.
Mr. Fogels continued to address slide 21. He detailed that
the budget would make light cuts to the Division of
Agriculture and would reduce the division's seasonal
mechanic's capacity, Alaska Grown Marketing and farm site
inspections and assistance for a total of $87,800.
3:03:16 PM
Ms. Peter-Contesse relayed that a position dealing with the
audits of land sale contracts would be deleted from the
Support Services Division (slide 21). She noted that it may
slow patents for entities buying state land and for
defaulted contracts (with individuals) on land the state
was trying to get back to resell. She spoke to agency-wide
reductions and explained that DNR was working with DOA on
chargeback DNR paid for IT and human resources to find
efficiencies. Additionally, the department was working to
find efficiencies in facility costs; DNR was included in
the statewide pilot program on cross-departmental
efficiencies for leases. She elaborated that the department
was trying to find a better way of managing facilities in
order to prevent duplication of efforts across agencies.
The department had also begun implementing five-day
mandatory furloughs for about 60 senior staff in FY 16 to
meet the unallocated budget reduction; the requirement
would continue into FY 17.
Commissioner Myers noted that the furloughs were for exempt
employees; it was not currently possible to do the same
with union employees, but he believed it was being
discussed. He highlighted that the unallocated one-time
salary increases would be removed in the FY 17 budget. He
believed there was some expectation it could be done
through administrative staff and staff efficiencies;
however, he saw no practical way to do that. The
department's proposal was to allow DNR to shift from UGF to
DGF; DNR had more than $20 million in extra generated
revenue from DGF for things like gravel sales, that went
directly into the General Fund. To sustain some of the
department's programs it wanted increased authority to use
DGF; if that did not occur, it would lead to shutting down
a major program. He shared that the full analysis was not
complete, but he was looking at a significant reduction in
the Division of Agriculture as the least harmful of all the
possible cuts (the cut would still be harmful). He could
not find further savings in administrative efficiencies,
given what the department had already done
administratively.
3:05:47 PM
Commissioner Myers continued to discuss FY 17 budget
highlights on slide 22. The budget included a fund source
switch from UGF to DGF for $2 million in DMLW program
receipts from fees. The department had the capacity to use
the strategy more on a year-to-year basis.
Mr. Fogels discussed one-time base budget items on slide
22. He explained that that two items had been transferred
to one-time item status in the FY 16 budget: the Seed
Potato Program and the Mount McKinley Meat and Sausage
Plant. The governor's budget proposed to reinstate the
items into the department's base. The department felt
strongly that the Seed Potato Program should be included in
DNR's base budget - it represented a critical function of
the Division of Agriculture. He stressed that it was
essential for the agricultural potato industry to start off
with clean, virus-free, generation zero seed; if it was not
possible, seed would come in from outside the state, which
would introduce viruses and the purity of the state's
potato stock would be hurt. The department was in agreement
that a different business model for the Mount McKinley Meat
and Sausage Plant was needed. He detailed that by putting
the funding at a one-time status it had been successful in
forcing the conversation in the industry that something
different had to happen. The industry was actively trying
to figure out a way to privatize the facility. He noted
that past attempts at privatization had been unsuccessful,
but there was significant interest in the topic at present.
The department was also pursuing some other avenues, but
more time was needed to look at options. He stressed that
the facility was critical for the Southcentral's meat
industry; without the plant, the meat industry would be
severely damaged. Therefore, the plan had to involve some
type of transition to enable the plant to continue to
operate while a solution was being devised. For example, if
a new plant was built in another location, it would be
necessary to keep the current facility running until the
new space was ready. He pointed out that the $2 million
required to run the plant came out of the Agricultural
Revolving Loan Fund, not the General Fund. He continued
that even though the plant averaged an annual loss of
$155,000, the money was merely a draw on the fund, which
was level and continuing to provide all loans the
agricultural industry needed. Effectively, the interest
paid by farmers who had taken out loans was subsidizing the
plant's loss. He concluded that the facility was at a
steady state, but he believed everyone agreed that
something different needed to happen.
3:09:22 PM
Commissioner Myers spoke to the North Slope Gas
Commercialization, which accounted for a large portion of
DNR's UGF budget (slide 22). He detailed that the budget
had been predicated on the buyout of TransCanada's portion
in the project and the current commercial negotiation;
approximately half of the money was for the Department of
Law (DOL). He explained that DOL had contracted with
several world-class firms and two lead commercial
negotiators for AKLNG. Based on his experience, he believed
it was the best negotiating team the state had ever had.
Additionally, there was a significant amount of money in
the budget for marketing, which presumed a complex
marketing structure. He referred to conversations during
special session about the high cost of marketing. The state
was negotiating commercial structure of marketing with the
producers; there were structures that were much simpler and
more reliant on the project working together. Marketing as
a whole was the state's preferred position; it did not want
to be competing with its partners in the equity market on
its own.
Co-Chair Neuman noted that there would be further in-depth
discussions about the topic in the future. He noted that
there may be questions at the end of the presentation
related to the topic.
Commissioner Myers highlighted that the department was
looking for ways to cut the North Slope Gas
Commercialization budget, but it was dependent on the
ultimate marketing structure, which was currently under
negotiation. He addressed a pie chart illustrating the
department's operating budget by division on slide 23. Fire
suppression was the largest portion of the pie at 22.6
percent, the North Slope Gas Commercialization represented
18.6 percent, followed by DMLW, the Division of Oil and
Gas, and much smaller portions for the remaining divisions.
He stated that fire suppression and gaslines had dominated
the department's budget recently. He addressed slide 24,
which included a pie chart representing the department's
operating budget by fund category. He detailed that UGF
funded the things that generated state revenue. He
explained that it was not possible to find matching or
grant money for oil and gas lease sale; however, outside
sources would fund scientific work and other components. He
stated that the UGF was a very significant component of the
dollars that came back to the state. For example, DNR-
generated revenue was about $17 for every $1 of total state
money; if taxes were factored in, the amount was $39 for
every $1, which equaled about $7.7 million coming back to
the state for every DNR employee. He emphasized that the
rates of return were unheard of in any other state. The
department believed a better model would be to put more DGF
in - money the department was bringing in - in order to
sustain the services generating the huge rates of return.
Commissioner Myers turned to slide 25 titled "Department
Comparison." The department represented approximately 1.7
percent of the state's overall budget. He remarked that the
service part of government and formula driven programs
drove the budget. Combined, the resource agencies accounted
for a very small portion of the budget.
3:13:26 PM
Commissioner Myers moved to slide 26 titled "DNR Revenue
Generation." He explained that given the volatility of
commodity prices, the royalty was a more stable revenue
source than taxes (particularly in a net profit-share
system). He turned to slide 27 titled "Revenue Actuals and
Forecast." He detailed that the royalty was increasingly a
higher percentage of the department's internally generated
revenue. He noted that the royalty was volatile to
commodity prices, but less so [than taxes]. He expounded
that over a decade, about $2.5 billion came back to the
state through DNR. He pointed to the chart on slide 27: the
blue line represented taxes and the red represented
royalties. He noted that the chart showed $1 billion at the
bottom; there had been a significant decline in royalty
revenue, but it was not nearly as volatile as a net profit-
share tax system. He advised that when considering the
state's portfolio of income sources, to think of royalties
under the current system as one of the most stable sources;
it was also the corpus of the Permanent Fund.
Ms. Peter-Contesse addressed charts prepared by the
Legislative Finance Division on slides 29 through 36. She
noted that a portion of the charts excluded AKLNG. She
began on slide 29 (without AKLNG) and relayed that DNR
represented about 2 percent of the state's overall budget.
The chart included General Fund only and showed that from
FY 07 to FY 17, DNR was about $8.3 million below the rate
of inflation. Slide 30 also excluded AKLNG and showed that
the department was down 98 positions since FY 15 and 64
fewer than FY 16. She turned to slide 31, which showed
appropriations within DNR (no AKLNG). She detailed that
permitting had increased in 2012 and 2013 when DNR had
received appropriations from the legislature to reduce
permitting. She noted that as indicated in a performance
graph earlier in the presentation, the effort had been
effective. She explained that in FY 17 the department used
$65 million UGF in FY 17 compared to $65.9 million UGF in
FY 07.
Ms. Peter-Contesse moved to slide 33, which showed
appropriations within DNR (GF only, including AKLNG). She
pointed to a bump in the FY 15 management plan when AKLNG
had been added to the UGF budget. In FY 16 the fund source
had been changed to Instate Pipeline Fund (classified as
other funds), which had resulted in a drop in the blue
line, followed by an increase in FY 17 for the $35.7
million in UGF. She noted that the fund source changes were
reflected in the blue line.
3:17:15 PM
Mr. Fogels addressed the presentation conclusion on slide
37. He noted that per legislative direction, DNR was still
working to find efficiencies and eliminate unnecessary
regulations and statutes. He explained that one past piece
of legislation had fixed many issues with DNR statutes.
Additionally, Representative Munoz had introduced an
important bill to streamline the department's land exchange
process, which would save DNR significant work. The
department was looking at ways to streamline its mining
process in areas from claims to placer permitting. He
continued that DNR was looking at smarter ways to conduct
timber sales because there were fewer staff to do the work.
He explained that DNR was required to regulate low-hazard
dams, but it was questioning whether the work was
necessary. The department was also working to determine if
it could fix regulations for water (e.g. redirection of
water around construction sites took significant staff
time); DNR was also evaluating permits processes for docks,
wharfs, erosion control structures, and other.
Commissioner Myers shared that earlier in the week he had
signed a preliminary best interest finding on a royalty oil
sale to Tesoro (the information was also on the
department's website). He detailed that as North Slope oil
production had declined, available oil for instate refining
had decreased. He elaborated that large companies had
excess tanker capacity and had commitments to the Lower 48
(particularly California) to supply their refineries;
subsequently, Alaska's local refineries had been crunched.
He explained that in the process, the state had taken its
royalty oil in-kind rather than in-value. He continued that
the department had just finished negotiation with Tesoro
for a contract, which would provide approximately $14
million more in-kind; it also prevented the refinery from
needing to import more oil from the Bakken in North Dakota
as it had been doing. He highlighted that Alaskan jobs were
created, Alaskans got to use Alaskan oil in their cars, and
the state received about $1.95 per barrel more than leaving
it with the producers. He furthered that the preliminary
best interest finding had been a tough commercially
negotiated deal, which would go to the royalty board and
then to the legislature for approval during the current
session. He remarked that the deal represented an example
of how DNR was working to use the state's resources as a
multiplier to create jobs and increase value. He added that
it was not the only royalty oil contract the department was
working on. He expected that by the end of the year, it was
likely that 95 percent of the state's oil would be sold to
in-state refineries in-kind. He concluded that skilled
commercial teams were needed to work on the issues. He
reiterated that it was possible to use the state's
resources as a multiplier, which was a goal within DNR - to
provide maximum value for Alaskans, while providing revenue
back to the treasury.
3:21:07 PM
Co-Chair Neuman relayed that he had participated in many
discussions with Commissioner Myers and Mr. Fogels related
to reviewing DNR regulations. The effort had been to focus
on DNR as a model project in reducing regulations; as an
entity, the department had shown it brought in revenue by
selling Alaska's resources. However, there continued to be
a tremendous amount of regulations that put burdens on
industry and required duplicative paperwork. He had asked
DNR to bring the legislature regulations the department
needed to continue to protect its mission statement; but he
wanted to start getting rid of the other regulations to
ensure Alaska continued to be a good place to work, while
protecting its resources. He noted that all agencies were
working on a review of their regulations and he expected
DNR to come back shortly with some solid recommendations.
Representative Pruitt spoke to the North Slope gas
commercialization. He referred to $18 million that would go
to the Department of Law. He asked what portion of the
remaining funds would go towards marketing.
Commissioner Myers replied that he did not have the numbers
on hand, but the number was significant. He furthered that
going to a FEED [Front End Engineering and Design] decision
in January had been presumed; currently the department was
in the process of hiring a temporary six-month world-class
expert to build the structure. He elaborated that the
effort had been delayed somewhat because the goal was to
understand that the commercial arrangement with producers
impacted the structure. He continued that the preferred
structure was a much smaller organization. He reiterated
that the marketing cost was a significant portion of the
allocation. He noted that salaries for the contracted
position approached $1 million or more when factoring in
bonuses. The position had not yet been hired, but they
would need to be in place as the project entered FEED; at
that point the state would be negotiating contracts in
order to have them in place at FID [Final Investment
Decision].
3:24:03 PM
Representative Pruitt stated that there had been an option
for joint venture marketing. He noted that it was obvious
that the presentation did not include that option. He asked
if the administration had determined the state would not be
party to joint venture marketing. He asked for verification
that if the money was appropriated the legislature would
not have another opportunity to have a say in whether the
policy decision was appropriate.
Commissioner Myers answered that he had to be careful with
his answer related to confidentiality. He stated that he
"would do handsprings" if there was a four-party joint
venture marketing. The state's position had been that joint
venture marketing was a solution in upstream alignment in
gas supply, the gas marketing agreement, cargos in the
downstream, expansion, and other; the administration
believed it was a fundamental alignment piece. However, the
partners did not all agree with that view. Therefore,
active negotiations were underway and no resolution had yet
occurred. He furthered that his strongest recommendation
would be for four-party joint venture marketing and the
administration had made the point clear in its position. He
could not say what would occur as negotiations were far
from complete at present. The other alternatives were
individual joint venture marketability of all of the
producers, which meant staff would have to be duplicated;
it would require the state to have a marketer in each of
the organizations (i.e. with BP, ConocoPhillips, and
ExxonMobil). The state would also have to guarantee surety
of supply, which would require a few upstream staff to work
with customers. He summarized that it was a much larger
structure, which the budget had been designed around. He
remarked that alignment on joint venture may not be reached
with the parties, which meant the state may end up equity
marketing a portion of its gas; in which case, the state
would require an equity marketing structure.
Co-Chair Neuman relayed that he had asked whoever oversaw
the budget to look at royalty in-kind structures, law, and
when, where, and how the appropriations would be made.
3:27:22 PM
Representative Pruitt asked if the governor was going to
call the legislature back into special session.
Commissioner Myers replied that he believed the governor
wanted to [call the legislature into special session]. He
continued that the governor wanted to have the contracts
negotiated (he referred to a letter the governor had sent);
however, during project briefings with the Alaska Gasline
Development Corporation (AGDC) and DNR Deputy Commissioner
Marty Rutherford, the legislature had also heard that
negotiations were not there yet. The negotiations were
tough, but moving slowly. He believed all parties were
looking at what the alternatives may look like. He noted
that it was too early to say [whether there would be a
special session], but at the current pace it was
challenging.
Representative Pruitt asked if there would be a financial
discussion with the legislature if it was called into
special session. He explained that Commissioner Myers had
just highlighted a very complex issue and he was trying to
determine if it was the only time the issue would be before
the legislature. He wondered if the legislature should
spend more time digging into the issue or if it would be
appropriate to wait on the funding until a special session.
Commissioner Myers answered that the budget included other
items in addition to the marketing component. He believed
the money for DOL to fund key negotiators was critical
because the negotiation would continue. Without ongoing
funds, the state would not have the ability to retain the
contractors at the beginning of the next fiscal year, which
may result in a break in continuity if there was no special
session. He noted that the legislature had hired very good
consultants and he was happy to work with enalytica, which
could then provide the legislature with its own expert
judgement. The administration did not object to an
independent review.
Co-Chair Neuman noted that Representative Pruitt was
looking at the issues.
3:30:11 PM
Representative Guttenberg stated that the hardest part
about commercialization was that so much of what the state
did was public, which held things up. He remarked on
Alaskan food products and stressed "we're killing our ag
industry in this state." He continued that there were
significant rules broken by the private sector in
agriculture in Alaska. He mentioned Alaskans producing
fruit trees; he had personally harvested 10 pounds of
apples in his first crop earlier in the year. He reiterated
that they were destroying the state's agricultural
opportunities; they were not enhancing or supporting the
industry and were moving backwards. He remarked that he
loved the oil and gas work, but he reasoned that everyone
needed to eat. He noted that the state was getting rid of
the Farm to School program. He stressed that everyone
talked about food security, but he believed Alaska was
going backwards.
Representative Gara pointed to the department's operating
budget by core service on slide 19. He observed the slide
showed a $1.3 million cut in UGF from FY 16 to FY 17.
However, the "other" fund category showed reductions from
$49 million down to $40 million and a $2 million decrease
in DGF. He asked why the other and DGF cuts were so large.
He asked for detail on the DGF cut.
Ms. Peter-Contesse pointed to slide 20 for detail. The $2
million fund source switch was included in the FY 17
governor budget decrements. She explained that the
department had reduced $2 million in UGF and increased $2
million in designated program receipts in mining, land, and
water. She elaborated that the receipts came in from
material sales, leases, and other.
Representative Gara observed that for FY 16 to FY 17, the
cuts to other funds and DGF outpaced the cuts to UGF by a
significant amount. He wondered what money was not coming
into the other category. He surmised that typically UGF
received the largest cut.
Ms. Peter-Contesse replied that that the other category
included the reversal of the AKLNG one-time item of $8.9
million. She explained that the Division of Legislative
Finance took the one-time items out, which were then seen
in the governor's request as a UGF increase in FY 17. She
explained that it had been categorized as other in the
Instate Pipeline Fund in FY 15.
Co-Chair Neuman asked the department to provide the
committee with any further analysis it may come across.
Co-Chair Thompson discussed the meeting schedule for the
following day.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DNR FY16 & FY17 Position Deletions.pdf |
HFIN 2/4/2016 1:30:00 PM |
|
| DNR SLA2016 HFin Budget Overview.pdf |
HFIN 2/4/2016 1:30:00 PM |
|
| HB 293 FY2016 Supplemental Summary.pdf |
HFIN 2/4/2016 1:30:00 PM |
HB 293 |
| HB 293 FY2016 Supplemental Detail.pdf |
HFIN 2/4/2016 1:30:00 PM |
HB 293 |
| HB 293 FY2016_Supplemental_backup_detail.pdf |
HFIN 2/4/2016 1:30:00 PM |
HB 293 |