Legislature(2009 - 2010)HOUSE FINANCE 519
02/09/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB325 | |
| HB326 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 325 | TELECONFERENCED | |
| *+ | HB 326 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE BILL NO. 326
"An Act making supplemental appropriations, capital
appropriations, and other appropriations; amending
appropriations; repealing appropriations; making
appropriations to capitalize funds; and providing for
an effective date."
Co-Chair Hawker reviewed generalities of the technical
changes of the working draft.
Co-Chair Stoltze MOVED to ADOPT CS HB 326(FIN), 26-
GH2827\R, Kane, 2/8/10, as a working document. There being
NO OBJECTION, it was so ordered.
Co-Chair Hawker spoke to committee plans to review the
legislation, beginning with an overview.
1:42:43 PM
Co-Chair Hawker highlighted the two pages of ratifications
at the end of the document and emphasized the importance of
discussing the issues.
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, provided a sectional analysis of HB
326. She pointed out that the largest component of the bill
consisted of two sections putting money into savings
accounts, including a request to deposit $1.1 billion into
the public education fund in Section 12(a), and a provision
to repay the constitutional budget reserve (CBR) fund in
17(a).
Ms. Rehfeld specified that Section 1 consisted mostly of
the operating budget requests, including formula components
related to Medicaid and $35.4 million for the fire
suppression supplemental. Agency operating non-formula
items total nearly $32 million.
1:46:00 PM
Ms. Rehfeld described Section 2 as a summarization of
funding sources by agency. She remarked that the Office of
Management and Budget (OMB) carefully reviews supplemental
requests from departments and asks whether the request
could be addressed in the next year's budget. Some are
already incorporated into the next year's budget in order
to correct funding authorization. In other areas, changes
are being considered for budget amendments due February 17,
including items from the Office of Public Advocacy, the
Public Defender Office, inmate health care, and Medicaid
components.
Ms. Rehfeld spoke to Section 3, which includes
appropriations for capital projects. She parenthetically
noted one capital item in Section 11. Section 4 contains
the summary of funding sources.
1:48:08 PM
Ms. Rehfeld highlighted Section 5 as a new language
section. She explained that the state was allowed to
utilize a higher reimbursement rate for Federal Medical
Assistance Percentage (FMAT) under the American Recovery and
Reinvestment Act (ARRA). However, the higher rate comes
with requirements: the Medicaid program cannot be changed
and the savings cannot be put into a savings fund. Guidance
from the U.S. Department of Human Health and Services and
discussions with the Alaska Department of Law (DOL) led to
inclusion of language in the bill acknowledging higher
general fund relief as well as increased costs that the
general fund savings will help cover.
Co-Chair Hawker added that the item meant the state would
receive $100 million that it could allocate.
Ms. Rehfeld turned to Section 6, a $3.3 million request to
implement the interest arbitration from a March 19, 2009
decision regarding the Alaska Correctional Officers
Association.
Co-Chair Hawker noted appreciation for inclusion of the
item in the bill.
Ms. Rehfeld explained Section 7 as $180,000 for pupil
transportation costs for an Alaskan school for the deaf in
Anchorage.
Representative Doogan asked why the item was in the
supplemental budget. Ms. Rehfeld explained that the item
addressed the transportation needs of a deaf student in the
Mat-Su area; OMB had not been aware of the issue until
after the FY 10 budget was passed. The item would be
incorporated into the base for pupil transportation
services in the future.
1:52:08 PM
Representative Austerman highlighted that the item would
increase the base for FY 11 and FY 12.
Ms. Rehfeld noted that Section 9 corrected language related
to gas pipeline training. She described Section 10, $28,000
for paying settlements for DOL; she assured the committee
that they would be informed of other judgments. She
explained that Section 11 would allow the state to purchase
wildfire fighting aircraft.
Representative Gara received clarification about an item in
Section 8.
Ms. Rehfeld turned to several fund transfers in Section 12:
12(a) is a deposit into the public education fund, 12(b)
transfers $79,000 from the Alaska Industrial Development
and Export Authority (AIDEA) revolving loan fund to the
small business economic development revolving loan fund,
and 12(c) is a $5 million general fund transfer to the
disaster relief fund.
Co-Chair Hawker asked for clarification regarding Section
12(a). Ms. Rehfeld responded that the FY 10 budget was not
able to make a deposit into the fund until the revenue
picture improved. She added that the deposit would forward
fund education for FY 11.
Co-Chair Hawker emphasized that appropriations would not be
duplicated; the item was a response to the failure to get a
CBR vote the previous year.
1:55:19 PM
Representative Gara queried the forward funding amount. Ms.
Rehfeld responded that the item incorporates the third year
of the three-year funding plan. She noted a base student
allocation (BSA) increase of $100 and that the item
includes the intensive student BSA. There is also an
increment for implementing district cost factors. All of
the components in the FY 11 foundation formula are included
in the deposit amount.
Ms. Rehfeld explained that Section 13 consisted of
ratification, sometimes called "zero balancing."
Ratifications are requests for authorization to cover
expenditures that have already occurred and resulted in an
over-expenditure of an appropriation. The situation is
usually a result of uncollectable federal revenue sources;
the ratification provides the state with the authority to
close the prior appropriations out.
Ms. Rehfeld emphasized that there is no additional
expenditure of cash in the current year and that OMB has
worked hard with agencies to clean out the accounts. She
acknowledged that the size of some of the ratifications
have raised questions. She highlighted larger items,
beginning with $10.3 million for fire suppression. She
referred to an annual base appropriation for fire
suppression; the state can never fully anticipate the
extent of need. For the past decade, there has been a base
appropriation, and then as the fire season progresses,
estimates are received monthly from the Department of
Natural Resources (DNR) of actual costs. The $35 million
request for fire suppression in the FY 10 supplemental bill
is based on the DNR estimate of current year costs. The
$10.3 million represents a ratification of expenditures
that occurred between the time that the legislature
adjourned and the fire season in 2009. She acknowledged the
significance of the amount.
1:59:15 PM
Ms. Rehfeld described another significant ratification
amount for the Department of Health and Social Services
(DHSS), $7.3 million for uncollectable revenue for several
programs. She reported that DHSS has identified several
issues with its revenue accounting and are implementing
controls to address the challenges. She noted changes in
specific programs to address the appropriate revenue source
in the FY 10 supplemental and in the FY 11 budget in order
to address the problem. She pointed to clean-up that is
part of the ratification process. Approximately $409,000 of
the ratifications in the bill involves the Department of
Corrections (DOC), which had underestimated what would be
collected from the federal government for housing federal
prisoners.
Ms. Rehfeld described Section 14 as a small correction
related to DOL to address restitution in juvenile cases.
Section 15 relates to shifting funding from the
international airport revenue fund to the airport
construction fund in order to minimize customer costs.
Section 16 is the extension of the appropriation for in-
state gas, which is slated to end February 28, 2010; the
provision would extend the date to June 30, 2010. The work
is on-going. She pointed to a request for $6.5 million in
the FY 11 budget for continuing work on the in-state
gasline.
Co-Chair Hawker explained that the project had commenced
under Harry Noah's supervision; the Senate had decided to
appropriate money only through February and come back for a
supplemental. He added that the administration had assured
that in-state gasline efforts would continue to move
forward.
Ms. Rehfeld noted that work would be continued within the
limitations of the appropriation. She emphasized the
importance of getting the legislature's approval for the
extension.
2:03:38 PM
Co-Chair Stoltze relayed a story to emphasize the point.
Ms. Rehfeld explained that Section 17 is related to the
constitutional budget reserve; 17(a) would allow repayment
of $402 million that has been withdrawn from the fund,
17(b) authorizes drawing from the statutory budget reserve
if revenues could not cover expenditures in FY 10; and
17(c) is a fund source switch that manages funds through
the general fund.
Co-Chair Hawker underlined that the state would have repaid
all constitutional obligations to the CBR at approximately
$5.5 billion. Ms. Rehfeld concurred.
Ms. Rehfeld continued with Section 18, lapse provisions
related to capital projects. Section 19 repeals Section
43(c), also known as last year's 17(b) provision, which is
consistent with the objective to repay the CBR.
Co-Chair Hawker acknowledged past discussion and emphasized
his concurrence that the provision was unnecessary.
Ms. Rehfeld concluded with Section 20, an immediate
effective date for Section 7, the pupil transportation
appropriation, and Section 21, the effective date of the
act.
2:07:15 PM
Representative Doogan asked about appropriations for
uncollectable funds. Ms. Rehfeld responded that the largest
component was under school-based claims in the supplemental
and the FY 11 request.
2:09:31 PM
Representative Austerman queried Section 10 regarding funds
for DOL for judgments and settlements. He referenced the
Carlson case and wanted to know whether the amount would be
covered in the current year. Ms. Rehfeld responded that
every effort was being made to resolve the Carlson issue.
She acknowledged the continuing growth of the interest. She
reported that updated information regarding the case would
be forwarded to the committee as it came from DOL.
Representative Austerman anticipated daily interest costs
of $20,000 and expressed frustration. Ms. Rehfeld echoed
frustrations and stated that the intent was resolution of
the issue.
Co-Chair Hawker assured the committee that the issue would
be addressed. Representative Austerman reiterated
frustrations.
2:12:30 PM
Representative Gara requested details on the Carlson case.
He believed the court was going through a routine request
for reconsideration.
Co-Chair Hawker turned to the subject of ratifications,
which begin on line 119 (page 23 of 25 of the "FY2010
Supplemental Requests" spreadsheet, copy on file). He noted
that the first item related to DNR fire suppression. Ms.
Rehfeld clarified that the amounts were late FY 09 money.
Co-Chair Hawker stated that the money was already spent and
emphasized that there was no authority for the money to
have been spent. The ratifications would sanction the
expenditures retroactively.
Ms. Rehfeld pointed out that in some areas the process
could not be avoided, particularly related to fire
suppression. She explained that when a certifying officer
gets a document, there is a budget and an authorization for
valid expenditures to be charged against. The difficulty
sometimes lies in collecting the revenue.
2:18:15 PM
KIM GARNERO, DIRECTOR, DIVISION OF FINANCE, DEPARTMENT OF
ADMINISTRATION, testified that out of the list of
ratifications in the bill, only $628 was related to
expenditure coding problems. The rest of the requested
ratifications are for revenues which are now uncollectable.
At the time the expenditures were made, the corresponding
revenues were expected to be collected. However, the
receivables have been deemed uncollectable.
Ms. Garnero explained that the $481,000 related to access
cleanup is an inception-to-date review at all receivables
in the state's 25-year-old accounting system to find out
which ones are uncollectable. She was pleased to learn that
the amount was less than one-half million dollars.
Co-Chair Hawker acknowledged that amounts as small as one
cent were listed in the reconciliation. He pointed to line
136 for the DOC Anchorage Correctional Complex; the state
expected more money from the federal government than it was
able to collect. He stated that the expenditures should not
have been made without the resources available make them.
He stated that there was not authority.
Co-Chair Hawker asked about appropriation numbers on line
136 and wondered if the issues were from FY 05. Ms. Garnero
responded in the affirmative; the receivable was detected
as being uncollectable as part of the inception-to-date
review of all receivables in the accounting system.
Co-Chair Hawker stressed that the amount was five years
old. Ms. Garnero detailed that the state's accounting
system is good at tracking expenditures but was weaker when
accounting for revenues. Revenues were recorded for items
in FY 05 that have stayed there until someone asked if the
amount was collectable. She added that the amount is not
collectable five years later, and the state has written it
off.
Co-Chair Hawker questioned the process and asked why
receivables were not reviewed. Ms. Garnero replied that
Division of Finance is implementing an annual review of all
receivables for agencies, which has not been done in the
past as part of the comprehensive annual report.
2:23:00 PM
Co-Chair Hawker reminded the committee that amounts in the
budget are truncated to the thousands; however, in the
ratifications section, the amounts are listed down to the
penny.
Representative Gara asked for clarification regarding
ratification funds. Ms. Rehfeld replied that when the
legislature ratifies expenditures, it gives the departments
the authority to close out appropriations with shortfalls
in the prior year.
Representative Gara asked where the money comes from to
fund the ratifications. Ms. Garnero delineated that the
accounting system controls expenditures by appropriations;
most appropriations are not purely general funds but
include some revenue collections. The accounting system
controls for the collections with a tolerance, allowing
expenditure of funds before they are collected. However,
most of the items have receivables booked, meaning a
revenue was billed for some party and the departments
expected to be able to collect the revenues. Shortfalls are
caused when the revenues are no longer collectable.
Ms. Garnero clarified that there will be an appropriation
for the ratification, but no additional spending; there
must be an appropriation to drive the uncollected balance
to zero.
2:26:22 PM
Representative Austerman referenced line 131 [DHSS,
Medicaid State Programs], $1,380,000 from FY 04. He asked
whether the state has been trying to collect the money for
six years or if it never expected to get the funds. Ms.
Garnero responded that she could not speak to the item as
it was not part of the accounting systems inception-to-date
clean-up. She noted that individual departments bill for
and collect revenues.
Co-Chair Hawker requested waiting until later in the
meeting to speak to DHSS issues. He asked whether the fire
suppression ratification was unusually large. Ms. Rehfeld
offered to get more history. She referred to the boundary
fires in 2004, which had also resulted in ratifications.
Co-Chair Hawker wanted the committee to have the underlying
facts related to the ratification.
Co-Chair Hawker explained that the committee is accustomed
to seeing a limited number of ratifications; there is an
unusual amount in the current bill. He acknowledged the
significance of the clean-up resulting in the many items,
including the largest at $409,000 for the Anchorage
Correctional Complex. Ms. Garnero agreed.
Co-Chair Hawker queried the relationship between the
Division of Finance and the agencies. Ms. Garnero replied
that she had served as a finance officer in a department;
her experience was that the balancing of appropriations to
get to revenue collections and expenditure authorizations
is intensely done at the end of the fiscal year, and then
the process is done. She thought there had been a hole in
the central role of the Division of Finance in asking
agencies to look back at the receivables recorded in the
accounting system and continuing to either collect them or
get them written off. She stated that after the end of a
fiscal year, not much can be done unless the department can
go back to the billed party and get the money. Often once
grants are closed, the department will have uncollectable
receivables and will have to ask for authorization through
the ratification process.
Co-Chair Hawker questioned the new controls that were being
implemented to mitigate the problem. Ms. Garnero responded
that the controls will prevent the delay in identifying
uncollectable receivables.
Co-Chair Hawker pointed out that when an agency reports the
problem in a timely manner, the legislature can communicate
with the agencies. He wanted to know how agencies could
miscalculate to the extent the committee was seeing. He
questioned who was culpable. He noted that he wanted a
conversation with DOC and Mr. Peeples [regarding the
Anchorage Correctional Complex ratification] before the
process was over.
2:32:23 PM
Representative Kelly reported that the process was
different in the private sector.
Co-Chair Hawker verified that the Division of Finance has
implemented procedures to rectify the situation. Ms.
Garnero confirmed that the division will be annually
reconciling recorded receivables with the departments as
part of preparing audited financial statements.
Representative Kelly asked if the process would change
behavior.
Co-Chair Hawker agreed that the procedure is not practical
unless it results in improved control of agency spending.
Ms. Rehfeld added that OMB's effort has been to identify
areas with uncollectable revenue and determine whether to
replace a funding source with general funds. She referred
to requests for funding source changes to address and
correct the problem. She underlined that grants are closed
after August 31 and departments will be unable to collect
after that time; the problem needs to be addressed on the
front end of the process.
Representative Kelly agreed that the issue should be looked
into.
Co-Chair Hawker concurred.
2:35:04 PM
Co-Chair Hawker segued to ratifications related to Medicaid
School Based Administrative Claims and referred to a DHSS
handout, "DHSS Schedule of School Based Services Financial
Information, SFYs 2003, 2004, 2005, 2006, 2007, 2008" (copy
on file).
Co-Chair Hawker emphasized the significance of the problem.
He thought the evidence pointed to a problem in accounting
management and control at DHSS related to the program.
Representative Austerman queried the DHSS process related
to the Medicaid ratification. He asked how the department
had been able to absorb the approximately $7 million it had
spent without being reimbursed. He wondered if the
legislature had funded the difference.
ALISON ELGEE, ASSISTANT COMMISSIONER, FINANCE AND
MANAGEMENT SERVICES, DEPARTMENT OF HEALTH AND SOCIAL
SERVICES, noted that there were a variety of issues at
stake and that she wanted to start with the simpler ones
before addressing the school based administration claiming
program.
Ms. Elgee explained to Representative Austerman that DHSS
had spent money against a legislative appropriation that
was comprised of multiple fund sources, where the revenue
side of the appropriation did not materialize. She
emphasized that nothing was absorbed. The department is
currently trying to clean up the books by getting
authorization from the legislature to recognize the
expenditures as general fund.
Co-Chair Hawker described what would happen to a citizen
who wrote a check against a bank account that did not have
sufficient funds. He asked how an agency could spend
millions of dollars and then come back so many years later
to ask for the revenue to cover the expenditures. He asked
where the cash came from.
Ms. Elgee spoke specifically to line 131 [Medicaid State
Programs], which illustrates what the department is up
against in trying to balance expenditures and revenues on
an annual basis. She explained that the department spends
many hundreds of millions of dollars in the Medicaid
program and draws federal funds on a weekly basis based on
the expenditures to keep the money in the state treasury as
opposed to the federal treasury. The claims for the federal
revenue are filed quarterly; the claim for the final
quarter of state fiscal year is filed after September 30 of
the subsequent fiscal year (the state fiscal year ends on
June 30). The claim is filed for all expenses made from
April 1 through June 30.
Ms. Elgee detailed that Medicaid has a multitude of various
match rates; it is not a straight-forward program. Each
component of the program has to be accounted for,
expenditures and match rates. The report is large. As a
result, the department is closing out its state books
before it has made the final claim for many of the federal
programs. The problem caused by the timing of the two
actions is significant.
Ms. Elgee noted that related to the line 131 ratification,
she suspected that the money was expended and that the
department expected to be reimbursed from the federal
government. She expected that the department had not
recognized that the match rate of federal funds to general
funds was not aligning with expenditures made until after
the state books had been closed.
Ms. Elgee explained that the situation was further
complicated by the fact that the department has up to two
years to amend federal claims. The numbers move throughout
the subsequent quarters as DHSS books additional
expenditures against encumbrances and as other close-out
activity goes along. There is no clear stopping point for
determining what can reasonably be expected.
2:42:42 PM
Co-Chair Hawker restated the situation: the department has
a huge operating cash flow, there is no once-a-year moment
during which everything stops and begins fresh, and it has
been able to stay ahead of cash requirements with the
billing process and procedures. In other words, a check
never bounced.
Representative Doogan thought the system was "sloppy"
because there was no stopping point to consider the
balance. Ms. Elgee replied that there was always enough
authorization and appropriations to cover expenses.
2:44:14 PM
Co-Chair Hawker clarified that Ms. Elgee was considering
the appropriations side, while the questions was whether
the issue would have shown up if there was a stopping
point.
Representative Gara understood the part about money coming
in and being wrong. He wanted to know whether department
error such as missing application deadlines resulted in
missing money. Ms. Elgee replied that his question led the
discussion into Medicaid school based administration
claiming territory.
2:46:53 PM
Co-Chair Hawker pointed out that the ratification requests
go back to FY 04. He asked for explanation regarding the
receivables related to the school based Medicaid services,
beginning with a description of the program.
Ms. Elgee informed the committee that the Medicaid school
based administrative claiming component is a program
designed to allow states to recover a portion of the
administrative overhead costs that school districts may
attribute to helping serve Medicaid-eligible students. The
program is different from the program that allows school
districts to claim Medicaid for direct-service costs. For
example, a district bringing in a speech therapist for a
Medicaid-eligible child is a direct service that Medicaid
can be billed for. On the other hand, the school based
administrative claiming program is designed to try to
recover district administrative support costs that are
attributable to having provided the direct service.
Ms. Elgee reported that the DHSS handout shows spending
going back to 2003, when ratification was not needed, and
shows the program history from FY 04 through FY 08. She
emphasized that the ratification requests present
uncollectable revenues through the first half of FY 07. She
highlighted that DHSS continues to have financial exposure
on the program for the second half of 2007 and all of FY
08.
Co-Chair Hawker pointed out the corresponding note at the
bottom of page.
Ms. Elgee described what had happened in the program. The
federal government requires that the state department train
school district personnel in terms of allowable activities
to be claimed under the program, identifies a cost pool
attributable to those allowable activities, and identifies
the personnel that are in support of the activities. Every
quarter, a study is made during a randomly selected week,
on randomly selected authorized personnel and participants.
The random-moment study tracks individuals throughout the
week and the results are extrapolated throughout the entire
universe identified for the program. The Medicaid claim is
based on the results of the study. The reimbursement has a
50 percent match rate by the federal government.
Ms. Elgee explained that during the early years, the
process was followed, the claims were made, and the
receivables booked. However, the federal government only
participated in the cost of the program in a portion of the
claims that were actually made. The federal government
deferred the remaining portion of the claims. In December
of 2008, the federal personnel met with the state and
reported that there were problems with the state program;
the claiming plan was good, but it was not being properly
run, and the claims were not being developed in a
supportable way. The federal personnel came up with several
examples, including a janitor in one district that was
identified as being part of the cost pool and was surveyed;
the federal government could see no correlation between
what the janitor did and the services being provided to the
Medicaid-eligible children within the school district.
Ms. Elgee summarized that in the early years considered for
ratification, a portion of each of the claims was deferred.
In the meantime, the state had used the money, which had a
history of being shared (after direct program costs were
accounted for) 50 percent to the participating school
districts and 50 percent to DHSS.
2:52:47 PM
Ms. Elgee detailed that the department portion was
programmed into several department areas; currently the
revenues support program operations in the Office of
Children's Services in the Division of Public Health and in
the department support-services components.
Co-Chair Hawker underlined Ms. Elgee's language regarding a
history of taking the federal reimbursement and splitting
it 50/50 with participating school districts. He pointed
out that during 2003 through 2005 the district portion from
the Centers for Medicare and Medicaid Services (CMS) was
disbursed through a reimbursable services agreement (RSA)
to the Department of Education (DEED); subsequently it was
paid directly to the school districts. He asked whether
there was ever a written agreement or legislative authority
acknowledging the transactions. Ms. Elgee replied that she
had been trying to determine the answer and was still
researching.
Co-Chair Hawker assumed that the payments had been made
without contractual or statutory authority.
Representative Austerman asked whether CMS had directly
paid the school districts. Ms. Elgee replied that DHSS had
made the payments. She directed attention to a column in
the middle of the spreadsheet ["RSA'd DEED" on the DHSS
handout] listing RSAs and explained that in certain years
the money was sent to DEED for subsequent distribution to
school districts; after 2006, the monies were paid directly
by DHSS to the districts.
Co-Chair Hawker emphasized that while the money was paid,
CMS had deferral or withholding in the amounts listed in
the second-to-the-right-hand column [DHSS handout]. Ms.
Elgee agreed; the column contained the balance of the claim
made for which no cash was forthcoming.
Co-Chair Hawker pointed out that the program not conducted
in 2009; he suspected that was related to CMS meeting with
DHSS about the problems. Ms. Elgee concurred.
2:56:25 PM
Representative Austerman referred to the surveys conducted
and CMS deciding to defer the money because of problems
found during the survey. He expressed concerns that the
surveys had shown problems back to 2004 and yet continued
until much later. Ms. Elgee responded that corrective
efforts had been made to address the problems in January
2007; a new claiming plan was approved by CMS and adopted
to attempt to address prior problems. However, the federal
officials said the claiming plan was good, but the state
did not follow the plan; errors were made in the program
administration itself. She reported that the first red flag
was a claim processed on behalf of the state that was
significantly larger than claims from other states with
larger population bases; she suspected that was the reason
behind the deferral of a portion of the early claims.
Representative Austerman wondered why people were not fired
for mistakes made during 2004-2006. He questioned what the
department was not doing. Ms. Elgee agreed that the concern
was a good one. She said that the individual responsible
during the period is no longer with the department. She
could not speak to what was going on from a management
perspective.
Co-Chair Hawker concurred with Representative Austerman's
perplexity and frustrations.
Vice-Chair Thomas reported that he had seen a private
corporation go bankrupt over similar issues, including
"creative accounting" where money was rolled ahead and
hidden.
Co-Chair Hawker reported that the term in accounting was
"kiting."
Vice-Chair Thomas wondered whether other departments were
doing the same thing. Ms. Rehfeld responded that she was
not aware of other programs with similar issues. She
credited DHSS with coming to OMB right away when the
problems began to show up. She pointed out that there were
many elements in the ratifications as well as the
supplemental request and the FY 11 budget because the
revenues were significant components in the department's
operations. She stated that the issue needed to be
addressed.
3:01:10 PM
Co-Chair Hawker asserted that her statement was of
paramount importance to the committee, as so many places in
the budget were affected. He directed attention to the last
two columns on the right of the DHSS handout: the requested
ratification or amount of authority needed to clear the
books, listed by fiscal year; and the CMS deferral column,
or the amount withheld by CMS. He highlighted that the 2004
numbers were the same in both columns. He asked why only
$221,290.00 needed to be ratified for 2005 if CMS withheld
$3.7 million that year. By 2007, the state was asked for a
$3 million ratification when CMS deferred only $2.8. He
queried the differential.
Ms. Elgee replied that there were two reasons for the
differential. First, in the context of a zero-balancing
exercise, some of the expenditures can be offset with other
revenue collected or lapsed balances that were available;
that will tend to reduce the ratification necessary for the
uncollectable receivables. She pointed out that there was a
larger problem than the particular program; the problem
lies in the revenue-collection environment for DHSS as a
whole. Personnel has been working diligently to clean up
the problem, but she believed that in FY 07 (the year that
reflects a ratification request larger than what is
reflected as a deferral), some revenues were improperly
attributed. She emphasized that cleaning up the state
accounting records in terms of unraveling who did what
related to posting revenues and where they truthfully
belonged would takes a great deal of time. The department
has not invested the time since the bottom line will not
change in terms of what is needed for ratification.
Co-Chair Hawker maintained that "where revenues truthfully
belonged" and "misposting" begins to imply something "very,
very sinister." He asked whether some programs that the
legislature had authorized through the budget process to
receive full federal funding were in fact not [receiving
that funding]. Ms. Elgee responded that she thought that
was the case.
Co-Chair Hawker observed that previous legislative action
was based on the understanding that certain programs
received their full federal funding authority, when in fact
the federal funding authority may not have existed.
Ms. Elgee replied that the federal authority existed in the
context of the appropriation, but whether the revenue
recorded against that authority was attributable to actions
on the part of that particular program, or earned
specifically by that program, is a question that is being
researched. She believed there was some kind of "mix and
match going on to balance out the books."
Co-Chair Hawker emphasized his appreciation for the
department's truthfulness and his understanding that the
testifiers present were only the messengers.
Ms. Rehfeld pointed out that the Division of Legislative
Audit looks carefully at agencies annually, particularly
departments like DEED and DHSS with a significant number of
federal programs. The division has identified the DHSS
revenue issue through audit work. She thought it was good
that the challenges are being recognized and addressed.
3:06:52 PM
Co-Chair Hawker noted that the Division of Legislative
Audit has been looking at revenue collectability overall.
He reiterated frustration and stated that the situation was
unacceptable. He was concerned that the problem pointed to
a wider-sweeping one. Legislative auditors have been
working on the comprehensive annual financial report, but
their findings have not been specific or have indicated a
problem of the magnitude identified in current testimony.
Co-Chair Hawker hoped, with the committee's blessing, to
request that Legislative Budget and Audit Committee
specifically perform an expedited audit of the DHSS program
in order to get an independent review and report back to
the committee on the scope of the problem and the adequacy
of measures already implemented by OMB and DHSS.
Co-Chair Hawker noted that the members present nodded in
the affirmative and that there was no negative indication
from the committee.
Representative Kelly stated his support and commented that
the situation resembled a bank balance with the federal
reserve bank; once the balance slips behind, it is almost
impossible to recover. He suggested looking back further to
perhaps 1998; he wondered if the situation then was better
or worse.
Ms. Elgee described the department's increasingly complex
environment from the standpoint of funding and federal
claiming requirements. At the same time, because of
increased automation, the department also has a much higher
level of oversight and scrutiny. She referred to an older,
ledger-sheet method of tracking federal funds. The
department recognized that the process had to be automated
and purchased the same software used by many other states.
Unfortunately, the software was implemented at DHSS without
a thorough understanding of how it worked.
Ms. Elgee related that the department had contracted the
previous year with a consultant who has worked with states
on indirect cost-allocation plans and understood the
software. He evaluated the DHSS claiming environment and
gave an 18-month timeline to make improvements that he
thought would put the department back on track. The
consultant had described the timeline, completed by June
30, 2010, as very aggressive. The department has recently
decided to revise the deadline.
Ms. Elgee reported that significant improvements had been
made, including filing federal claiming reports on time for
the first time in years, making regular draws, and posting
revenues to program operations. She described historical
experience with an "impossible environment" to manage
against.
3:15:03 PM
Representative Kelly advised entering the audit with a
neutral mind-set. He acknowledged the difficulty of the
task, based on his own experience. He asked whether over-
claiming was a practice. Ms. Elgee did not believe that to
be the case. She thought every effort was made to claim
appropriately, although the federal government could
disallow certain claims.
Representative Kelly thought a certain amount would be
disallowed even if the rules were followed. He asked if the
rules were clear. Ms. Elgee answered that the rules were
changing frequently. The written rules may not change, but
the oversight and perspective brought by the federal
auditors may change.
Representative Kelly thought the changing rules could
explain the need for mysterious supplemental requests.
Co-Chair Hawker agreed. He noted the independent nature of
the Legislative Budget and Audit Committee, of which he was
Vice-Chair.
3:18:11 PM
Representative Austerman queried the DHSS handout 2009 line
indicating "no program conducted." Ms. Elgee responded that
DHSS is in the process of bringing the program back up in a
fashion that meets federal requirements and addresses the
criticism raised in the federal audit review. She described
the process as slow. The first claim had been conducted for
the winter quarter with limited participation. Additional
school districts have indicated that they would like to
participate in the program; DHSS continues to train school
district personnel and anticipates larger participation in
the winter and spring quarters.
Representative Austerman asked for clarification regarding
the process of claiming and reimbursement. Ms. Elgee
explained that the amount claimed relates to school
district expenses attributable to the CMS program; the
school district spends the money. However, when the federal
government reimburses the state based on the claim, the
state has been sharing back a portion of the revenue to the
school districts, and retaining another portion. Much of
the retained revenue was programmed into the department's
on-going annual operations.
Representative Austerman reviewed the 2003 numbers,
clarifying that the districts spent $12 million and
received only $3.1 million, though the program was a 50/50
match. Ms. Elgee agreed.
Representative Fairclough asked whether the federal
government had issued similar audit recommendations to
other states. She wondered whether there was a resource the
state could access to determine if there were
inconsistencies shared by other states or whether the
state's program was in error. Ms. Elgee believed both were
true. She thought federal oversight has tightened;
anecdotally through the Oregon consultant, the department
has heard that the Oregon claiming process has been greatly
reduced because of federal scrutiny and disallowed claims.
In addition, the federal review is very specific to how
Alaska has operated its program.
3:23:05 PM
Representative Fairclough stated concerns about disallowing
federal reimbursement, which could cause fiscal issues if
not identified quickly.
Co-Chair Hawker asked about the Payment Error Rate
Measurement (PERM) program. Ms. Elgee responded that the
PERM program was a success. The program looks at Medicaid
processing and whether the state is paying claims
appropriately. The department was part of a federal review
along with 16 other states last year; Alaska had the lowest
error rate of states reviewed, while other states' error
rate was over 8 percent.
Co-Chair Hawker pointed out that the change was from a 47
percent error rate in the preliminary testing.
Representative Doogan questioned the "No program was
conducted" year on the handout. He wondered who paid for
the programs. Ms. Elgee pointed out that Alaska funds its
public education system through the public school
foundation formula; the expenses are covered through that
process. The particular program allows the state to receive
some reimbursement from the federal government for expenses
already financed.
Representative Doogan conjectured that the school districts
would have expected that some portion would have been
repaid through the state by the federal government. He
asked who pays the costs. Ms. Elgee responded that DHSS had
informed the districts that it would not be conducting the
program, so the districts had expectation of reimbursement
that did not materialize.
3:27:21 PM
Co-Chair Hawker wondered how the loss of funding affected
schools and wondered why the committee not heard from
school district personnel.
Representative Gara asked about possible upcoming
shortfalls to both the districts and the department. Ms.
Elgee responded that DHSS has approximately $2.2 million
built into its on-going operations. Recognizing that the
program would not be run, the funding was covered the
previous legislative session through a FY 09 supplemental.
The department has requested similar funding for FY 10 and
an increment for the program areas in FY 11 to recognize
the on-going operations as general fund instead of being
supported by revenues recovered by the program. If the
program continues to operate as it has in the past with a
sharing approach of whatever is claimed, the other 50
percent of the revenue collected on behalf of the state
would be available for appropriation for the public school
foundation fund, as one example. The federal government
made clear in the review that it wants a direct correlation
between the revenues earned and school district financing.
Co-Chair Hawker noted that the state may not have been
doing that in the past.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 326 Version R.pdf |
HFIN 2/9/2010 1:30:00 PM |
HB 326 |
| HB326 DHSS School Based Services.pdf |
HFIN 2/9/2010 1:30:00 PM |
HB 326 |