Legislature(2015 - 2016)HOUSE FINANCE 519
04/29/2015 10:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB1001 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB1001 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 1001
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs, capitalizing funds, making
reappropriations, making capital appropriations, and
making appropriations under art. IX, sec. 17(c),
Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for
an effective date."
10:38:56 AM
Co-Chair Neuman relayed that he did not plan to report the
bill from committee that day.
Co-Chair Thompson MOVED to ADOPT the proposed committee
substitute for HB 1001, Work Draft 29-GH1318\W (Wallace,
4/28/15). There being NO OBJECTION, it was so ordered.
10:39:33 AM
PETE ECKLUND, STAFF, REPRESENTATIVE MARK NEUMAN, explained
the changes in the Committee Substitute (CS). He
communicated that the Work Draft was a simplified version
of the governor's bill. He explained that the CS reflected
the differences and additions between the conference
committee operating budget bill passed by the legislature
and the bill introduced by the governor the previous day.
He pointed to two one-page reports from the Legislative
Finance Division (LFD) titled "2015 Legislature - Operating
Budget Agency Summary - FY16 Conference Structure" (copy on
file). The first report pertained to unrestricted general
funds (UGF); the first column titled "GovSpecial T" showed
that the governor's bill was $54,954,500 UGF different from
the conference committee bill. He furthered that the totals
in column 4 matched the totals in column 1, meaning that
the CS before the committee included all of the governor's
changes from the conference committee bill. Section 1 of
the CS contained the majority of the differences from the
governor's bill.
Co-Chair Neuman noted that Representative Pruitt had joined
the meeting.
Mr. Ecklund continued to speak to the changes in the CS. He
explained that Section 1 included various additions from
recently passed conference committee substitute. There were
various additions in different departments, which were
listed in the first four pages of the bill. He pointed to
pages 3 and 4 and noted that the governor's intention was
to fund the 2.5 percent increase to the cost of living
allowance (COLA) for unionized employees on July 1, but not
for non-unionized employees. He looked at pages 5 through
11 that included "fund roll-ups" (all of the various
funding sources for Section 1 of the bill).
10:43:09 AM
Mr. Ecklund pointed to page 12, Section 4, which included
all transactions the governor wanted to see for Medicaid
expansion. Pages 13 and 14 included fund roll-ups for
Section 4. The language section of the bill began on page
15 of the bill. He detailed that the governor wanted to
fully fund the Base Student Allocation (BSA), which would
be a $16.5 million increase from the conference committee
bill. Additionally, the governor wanted to use $118 million
from the Instate Natural Gas Pipeline Fund to help fund
public education; however, the conference committee
substitute used $157 million from the fund. Page 15,
Section 8 addressed salary and benefit adjustments,
including employee contracts and COLA for unionized
employees. Page 16, Section 9 included a new Constitutional
Budget Reserve (CBR) provisions that would include CBR
access votes for FY 15 and FY 16.
10:45:07 AM
Co-Chair Neuman noted that Vice-Chair Saddler had joined
the meeting.
Representative Gara commented that the governor was trying
to move the legislature forward to achieve a budget. He
believed some of the items included in the governor's bill
represented placeholders that the governor understood the
legislature may move around. He believed it was a good
effort on the governor's part.
Co-Chair Neuman remarked that the CS looked better than the
original version of the bill due to its shortened length
(18 pages down from 77). He wanted to ensure that the
document was clear for the public.
Representative Gattis noted that she had been receiving
many emails related to fully funding education. She asked
for clarity on what full funding would look like.
Mr. Ecklund answered that the statutory BSA for FY 16 was
$5,880. He detailed that when projections for student
counts were multiplied by the formula, the conference
committee report had been $16.5 million less than the
projected amount. The CS would fund the BSA at 100 percent
of the projected amount.
Representative Gattis remarked that people had different
views on what fully funding education meant. She thanked
Mr. Ecklund for the clarification.
Representative Wilson asked about Section 7. She remarked
on the fund transfer change from $157 million to $118
million from the Instate Natural Gas Pipeline Fund. She
wondered if the remainder would come from general funds.
Mr. Ecklund replied in the affirmative. He pointed to an
estimated $1,006,027,900 that would come from the general
fund (page 15, line 8). He noted that the general fund
figure in the conference committee bill had been
approximately $95 million.
Representative Wilson referred to Section 8 related to
salary and benefit adjustments. She asked for verification
that the COLA costs would come from general funds. Mr.
Ecklund replied in the affirmative; the dollar amount was
included on page 4 of the CS.
10:48:43 AM
Mr. Ecklund clarified that the total dollar amount it would
take to fund the unionized and nonunionized COLA was
$56,386,100 (page 4, line 6). The cost to cover
nonunionized employees was $21,018,500 (page 4, line 8).
The cost to cover unionized employees could be calculated
by subtracting the nonunionized figure from the total,
which was roughly $35 million in total funds. He pointed
page 5, line 28 that included the UGF portion needed to
fund the union contracts [$16,122,600].
Representative Wilson remarked that she had been receiving
emails asking the legislature to fund the operating budget.
She noted that Section 9 addressed the CBR and other funds
that were not dedicated, but may have been created for
specific purposes (e.g. Higher Education Investment Fund).
She wondered how much funding was available in these other
funds for the legislature to use towards the budget (not
counting Alaska Permanent Fund reserves) if it could not
access the CBR.
Mr. Ecklund asked for clarification on the fiscal year
Representative Wilson was speaking to.
Representative Wilson clarified she was interested in FY
16. She believed that forward funds for education had taken
care of FY 15 and that a CBR vote only pertained to FY 16.
She reiterated her previous question.
Mr. Ecklund replied that the FY 16 spring forecast was
somewhere around $2.2 billion. He deferred the question to
Mr. Teal.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, replied
that there was approximately $2.2 billion in revenue for FY
16 with a $3.2 billion deficit. He detailed funds that
could be used including the Power Cost Equalization Fund
(approximately $1 billion) and the Higher Education
Investment Fund (approximately $450 million to $460
million). He continued that the other remaining funds each
included less than $50 million (compiled together the funds
may be $200 million). He postulated that there may be
approximately $1.6 billion in various funds and accounts
that could be used, which would leave a $1.6 billion
shortfall.
Representative Wilson noted that there were different
options for funding. She stated taking $1.6 billion in
addition to what had already been taken was an extreme
amount. However, she wanted people to understand that it
was an option.
10:53:13 AM
Representative Gara stated that the governor had filed a
placeholder budget for the legislature to work on. He
believed the governor's direction was for the legislature
to work together to come up with a budget that people could
accept. He noted that it would include things that some
people may not like on one side or the other. He stated
that from the Minority's standpoint there was no interest
in shutting down government. He emphasized that the goal
was to work together to move forward on a budget that
worked for education and for the public. He stressed that
he was not interested in using Alaska Permanent Fund
earnings.
Representative Edgmon hoped the meeting would be the last
one for a while on the current subject. He wanted clarity
on how much money was available for the budget and how long
state government could be funded in the event the CBR vote
was not achieved.
Mr. Teal stated that there was $2.2 billion in revenue with
a $3.2 billion deficit; there was nowhere near enough money
to get through the year. He detailed that the $2.2 billion
was not available all at once at the beginning of the year;
it came in throughout the year. The cash flow problem could
be somewhat resolved to some extent by issuing revenue
anticipation notes or borrowing. He communicated that it
would be difficult to issue notes exceeding the expected
$2.2 billion in revenue. He relayed that any borrowed money
would have to be repaid fairly quickly; therefore, the real
issue was cash flow. According to his discussions with the
Department of Revenue (DOR) there should be sufficient cash
to get the state through September (possibly through
October and November with extraordinary measures). He
believed September was a far as the funding would go.
10:56:34 AM
Representative Edgmon referred to the $1.6 billion
available in the various funds including the PCE Fund and
the Higher Education Investment Fund. He stressed that
draining the PCE account would not happen if it were up to
him. He asked for verification that use of the funds would
require appropriation authority.
Mr. Teal answered in the affirmative. He elaborated that if
the legislature passed an appropriations bill that took
money from the Public Education Fund and the Higher
Education Fund, it would increase cash flow by
approximately $1.5 billion, which would get the state
through January [2016] or so. He believed DOR and the
Department of Administration (DOA) were working on
contingency plans to see how government would be operated
if a CBR vote was not obtained.
Representative Wilson clarified that she had not been
speaking about using Alaska Permanent Fund earnings. She
asked for verification that the legislature would have to
pass legislation to access other funds such as the PCE
fund. She thought all funds could be tapped with the
exception of the CBR and Alaska Permanent Fund reserves.
Mr. Teal replied that the funds (the Alaska Permanent Fund
Reserve Account, the Higher Education Investment Fund, and
the PCE Fund) could be tapped with an appropriation. He
elaborated that the money could be accessed with a simple
majority vote, whereas access to the CBR required a super-
majority vote [three-quarters]. The funds would provide an
additional $1.5 billion or so. He relayed that the Alaska
Permanent Fund account would also require a simple majority
vote and would completely fill the deficit.
10:59:24 AM
Representative Wilson asked for clarification. She asked
for verification that the other non-dedicated funds would
be available for funding the operating budget if the
legislature passed an operating budget. She understood that
the funds would not be sufficient and would leave the
budget approximately $1.6 billion short. She made it clear
that the funds could be tapped if the legislature did not
come to an agreement.
Mr. Teal replied that the funds could be tapped with an
appropriation; the accounts were not dedicated, but were
considered restricted. He detailed that the accounts were
not swept into the CBR at the end of the year because they
were classified as the PCE Endowment Fund and the Higher
Education Endowment Fund. Although the accounts were sub-
funds of the general fund they were classified as
restricted. A general fund appropriation would not
necessarily allow spending from the funds without a
specific appropriation putting the money back into the
general fund.
Co-Chair Neuman rephrased that none of the funds could be
appropriated unless the legislature passed an appropriation
bill that spent the funds.
Mr. Teal believed the statement was correct. However, DOR
and DOA were working to figure out which funds could be
borrowed from and spent without an appropriation. He
clarified that budgeting and accounting were different. He
noted that LFD looked at funds from a budgeting
perspective, whereas DOR and DOA came from an accounting
perspective.
Representative Wilson pointed to pages 16 and 17 of the CS.
She wondered why the CBR was in Section 9 and the Higher
Education Investment Fund was in Section 10. She wondered
if the bill intended that the Higher Education Investment
Fund would be utilized in addition to the CBR with the
three-quarter vote (and that no other funds would be
considered). She was trying to understand why the Higher
Education Investment Fund was named in the legislation, but
no other accounts were included.
Mr. Teal replied that the language pertaining to the Higher
Education Investment Fund had been included in the
conference committee budget and only referred to FY 15. He
explained that the FY 15 budget was approximately $3.8
billion; the Statutory Budget Reserve (SBR) of about $2.8
billion filled all but roughly $1 billion of the deficit.
By reducing the FY 15 deposit to the public education fund,
the remaining $1 billion deficit would be filled and
theoretically eliminated the need for a supermajority vote
to access CBR funds. However, under the scenario, the state
would still be within $50 million of a deficit. He spoke to
the volatility of oil prices and that accounting books were
not actually closed until months after a year was complete.
He did not believe $50 million was a large enough cushion
to promise no deficit in FY 15. Section 10 stated "if, and
only if" there were insufficient general funds, the
remaining deficit would be taken from the Higher Education
Investment Fund; the option would go into effect only if
the CBR vote failed to ensure that the state did not run
out of money in FY 15.
11:04:19 AM
Representative Gara stated that he did not want people to
be scaring the public with the current conversation. He
reasoned that everything would be fine if the legislature
decided to work across party lines on developing a budget
by the end of special session. He thought it would be a
shame if legislators were not able to work together and
began to ask about getting to September.
Representative Pruitt interjected his distaste for the
"political statements." He stated that the committee was
trying to handle a budget.
11:04:54 AM
AT EASE
11:05:11 AM
RECONVENED
Representative Gara asked for verification that to maintain
a budget through September and possibly November, there
would be no need to touch the PCE Fund or the Alaska
Permanent Fund earnings reserve. Mr. Teal replied in the
affirmative.
Representative Pruitt asked if there was any mechanism the
state could employ to borrow from itself in order to help
fund government. For instance, borrowing from the PCE Fund,
the Higher Education Investment Fund, or CBR. He wondered
if borrowing the funds would have to be authorized by the
legislature.
Mr. Teal replied that the state could borrow from itself.
He believed DOR and DOA were researching borrowing from the
other funds. The state could also borrow from markets by
issuing revenue anticipation notes, which was short-term
borrowing based on anticipated revenue coming in later in
the year. He pointed to Section 9(c) at the top of page 17
that talked about using earnings from the general fund to
pay the CBR; the language was typical and allowed the
legislature to borrow money from the CBR without a three-
quarter vote; it would be required to be repaid by the end
of the year or it became a draw. Alternatively, the
legislature could choose to borrow from the CBR and not run
out of money, but at some point in the fiscal year the
money had to be paid back. The people allowing the
borrowing would be required to certify that funds would be
available to pay the money back. He communicated that with
a deficit there was no guaranteed way of paying back the
loans to the CBR. He stated that even though Section 9(c)
was a simple-majority provision, it would not do any good
unless the super-majority vote was obtained.
Representative Pruitt asked if the legislature could borrow
from the subaccounts of the general fund (i.e. PCE Fund,
Higher Education Investment Fund, and others).
Mr. Teal replied that even if the money was appropriated
there would still be a $1.5 billion to $1.6 billion
deficit. At that point there would be no remaining funds to
borrow from.
Representative Pruitt understood the situation as it
related to the next fiscal year. He specified that he was
referring to the discussion related to the current fiscal
year where the state could be $50 million short. He asked
if there would be a potential to cover the state expenses
without going into the CBR by accessing the subaccounts.
Mr. Teal replied that the scenario outlined by
Representative Pruitt was exactly what Section 10 did. The
section would take the money from the Higher Education
Investment Fund if the state was short on funds. It would
have also been feasible to include the PCE Fund or others
in the language; however, the remaining deficit was
expected to be less than $100 million; therefore, there was
no need to dip into other funds.
11:10:24 AM
Co-Chair Neuman noted that the legislature would not want
to make the funds available if it did not have to.
Representative Pruitt discussed that if the legislature
took funds from the Higher Education Investment Fund, it
would impact the fund, which would also be the case if the
PCE Fund or other were used. He detailed that the language
in the CS was a policy call, which specified the money
would be appropriated versus borrowed.
Mr. Teal replied that the scenario was the same either way.
He elaborated that the CS included an appropriation from
the fund and if the money had to be taken from the Higher
Education Investment Fund, the legislature could opt to
replenish the money. He stated that it was also possible to
say that the interest generated by the fund was more than
sufficient to pay the scholarships and grants it awarded; a
balance of $50 million to $60 million less would still
allow payment of the grants and scholarships. If the
legislature chose to borrow the funds, it may choose to
repay or not repay the funds at some future date.
11:12:14 AM
Vice-Chair Saddler referred to the discussion about revenue
anticipation notes. He was interested in further detail
including potential source, interest rate, cost, and
authorization procedure.
Mr. Teal replied that the scenario would entail going to
the financial markets and issuing short-term notes based on
anticipated revenue. The interest rate should be fairly
low. For example, an issuance of $2 billion in notes at a 2
percent rate for one year would be a $40 million borrowing
cost. He stated that it would be much easier to issue
taxable revenue anticipation notes and state would run into
problems with the federal government if it tried to make
the notes tax-free. He explained that the notes did not
need to be tax-free; the difference between the tax-free
and taxable interest rate was quite small. He stressed that
the cost of issuing the notes was not insignificant.
However, issuing notes was not an uncommon and it would not
mean credit raters would determine Alaska was in a "world
of hurt." He believed the Municipality of Anchorage issued
revenue anticipation notes. Additionally, the state issued
the short-term drinking and clean water bonds annually.
There was nothing inherently wrong about the use of revenue
anticipation notes. He believed that credit raters would
probably look at a political impasse as an indication of a
greater credit risk than borrowing with revenue
anticipation notes. He explained that the credit raters saw
Alaska's credit strength partially in its ability to access
reserves. The raters took many things into account when
determining a state's credit rating.
11:15:20 AM
Vice-Chair Saddler asked for verification that the
inability for the legislature to obtain the three-quarter
vote would impair the state's credit rating. Mr. Teal
affirmed that he believed the situation would impact the
credit raters' opinions.
Vice-Chair Saddler asked if the revenue anticipated notes
were limited to one-year lifespans. Mr. Teal replied that
the notes were issued in anticipation of revenue coming in
later and must be repaid within 18 months; the notes did
not have to be paid off exactly at the end of the year.
Representative Guttenberg spoke to the economic and credit
rating risk related to the failure to achieve a super-
majority vote [to access CBR funds]. He wondered if there
were other things at risk if the state's funds were
inaccessible. He surmised that the state would not be able
to issue revenue anticipation bonds given that it did not
expect to see sufficient funds coming in the following
year.
Mr. Teal replied that the revenue anticipation could always
be issued as long as incoming revenue was anticipated. He
did not know of any other items at risk. He qualified that
there could be other risks he was not aware of.
Representative Guttenberg speculated that issuing revenue
anticipation bonds would increase the size of the deficit
the following year. Mr. Teal replied that the anticipated
revenue would be current-year revenue. He affirmed that the
interest would increase the state's fiscal problem because
borrowing money was not free; it may cost $20 million to
$40 million.
Co-Chair Neuman surmised that the state did not want to get
into borrowing money.
11:18:24 AM
Vice-Chair Saddler believed Mr. Teal had stated that
failing to come to an agreement on using CBR funds could
potentially hurt the state's credit rating. Mr. Teal
affirmed that he believed so. He stated there would be
another opportunity to provide funding for the state
outside of the operating budget bill. He stated that the
issue was more about whether the legislature was able to
work things out, which was probably all that mattered in
the end.
Representative Edgmon asked for the total drawdown from the
state's savings accounts given the $3.2 billion deficit in
FY 16. Additionally, the legislature had used $2.8 billion
from the SBR, plus $1 billion from the education fund. He
wondered how much of the savings accounts had been used. He
stated that sometimes he saw savings accounts as the CBR
and SBR fund.
Mr. Teal replied that the deficit for FY 15 was roughly
$3.8 billion and the deficit for FY 16 was roughly $3.2
billion ($7 billion total for the two years). He detailed
that funding included $2.8 billion from the SBR, $1 billion
from the public education fund, and theoretically the
remainder from the CBR.
Representative Edgmon asked what the spending would leave
in savings. Mr. Teal believed it was roughly $6 billion in
the CBR. The public education fund would be empty at the
end of FY 16 and the SBR would be empty. The only reserve
account would be the supermajority access to the CBR.
Representative Edgmon surmised that available savings would
be the amount from the CBR plus the subaccounts, which
would be somewhere close to $8 billion. He noted that he
would not chose to use earnings from the Alaska Permanent
Fund and did not include it in his estimation of available
funds.
Mr. Teal replied that LFD had looked at the reserves as
those in the SBR and CBR. The LFD model showed that after
FY 16 the CBR may get the state through about two more
years and would be empty after FY 18.
Representative Edgmon asked for verification that there
were approximately $7.6 billion in liquid savings accounts
going forward. Mr. Teal replied in the affirmative,
including the PCE Fund.
11:23:18 AM
Representative Gara stated that there had been roughly $100
or so million for the Alaska Marine Highway System (AMHS)
in the conference committee budget. He asked how the figure
compared to the allocation in the CS. Mr. Teal replied that
an additional $7 million had been added back to the AMHS
budget in the budget before the committee.
Co-Chair Neuman remarked on the total AMHS appropriation.
Mr. Teal stated that the appropriation was around $130
million.
Co-Chair Neuman stated that $130 million to $140 million
had been the total appropriation to AMHS. The CS added
another $7 million.
Representative Gara stated that the conference committee
budget had included AMHS fuel trigger money that other
agencies could not use. He asked if the fuel trigger money
was also included in the CS. He asked for verification that
the difference between the budgets was $7 million.
Mr. Ecklund replied that there was roughly $130 million to
$140 million between the marine highway fund (approximately
one-third) and UGF (approximately two-thirds). In FY 15
there was roughly $5 million in fuel trigger money that
could go to the marine highway fund and could be used in FY
16.
Mr. Teal clarified that the fuel trigger revenue was FY 15
money that would be carried forward into FY 16. Separately,
the CS contained an additional $7 million.
HB 1001 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 1001 CS WORKDRAFT HFIN W VERSION.pdf |
HFIN 4/29/2015 10:30:00 AM |
HB1001 |
| HB 1001 LFD Agency Summaries.pdf |
HFIN 4/29/2015 10:30:00 AM |
HB1001 |