Legislature(2015 - 2016)ANCH LIO BUILDING
05/06/2015 01:00 PM 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."
1:09:10 PM
Co-Chair Neuman commented that it was nice to be in
Anchorage with a different audience. He conveyed that he
had been in his community talking with his constituents. He
suggested there were some basic differences that he could
address or Ms. Pitney could address. He asked that the
presentation begin with the Department of Education and
Early Development (DEED).
Representative Gattis commented that the committee had
heard Ms. Pitney's presentation a time or two. She had
spent time back in her district and had several questions.
She talked about Ms. Pitney's interpretation of HB 1001
being a conversation starter in progressing towards a CBR
vote in favor of a fully funded budget. She wanted to know
if she had the authority from the Minority to engage in a
conversation about a CBR vote. She did not understand how
HB 1001 advanced the budget unless Ms. Pitney was either in
or on the same page as the Minority.
1:11:21 PM
PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, stated that the governor's office
did not have the authority or permission to negotiation on
behalf of the Minority. She pointed out that it would be
the House Majority and House Minority that had negotiation
powers. She reported that the Minority did not agree with
the starter budget. She relayed that both sides were not
happy with the "Take-Two" budget. However, the spending
plan from the legislature was $5 billion with revenues of
only $2.2 billion. She suggested the state was either
facing a date on which government stopped operating or
deciding what things the state wanted to fund in lieu of
other things. She provided a hypothetical scenario in which
the state chose to place all of its funding into education
in place of providing health services or conversely, the
state chose to put most of its funding into health services
and a small amount into education. She recounted that with
a $5 billion spending plan and a $2 billion revenue stream
and without permission to spend any other funds from
savings, the state had to take action. She spoke of
starting a dialog because an action was required within the
House in agreement with the Senate.
Co-Chair Neuman stated that the authority to appropriate
was the responsibility of the legislature. He voiced that
there would be negotiations between the House Majority, the
House Minority, the Senate, and the governor's office. He
furthered that the legislation would be presented to the
committee just as any other piece of legislation was
presented.
Co-Chair Neuman recognized Senator Giessel, Representative
Josephson, Representative Claman, Representative Chenault,
and Representative Tilton in the audience.
1:14:08 PM
Vice-Chair Saddler asked about the governor's intention
regarding HB 72. The bill had been transmitted to the
governor's office. He wanted to know if the governor
intended to hold it, sign it, or line item veto it. He
wanted to better understand the current framework.
Ms. Pitney stated that currently HB 72 was invalid. She
reiterated that it reflected $5 billion in spending with
only $2 billion in revenue. She conveyed that the Executive
Budget Act [AS.37.07] required the legislature to provide a
budget that had matching spending and revenue. The budget
reflected in HB 72 did not meet the required criteria.
Without a three-quarter approval vote to use money from the
Constitutional Budget Reserve (CBR), or a change in budget
funding levels, HB 72 was an invalid budget. She thought
there was still time to correct the discrepancy.
Co-Chair Neuman disagreed with Ms. Pitney that the budget
was invalid. He claimed that the Majority in the house and
senate passed a conference committee budget. There had been
opportunities for the Minority to approve a draw from the
CBR. The Minority did not approve the budget and requested
additional funds. The Majority did not want to add to the
budget which resulted in the current legislation before the
committee.
Vice-Chair Saddler wanted clarification whether the
governor would be signing HB 72 and under what conditions.
Ms. Pitney responded that the administration was looking
for a funded budget.
Vice-Chair Saddler asked about the conditions under which
the governor would sign the budget. Ms. Pitney responded
that she could not speak for the governor on specifics
except to say the administration was looking for a funded
budget. Her response would be very different with a fully
funded budget. She restated that the proposed budget
currently reflected a revenue stream of $2 billion and
expenditures totaling $5 billion.
1:16:38 PM
Representative Pruitt disagreed with Ms. Pitney. He
explained that in the bill there was funding in the budget
for the remainder of the current fiscal year and for a
portion of the following year. He believed it would be
helpful to clearly define what was truly being discussed.
He wondered whether the legislature was looking at the full
budget, certain portions of it, or potential funding
sources. He stressed that as long as HB 72 was in play the
topic of discussion remained unclear. He wondered when the
legislature could expect either a veto or a signature on HB
72 from the governor to better understand what the
legislature was supposed to be discussing. He opined that
discussing an increase in the budget was different from
deliberating about state's spending allocation. He stressed
the need for definitive answers from the governor and asked
if they would be provided soon, as he wanted to ensure the
following meetings would be as productive as possible.
Ms. Pitney responded that the governor had the opportunity
to sign or veto the bill on or before May 19, 2015. She
believed legislation reflecting a fully funded budget prior
to the 19th would be approved. She voiced that the governor
could not set a precedent of accepting a two-fifth's funded
budget and alluded to there being enough time to make
changes to the committee substitute for a vote. It was up
to the legislature to present a balanced budget. She
reiterated that the budget would not be signed into law in
a partially funded form.
1:19:47 PM
Representative Pruitt observed that Ms. Pitney had
mentioned several times that the issue concerned funding.
He asked why $90 million was added to the budget. He
implied that the issue was more about the governor not
liking the budget rather than it being fully funded. If
funding was the governor's only issue the legislation would
be limited to that topic. He asserted that the governor was
not only concerned about a funding mechanism but that he
also did not like what the legislature put forward in the
budget. He wondered why more items were added and continued
to question where the legislature should focus its
attention. He was unsure if the governor had sat down with
both sides. He relayed an experience with the previous
governor in which there was a discussion on education
funding. The governor sat down and attempted to get people
to agree from both sides which he though was a good
approach.
Ms. Pitney relayed that, according to the governor, certain
reductions made in conference committee were too deep. She
conveyed that he was asking for reconsideration of specific
items. She pointed out that, although the amount was $93
million, the amount was a 1.4 percent difference and that
it reflected an 8 percent total agency operations reduction
from the prior year. She maintained that the cuts were
substantial. She continued that the governor had accepted
over 90 percent of the decrements over and above his
original reductions, $250 million or 6 percent of agency
operation budgets. The governor and the administration
understood the state's fiscal situation and the necessity
of reducing its size. The rate at which reductions were
made and the impact of reductions were also considerations.
The negotiation was not between the governor and the
legislature. Rather, it was between legislators to get to a
funding plan. The governor would basically have to accept a
funded budget, his veto power being limited to the
reduction of funds.
Co-Chair Neuman commented that it was a matter of how to
get to the numbers.
1:23:30 PM
Representative Gara wanted to correct a few items. He
suggested that there was a difference of about $90 million
between the legislation before the committee and what the
conference committee passed. He quoted a difference of
about $54 million additional dollars. He also noted $39
million of one set of state funds to another. He wondered
if he was correct. Ms. Pitney responded in the affirmative.
Representative Gara heard a statement about just adding
money to the budget. He spoke on behalf of his caucus
indicating that substantial cuts to the budget had been
offered and rejected. He mentioned trying to get funding
for education. He felt that it was unfair to say that one
caucus had tried to add to the budget. He understood that
the governor was attempting to bring both sides of the
legislature together to pass a budget ultimately avoiding a
shutdown. He wanted to know if he was correct.
Ms. Pitney stated that with $10 billion in the CBR and only
four days left to have discussions it was important to have
reasonable yet much reduced state operations. She told of
the governor's plan to have open and transparent dialogues
with Alaskans around the state in the following summer
about revenue options going forward.
Representative Gara remarked that if the state were to cut
every state employee that was funded by unrestricted
general fund (UGF) money it would only account for half of
the budget deficit. Under current oil prices the state
would be out of savings within two to three years no matter
what version of the budget the legislature had seen. He
asked if he was correct. Ms. Pitney responded that if no
other action was taken and oil prices remained as they were
the CBR would be exhausted in three years.
Representative Gara asserted that it was time for
legislators to work together across party lines to pass a
budget.
1:26:44 PM
Representative Wilson understood that there were two
options. The first option was for the governor to be able
to start a conversation by asking for additional funding.
She wondered why the conversation starter was not about
dipping into other funds to close the gap on funding. She
did not understand why the governor started by adding to
the budget rather than narrowing the disparity.
Ms. Pitney responded that the discussion regarding revenue
was one that the administration would be bringing to
Alaskans in an open and transparent forum launching in June
2015. She anticipated several discussions across the state
and across all groups, about the state's options. She
relayed that the administration was taking the lead, using
what was in SB 72. All other language was the same with the
exception of a few additions. The administration was
attempting to closely mirror the particular legislation put
forward with enough differences to start a conversation.
1:28:43 PM
Representative Wilson clarified that she was talking about
the approximate $1.6 million [billion] in all other
designated funds such as the Power Cost Equalization fund,
the higher education fund, and the Alaska Housing Finance
Corporation fund. She reported that there was $1.6 billion
in separate funds that could have been utilized if
specified in the bill. She wondered why the administration
did not suggest alternative funding options or trade-offs
for the items added back into the budget. In talking with
her constituents while back in her district she found wide
support for additional cuts. She guessed that there was a
miscommunication between what was thought of in Juneau and
what was thought of in other districts. She stressed her
focus would be on how to fund the budget rather than adding
to it.
Ms. Pitney reiterated that the intent of the administration
was to mirror the bill that was currently sitting on the
governor's desk with the exception of the additions. She
remarked that if it was the will of the legislature to use
the $1.6 [billion] and provide authority for the
administration to use the money it would be a start to
filling the state funding gap.
Representative Wilson She suggested that the governor come
before the committee to answer the questions. She was
looking for straight answers.
Vice-Chair Saddler asked Ms. Pitney if she was representing
the governor on matters of the budget. Ms. Pitney responded
affirmatively.
Vice-Chair Saddler relayed her earlier comment that the
governor would sign HB 72 if it represented a fully funded
budget. He asked Ms. Pitney to provide the definition of a
fully funded budget for the record. He asked specifically
and comprehensibly what conditions had to be met in order
for the governor to sign HB 72. Ms. Pitney stated that the
conditions included a budget reflecting a full year in
which revenues and expenditures matched.
Vice-Chair Saddler asked if a specific level of funding for
individual programs was a factor in the budget. Ms. Pitney
responded that the appropriation, responsibility, and
authority rested with the legislature. She explained that
the additions in the budget were included because the
governor and the administration felt that the legislature's
cuts were too deep and would damage certain state programs.
In a line item veto the governor was limited to making
reductions rather than additions.
1:32:45 PM
Vice-Chair Saddler stated that the legislature had accepted
the governor's proposed budget, advanced it through the
committee process, worked it through the conference
committee passing a level of spending. The governor took
exception to what was passed, called a special session, and
gave the legislature an alternative budget with increased
levels of spending for programs. He noted Ms. Pitney's
acknowledgement that the legislature had appropriations
authority, yet the governor was requesting additional
appropriations. From what Ms. Pitney had testified he
concluded that the governor understood the deficit and the
need to reduce spending. He wanted to know when the
governor intended to make further decrements. Every dollar
passed in addition to what legislators had before them
would have to be cut later along with other decreases. He
asked again when the governor intended to cut the budget.
Ms. Pitney answered that the governor's original 2016
proposal reflected a cut of nearly 6 percent from all
agency operating budgets, $250 million, plus over $400
million cut from the capital budget. She reported that
nearly $800 million was reduced in the governor's original
budget proposal. She believed that there would be further
spending constraints going forward. She offered that there
would be additional cuts but the rate at which the cuts
were implemented was an important consideration. The
administration felt that in the original budget proposal
the decrement step-downs were exceedingly steep. She
reiterated that the governor had made cuts and agreed with
nearly all off the reductions in the conference committee
budget. She also stated that the administration would be
working towards additional cutbacks in the FY 17 budget and
a timeline.
Vice-Chair Saddler understood that the governor had
proposed cuts in the budget. He wanted to know when the
governor intended to cut back the increases being proposed
currently and when he intend to implement additional
decreases. He wondered if it would happen in FY 17.
Ms. Pitney answered that the administration was committed
to additional reductions in FY 17. She noted that there
would be adjustments and times in which the reductions
would take place. She furthered executing all reductions at
one time was difficult from an organizational stand point.
The administration wanted the opportunity to make the
reductions in a considerate and thoughtful manner. She
claimed that the reductions were significant, more
significant than any other time in Alaska's history. She
reiterated that the needed changes were massive. She
explained that the administration planned to instigate
additional changes and reductions in FY 17, it was just a
matter of time.
1:36:22 PM
Representative Gara noted that Representative Wilson had
suggested liquidating other funds such as the PCE fund and
the higher education fund. He personally did not believe it
would be good policy to use the funds. He added that if the
two funds were liquidated the state would be without
funding for college and vocation education scholarships and
without assistance for high electrical costs in rural
Alaska. He wanted to know if he was correct in his
statement.
Ms. Pitney confirmed that Representative Gara was correct.
She contended that the administration would not advocate
using either the PCE or higher education funds and would
strongly advise against taking from them. She pointed out,
however, it was legislature's role to make appropriation
decisions. She advised that such a decision, though, would
not be in the best interest of the state from the
governor's perspective.
Co-Chair Neuman interjected that such a decision would be
significant and was the purview of the legislature.
Representative Gara remarked that the current special
session focused on three subjects. He asked how the state's
bond rating would be affected if the state could not cut
its way to a balanced budget and it ran out of savings in
three years. His view of creating revenue had to do with a
fair share for the state for its oil.
Co-Chair Neuman wanted to redirect Representative Gara's
line of questioning. He specified that oil taxes would be
discussed at another time. There would be presentations by
the Legislative Finance Division (LFD) on the economics of
the state, at which time oil tax questions would be
addressed.
Representative Gara just wanted to know if the state's bond
rating would be affected.
Ms. Pitney explained that the bond rating was based on
multiple considerations including the state's current
assets, the state's resources that could be turned into
assets, and the state's political stability. She told of
the administration's visit to New York in January 2015 to
discuss the state's bond rating. The state's annual revenue
was low, but its assets were high. She credited the
legislature for putting aside the funding that it had to
weather through financial storms. She stressed that the
state had tremendous resources in the ground and had
political stability at the time of the meetings in New
York. However, at present annual revenue was at risk due to
the price of oil and because of the lack of a fully funded
budget. The legislature's political impasse on a budget
posed the threat of a government shutdown. She opined that
the state's political stability was compromised and its
bond rating had the potential of being lowered within three
years. The state needed to act preemptively. The governor
was committed to addressing the state's revenue stream and
was in favor of informing the public about the situation
the state was in. He would let Alaskans know that even if
the dollar per barrel returned to $90 it would not change
the state's revenue and expense picture dramatically.
Currently, the state was facing $66 per barrel of oil.
1:41:29 PM
Co-Chair Neuman relayed that he had received information
from LFD that the questions were asked about bond ratings.
The bonding agencies basic and primary concern was for the
legislative body to turn around the state's spending. He
noted that lending agencies had experience with
discrepancies between state branches of government. He
claimed that Alaska's biggest issue in the eyes of lenders
was getting control of government spending.
Representative Wilson clarified that the PCE fund had a
balance close to $1 billion. She speculated that people
would continue to receive help with their electric bills as
defined in statute. She mentioned $44 million being paid
out from the fund. She emphasized that having a discussion
about the fund did not imply that the state would halt
funding PCE. She also highlighted the fact that the state
had more than just employees, the state had several
programs in place including formula programs. She stated
that the budget consisted of more than just personnel. She
asked about whether restricting travel or handling
vacancies differently had been considered by the
administration. She wanted to know if restrictions had been
implemented since the governor took office due to the
state's budget deficit and alluded that past governors had
imposed a 10 percent cut in wages during times of financial
hardship.
Ms. Pitney responded that each commissioner had been asked
to look at ways to conserve as much as possible based on
the operations of their agencies. Every commissioner
understood the budget reductions that would have to be made
and were encouraged to execute every savings measure
possible in the current year's budget. She continued that
different commissioners had different vacancy and travel
holds in place depending on the activities of the
individual agency. Although it might be difficult to impose
a travel hold on prisoner transportation, it was possible
to impose one on a particular item within the Department of
Commerce, Community and Economic Development. The holds
were applied on a program-specific basis. A $389 million
reduction between the previous year's management plan and
the current year's conference committee budget resulted
from postponing filling certain vacancies. She concluded
that it equaled over $1 million per day in reduced
spending.
1:45:28 PM
Representative Wilson requested that Ms. Pitney provide a
list of the reductions for committee members.
Co-Chair Neuman spoke about the Department of Education and
Early Development's budget. He relayed that the Alaska
Learning Network (AKLN) was funded at approximately $599.7
million. He explained that AKLN was in partnership with the
University Of Alaska Southeast (UAS) allowing high school
students to take university classes remotely. The program
cost in FY 15 was $850 thousand which the legislature
appropriated as a one-time request. The department was
asked to prepare a sustainability plan for AKLN for future
years. The governor requested $600 million for the program
in FY 16 submitting a plan on February 23, 2015. The
legislature decided not to fund the program in the
conference committee version of the budget. He noted the
$250 thousand reduction in FY 15 off-set by increased
course fees, reduced expenditures, and the expansion of
partnerships with private entities. He asked Ms. Pitney to
explain why the administration considered the AKLN program
a priority. He mentioned that the finance committee was in
agreement about protecting the core missions of each
department when evaluating budgets in the finance
subcommittees. He had given subcommittee chairs direction
to target reductions in programs that were outside the core
missions of the departments. He suggested it would be
difficult, once the state economy turned around, to
reinstate any core programs that were reduced. Therefore he
wanted to see decrements in areas outside of the core
missions of each department. He acknowledged the discovery
process in the legislature regarding legislation and the
importance of due diligence on the part of legislators. He
encouraged Ms. Pitney to begin with DEED's budget. He
restated his question concerning AKLN as a priority for the
administration.
1:49:07 PM
Ms. Pitney reasoned that AKLN provided an opportunity for
students to meet core requirements through distance
education in order to be eligible for the Alaska
Performance Scholarship (APS). In many of Alaska's rural
high schools these courses were not available. Students
from 47 districts had taken AKLN courses to qualify for the
APS. She pointed out the importance of having access to
higher education leading to employment for Alaskans.
Representative Gattis relayed that she had always believed
technology was the way to change the shape of education in
Alaska. She was of the opinion that the AKLN program had
cost the state a significant amount of money. The program
had transferred from its original intent to the university,
floundering there. Alaska Learning Network had adopted Apex
Learning's program. The Mat-Su participated in Apex's
program directly for significantly less money. She wondered
why the state supported the duplicity of a program which
cost more money to essentially pay a middle man. She
expounded that the state was encouraging school districts
to work together sharing information. She advised the
committee that the state did not need a middle man. Ms.
Pitney acknowledged Representative Gattis' comments.
Co-Chair Neuman informed the committee that in the previous
year the legislature converted AKLN money to a one-time
appropriation and requested that DEED prepare a plan for
the sustainability of AKLN. He had not seen a plan and
added that the department was aware of the legislature's
request. He asked Ms. Pitney if she knew why a plan had not
been submitted. Ms. Pitney was unaware of a plan not being
in place. She reasoned that it was possible that a plan was
in place but had not been presented.
Co-Chair Neuman understood things could get overlooked with
changes in the administration. He wondered if AKLN courses
were available for students statewide. Ms. Pitney replied
in the affirmative. She added that students from 47
districts had taken AKLN courses.
Co-Chair Neuman asked how much students had to pay for each
course. Ms. Pitney reported that the school district
agreement outlined a cost of $150 for a half of a credit, a
semester-long course. An agreement between the program and
the school district allowed access to the service. It was
not a student-paid fee. It replaced the lack of APS
qualifying courses in a school district.
1:54:12 PM
Co-Chair Neuman asked about the cost to Rural Education
Areas (REA) because they were already funded by the state.
Ms. Pitney specified that school districts paid a portion
of the costs in addition to a base cost for the program of
$599 [million] paid by the state. In order to offer the
entire program the school districts subsidized the program
with their funds.
Co-Chair Neuman suggested that Ms. Pitney return the
following day with her staff to answer the questions
brought up in the current meeting. He wondered if the fee
structure was based on need. Ms. Pitney responded in the
negative. She explained that the fee structure was based on
a school district agreement.
Co-Chair Neuman asked if the governor supported using the
higher education fund as a funding source for AKLN. Ms.
Pitney confirmed that he would be amenable to either
funding source.
Co-Chair Neuman restated his request for information
regarding the funding mechanisms for REAs and organized
area boroughs.
Representative Wilson informed the committee that she had
been the chair of DEED's finance subcommittee since the
project [AKLN] was born. Each year the subcommittee had
discussed the program becoming self-sufficient. She
believed that the state was paying twice for a high school
student to take a course; a student was taking a course
online for $150 and the state was paying a different amount
for the same child to attend a [brick and mortar] school.
One of the ideas that was suggested was to contribute the
same amount for each child and make the program self-
sustainable. She furthered that there were more options
currently than in the past. She reiterated her concern with
paying twice, especially since the finance committee funded
other programs in the previous year. Certain programs had
nothing to do with the scholarship program. She claimed the
number one ranking program in the previous year was
Education 101 in which each participating student received
a free iPad. She was unsure if the success of the program
was because Education 101 was in demand or because every
child in the class received a free iPad. She reiterated her
concerns with funding duplication and wanted clarification.
Ms. Pitney explained that the base money funded the
creation and structure of the course. Whereas the money
coming from the school district funded the delivery of the
course. It took a tremendous amount to make the online
courses available. She added the importance of having the
structure and system to make the courses available in rural
areas. She commented that it was the choice of the
legislature to use Apex rather than AKLN. House Bill 1001
was a restatement of the governor's priorities and a
starting point for a discussion to get to a fully funded
budget.
1:58:35 PM
Representative Wilson relayed that the Ketchikan School
District already had courses [Apex courses] that were much
cheaper than those provided by AKLN. Mat-Su School District
had the programs, and Fairbanks had courses that were being
shared between high schools. She mentioned that the
university also provided online courses. She did not
believe the legislation was a conversation starter. She
wanted people to better understand what the program was.
She relayed that at the start of the program [AKLN] in
Chatham the program the only one of its kind in existence.
The program floundered from place to place ending up in
Ketchikan. She claimed the courses were already developed
and did not understand Ms. Pitney's comments about course
development. She wanted to know if Ms. Pitney was aware
that the courses were already developed and being utilized
online in other school districts that were willing to
share.
Ms. Pitney responded that she would get an expert of AKLN
to review the program. She responded that AKLN was an
administration priority and one for consideration in the
current legislation.
Representative Wilson voiced her belief that it would be a
conversation starter if it did not already exist. She
opined that it would be better to encourage school
districts in the state to share rather than starting
something new.
Representative Gara wanted to be reminded of the financial
numbers for AKLN. He recapped that in the previous year
AKLN was funded at $850 thousand, the governor funded it at
$600, the House cut it entirely, and in Conference
committee it was funded at $600 thousand. He wanted to know
if his numbers were accurate.
Ms. Pitney stated that in FY 15 AKLN was funded at $850
thousand. In FY 16 in the governor's budget proposal AKLN
was funded at $599.7 thousand with the understanding that
the state could expect more revenue from users. Funding was
dropped to zero through the legislative process. Currently,
the program would be cut completely. The governor was
seeking reconsideration to allow for more time to determine
a means of sustainable revenues.
Co-Chair Neuman commented that the program was not funded
through the conference committee.
Representative Gara wanted to better understand the
duplicity of AKLN. He continued that Governor Parnell
passed a merit scholarship and a needs-based scholarship a
few years prior. In order for a student to qualify for a
merit scholarship students had to take certain higher level
classes that were not available in many school districts.
It was only fair to have the scholarship available to all
students in the state no matter where they lived. In order
to ensure the availability to outlying communities, AKLN
was used as a delivery system. He wondered if Ms. Pitney
was aware of any duplication, as he was not.
Ms. Pitney concurred with Representative Gara's
understanding and scholarship accessibility was the reason
AKLN was included in the administration's list of
priorities.
2:03:30 PM
Representative Gattis suggested that Ms. Pitney might not
have the letter that was sent out by the Mat-Su School
District sent to all of the superintendents and would make
sure she received a copy. The opportunities were available
to every school district. She was disappointed that the
state had been spending money to put something together
very Alaskan. She explained that the school districts had
been using Apex Learning. The Mat-Su School District had
been using Apex for online courses and some recovery
courses. The program worked really well and was extended to
the other 53 school districts in the state. She emphasized
that the use of Apex Learning was available at a
significantly lower cost than $150 per class. She
emphasized that Apex was the program AKLN used. The only
difference between Apex Learning and AKLN was the cost to
the state. She emphasized the importance of the state using
its money efficiently. She did not feel AKLN was a
conversation starter, rather it was a non-starter. She
would provide Ms. Pitney with information regarding Apex
and AKLN.
2:06:08 PM
Co-Chair Neuman referred to a request to restore $2 million
for Pre-K programs. He reported that Pre-K grants were
funded at $2 million in FY 15. The governor proposed
reducing the amount by $100 thousand. The legislature
zeroed out the funding for the program. He continued that
the governor's special session budget reinserted the full
$2 million that was distributed in FY 15. In FY 15 the
grants went to six school districts serving a total of 308
students. He relayed that the grants were awarded to school
districts in a competitive process to allow students at or
below poverty level to attend Pre-K programs. The program
began as a pilot program in 2009 but was not expanded after
the initial trial period. He asked Ms. Pitney why the
governor felt that the program needed to be funded.
Ms. Pitney responded that the grants served the most at-
risk students.
Co-Chair Neuman asked her define an "at-risk" student. Ms.
Pitney answered that low-income students and students in
need were considered "at-risk" students. The participating
students had increased their grade average as a result of
the grant program giving them a better start in their
schooling. She argued that although the funding served a
small number of students, providing a good start was an
important approach. It also allowed for school districts to
learn from the programs and carry them forward.
Co-Chair Neuman clarified that $2 million served 308 Pre-K
students. He wondered if parents applied for the grants. If
so, he wanted to know how applications were evaluated. He
wanted to better understand how the program worked. He
wondered how parents found out about the program and noted
that $2 million was a significant amount of money for such
a small group of students. He wanted additional information
on the program and asked to see some documented results. He
supposed some documentation would be available since the
program started in 2009. He suggested that the format
should indicate the investment in each student and the
return on the investment by the time students reached, for
example, 5th grade. He emphasized wanting written
documentation.
2:09:49 PM
Representative Wilson reported that the programs were
extended Head Start programs rather than new Pre-K
programs. She asserted that there was data revealing that
at the beginning students typically performed better.
However, students that had not participated in the program
caught up to those that had by the third grade. There was a
lack of consistency in tracking students because the
programs had not stayed in the same schools since
inception. The programs rotated to other schools after a
two-year period. She wondered about the self-sustainability
of a program once the grant funding was terminated. She
remarked that although the reporting showed a value of
$6,500 per student, the funds were in addition to monies
already provided to the Head Start program. She suggested
the funding equaled about $16 thousand per child. She asked
about what had been done to ensure the sustainability of
the program, as it currently lasted about two years.
Ms. Pitney relayed that she would follow up with an answer
to Representative Wilson's question.
Representative Gara was glad the Pre-K grants had been put
back in the governor's proposed budget. He spoke to the
success of early education and the fact that it was
evidenced-based. He referred to former Governor Sarah Palin
indicating that when she started the program in 2008 the
program was proven to work the state would expand it
statewide. He emphasized that 40 other states had statewide
Pre-K but Alaska did not. Studies came out proving the
success of the program; academic achievement and acuity had
increased. The promise was to make the program accessible
to more children in the state. He wondered if it would be
wise to move backwards by eliminating the programs. He
wondered where the state was headed if Pre-K and Best
Beginnings were eliminated.
Co-Chair Neuman commented that many of Representative
Gara's questions were philosophical in nature.
Ms. Pitney replied that there was approximately $7 million
for Pre-K programs that was reduced in the education budget
for the current year. The education non-formula portion of
the budget was reduced by 30 percent in conference
committee. The proposed number changed the reduction to a
26 percent decrement. A small piece was maintained. The
governor had accepted many of the reductions made by the
conference committee. Some Pre-K options were being
restored. She opined that Pre-K programs made a difference
to citizens, to schools, and in the job market. She
furthered it was a smart investment.
2:14:36 PM
Co-Chair Neuman remarked about the low price of oil and
dipping into savings. He continued that $2 million counted
and started to add up. He noted that there was only so much
money to go around and that the legislature was faced with
prioritizing.
Vice-Chair Saddler noted that Ms. Pitney discussed the
importance of Pre-K for schools, family, and the workforce.
He wanted to see evidence of the success of Pre-K programs
if she had them documented. He asked if Pre-K programs were
more important than post-kindergarten programs. He wondered
where else in the education budget could reductions be made
to accommodate the $2 million with the financial
constraints the state faced.
Ms. Pitney explained that there was funding cuts of about
$7 million for Pre-K funding and $15 million in reductions
overall in the education budget. She specified that she was
talking about the non-formula components of education
including grant programs, other programs. It was not that
there was not any room for reductions. However, the
administration felt that there were too many reductions.
She asked whether it would be all of the Pre-K programs
that would be cut or just some of them.
2:17:04 PM
Vice-Chair Saddler was unclear. He wanted to know what
other programs were less important than Pre-K. He wanted to
know where else the legislature could cut to accommodate
the $2 million.
Ms. Pitney relayed that there were over $380 million in
reductions. She was concerned with the speed of the
reductions and posed the question as to whether to pit one
program against another. She believed it was a balance that
was needed and emphasized that Pre-K issues were very
important in the State of Alaska. She re-highlighted the
reductions of $15 million in the education budget.
Co-Chair Thompson commented that in FY 15 only six school
districts received portions of the funding for Pre-K
serving only 308 Pre-K students. He asked Ms. Pitney to
confirm his numbers. Ms. Pitney confirmed she had the same
understanding.
Co-Chair Thompson wanted to know if the governor would be
interested in keeping the program if he was asked to cut
the program in half. He wondered, being that the program
only served 300 student, if it was still a priority. Ms.
Pitney responded that the commissioner of education advised
that if the program was reduced by 50 percent then it was
not viable or efficient to maintain. The plan was to make
the program available to more than just six schools.
Co-Chair Thompson stated that the program was probably a
good program. However, with the significant drop in oil
prices, he could not justify supporting a pilot program
that was not proven and only reached 308 students.
2:21:03 PM
Representative Gara asked that Commissioner Hanley speak
about the success of the program. He suggested that the
program had been proven to work and was supposed to be
expanded but was not. He stated that the legislature had
been asked to halt from funding programs that were not
working and to start programs that did work. He opined that
the program was proven to work.
Co-Chair Neuman commented that it was due to limited
funding.
Representative Wilson asked about Head Start. She wanted to
clarify whether any of the Head Start funding was reduced.
She was fairly certain it was not. She relayed that Head
Start funding was in a different part of the state budget.
Although some Head Start students would potentially be
affected with the loss of the Pre-K pilot program, she did
not believe Head Start itself had lost any state funding in
the budget. She wanted verification.
Co-Chair Neuman asked if she was talking about Pre-K
programs that were being funded currently.
Representative Wilson relayed that federal dollars made up
much of Head Start's funding. The state matched some of the
funding as well. The Pre-K pilot program was a more
specific program. She explained that in the early years of
the program the participants were not tested which made it
difficult to measure its success. She wanted to clarify on
record whether the state had decreased Head Start's budget.
Ms. Pitney agreed to follow up regarding Head Start
funding. She stressed that almost all other Pre-K funding
was eliminated from the budget. The non-formula component
of the education budget was reduced in the conference
committee from $57 million the previous year to $39
million, an $18 million reduction in grants for Pre-K and
other education programs. The administration was asking for
the restoration of $2.6 million for two Pre-K programs.
2:24:26 PM
Representative Gara asked Ms. Pitney to provide a detail of
the $18 million reduction. He added that the Head Start
state contribution had only increased twice in the previous
15 years, otherwise it had been flat.
Co-Chair Neuman commented that Representative Gattis was
the budget finance subcommittee Chair for education and
used to be on the school board of the Mat-Su School
District. She was familiar with the Pre-K programs. He
encouraged her to provide her opinions on the issues being
discussed currently in the meeting.
Representative Gattis discussed how she approached reducing
the budget. She looked at unsustainable programs including
some of the pilot programs. She disagreed with some of the
comments that had been made in the meeting about not having
Pre-K programs. She disagreed and argued that there were
various Pre-K programs in many of Alaska's communities,
several being private Pre-K's. She mentioned that the state
did have parents as teachers. She explained that she was
not referring to the program but to the actual parents.
There was nothing stopping parents from being teachers to
their children whether there was an official program by the
same name. One of the things she looked at when reviewing
the Pre-K budget was how much the government was
supplementing what parents used to do to educate their
children. She relayed that in her own experience she did
not attend Pre-school or kindergarten as a life-long
Alaskan living in rural Alaska. She looked at the
constitutional mandates the state was required to fulfill.
The Pre-K programs being addressed served very few
students. There were other programs she would rather see
funded. She added that she would like to see other entities
such as tribal organizations participate in funding
education.
Co-Chair Neuman thanked Representative Gattis for her
comments and for her commitment to reaching out to
different communities and also Representative Wilson's
commitment. Both representatives had served on the budget
subcommittee for education. He noted there being many
components to education in Alaska.
Representative Gattis commented that AKLAN started with
other funding [Secretary's note: Representative Gattis'
reference to a specific source of funding was inaudible in
the voice recording] at its inception. Without the
availability of the same funds she concluded the state
would have to do things differently.
2:29:06 PM
Ms. Pitney requested the committee look next at the
Department of Transportation and Public Facilities.
Commissioner Luiken would not be available the following
day.
Co-Chair Neuman moved on to announce an Alaska Marine
Highway System (AMHS) request in HB 1001. He relayed that
the UGF conference committee budget for the AMHS was $12.5
million below FY 15. However, he described an increase of
$2.6 million appropriated from the AMHS fund capitalization
account resulting in a net reduction of $9.9 million. In
addition, an argument was made that AMHS was further
reduced by a portion of the fuel trigger appropriation
received in FY 15, $4.8 million, an amount not likely to be
seen in the FY 16 budget because of oil prices. The exact
impact was unknown. Assuming that fuel prices remained low
because of lower oil prices the state would be able to
alleviate some of the 4.8 million in losses. He furthered
that there was approximately $5.5 million of the fuel
trigger appropriation that had not been distributed to
agencies. He suggested that the money could be distributed
to AMHS and carried forward into FY 16. The distribution of
the $5.5 million in fuel trigger appropriations from FY 15
into the FY16 budget appeared integral to the $7 million
request of the governor. The accounts combined would
provide an additional $12.5 million in AMHS funding in FY
16. According to Department of Transportation and Public
Facilities full summer service was currently scheduled and
could be provided if the $12.5 million was available. He
furthered that winter service from October 2015 to June
2016 would be reduced impacting the M/V Malespina's
Bellingham to Southeast Alaska run. He added that without
the $7 million addition the October 2015 to June 2016
routes would be more significantly impacted. He asked the
commissioner to confirm the appropriation for AMHS at $140
million total.
MARC LUIKEN, COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND
PUBLIC FACILITIES, introduced himself.
Ms. Pitney relayed that the conference committee passed an
all funds appropriation of $153.9 million for the AMHS. The
governor's request was $167.4 million. The analysis Co-
Chair Neuman had provided was accurate with the exception
that there was an assumed fare increase that would not
generate the funds that were expected. She outlined that a
fare increase would potentially generate $1.8 in additional
revenues. However, it was unlikely to realize the
additional income because of timing. She highlighted that
the $153.9 million did not include the fuel trigger
mechanism discussed earlier, nor did it include the $7
million request that was part of the additive budget.
Co-Chair Neuman alluded that the $7 million reduction out
of a $150 million or $160 million appropriation for the
AMHS equaled less than .5 percent of the AMHS' total
budget. Compared to other necessary reductions he did not
feel like it would have a significant impact.
2:35:05 PM
Mr. Luiken announced that the decrement was a 4.5 percent
reduction rather than .5 percent. He wanted to discuss the
department's budget request. He explained that the schedule
for the AMHS was published in October, the annual time of
year in which the schedule was published. The fares were
based on what was assumed in July 2014 to be the available
funding for the following year. The budget approved by the
conference committee reflected a significantly reduced AMHS
budget greatly impacting the AMHS published schedule. He
furthered that currently, without having cancelled any
reservations, the department was continuing to wait until a
budget number was confirmed. He suggested that the
department would have to begin contacting customers if the
budget that passed out of conference committee remained in
place. Approximately 29 hundred reservations, equating to
about 10 thousand people, were at risk. He specified that
the reason the department was requesting the governor's
budget amount was so that it could honor the commitments it
had already made for the sailing schedule.
Co-Chair Neuman had a little trouble with the department's
justification. He indicated he had met with the director of
the AMHS along with Representative Stutes and Senator
Stevens to discuss the impacts of the proposed budget
reductions for the ferry system and the reasons for adding
monies to the budget. One of the ideas that resulted from
the meeting was for the AMHS to evaluate the impacts on
ferry ports on the road system and to investigate potential
realignment in order to realize additional savings. One
example talked about was for customers to drive further to
board the ferry. He opined that making changes to ferry
scheduling that affected ports on the road system was
easier than making changes to ports off the road system
such as Kodiak or Cordova. He claimed the department had
not responded since the idea was suggested. He did not hold
with the department's reasoning about having already made a
commitment to a schedule. He also confirmed that the budget
decrement was 5 percent. He considered the reduction to be
reasonable considering the price of fuel continued to
decline. He asked Mr. Luiken to discuss why the department
had not come back to him with a compromise concerning the
ports on the road system.
Mr. Luiken suggested there were things the state could do
such as canceling the run to Skagway and just running to
Haines. The people that went to Skagway would be required
to drive 352 miles from Haines to Skagway. He furthered
that the type of cancelations the AHMS would have to make
would be based on the schedule already printed. He added
that when the state published a schedule in the following
year it would be much more conservative than the current
one.
2:40:21 PM
Co-Chair Thompson asked Commissioner Luiken to provide some
information. He believed the state had two more vessels
than it did in 1988 as well as two or three more ports of
call. However, in 1988 the state was bringing in well over
60 percent of the revenue to fund the operation. Today, the
state was bringing in 30 percent of the expenses. He asked
the commissioner to provide the committee with information
concerning cost drivers. He was certain there were several
more people riding on the ferry system at present than in
1988.
Mr. Luiken responded that he would be happy to provide the
information. He also remarked that the schedule that the
department would publish for FY 17 would be radically
different from the one published for the current year
primarily because the department did not want to go through
the same drill again.
Co-Chair Thompson asked Mr. Luiken to compare a new
schedule to a schedule published in the late 80's.
Co-Chair Neuman suggested that the fuel trigger monies
would provide an additional $5.5 million from the fuel
trigger. He wondered how the money fit into the
department's budget along with the lower fuel prices
through the remainder of the current year.
Mr. Luiken restated that the schedule was based on having
the fuel trigger monies in place. He furthered that without
the fuel trigger monies the schedule would be impacted
immediately. Additionally, he relayed that the fuel trigger
was based on a cost of $2.65 per gallon for diesel. He did
not believe the state's fuel costs had reached $2.65 for
fuel.
Co-Chair Neuman commented that the legislature had asked
the administration to return any unused funds from the
previous year for fuel trigger expenditures. Ms. Pitney
responded that the fuel trigger money essentially replaced
the following year's fuel trigger amount. She explained
that in the current year $9 million was designated for fuel
trigger costs. In the following year the $9 million was
actually zero. The zero amount was not reflected in the
$153 million because the fuel trigger was zero in FY 16.
The $5.5 million bridged the illumination of the fuel
trigger mechanism.
2:44:21 PM
Representative Gattis asked what routes would be placed
back into service with $7 million in additional funding.
Mr. Luiken indicated the Lynn Canal run for the summer.
Representative Gattis clarified that Mr. Luiken meant that
the Lynn Canal would not have service at all in the summer
without the additional funding. Mr. Luiken stated that the
Lynn Canal route would not be serviced by the M/V Malaspina
which covered the Majority of the route's traffic.
Representative Gattis relayed that what she was hearing was
that the Lynn Canal Route would not have service unless it
was provided on the M/V Malaspina. She was trying to
determine if there was another service that the route would
have if the M/V Malaspina was not running. Mr. Luiken
answered that there would be some service in the Lynn
Canal. However, the bulk of the service would not be
covered by the M/V Malaspina.
Representative Gattis stated her question in another way.
She clarified that the Lynn Canal would have service but
there would be more service with $7 million in additional
funding. Mr. Luiken replied that there would be service to
cover the schedule that was already printed.
Representative Gattis restated that there would be service
but providing an additional $7 million would allow for more
service and would allow for following the printed schedule.
Mr. Luiken responded affirmatively.
Representative Gattis made sure that the state was not
taking away service but adding more to allow the schedule.
She understood that there would still be service to Lynn
Canal but with fewer stops and the M/V Malaspina would not
be running. She relayed her experience working in the
airline industry. She suggested that it was not uncommon
for schedules to change from what was printed or to be
canceled all together. She suggested that contacting
individual customers was much easier with certain
technological advances. She asked if there were other runs
that would not have service without the $7 million.
Mr. Luiken interjected that if the funding was not
reinstated Department of Transportation and Public
Facilities was planning to take the steps Representative
Gattis had suggested. AHMS would attempt to rebook as many
customers as possible. However, there would be people who
would not be able to be rescheduled. Without the additional
funding there would be holes in in the schedule including a
lack of service in Prince William Sound from mid-September
to mid-October. There would be no boats or funding
available to run service for the month in Prince William
Sound.
2:47:57 PM
Representative Gattis asked what communities in Prince
William Sound would be without service. Mr. Luiken answered
between Cordova, Valdez, and Whittier.
Representative Gattis asked for confirmation that the $7
million was not just for service between Cordova, Valdez,
and Whittier but included other runs as well. Mr. Luiken
responded, "That is correct."
Representative Gattis suggested that since there was no
road to Cordova she wanted to know what the cost would be
to service Cordova. She was aware that it would not be the
entire $7 million. Mr. Luiken would provide her the cost.
Co-Chair Neuman suggested that it would have been nice to
have the figure available for the meeting in progress.
Representative Wilson wondered about the financial impact
of potentially losing 29 hundred reservations. She wanted a
dollar value. Mr. Luiken agreed to provide Representative
Wilson with the revenue figure.
2:49:34 PM
Co-Chair Neuman acknowledged Senator Olson in the audience.
Representative Wilson commented that she found it
interesting that Mr. Luiken could provide the number of
reservations at stake but could not provide a dollar amount
for the potential loss in revenue. She wondered how the
department determined which ferry runs to reduce. Mr.
Luiken relayed that the decisions were based on the ships
that were available and the times they were available. He
explained that each vessel had lay-up periods. The
decisions were based on the least impact to the overall
system and summer schedule.
Representative Wilson asked if the printed schedule noted
"Upon availability." She relayed the inconsistencies of
flights in Alaska's rural areas. Mr. Luiken would look into
the answer to Representative Wilson's question and get back
to her.
2:52:06 PM
Representative Gattis suggested that certainly tariffs and
schedules were filed. She relayed the circumstance in which
the M/V Tustimina no longer traveled to Old Harbor. She did
not believe the issue was complicated. If the state did not
have the funding for certain ferry routes, the customers
would be contacted and given alternative options. Mr.
Luiken was happy to start the process of contacting
customers. However, could not start making phone calls to
customers without a budget in place.
Co-Chair Neuman suggested to Mr. Luiken that the department
immediately begin the process of contacting customers about
availability. He emphasized that the budget reduction was
not a surprise and furthered he was rather insulted by Mr.
Luiken's response.
Representative Wilson asked if the fuel trigger only came
into play when fuel reached a certain price. She wondered
what happened to the savings for the state as fuel prices
decreased. She asked if there had been a significant amount
of savings due to the reduction in oil prices. Ms. Pitney
responded that the reason there was $5.5 million available
to provide to the AMHS was because the need relative to the
fuel trigger mechanism was less. However, the state still
used $10 million in fuel trigger. It equaled the difference
between the cost of fuel and its fuel budget. The fuel
trigger was supposed to cover the difference. The amount
was $5.5 million less than what was budgeted. The $5.5
million was being shifted to the FY 16 budget. The $8
million used in FY 15 was replaced by $5.5 million. She
furthered that it took $8.8 million to cover all of the
department's fuel needs.
Representative Wilson remarked that she was very confused.
She asked if the fuel trigger only kicked in at certain oil
prices.
Co-Chair Neuman asked that committee members to ask only
one question being that the committee was under a time
constraint.
2:56:15 PM
Vice-Chair Saddler asked Mr. Luiken to define "At Risk" in
reference to reservations. Mr. Luiken responded that "At
risk" meant that if the conference committee budget was
approved intact, 29 hundred reservations would be impacted.
The department would have to then reach out to either re-
book or cancel the reservations.
Vice-Chair Saddler clarified that if HB 72, as passed by
the conference committee, went into effect the department
would have to contact 29 hundred reservations representing
10 thousand people to report that the scheduled sailing had
changed and provide alternatives. It would be up to the
customers whether the options were acceptable. He wanted to
know if he understood correctly. Mr. Luiken responded that
Vice-Chair Saddler was correct.
Vice-Chair Saddler asked if individuals would incur any
costs associated with changing their reservations. Mr.
Luiken did not believe so.
Representative Pruitt asked when the schedule was published
each year. Mr. Luiken answered that the schedule was
published in October.
Representative Pruitt asked for Mr. Luiken's thoughts on
how to move forward with a schedule. Mr. Luiken appreciated
the question. He explained that in July the department
usually put together the following year's schedule. The
department would then discuss the proposed schedule with
the Office of Management and Budget (OMB) to determine
whether it would have the budget and the support of the
legislature. The schedule was a calculated guess based on
past experience. Department of Transportation and Public
Facilities would be working with OMB to create a schedule
considerably more conservative. It would accomplish two
things; reduce costs and increase revenue.
3:00:04 PM
Representative Pruitt asked if the AHMS could change the
fee schedule without legislative approval. Mr. Luiken
responded that the commissioner had the constitutional or
regulatory right to change the tariffs.
Representative Gara suggested that the department had
considered a 4.5 percent fare increase but the associated
analysis had revealed that the increase would not
necessarily generate additional revenue due to a potential
drop in demand. He wondered if he was accurate. Mr. Luiken
believed the analysis was based on a reduction in the
number of sailings and the number of people that rode the
system. The conclusion of the analysis was that the state
would not generate the necessary revenue even with
increasing the fares by 4.5 percent due to a drop in the
volume of people riding because of a difference in the
schedule.
Representative Gara asked for a budget savings analysis of
a reasonable curtailment of road resurfacing frequency in
order to save money. Mr. Luiken noted that the department
was looking at multiple initiatives to reduce costs across
systems and to create additional revenue opportunities.
Co-Chair Neuman discussed the agenda for the following day.
HB 1001 was HEARD and HELD in committee for further
consideration.
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