Legislature(2021 - 2022)ADAMS 519
06/24/2021 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB2002 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB2002 | TELECONFERENCED | |
HOUSE BILL NO. 2002
"An Act providing for effective dates for CCS HB 69,
passed by the Thirty-Second Alaska State Legislature
in the First Special Session; and providing for an
effective date."
1:33:44 PM
MATT GRUENING, STAFF, SPEAKER LOUISE STUTES, thanked the
committee for hearing HB 2002. He reviewed the sponsor
statement:
House Bill 2002 implements the failed effective date
clause in House Bill 69, the operating budget.
The operating budget passed both bodies under final
consideration, but the effective date clause failed to
gain the necessary 27 votes in the House.
In the event that House Bill 69 is signed into law,
this legislation will work in tandem to eliminate any
doubt regarding the Administration's ability to keep
government running on July 1st.
Fresh off a year of frustration and economic
stagnation due to COVID-19, Alaskans and our economy
can ill afford a government shutdown. This legislation
would avert that and provide the certainty Alaskans
desperately need during the peak of the tourism,
construction, and fishing seasons.
Mr. Gruening explained that before the committee was a
2-page bill containing only the effective dates found in
the conference committee substitute for HB 69. He would
briefly run through the subsection of HB 2002 which
implemented the appropriations and the effective dates in
HB 69.
Co-Chair Merrick indicated Representative Tarr, Co-Chair
Foster, and Representative Johnson had joined the meeting.
Mr. Gruening indicated that in Section 1, subsections 1-5
of HB 2002 corresponded to Section 81 and Section 85 of
HB 69 (version K prior to the removal of the reverse sweep
and the Constitutional Budget Reserve) subsection 1 of
HB 2002 implemented the fiscal notes for SB 55, the PERS
employer contributions bill, and would be effective
immediately. Subsection 2 implemented the retroactivity
clause in HB 69 that would also be effective immediately.
Subsection 3 implemented the supplemental appropriations in
HB 69 other than those with lapsing balances retroactive to
April 15, 2021. Subsection 4 implemented the supplementals
in HB 69 that were reappropriations of lapsing balances
effective June 30, 2021. Subsection 5 implemented the FY 22
operating budget items in HB 69 and would be effective
July 1, 2021, the first day of the new fiscal year.
Section 2 of HB 2002 contained the immediate effective
date. On behalf of the sponsor, he urged members to support
HB 2002.
Co-Chair Merrick indicated Mr. Steininger from the Office
of Management and Budget (OMB) would provide a brief
introduction of the bill before moving on.
Representative Edgmon clarified that the bill was not an
admission that the operating budget (currently in the
possession of the legislature but would be transferred to
the governor at some point) was defective. The bill was an
attempt by the House Majority Coalition to avert a
government shutdown using every means possible. The
coalition intended to get an operating budget to the
governor in a timely manner. Outside of attempting to
reconsider the vote on the effective date on the existing
operating budget, the bill before the House Finance
Committee was an additional vehicle for the governor to use
to avoid a government shutdown. He wanted to get the
information on record.
Co-Chair Merrick invited Mr. Steininger to the table to
provide a brief summary of the governor's government
shutdown plan.
1:39:20 PM
NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR, introduced himself.
KATE SHEEHAN, DIVISION DIRECTOR, DIVISION OF PERSONNEL AND
LABOR RELATIONS, DEPARTMENT OF ADMINISTRATION, introduced
herself.
Co-Chair Merrick indicated Representative McCarty had
joined the meeting.
Mr. Steininger indicated members should have a handout:
"Critical Services List" (copy on file). The list was a
product of the work the Office of Management and Budget
(OMB) did in collaboration with the Department of Law and
the Division of Personnel and Labor Relations to determine
how the state would manage in the event of a government
shutdown. The list was a compilation of multiple
assessments of the impacts of a shutdown over the previous
several years. The was not the first time that state had
faced a potential shutdown or the need to send out layoff
notices. The analysis before the committee was built on
prior analyses. The state had had multiple attorneys
general, staff at the Department of Law, and staff at OMB
look at prior analyses to develop a plan of implementing a
shutdown. The government had never had to implement the
analyses which meant they were untested. The determination
was based on the best ability to weigh different
constitutional consideration.
Mr. Steininger reported that when considering essential
services or partial essential services in a government
shutdown, OMB considered several different categories.
First, he considered items that were clearly
constitutionally required items essential for life, health,
and safety. He used the Department of Corrections as an
example. Under a government shutdown and without an
appropriation the government still needed to house, feed,
and monitor inmates. Similarly, the Department of Health
and Social Services had a responsibility to care for the
residents of Alaska's Pioneer Homes.
Mr. Steininger relayed that next he looked at items that
might not have clear life, health, or safety issues but in
an extended period of shutdown would begin to have life,
health, or safety issues or have significant detrimental
economic impacts to the state. An example would be managing
fisheries. The state had a constitutional obligation to
properly manage fisheries and natural resources which
required a certain level of staffing. Another area that had
a significant economic impact was management of the state's
assets such as assets in the Treasury and the Alaska
Permanent Fund Corporation (APFC). Both required some
monitoring by investment managers to avoid significant
financial harm to the state during a shutdown.
1:44:06 PM
Mr. Steininger continued that the third category had to do
with areas requiring federally mandated items. He noted the
Medicaid program in which the state had an obligation to
the federal government to perform certain duties and
provide certain services. Some of the federal mandates
within DHSS could be seen on the critical services list.
There were other areas that would experience delayed
impacts of funding. The state was obligated to fund and
provide education to students in the state. However, the
timing of payments was a consideration.
Mr. Steininger continued that the last group represented
full shutdown items in areas where a clear life, health,
safety, significant economic impact, or a federal or other
mandate did not play a role. He reiterated that the items
were untested, as there had never been an actual shutdown.
There were some grey areas such as staff working currently
in the field. there was the assumption that there would be
resolution to the budget prior to the end of the fiscal
year. Staff in the field would begin winding down
operations on July 1st. The state would not wind down
operations in advance of a shutdown. Director Sheehan would
discuss how the administration was notifying employees of
the circumstances.
Ms. Sheehan reported that on June 17, 2021, the division
sent out layoff notices to all executive branch employees -
approximately 15,000. The state's collective bargaining
agreements required layoff notices to go out at least 10
days prior to a layoff. As she was working through the
layoff notice process, she was aware there would be recall
notices. She received several questions regarding why the
state was not furloughing employees. She would explain the
distinction. A layoff was a separation from state
employment and required the cashing out of an employee's
leave or compensatory time earned. In the current case,
because it was not a true layoff or a layoff contemplated
under the collective bargaining agreements, when they were
recalled, they would return to their same office. She
reiterated it was a separation and the state had to cash
out leave.
Ms. Sheehan continued that if an employee was furloughed,
they would be in leave-without-pay status but would still
be considered an employee and, the state would not have to
cash out leave. The state could not do furloughs absent an
agreement with each union. The state was working with those
unions where furlough agreements were not in place.
Presently, the state was laying off the majority of its
employees who fall under some of the provisions. The state
was beginning to send recall notices to those employees
that fell under the different categories mentioned. For the
other levels of partial shutdown or reduced staffing, the
state would recall people when they were needed back. It
would depend on their functions.
Representative Wool asked about the mechanism of rehire and
the paperwork. He wondered if they would be a new rehire.
Ms. Sheehan responded that if it was a true layoff like the
state's collective bargaining agreements contemplated there
would be more paperwork. In the current case, the state
would send notices to employees and bring them back. The
real detriment was the separation. An employee would return
with a zero leave balance and could not buy back their
leave.
1:49:18 PM
Vice-Chair Ortiz asked who decided on the level of service
and staffing that would remain in the partial shutdown of
an agency.
Mr. Steininger replied that it would be up to OMB and the
Department of Law. Both agencies spoke with other
departments to determine what level of work was necessary
to meet the core constitutional obligation. He used payroll
staff as an example. They would need to come in to do
payroll. The Office of management and Budget worked with
agencies to understand the needs and the legal
justification. There was some grey area regarding partial
shutdowns. The Office of Management and Budget endeavored
to understand an activity and worked with the Department of
Law to determine what was defensible. Ultimately, the
decision came from OMB and the Department of Law.
Vice-Chair Ortiz asked for clarification around the term
"defensible."
Mr. Steininger explained that it had to do with competing
obligations in the constitution. There was the obligation
not to expend money from the treasury without a valid
appropriation weighed against the obligation to protect
health and welfare. He further explained that the question
the department had to answer was whether the decision to
recall an employee or make an expenditure was something OMB
could defend as being weighted more towards health and
safety versus the obligation not to make an expenditure.
Representative LeBon referred to page 7 of the Critical
Services List under the Department of Military and Veterans
Affairs. It indicated emergency coordination was fully
operational but with limited staffing. He also referred to
page 9 regarding the Civil Air Patrol being shut down. He
believed oversight of the Civil Air Patrol was the
responsibility of DMVA. He wondered if state support for
the Civil Air Patrol was simply based on pass-through
dollars leaving the state with no operational control. If
the state were to have some operational control and the
emergency coordination function was up and running for
DMVA, he wondered if the Civil Air Patrol would fall under
its oversight.
Mr. Steininger responded that an entity such as the Civil
Air Patrol received partial financial support from the
state but received funding from other sources as well. They
might not be dependent on the passage of the state
operating budget in order to function. Under emergency
services DPS could continue to coordinate with the Civil
Air Patrol as an independent entity. The state might not be
able to deliver any grants immediately on July 1st.
1:54:20 PM
Representative LeBon asked that when the term "Shutdown"
was used for the Civil Air Patrol it meant denying any
future funding. However, the Civil Air Patrol could provide
services if called upon by the state for assistance. He
wondered if he was accurate.
Mr. Steininger thought Representative LeBon was
understanding correctly. It was a delay until a valid
appropriation was passed. The Civil Air Patrol could still
be called upon by the state, as they were an independent
organization that could operate themselves.
Representative LeBon clarified that the state would not be
closing down the Civil Air Patrol's function. In terms of
funding, whatever amount was in the FY 22 budget would be
available in the future. However, the state would still
engage with the services of the Civil Air Patrol.
Mr. Steininger responded, "That's correct."
Co-Chair Merrick asked if Mr. Steininger was available
until 2:30 pm.
Mr. Steininger confirmed he was available.
Representative Thompson asked for the total for the leave
liability.
Ms. Sheehan replied that the total leave liability was over
$190 million. She was unsure of the leave related to the
laid off employees because presently she did not know how
many employees would be laid off.
Representative Thompson asked where the payout would come
from to pay the leave balance.
Mr. Steininger replied that the money would come out of the
general fund.
Representative Josephson understood the money would come
from the general fund. However, he thought he would have
heard about the availability of an extra $190 million. He
asked exactly where the dollars would come from.
Mr. Steininger replied that the state had a leave bank that
only had a balance of about $5 million - not enough to
cover a $190 million leave liability. The money would have
to be paid out of the state treasury, as it was an
obligation for the state to cash out leave should an
employee sever employment with the state. If it happened,
depending on the amount that came out, the state would have
to assess whether it would be a future supplemental request
or whether it could be managed with existing
appropriations.
1:58:22 PM
Representative Josephson asked if the individuals would
have health care through July 1, 2021.
Ms. Sheehan responded, "Yes, they will."
Representative Josephson asked if there would be a spike in
health care services for individuals trying to get
procedures done prior to their health care ending. He
wondered if the state would experience associated impacts.
Ms. Sheehan replied that previously there was a spike in
health care when a 30-day layoff notice was sent out. The
state sent out 10-day layoffs most recently. She would not
know whether there was a spike until a few months passed.
Due to the CARES Act there was COBRA funding through
September 30, 2021, for state employees if the state
remained in layoff status. After July 31, 201 if employees
needed to invoke COBRA, it would be paid for by the federal
government.
Representative Josephson asked if there was any ambiguity
in any collective bargaining agreements that might explain
why a public employee union would think workers in layoff
status could receive pay. In other words, he wondered if
there was a stipulation that if government shut down and
employees were not the cause, the state would have to pay
them.
Ms. Sheehan responded that she was not aware of any such
language. She clarified that the layoff language in the
state's collective bargaining agreements did not
contemplate a shutdown. It contemplated a true layoff where
an employee was separated.
Representative Carpenter asked if the Department of Law had
weighed in on the legality of HB 2002 and the effective
date issue.
Mr. Steininger indicated he would have to get back to the
committee.
MARIE MARX, LEGISLATIVE LEGAL SERVICES, JUNEAU (via
teleconference), explained that because the
representative's question related to the effective date in
HB 69 which was the subject of ongoing litigation she could
not comment.
2:01:42 PM
CORI MILLS, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
(via teleconference), clarified if Representative Carpenter
was talking about HB 2002, the bill in front of the
committee that sought to add an effective date to HB 69, it
was similar to something that was done in 1996 when an
issue arose where the effective date failed. The Department
of Law had not identified any legal issues with the bill as
long as the two-thirds vote provided an effective date.
Representative Carpenter asked if the governor had received
HB 69 or HB 71 and the impact of the bill not being
transmitted.
Mr. Steininger relayed that to his knowledge neither bill
had been transmitted to the governor.
Representative Carpenter asked if the government shutdown
situation become more difficult to manage if HB 71 was not
transmitted and received by the governor.
Mr. Steininger responded that HB 71, the mental health
budget, did not have the effective date issues present in
HB 69. He pointed out that some departments with valid
prior appropriations or appropriations included in the
mental health bill were on the critical services list. He
continued that if HB 71 was transmitted to the governor,
underwent a veto review, and was signed, the state would
have valid appropriations for some items in the state
budget. It was not an entire operating budget. It just
covered certain items which were on the list. For example,
the Council on Domestic Violence and Sexual Assault and the
Medicaid Program would receive some funding. There would be
valid appropriations for some items if a shutdown came to
fruition.
Representative Carpenter asked how many people were
actively employed within the Department of Military and
Veterans Affairs.
Mr. Steininger did not have the number with him.
2:04:55 PM
Representative Edgmon commented that it took a few days
after the budget was passed by the conference committees
for engrossment, enrollment, and for the bill to be put in
its final form. He was not speaking for Speaker Stutes, but
he thought it was worth making the clarifying statement
that the quickest way to get an effective date in place was
to reverse the prior action through a rescinding vote on
the House Floor. He was aware the speaker was keeping that
in mind relative to not transmitting the budget. He also
knew that it was her intention to get the bill to the
administration as quickly as possible to allow for the
governor to start his considerations on the bill. He
suggested there was a balancing act, as everyone wanted to
avoid a government shutdown and wanted action to be taken
as quickly as possible. He appreciated the hearing and
listened intently to the presentation. It sounded like
layoff notices had been sent out to 15,000 state workers.
He thought the legislature had some guidelines or some sort
of a plan by agency as to what services might be kept
intact and what services might not be funded. He also
thought he heard Representative Thompson's question about
how many of the 15,000 layoff notices that were sent out
would actually be consummated. If there was a government
shutdown on July 1st, it was unclear how many state workers
would not be on the payroll and have to cash out their
leave. He wondered how things would be paid for if a
shutdown were to occur.
Mr. Steininger indicated the administration would use the
conference committee budget as a guide for funding absent
an appropriation. If one of the fully operational
activities were funded with the alcohol tax fund, for
example, the administration would fund the services from
that fund. Should the fund sources be changed in the bill
that eventually came out of the legislature from what was
included in conference committee, the administration would
make an adjustment in the state's accounting system to re-
assign any mis-assigned expenditure and ensure that what
was recorded matched the final appropriation bill.
2:09:25 PM
Representative Edgmon clarified that the administration had
a broad estimation of the services that would remain
intact.
Mr. Steininger indicated that was what was represented in
the document.
Representative Edgmon wondered if the administration had a
broad sense of how many of the 15,000 layoff notices would
result in actually laying off employees. He asked if his
assessment was correct.
Mr. Steininger replied that in a broad sense, "Yes." He
elaborated that the analysis was being looked at to
determine what employees would be at a reduced staffing
level. The question regarding the amount of leave liability
was not yet determined. However, the department had a broad
understanding of which employees would be recalled. Some of
the recall notices were beginning to be distributed by
agencies.
Representative Edgmon suggested that not all of the leave
liability totaling $192 million would be paid out. He
observed that the administration would be acting as if it
had appropriation powers because the money to pay for the
services on the list had to come from somewhere. He noted
one source being the Constitutional Budget Reserve (CBR),
the state's working capital account. He asked if his
observation was accurate. The governor was not supposed to
spend money without an appropriation. However, the document
would require him to spend some money - an amount in the
millions. He did not have a clear answer as to where the
money would come from. It would be comingled and brought
back into the budget process. He noted there would likely
have to be a supplemental budget process in the following
year which would increase the budget by whatever set
amount. He reiterated not having clarity where the money
would come from without an appropriation.
2:13:08 PM
Mr. Steininger admitted Representative Edgmon had
highlighted a key tension. The state had competing
constitutional obligations. There was not a valid
appropriation. Therefore, per the constitution, no
expenditure could be made from the treasury without a valid
appropriation. Meanwhile, the state had an obligation
related to life health and safety. The state had to weigh
the constitutional obligations against each other. The list
represented the decisions in weighing the obligations
against each other.
Mr. Steininger reiterated that in terms of how it would be
funded the administration would look to the conference
committee budget as a guide for the funds that would be
used during the shutdown. The general fund would continue
to receive revenue as well as other funds during the
shutdown. The state would still be operating as if there
was a budget enacted for some of the fully operational
items. It placed the state in a tenuous constitutional
situation where it was weighing two different obligations
against each other. They would be funded the same as they
would if there was a valid appropriation bill. In order for
the Department of Corrections to meet the obligation to
care for inmates within prison systems, the state would
access the general fund as it was lined out in the
conference committee budget. The administration was not
seeking to make expenditures through the document in excess
of what the legislature had contemplated appropriating. He
reiterated the constitutional friction between the
different terms the administration had to adhere to.
Mr. Steininger addressed the issue of cashing out leave. It
was an expenditure not necessarily contemplated in the
annual appropriation bill. Typically, the normal level of
leave was contemplated for the average turnover of state
employees. The cash out of leave associated with a
government shutdown would be an unanticipated and
unbudgeted item that the state would be obligated to meet.
Co-Chair Merrick indicated she would allow 2 more questions
for OMB as the presenters had another obligation.
Representative Wool asked how cruise lines would be
affected by the state shutdown.
Mr. Steininger did not believe the shutdown would affect
the ability for cruise ships to enter state waters. He was
aware that most of the functions around cruise ships were
things such as water testing through the Department of
Environmental Conservation. Such items would not prevent
cruise ships from entering Alaska.
Representative Rasmussen asked if the state had estimated
the cost of a shutdown.
Mr. Steininger indicated that OMB had tried to care for
things like costs related to the investment of state assets
like APFC or the Division of Treasury in its shutdown
planning to ensure that the state did not see significant
financial harm through the shutdown. The estimated amount
of $190 million would be the extreme upper end of cost for
leave cash-in. However, it was clear that not all employees
would be severed. Therefore, $190 million was far in excess
of what the state faced. The state had not done any
detailed analysis beyond the information he provided. There
were several variables and unknowns because the state had
never gone through a shutdown. Understanding what some of
the restart costs might be had not been estimated.
2:18:53 PM
Representative Rasmussen referred to page 8 of the critical
services list. She pointed to the Recorder's Office and the
Office of Project Management and Permitting. She noted they
would be shut down. She was aware that with the Recorder's
Office shut down, no current real estate transactions could
be fully executed at the end. People would be in a limbo
status. She reported that in transactions there was often
times an interest rate lock. Once the associated deadline
expired it cost money to extend the interest. If a person
was not able to record on their home in time, the bank or
the buyer would incur expense. She wondered if the state
could be held liable. She suggested the state should look
into the issue of hidden costs resulting from a shutdown.
Co-Chair Merrick indicated there were six presenters.
Therefore, the committee would take a 10 minute break.
2:20:32 PM
AT EASE
2:31:12 PM
RECONVENED
Co-Chair Merrick indicated the committee would hear invited
testimony which was the purpose of the hearing. There were
six presenters who would discuss the impacts of a shutdown
on different industries. She invited Ms. Kimball to begin.
NICOLE KIMBALL, PACIFIC SEAFOOD PROCESSORS ASSOCIATION,
ANCHORAGE (via teleconference), was a non-profit trade
association made up of 8 major seafood processing
companies. They operated 25 different facilities in 15
remote communities across Alaska and included some floating
processors. They were involved in almost every commercial
fishery in Alaska. She appreciated the invitation to
testify on the impacts to the state's commercial fisheries
that could result from the state shutdown on July 1, 2021.
The organization had submitted a letter to the legislature
trying to convey the impacts in a general way. She hoped
members had the letter as a reference. She mentioned the
list of critical services released by OMB that had been
addressed. Some information on partial shutdowns and
reduced staff levels related to departments including the
Department of Fish and Game (DFG). She did not quite know
how to interpret what the impacts might mean for specific
fisheries or regions. She believed the information was
unknown at present.
Ms. Kimball continued that while seafood processors were a
central part of the seafood supply chain, they were
absolutely necessary to take raw fish, develop it into a
product, and secure and develop markets for the products.
Her testimony could not possibly capture all of the impacts
to the almost 30,000 fishermen, support businesses, local
governments, and the huge network of transportation
businesses that relied on Alaska's commercial fisheries.
She noted that she had not covered sport fish, personal
use, or subsistence fisheries. She was speaking on behalf
of one component of a resource industry that reached almost
all aspects of Coastal Alaska and benefited thousands of
Alaskans and Alaska businesses. Each one of the fishing
families was its own independent business and depended on
the ability to have fisheries operational. The concern was
not having the sate budget by July 1st. It meant closing
fisheries to an uncertain extent as a result of not having
DFG staff in place to manage fisheries. The shutdown would
occur as many fisheries were underway and, some salmon
fisheries, in particular, were just about to get started.
Ms. Kimball thought the reason the state had sustainable
fisheries that consistently created $5 billion to
$6 billion in economic activity in Alaska every year was
because Alaska had a constitutional requirement to manage
those fisheries sustainably in the interest of the economy
and for the well being of the state. The resource industry
and the state were highly dependent on a management system
that was staffed by state employees to manage fisheries in
season, to collect data ongoing throughout the season, and
open and close fisheries as needed for that purpose.
Without DFG staff in place, fishermen, processors, the
state would lose their ability to access or derive any
value for the resource. The state collected revenues of
about $172 million consisting of taxes and fees from the
fisheries resource but only when it was harvested.
Ms. Kimball reported that the letter she was working from
mentioned Bristol Bay impacts in particular. The fishery
was fully geared up and typically peaked in July. She
thought it was a good example given that it was a huge
volume fishery. There was a forecasted harvest of over
37 million Sockeye. The Bristol Bay fishery occurred over
just a few weeks. Needing to pull people out of the field
on July 1st or pulling people out and putting them back in
the field was costly to the state. Any delay in having full
staff resources available to manage the fishery meant not
just high costs to the state, it essentially meant missing
the fishery because of its short duration. She opined that
it was critically important to have a seamless transition
into the next budget. The state could miss the most
valuable wild salmon fishery in Alaska and the most
valuable and largest Sockeye salmon fishery in the world.
The ex-vessel value in the prior year was over $140
million. However, Bristol Bay supported about 8,500
fishermen, 6,000 processing workers, and an economic
benefit to Alaska of nearly $1 billion.
Ms. Kimball hoped people understood that the logistics of
commercial fisheries in extremely remote regions of Alaska
were tremendous. Harvesting, processing, transportation,
and support businesses had tens of millions of dollars in
sunk costs in the current year in Bristol Bay alone. It was
how it was all across Alaska. There were hundreds of
millions of dollars invested in remote areas, most of which
were not connected to the road system where the cost of
doing business was extremely high and extremely risky.
There were millions of dollars spent just to open the doors
of processing plants before one fish came across the dock.
It meant that currently across the state there were
thousands of employees already in processing plants and
over one hundred tenders in place ready to transport fish.
All the processing and packaging materials had been shipped
and thousands of shipping containers had been deployed to
remote ports. Harvesters and crews had invested in their
vessels and gear, advances had been made to fishermen, and
markets had been established. That is not to mention all of
the support businesses that really depended on the influx
of business, much of it around salmon, that was provided in
Alaska's small coastal communities. The near-term cost of a
potential shutdown if the fisheries were not fully
operational were significant for both large and small
businesses.
Ms. Kimball emphasized how difficult a shutdown would be on
the back of COVID where the fishing industry worked
extremely hard to stay operational under the challenges of
2020 and 2021 at a great cost to people. McKinley Research
Group estimated that processors alone paid $70 million in
unplanned costs directly related to COVID mitigation in
2020 and an estimated $100 million in 2021. She could talk
at length about what comprised the costs. They were
necessary to keep the workforce and communities safe. Her
point was that combined with the pandemic costs, the
inability to have fully operational fisheries could
directly affect thousands of families, individual
businesses by ability, and negatively impact the seafood
industry in the long-term. The industry was clearly in a
recovery mode from the previous year and a half and, she
believed everything necessary should be done not to
jeopardize that recovery.
Ms. Kimball mentioned Bristol Bay in particular because of
the shear level of investment, the timing of the fishery,
and the short season. She thought it was easier for people
to understand the magnitude at risk in that fishery.
However, there were fisheries across the state at similar
risk. Her letter tried to mention several of them including
Southeast salmon fisheries, Kodiak fisheries, North and
South Alaska Peninsula fisheries, Upper Cook Inlet
fisheries, Prince William Sound fisheries, Norton Sound
crab fisheries, and others. Those fisheries were as
important to thousands of fishermen, processors, and
communities dependent on them. There were already several
inherent risks in an industry that depended on a wild
resource such as fish, that a lack of a state budget and
state employees to manage the fisheries should not be one
of them.
Ms. Kimball believed the House Finance Committee recognized
where Alaska stood. The state made up more than 60 percent
of the total harvest in the United States and made up a
huge portion of the nation's fisheries. She hoped she
conveyed some of the aspects of the importance of having
state employees in place to fully manage Alaska's fisheries
and the need for a state budget by July 1st.
2:39:37 PM
Co-Chair Merrick invited Sara Leonard to begin her
testimony.
SARAH LEONARD, President, ALASKA TRAVEL INDUSTRY
ASSOCIATION, ANCHORAGE (via teleconference), would share
the impact of a state government shutdown on Alaska's
travel and tourism sector. She relayed that the Alaska
Travel Industry Association (ATIA) was the leading
statewide non-profit association and the voice for Alaska's
tourism industry. There were more than 600 tourism business
members operating in every region of the state including
but not limited to individual fishing guides, wilderness
lodge owners, cultural attraction managers, and cruise ship
executives.
Ms. Leonard continued that the Alaska Travel and Tourism
Industry Association, in partnership with the Department of
Commerce, Community and Economic Development (DCCED), was
also the manager of Alaska's destination marketing program,
Travel Alaska. She knew that the COVID-19 pandemic had hit
Alaska hard and in particular Alaska's travel and tourism
businesses had suffered significantly. Results in the
recent COVID impact survey commissioned by ATIA with
McKinley Research Group showed Alaska's visitor numbers
dropped by 82 percent from 2019 to 2020. Job loss in the
sector was 72 percent reflecting almost 28,000 positions
that were laid off or not hired for the previous year.
Visitor industry wages plummeted by 79 percent over 2019 -
a loss of $819 million for the pockets of Alaska's
workforce. Revenue in municipal and state coffers due to
visitor taxes and fees fell 71 percent or $102 million. The
numbers did not lie.
Ms. Leonard asserted that the prior year was devastating to
Alaska's business owners and their employees. One
respondent summed up the sentiment with the following
statement:
"It's been emotionally wearing to see so many of my
industry friends be out of work and struggling. I have
also been on unemployment for the first time in five-
plus decades of working."
Ms. Leonard continued that at a fragile time in the state's
economic recovery and most especially the recovery of the
tourism sector, Alaska could ill afford to take another hit
to traveler confidence and to the state's reputation as a
COVID-safe destination due to a potential government
shutdown. The association's current national marketing
campaign attracting pandemic-weary travelers would cease in
the event of a shutdown. It would effectively cut the cord
of the industry's microphone as Alaska was saying to the
world, "Go big! Go strong! Go Alaska and we welcome you!"
Ms. Leonard continued that ATIA's marketing efforts and
those by the governor's office were starting to pay off.
Independent travelers were returning to visit Alaska in the
current summer to experience wildlife, wild seafood,
outdoor adventures, cultural richness, and incredible
scenery. Alaska's natural and wild resources were what
other destinations covet, the reasons Alaskan's lived in
the state, and played a role in providing memorable visitor
experiences.
Ms. Leonard continued to explain the potential impacts of a
state government shutdown. Management of public lands would
see significant impacts. State Park sites would operate
with very limited staff to maintain facilities. Independent
tour operators would be allowed to run tours at State Parks
though there would be no law enforcement park ranger
assistance available to manage public safety if the need
arose. Other examples in the event of a shutdown included
permitting being halted including commercial outdoor
recreation permits and process. Also, administrative
functions and construction projects that benefited the
tourism industry infrastructure would be paused.
Ms. Leonard Continued that ATIA appreciated the state's
elected leaders in hearing the importance of supporting
tourism businesses and the value of destination marketing,
especially during a time of recovery with the funding
approved in the budget for a $10 million appropriation.
However, with a shutdown, the marketing dollars would be in
jeopardy. The association could lose the momentum it had
started to create. The efforts ATIA had made to attract
individual travelers had made a difference in the current
season but, the $10 million allocation in the budget was
for the following year. Without it, there would be no
funding for tourism marketing.
Ms. Leonard reported that the Alaska Travel Industry
Association had advocated for continued investment in
destination marketing since the pandemic began arguing that
Alaska competed with other domestic destinations to attract
visitors. It was at a time when other states had been
opening up for business. For example, California's
legislature recently approved an appropriation of $95
million for tourism marketing from their federal recovery
funds. Hawaii Tourism Authority had $60 million in their
budget. In the following year, international destinations
would be back in the mix offering even greater competition.
The amount of $10 million approved in the Alaska
Legislature's budget would go a long way towards shoring up
the greater economic recovery of Alaska in the future. With
a significant marketing campaign planned across the country
and internationally, they could design a return to pre-
pandemic growth in Alaska's tourism sector.
Ms. Leonard continued that the travel industry was part of
the state's overall economic recovery bringing back more
jobs and revenue to businesses and communities. The
economic activity would help people pay their bills and
communities pay for much needed services. In 2020, the
entire U.S. travel industry lost half a trillion dollars in
travel related spending. Nationally, travel-supported jobs
accounted for 65 percent of all jobs wiped out due to
COVID-19. In Alaska, where she could point to over 50,000
direct and indirect jobs connected to Alaska's tourism, the
return of Alaska's travel industry could help lead to
Alaska's overall economic recovery.
Ms. Leonard recognized much had been done already by the
legislature and the governor in supporting the return of
large cruise ships to Alaska's waters in the coming summer.
The appropriation of dollars for destination marketing by
the legislature, the launch of the governor's direct
tourism marketing campaign, and the effort to pass the
Alaska Tourism Restoration Act by the congressional
delegation were significant steps in helping reset Alaska's
travel and tourism industry. She commended legislators' for
their public service.
Ms. Leonard opined that the current dialogue and potential
government shutdown created continued uncertainty. It would
impact Alaska's travel and tourism industry and placed a
serious pause on the economic recovery badly needed on the
heels of the COVID-19 pandemic. Alaska's travel and tourism
industry represented hundreds of businesses across the
state who employed tens of thousands of Alaskans. She
thought the visitor experience in the summer of 2021 would
play a role in future traveler confidence sentiment.
Alaska's reputation as a premiere travel destination was on
the line.
Ms. Leonard relayed that ATIA supported conversations
supporting a long-term fiscal plan for Alaska. She asked
legislators to come together to help Alaska move forward on
a path towards economic recovery. She thanked the committee
for the opportunity to provide testimony.
2:47:14 PM
JIM MATHERLY, MAYOR, CITY OF FAIRBANKS, FAIRBANKS (via
teleconference), indicated he was also a board member of
the Alaska Municipal League (AML). As indicated in AML's
June 16th statement to the legislature, AML was thankful
the FY 22 operating capital budget was adopted. However,
AML also expressed frustration over the failure of the
effective date and the three-quarter vote needed to access
the CBR and authorize the reverse sweep of critical funding
needed by July 1st. The failure of those critical votes
would severely destabilize and hamstring Alaska's local
governments, residents, and the state. It would be a
barrier to the recovery that the state needed.
Mr. Matherly addressed the effective date. The much needed
federal American Recovery Act funding for communities,
businesses, and non-profits would be further delayed while
communities continued to struggle. He noted that the
Division of Motor Vehicles (DMV) and title registration
would be delayed and closed. He believed the Office of the
Governor had provided legislators with a 10-page document
listing the programs that would be impacted without a
budget in place on July 1st. He would highlight some of the
significant items that would impact communities.
Mr. Matherly was aware the state would be unable to process
pass-through payments such as the fisheries tax revenue and
payment in lieu of taxes (PILT). Community assistance
payments would not be issued to communities anticipating
Power Cost Equalization (PCE) payments and rural energy
assistance would cease. Public broadcasting would be
shutdown and there would be significant impacts to the
fisheries industry as members had just heard.
Mr. Matherly opined that while HB 2002 sought to provide
the July 1st effective date, it did not address the CBR and
the reverse sweep vote.
Co-Chair Merrick interrupted the testifier and asked him to
refrain from commenting on the three-quarter vote and the
reverse sweep. The current hearing only dealt with the
effective date clause.
Mr. Matherly concluded his testimony. He hoped a government
shutdown would be avoided by legislators reaching an
amicable agreement. He thanked the committee.
Representative Wool thanked Mr. Matherly for calling in and
highlighting the fact that without the effective date
clause the federal funds in the budget would not be
disbursed. Although a shutdown would impact many people,
the federal funds would also not be disbursed to
municipalities.
Mayor Matherly thanked Representative Wool for all of his
hard work.
Representative Josephson asked Mayor Matherly to send him
comments on the three-quarter vote in an email. He wanted
to hear his view on the matter.
Mr. Matherly would get them out later in the day.
2:51:57 PM
MEERA KOHLER, PREVIOUS EXECUTIVE DIRECTOR, ALASKA VILLAGE
ELECTRIC COOPERATIVE (AVEC), explained that although she
was retired, she continued to represent the cooperative on
PCE matters. She had also been heading up a task force of
the Alaska Power Association on PCE. She had been a player
in the PCE Program since its inception in 1984. She
explained that AVEC was a non-profit electric utility. Its
communities received about 40 percent of all PCE payments
that were sent out.
Ms. Kohler explained that many years ago, the PCE Program
was chronically underfunded and for a decade and a half,
she saw appropriations that forced reductions to the PCE
rates of 25 percent or more. It was remedied when the PCE
Endowment Fund was established in 2000 and was followed by
funding appropriations that were fully supported by the
legislature. Once the endowment achieved full funding 12
years later, the annual legislative battle to procure funds
for PCE receded since funding for the program came from the
dedicated funds that were created for that purpose.
Ms. Kohler would touch on the sweep briefly because it was
critical to understand the impact was 2 years prior. Until
2 years ago the PCE Endowment Fund had not been jeopardized
by the annual sweep that reverted various accounts to the
CBR. The legislature had never failed to enact a reverse
sweep to undo the process. In 2019, when the administration
applied the sweep to the PCE Fund as well as to other funds
that had not been previously swept, sweeping the fund
removed the funding source for PCE and forced the
Regulatory Commission to reset all PCE rates to zero. It
was a terrible time for Rural Alaska.
Ms. Kohler explained that while PCE actually only covered
17 percent of the cost of providing electricity across the
eligible communities, it actually represented about 40
percent of the electric bills for residential consumers and
about 55 percent of the bills for community facilities like
water and sewer plants and other critical basic
infrastructure. Utilities had to either suspend issuing PCE
credits or take the risk of continuing to post them while
not knowing if they would be reimbursed or if they might be
denied altogether since the program had been defunded and
no one knew if payments would be retroactively applied. She
indicated that Selawik Washateria, for example, used 25,000
kWH in the previous December. Without PCE, their bill would
have been $11,500. After PCE their bill was $5,300.
Ms. Kohler suggested that communities with very limited
revenue resources could not afford to lose PCE. Most would
have to cut basic services drastically or layoff the few
employees it had to cover such cost increases. At the end
of the state's list of programs that would be shut down if
the legislature did not pass the effective date for the
budget, PCE payments would cease on July 1st. It meant that
credits utilities already issued for the month of June
would not be reimbursed. It meant that AVEC would have to
carry a loan to the state for $1 million and an additional
$1 million if the utility wanted to take the chance of
continuing to provide the credits because they knew their
customers could not afford a full bill of 55 cents or more
per kWH. She urged the legislature to adopt HB 2002 and to
take future action to prevent the loss of the PCE Endowment
Fund. She thanked the committee for the opportunity to
comment and made herself available for questions.
2:56:16 PM
MARCUS TRIVETTE, EXECUTIVE BOARD DIRECTOR, ASSOCIATED
GENERAL CONTRACTORS OF ALASKA, FAIRBANKS (via
teleconference), urged the committee to pass HB 2002
providing an effective date of July 1st to avoid a
government shutdown. Alaska's private sector employers were
in a precarious position coming out of a pandemic and in
the midst of a recession. A government shutdown, even a
partial one, would negatively impact his industry's ability
to get work down costing time and money. Some examples of
delays could include the ability to acquire permits through
the Department of Natural Resources (DNR) or the Department
of Fish and Game (DFG), the inability to get scales
certified through the Division of Measurement Standards and
Commercial Vehicle compliance within the Department of
Transportation and Public Facilities (DOT), or the ability
to get a notice of work from the Department of Labor and
Workforce Development (DOL).
Mr. Trivette asserted that State government touched every
facet of Alaska's economy and, his industry needed it to
work properly to get projects done and to put Alaskans to
work. Specifically, as it related to the construction
industry, a week delay in July could cost the industry a
month on its schedule later in the fall. He reported
currently bidding projects which would result in putting
Alaskans to work in the coming summer. However, if all of
the different agencies the industry relied on were not
functioning, it would have a negative impact. He asked
members to consider the impacts of failing to get a budget
passed with an effective date of July 1st. It would affect
Alaska's government employees, the private industry, and
private industry employees. He was available for questions.
Representative Thompson asked if certain projects could be
delayed as long as a year as a result of not being able to
obtain permits because of a government shutdown.
Mr. Trivette replied in the affirmative. He was aware that
certain agencies were working hard to ensure that the staff
was available to administer construction projects. However,
the list of permits needed was long. Sometimes he might
have an approach that was outside of the box of the permits
already in place and revisions might be needed. He
indicated that realistically, a two-week shutdown might
result in postponing a project slated for July and August
to September and October which would cost more. The worst
case scenario would be losing an entire season.
Representative Josephson noted the capital budget items
were not discussed in terms of any hold up of the
appropriations by OMB. He asked if AGC was focused on any
of the projects in the capital budget and whether Mr.
Trivette had concerns about delays due to a shutdown.
Mr. Trivette responded that he could not speak on behalf of
AGC relative to the capital budget in the present hearing.
He was simply supporting the passage of HB 2002. He would
be happy to discuss the subject in the future. He was
focused on the impact of the lack of an effective date
being passed.
Representative Rasmussen asked if Mr. Trivette had looked
at what would happen if the state shutdown and his company
continued with projects without permits issued by the
state.
Mr. Trivette replied that he had not. It would involve a
conversation internally with legal counsel and risk
management. He explained that some of the permits the state
administered had state and federal implications. It would
be on a case-by-case basis. His company tried to do things
by-the-book. It would be something he would have to weigh.
Representative Rasmussen appreciated him doing things
by-the-book.
3:01:58 PM
ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, urged members to take the steps necessary to
pass a budget by July 1, 2021. The committee heard
testimony about how the impacts touched every Alaskan in
some way. To the extent they were affected, the dependency
on the Permanent Fund (PF) for state government increased
that much more, as it had to fill the gap created when the
private sector was unable to perform. In the previous
evening she learned that the Alaska Permanent Fund
Corporation (APFC) was included on the list of essential
functions of state government. She was pleased to find out
that APFC's staff would not be included in the layoffs that
might occur with a government shutdown.
Ms. Rodell clarified that the state still needed a budget.
The Alaska Permanent Fund Corporation had a $50 million
request for investment management fees as a supplemental
for FY 21 needed to pay for performance in FY 21. She
encouraged the legislature to get a budget done. She was
happy to answer any questions about the fund itself. She
could also walk through what the impacts would have been
had the corporation been included in the layoffs. She
removed it from her testimony when she heard APFC was
included on the essential services list.
Representative Rasmussen was happy to hear that APFC was
essential. She asked if a one-time overdraw facilitating a
compromise for an effective date would be better than the
government shutting down and staying within the percent of
market value (POMV) draw.
Ms. Rodell could not speak to what the legislature's
negotiations would require in order to have a fully
functioning state coming out of a pandemic. She would
highlight the discipline of the POMV over the past few
years and would speak to what an ad hoc draw might look
like.
Ms. Rodell relayed that the POMV was calculated based on 5
of the previous 6 fiscal year market value balances. If the
state were to end the fiscal year on May 31, 2021, with the
balance in the fund of $80.85 billion, the POMV for FY 23
would be $3.346 billion, $300 million more than for FY 22.
The average market value that the calculation was based on
was $66.9 billion. She emphasized that it would be a record
high level and was the new average market value for a POMV
calculation. The state was currently in uncharted
territory.
Ms. Rodell continued that the value of the POMV provided
the legislature some increased spending capability, some
surety of revenue without windfall peaks and valleys that
occurred with traditional revenue sources. In looking at
the calculations, the ERA in the conference committee
version of the budget had a balance of $19.8 billion as of
May 31st. The POMV for FY 22 was about $3.1 billion which
left an uncommitted portion of $12.2 billion. She left
unrealized gains off the table. She reported that there was
a move of $4 billion from the ERA to the principal of the
fund in the FY 22 budget totaling $4.9 billion. The amount
left in the ERA would be about $5 billion. If the
legislature were to take an ad hoc draw of $1.5 billion,
the amount in the ERA would equal $3.4 billion going
forward.
Ms. Rodell noted several previous discussions about the
importance of keeping 3 or 4 times the amount of the POMV
in the ERA as a cushion. She reported that 3 times the POMV
would be $9.3 billion. She wanted to show the magnitude of
drawing down the ERA versus keeping money in the account.
She pointed out she was not speaking to the investment
affects and the uncertainty of continued ad hoc draws. Part
of the value of the POMV was knowing a year in advance what
the state's liability would be and managing accordingly.
She hoped the information was helpful.
3:08:39 PM
Representative Rasmussen asked if it was better to leave
the $4 billion in the ERA.
Ms. Rodell replied that she had never seen the PF corpus
(which only grew through royalty deposits, inflation
proofing, or special appropriations) have a balance of
$46.9 billion. The fund totaled $80.5 billion and only
$46.9 billion of it was saved in perpetuity for future
generations. It meant that $33.6 billion was either subject
to market volatility through unrealized gains or through
appropriation by the legislature. She hoped the legislature
recognized that as large as the fund was the parts were not
equal. She emphasized that the $4 billion was an indicator
that the only way the corpus of the fund would grow was
through appropriations.
Representative Edgmon did not support overdrawing the PF.
He asked Ms. Rodell to speak to the retrenchment of the
fund in the prior year. He recalled a 20-day period where
the value of the fund went backwards by about one-third. It
caught him off guard and highlighted the volatility of the
fund. He asked her to elaborate about what happened during
that period in the previous year.
Ms. Rodell replied that in FY 20 as of July 1, 2019, the PF
started at a balance of $65.8 billion. Over the course of
the first half of the fiscal year through December the fund
continued to grow as expected. In March 2020, the full
effect of the pandemic hit the markets. Things were being
shut down and the pandemic became very real in many ways.
The fund dropped to a low of about $60 billion. She and
other employees with APFC had not seen that swift of a draw
down of the fund in their career. The market started to
recover leaving a value of $64.8 billion at the end of
FY 20 - a return of 2.0 percent. It was less than the
balance of the fund at the end of FY 19 with a balance of
$65.8. The state had drawn more out of the fund than it had
made over the course of the year. Presently, the state had
recuperated from the $60 billion in March 2020. The current
year had been extraordinary. She did not think the state
should count on the trend continuing.
3:13:45 PM
Representative Wool thought that unrealized gains made up a
large portion of the fund balance. He explained the meaning
of unrealized gain. He asked if $33.6 billion of the
$80 billion were unrealized gains.
Ms. Rodell answered that it was but also included the
balance in the ERA. It was not just unrealized gains.
Representative Wool highlighted that although the fund
balance was more than $80 billion, until the assets were
sold, it was not available cash. He noted someone
mentioning it was a good year to take a little extra from
the fund. He thought many legislators did not want to take
more from the fund. He mentioned Callan presenting their
10-year projection. He asked for Callan's average return
expectation.
Ms. Rodell replied that they had reduced their long-term
10-year expectation to 6.2 percent.
Representative Wool commented that if Callan's long-term
projected return averaged at 6.2 percent and the POMV draw
was about 5 percent, there was not much excess when
accounting for inflation. He did not believe there was an
available slush fund. He suggested it would be difficult to
run state government with an under-draw. He asked, based on
Callan's projections, if the state could have a year of a
2.0 percent return or even a negative return.
Ms. Rodell responded in the affirmative.
Representative LeBon asked how critical the CBR was to the
cash management of the state. He also wondered how APFC
interfaced with the CBR.
Ms. Rodell replied that his question would be better
directed to Commissioner Mahoney. The Alaska Permanent Fund
Corporation did not interface at all with the CBR. Rather,
APFC worked with the Treasury Division on their draw
requirements for cash. They tried to give APFC their
schedule a year in advance. In July she expected to see the
Treasury Division's anticipated draw requirements for
FY 22. She reported that APFC transferred the final
installment for FY 21 POMV draw of $492 million.
3:17:41 PM
Representative LeBon asked if it would be an effective tool
to have short-term financing through a line of credit or a
revenue anticipation note in order to enable APFC to
continue to invest to maximize earnings.
Ms. Rodell was a fan of having every tool available to
maximize financial returns to the State of Alaska. However
they were not tools APFC could use but, they could benefit
the Department of Revenue.
Representative Josephson thought Ms. Rodell's testimony
suggested the legislature might have overreached slightly
with the $4 billion transfer into the corpus. He gleaned
from Ms. Rodell's comment that the legislature should have
left 3 times the draw amount in the ERA. He asked if she
meant to say what she said.
Ms. Rodell thought Representative Josephson was
highlighting some of the tensions concerning leaving money
in the ERA versus moving it over to the principle. She
indicated there had not been any inflation proofing. The
amount of $4 billion in FY 20 that acted as pre-funding of
inflation proofing, especially if the fund entered higher
inflationary markets, would be incredibly valuable going
forward. She was merely trying to highlight that APFC could
not do all things for all people and that choices would
have to be made. She thought it would be helpful for the
legislature to figure out where the prudent lines were as
they contemplated moving forward.
Representative Josephson suggested that one of the things
not discussed about the 5 percent draw was that it was a
from of a spending cap. He wondered if the legislature
should think of it as a spending cap.
Ms. Rodell replied that she thought of it as a spending cap
because it gave the state a sure amount of revenue. She
relayed that in thinking of how the state had historically
crafted the budget, the uncertainty and volatility of the
revenue picture made it difficult and created an
interesting dynamic. The reserves were used to help fix the
issue if revenues did not come to fruition. In the current
case, with $3.3 million in the state's checking account
without any other revenue measures in place, the amount of
certainty was comforting. The state no longer had to worry
about oil prices or decreased production. She felt that the
state had moved into a different era in terms of thinking
about revenue. She thought the smoothness and stability
provided with the POMV were very important.
3:23:09 PM
Vice-Chair Ortiz noted Ms. Rodell speaking about the fund
balance reaching a value of $65.8 billion on July 1, 2019.
By March 2020, the balance had fallen to $60 billion. At
the point the balance of the fund was $65.8 billion, he
wondered how much more it had increased before it fell
back. He wondered if $65.8 billion was the high point.
Ms. Rodell would have to get back to the committee with a
response. She recalled that the fund increased in value
towards the end of the calendar year. She would need to
confirm the amount.
Representative Rasmussen thought her question might be best
asked at the time Ms. Rodell made a closing statement.
Representative Edgmon asked about the sovereign wealth
investor community. It appeared it had blossomed over the
years. The Alaska Permanent Fund Corporation had been one
of the market leaders in terms of innovation, discipline,
and adherence to the prudent investor rule. He wondered if
any other state or country was providing government
services with sovereign wealth fund earnings.
Ms. Rodell indicated it was difficult to know with the
Middle East, as they did not have the same sort of
transparency rules in place. It was tough to know if they
were overdrawing their funds. She was aware that many
country-based sovereigns had used more earnings for
pandemic relief. She noted that within the United States
the sovereign funds in the country existed in the states of
Wyoming, North Dakota, and Texas. She was unaware of any
overdraws. Some states were looking at shifting the mission
and purpose of some of their funds.
Representative Wool noted Ms. Rodell's previous comments
about the unprecedented returns she had seen in her career.
He asked if she would expect Alaska to have a negative year
within the next 10 years.
Ms. Rodell had been surprised for the prior 3 years that
the state had not experienced negative returns. She would
not be surprised if the state encountered one in the
following 10 years.
3:28:00 PM
AT EASE
3:28:51 PM
RECONVENEND
Vice-Chair Ortiz asked if any analysis had been done
regarding the impact of an overdraw for the current year
and how to catch up.
Ms. Rodell responded that APFC had not done any analytics.
She thought LFD had provided a variety of different
scenarios. The state would have to make up the expected 6.2
percent in earnings along with the percentage made on the
6.2 percent and any earnings lost on the amount. The amount
would be over and above what was forecasted.
Co-Chair Merrick thanked Ms. Rodell for coming before the
committee.
Representative Rasmussen felt that it was unfortunate the
bill was needed and that there might be a government
shutdown. She compared the situation to her daughter
wanting to touch the stove. She thought the legislature
should be looking for a solution where everyone benefits
rather than a lose-lose situation. She believed some of the
issues needed resolution. She did not want to see a
government shutdown. She supported getting an effective
date passed as soon as possible.
3:33:15 PM
Representative Carpenter asked if HB 2002 would require a
two-thirds vote to change the effective date.
Ms. Marx responded that the whole bill would need a
two-thirds vote of the membership from each body.
Representative Carpenter appreciated the message from
business industry leaders that stability was needed. The
business community had been asking the legislature to act
to provide stability for the state's finances. He thought
the request had fallen on deaf ears for a decade or more.
He suggested that the current bill was another legislative
attempt to avoid coming up with a long-term plan. He
believed the legislature should be supporting business
through stability with timely budgets and a long-term
fiscal plan. Producing consistently balanced budgets and
low taxes were important things the business community
wanted from the legislature. He noted the committee had
heard of the costs related to a government shutdown. He
could not deny a shutdown would cause significant pain for
some folks. However, he posed the question about the lost
opportunity costs related to not providing stable taxation,
PFDs, and budget growth. He had heard from businesses who
were questioning investing further in Alaska. The
legislature continued to kick the can down the road. He was
concerned with the inertia of not addressing the real
issues.
Representative Carpenter continued that the current
majority created a budget that needed to pass with a two-
thirds vote of 27 members to be effective July 1st. He was
asking that the legislature act in the current session to
address systemic problems that his constituents and
constituents from around the state had requested. He did
not like being strong-armed into supporting something that
had not addressed the real issues. He suggested having
conversations about what it would take to address the
state's problems. The people had been asking legislators to
solve the problem for a very long time.
Co-Chair Merrick was aware of two members of the committee
who had put proposals forward, including herself and
Representative Wool, for a long-term fiscal plan. She
encouraged all members to put any of their ideas on the
table for consideration.
3:38:49 PM
Representative Thompson directed his question to
Legislative Legal Services about whether the Senate would
have to vote again requiring a two-thirds vote for an
effective date.
Ms. Marx replied that the bill was a stand-alone piece of
legislation requiring a vote of both the House and the
Senate.
Representative Thompson asked if Ms. Marx was saying that
the bill would have to be voted on by both the Senate and
the House.
Co-Chair Merrick remarked that the vote was a two-thirds
rather than a three-quarter vote.
Representative Thompson expressed confusion. He thought the
Senate had already passed the effective date with a
two-thirds vote and that the House needed to vote on the
effective date provision with a two-thirds vote as well. He
asked if Ms. Marx was saying that the bill would have to go
to the Senate. He reiterated his confusion.
Ms. Marx indicated the bill would replace the failed
effective date as a stand-alone bill. The legislature had
other options to deal with the failed effective date in
HB 69.
Vice-Chair Ortiz agreed with Representative Carpenter that
the legislature needed a fiscal plan. A fiscal plan was
needed when he first became a legislator in 2014 and in
2017 the House Majority put forth a fiscal plan which
included a balanced budget. A significant effort had been
made in trying to develop a fiscal plan. He was unclear why
a plan had not been developed. He noted that the governor
had called a special session in August where the
legislature could arrive at a group compromise.
3:44:28 PM
Representative Josephson commented that he began his
service as a legislator in 2015 at which time the state
brought in $6 billion to its coffers and spent it. The
crisis really began in the fall of 2014 when oil prices
dropped significantly. The state had a new governor whose
approach was to figure out a path forward but stay within
the status quo. In June of 2015 he called luminaries
together at the University of Alaska Fairbanks (UAF)
campus. As a reflection of the work done at UAF, Governor
Walker introduced a proposal that everyone should
contribute - every industry and the people of Alaska. The
legislature at-large rejected the plan with many committees
unwilling to entertain the governor's bills.
Representative Josephson continued that in 2017, under the
leadership of Representative Paul Seaton, the 4-pillar plan
was introduced and included cuts, the POMV, oil tax
increases, and an income tax. The House passed the entire
bill. He thought the state would be far better off had the
Senate entertained the bill. At the time, the Senate
referred the bill to a committee because it was required.
The committee met for a few minutes then the bill was sent
to the floor. The plan was rejected. The percent of market
value (POMV) was passed in the following year. There had
been serious reform efforts made to no avail. He spoke of
the governor not being able to get majority support for a
large dividend, although he did on the Senate side. Yet,
the governor's plan called for a super majority embedded in
the constitution. He wondered how the governor would get 27
votes in the House and 14 votes in the Senate since he
could not get 21 votes in the House and 11 votes in the
Senate for a simple majority. He noted that it was not
achievable in the following 6 days to win the super
majority vote. He thought the testifiers had indicated what
would happen with a government shutdown.
3:47:51 PM
Representative Wool shared Representative Carpenter's
frustration. He came into the legislature the same year as
Vice-Chair Ortiz and had been working on the state's fiscal
issues since the beginning of their respective terms. He
reminded members that in 2010 oil revenue was over $10
billion, and in 2020 it was just over $1 billion. Such a
revenue fall had repercussions. The legislature had been
scrambling since the fall of 2014 to resolve the state's
fiscal crisis. The legislature tried to pass an income tax
and other various measures without success. In the
meantime, the legislature had drawn down the savings
accounts.
Representative Wool spoke of the difficulty of getting both
bodies and the governor to agree on things. The revenue
shortfall had been in existence for a significant period
and, the POMV had supplied a steady stream of income. He
suggested that a fiscal plan balanced budget meant not
spending any more money than what was earned in revenues.
In order to produce a balanced budget additional revenue,
additional reductions, or a combination of the two might be
necessary. He noted that he considered the PFD to be a
budget item. He thought the legislature had cut the budget
significantly. A few years prior the governor attempted to
cut the budget by about $400 million to $500 million and
the public reacted strongly in opposition.
Representative Wool explained that the legislature
introduced HB 2001 [Legislation passed in 2019 - Short
Title: APPROP: ERA/OPERATING/FUNDS/OTHER] that restored
several of the governor's reductions. He thought the
legislature had reached some equilibrium on the budget. He
suggested the state had enough to pay for the budget minus
the PFD. People were arguing about the size of the PFD. Any
amount, without a rosy picture of high oil prices that the
state was currently enjoying, revenue would be needed. The
governor agreed and suggested $200 million in reductions in
the following year. He was glad the governor suggested
another special session in August because he used the word
"revenue." The governor was acknowledging the need for
other sources of revenue. He argued that it was necessary
to have the conversation about revenues. He hoped the
governor would sign a bill passed by the legislature. He
reemphasized the need to bring in additional monies in
order to balance the state's budget. Different legislators
had different views on where additional revenues should
come from or where to apply additional cuts. Many
legislators had tried for many years to move a solution
forward. He had introduced several pieces of legislation to
solve the state's fiscal crisis. He suggested that perhaps
when the state's situation became more dire, the
legislature would work on the issue. However, ironically
whenever the legislature was about to address the issue the
price of oil jumped up and the stock market went up taking
away a sense of urgency.
Representative Wool relayed that federal dollars were
coming to the state in the billions in the present year and
more funding was expected for the following year. He opined
that the legislature needed to think long-term and
realistically. He reiterated Ms. Rodell's comment about the
possibility of a negative return year in the near future.
He thought the legislature should prepare for a rainy day
and do its work. He hoped the legislature could craft
something in August 2021 that would glean support.
3:51:53 PM
Representative LeBon looked forward to the special session
in August. It was timely to have the discussion, looking
down the road, about the needs for essential state services
such as public education, public safety, roads, and the
University. He had heard wants from his constituency
including a return on investment to the people for the PF.
He argued that the PFD was part of Alaska's culture and the
state's financial picture. Alaska expected a return. He
thought the challenge was how to balance needs and wants.
He suggested that the discipline of holding to the POMV
draw amount was how to protect the long-term interest of a
public purpose endowment for generations to come. He
believed he had a fiduciary responsibility to see to the
interest of Alaskans yet unborn.
Representative LeBon noted his reluctance to overdraw the
ERA. He had staked out his position over the previous
several years. The legislature needed to address the
question of how to take care of the future by also meeting
the needs of the present. He suggested it was a heavy lift.
It might result in a combination of a rewrite of the PFD
formula. The formula had existed for many years and it was
written in the early 1980s. He thought people needed to
recognize that Alaska's economic condition had changed. In
1982, when the formula was written, there were 2 million
barrels of oil going through the pipeline. It was not the
case presently. It was down under 25 percent of capacity.
Representative LeBon continued that unless the state were
to see the price of oil jump to $200 per barrel, the state
would have to adjust. The state could try to put more oil
in the pipeline. There were development opportunities
occurring. He noted a couple of resources currently in the
development phase which would not result in oil in the
pipeline for a while. He suggested that the legislature
needed to be realistic about what it could do and
understand the balance of needs and wants.
Representative LeBon believed the state was at a
crossroads. He thought the legislature was past the option
of kicking the can down the road. The issue had to be dealt
with at present. He looked forward to seeing everyone in
August to deal with the issue. It would not help if the
government were to shut down on July 1, 2021. He emphasized
that it would be a big mistake. He would not be party to a
shutdown and urged all of the members of the Alaska State
House of Representatives to vote the effective date
allowing the budget to be delivered to the governor for his
review and signature.
Co-Chair Merrick thanked members for the respectful
conversation.
HB 2002 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 2002 OMB 2021_ListofCriticalServices 062321.pdf |
HFIN 6/24/2021 1:30:00 PM |
HB2002 |
| HB 2002 Sponsor Statement v A 6.24.21.pdf |
HFIN 6/24/2021 1:30:00 PM |
HB2002 |
| HB 2002 Public Testimony by 062421.pdf |
HFIN 6/24/2021 1:30:00 PM |
HB2002 |