Legislature(2015 - 2016)ANCH LIO BUILDING

05/06/2015 01:00 PM House FINANCE

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01:04:43 PM Start
01:05:26 PM HB1001
03:03:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Location: 1st Floor Auditorium
Heard & Held
Discussion by Pat Pitney, Director, Office of
Management & Budget
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
**Due to construction, streaming available in
Juneau in Capitol Rm 120**
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
Co-Chair  Neuman asked  that committee  members to  ask only                                                                    
one  question being  that  the committee  was  under a  time                                                                    
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                                                                    
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                                                                    

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