Legislature(2015 - 2016)HOUSE FINANCE 519

02/04/2016 01:30 PM FINANCE

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Audio Topic
01:33:56 PM Start
01:34:39 PM HB293
02:37:25 PM Fy 17 Budget Overview: Department of Natural Resources
03:34:59 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 293 APPROP: SUPP/CAP/OTHER APPROPRIATIONS TELECONFERENCED
Heard & Held
Pat Pitney, Director, Office of Management &
Budget
+= HB 256 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
Scheduled but Not Heard
+= HB 257 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Scheduled but Not Heard
+= HB 255 BUDGET: CAPITAL TELECONFERENCED
Scheduled but Not Heard
+ FY17 Budget Overview: TELECONFERENCED
- Dept. of Natural Resources
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 293                                                                                                            
                                                                                                                                
     "An  Act  making supplemental  appropriations,  capital                                                                    
     appropriations,   and   other  appropriations;   making                                                                    
     reappropriations;  amending  appropriations;  repealing                                                                    
     appropriations; and providing for an effective date."                                                                      
                                                                                                                                
1:34:39 PM                                                                                                                    
                                                                                                                                
PAT  PITNEY,  DIRECTOR,  OFFICE OF  MANAGEMENT  AND  BUDGET,                                                                    
OFFICE OF  THE GOVERNOR, addressed the  supplemental budget.                                                                    
She   referenced   handouts  titled   "FY2016   Supplemental                                                                    
Summary"  dated February  1, 2016  and "FY2016  Supplemental                                                                    
Bill."  She  relayed  that the  supplemental  was  lean  and                                                                    
included  less   than  30  transactions.  The   two  largest                                                                    
requests were for fire suppression  funding at $47.5 million                                                                    
Unrestricted  General Fund  (UGF) and  a request  associated                                                                    
with the Permanent Fund Dividend.                                                                                               
                                                                                                                                
Co-Chair  Neuman asked  Ms. Pitney  to go  down the  list of                                                                    
requested increments.                                                                                                           
                                                                                                                                
1:36:28 PM                                                                                                                    
                                                                                                                                
Ms.   Pitney   addressed    the   handout   titled   "FY2016                                                                    
Supplemental  Bill." She  began with  a request  of $450,000                                                                    
for the  Division of  Finance for  a statewide  single audit                                                                    
increase (line 2).  She elaborated that the  funding was for                                                                    
a payment  to the  Division of  Legislative Audit;  the cost                                                                    
had been  $300,000 for the  past 10 years, but  the division                                                                    
had submitted a bill of $750,000 effective FY 16.                                                                               
                                                                                                                                
Co-Chair Neuman asked why the cost had increased.                                                                               
                                                                                                                                
Ms.  Pitney  answered  that  the increase  was  not  due  to                                                                    
additional  work.  She  explained   that  in  the  past  the                                                                    
$300,000 had been a set  amount collected for the audit. She                                                                    
believed that  in the difficult budget  cut environment, the                                                                    
division was charging more on  an hourly basis; based on the                                                                    
hours  worked the  cost  was $750,000.  She  noted that  the                                                                    
increase had been unexpected.                                                                                                   
                                                                                                                                
Co-Chair   Neuman  clarified   that  the   reason  for   the                                                                    
expenditure was that the  legislature passed legislation for                                                                    
audits on individual departments.  He asked for verification                                                                    
that  the money  was  for expertise  in  the departments  to                                                                    
conduct the audits.                                                                                                             
                                                                                                                                
Ms.  Pitney  clarified  that  the  request  was  related  to                                                                    
routine general  audit work,  not the  DHSS audit  work. She                                                                    
moved to line  3 related to funds (an  increase of $118,000)                                                                    
for  the Office  of Public  Advocacy for  increased caseload                                                                    
and litigation costs. She elaborated  that the past fall the                                                                    
office  had experienced  a significant  caseload. The  heavy                                                                    
caseload  included costs  related  to  the "Fairbanks  Four"                                                                    
case, which  had taken place in  a high-intensity time-frame                                                                    
[a  recent legal  case involving  four individuals  released                                                                    
from jail  based on a turned  over decision]. Lines 4  and 5                                                                    
included  increases  for  receipt authority  [for  appointed                                                                    
counsel] for  Designated General  Funds (DGF).  The requests                                                                    
included  funding  estimated to  be  collected  for work  on                                                                    
behalf of  individuals the departments did  not have receipt                                                                    
authority  for.  The  requests  would  increase  GF  receipt                                                                    
authority   to  capture   funds  collected   above  budgeted                                                                    
authorization; it  was estimated  that the funding  would be                                                                    
available  due  to  the estimated  Permanent  Fund  Dividend                                                                    
amount.                                                                                                                         
                                                                                                                                
1:39:43 PM                                                                                                                    
                                                                                                                                
Ms.  Pitney   addressed  line  6   for  the   Department  of                                                                    
Corrections  (DOC).  She   elaborated  that  the  department                                                                    
received  money  from  the federal  government  for  federal                                                                    
prisoners. The  increment represented  the amount  the state                                                                    
could  collect for  federal related  prisoners, which  would                                                                    
offset the UGF  costs; the state was  reimbursed for housing                                                                    
federal prisoners.  Line 7  included a  technical correction                                                                    
to add  the fiscal note  for the Alaska Safe  Children's Act                                                                    
Task  Force support  costs of  $10,000. She  elaborated that                                                                    
the fiscal note had come at  the end of the last session and                                                                    
the  Legislative Finance  Division had  categorized it  as a                                                                    
missed  technical issue.  Line 8  was  a grant  for the  Air                                                                    
Quality   Division  of   the  Department   of  Environmental                                                                    
Conservation  for diesel  emission reductions.  She detailed                                                                    
that  the grant  would  allow certain  entities to  purchase                                                                    
cleaner diesel  equipment; there  was no match  required and                                                                    
no ongoing costs to the program.                                                                                                
                                                                                                                                
Ms. Pitney  addressed formula cost increases  for subsidized                                                                    
adoption and  foster care (lines  9 and 10).  The increments                                                                    
were  strictly  based on  the  formula  associated with  the                                                                    
number of  children in subsidized adoption  and foster care.                                                                    
She  noted that  the two  increments were  the next  largest                                                                    
items in  the supplemental  request following  the increment                                                                    
related to fire suppression.                                                                                                    
                                                                                                                                
1:41:58 PM                                                                                                                    
                                                                                                                                
Ms.  Pitney  moved to  lines  11  through 14  that  included                                                                    
increases  to   juvenile  justice  facility   staffing.  The                                                                    
Division of  Juvenile Justice had  an adjustment  of roughly                                                                    
$1 million  annually for  the past  7 years.  The adjustment                                                                    
had been added  to the FY 17 base request;  the item had not                                                                    
always  been a  supplemental  because prior  to the  current                                                                    
year,  the  commissioner of  the  Department  of Health  and                                                                    
Social Services (DHSS) had the  ability to move money across                                                                    
appropriations  up to  a certain  amount -  the funding  had                                                                    
been covered  mid-year under that ability  to shift funding.                                                                    
She explained  that before the commissioner  had the ability                                                                    
to  move  money,  the $1  million  adjustment  had  appeared                                                                    
almost  annually in  the supplemental  budget. She  informed                                                                    
the committee  that the administration  hoped to  never make                                                                    
the request again  because going forward it  was included in                                                                    
the base budget.  Line 15 gave receipt authority  to DHSS to                                                                    
collect  over collection  of  [Statutory Designated  Program                                                                    
Receipts] from Medicaid school-based claims.                                                                                    
                                                                                                                                
1:43:59 PM                                                                                                                    
                                                                                                                                
Ms.  Pitney spoke  to lines  16 through  18 related  to DOL.                                                                    
Line  16  was  associated  with  pending  tobacco  cessation                                                                    
litigation,  which   was  a  multi-state   arbitration.  The                                                                    
request would use tobacco funds  for increased attorney time                                                                    
associated with the  litigation. Lines 17 and  18 related to                                                                    
work  DOL conducted  on behalf  of  the Alaska  Oil and  Gas                                                                    
Conservation   Commission   (AOGCC)   and   the   Regulatory                                                                    
Commission  of   Alaska  (RCA);  the   increments  requested                                                                    
receipt authority  payment for  the workload  associated for                                                                    
legal  work. She  elaborated that  AOGCC  and RCA  collected                                                                    
fees from  the industry to  cover costs. Line 19  related to                                                                    
fire suppression  activity related to  declared emergencies.                                                                    
She  highlighted  a major  fire  that  had occurred  in  the                                                                    
Wasilla  area.   She  explained   that  the   $47.5  million                                                                    
represented  costs incurred  in  the 2015  fire season.  The                                                                    
funds had  already been spent;  if the upcoming  fire season                                                                    
was bad there could be additional costs in FY 16.                                                                               
                                                                                                                                
Ms.  Pitney addressed  lines 20  through 22  associated with                                                                    
the  Department  of  Revenue  (DOR)  Treasury  Division  for                                                                    
external   management  fees   due  to   better-than-expected                                                                    
performance  in the  Retiree Health  Insurance Fund,  Public                                                                    
School  Trust Fund,  and Power  Cost Equalization  Endowment                                                                    
Fund.  Lines 23  through  26 related  to  the Department  of                                                                    
Transportation and  Public Facilities (DOT)  and represented                                                                    
DGF and other fund requests  to accept receipts collected in                                                                    
the  various components  (airport  leasing  in the  Central,                                                                    
Northern, and  Southcoast regions); the request  would match                                                                    
receipt authority with  the available funding, measurements,                                                                    
and standards.                                                                                                                  
                                                                                                                                
1:48:25 PM                                                                                                                    
                                                                                                                                
Ms. Pitney  moved to line  29 and  35 related to  the Alaska                                                                    
Land   Mobile   Radio  (ALMR)   system.   Line   35  was   a                                                                    
reappropriation of  approximately $1.3  million and  line 29                                                                    
was a request  for $1 million; the total  would provide $2.3                                                                    
million  to   meet  the  necessary  software   and  hardware                                                                    
upgrades  to maintain  the ALMR  system  in the  short-term.                                                                    
Beginning in FY 18,  the administration anticipated costs in                                                                    
the range  of $5  million per year  to maintain  the state's                                                                    
emergency  communications system.  She noted  that DNR,  the                                                                    
Department of  Military and Veterans Affairs  (DMVA) and the                                                                    
Alaska  State Troopers  all used  the ALMR  system. Line  30                                                                    
included a  request for emergency  repairs of  failing water                                                                    
lines  at  the  Anvil   Mountain  Correctional  Center.  She                                                                    
elaborated that  the past spring  the center  spent $700,000                                                                    
in deferred  maintenance funding  to patch the  water lines;                                                                    
the center  had to drop  the number of prisoners  and ration                                                                    
water  to  keep the  facility  open  (there were  about  100                                                                    
prisoners in the  center on a daily basis).  She stated that                                                                    
$1,084  would  be required  for  a  long-term fix.  Line  31                                                                    
included  an  increment  for the  emergency  repair  of  the                                                                    
Eklutna   overpass;   after  insurance   settlements   there                                                                    
remained  a $344,000  need to  cover the  one-time emergency                                                                    
repair.                                                                                                                         
                                                                                                                                
1:50:41 PM                                                                                                                    
                                                                                                                                
Ms. Pitney moved  to the language section  beginning on line                                                                    
35, which started  with a reappropriation for  ALMR. Line 36                                                                    
was  a  reappropriation  from  the  completed  Tanana  River                                                                    
Bridge  project  to  the  Alaska  Railroad  Corporation  for                                                                    
positive train  control upgrades. The state  would receive a                                                                    
match  against  Federal   Transit  Administration  money  to                                                                    
finish  the  positive  train control  upgrades  required  by                                                                    
federal law. The  state received at 90 percent  match on the                                                                    
funding;  the  project   would  reappropriate  roughly  $1.7                                                                    
million to  complete the $17  million project. Lines  37 and                                                                    
38 were judgements and settlements  through DOL. Line 40 was                                                                    
a two-part request. She explained  that given the governor's                                                                    
Permanent Fund  Protection Act, the Permanent  Fund Dividend                                                                    
was estimated to be $700  million, which would be taken from                                                                    
the fund's  earnings reserve account. She  detailed that the                                                                    
dates for  the appropriation  in the FY  16 bill  listed the                                                                    
appropriation  for   dividends  paid   during  FY   16.  She                                                                    
elaborated that the  FY 16 dividends had  already been paid;                                                                    
therefore,  the  language  was  technically  incorrect.  The                                                                    
increment corrected  the error  and would  appropriate money                                                                    
for the fall 2016 dividend.                                                                                                     
                                                                                                                                
1:54:09 PM                                                                                                                    
                                                                                                                                
Ms.  Pitney  addressed  line  41  that  contained  lapse  of                                                                    
appropriations  and  retroactive  language  consistent  with                                                                    
language  required   for  the  supplemental.   The  language                                                                    
section also included an effective date.                                                                                        
                                                                                                                                
Co-Chair Neuman pointed to lines  9 and 10 related to foster                                                                    
care. He wondered why the  items (particularly line 10) were                                                                    
not  included  in the  base  budget.  He reasoned  that  the                                                                    
administration knew  the items were anticipated  to grow and                                                                    
had been growing.                                                                                                               
                                                                                                                                
Ms.   Pitney  explained   that  the   issue  reflected   her                                                                    
inexperience in the  FY 16 budget. She noted that  the FY 17                                                                    
budget included  an increase that  more closely  matched the                                                                    
expected  foster care  cost.  She explained  that  it was  a                                                                    
formula-driven  amount based  on the  number of  children in                                                                    
the system.                                                                                                                     
                                                                                                                                
Co-Chair  Neuman  asked  why  the amount  in  line  9  [$2.8                                                                    
million] had  not been anticipated  with a fiscal  note. Ms.                                                                    
Pitney asked for clarification.                                                                                                 
                                                                                                                                
Co-Chair Neuman referenced language  on the spreadsheet that                                                                    
the  Office of  Children's Services  (OCS) anticipated  a 19                                                                    
percent  increase in  the number  of  children. He  recalled                                                                    
that the  legislature had allocated additional  money in the                                                                    
past to  add OCS staff.  He wondered  why the money  had not                                                                    
been included when the appropriation  had been made to cover                                                                    
the costs.                                                                                                                      
                                                                                                                                
Ms. Pitney  believed the prior  funding was  associated with                                                                    
helping with the high OCS  caseload. She did not believe the                                                                    
increase in children needing service had been anticipated.                                                                      
                                                                                                                                
Co-Chair Neuman  replied that  he would  follow up  with Ms.                                                                    
Pitney at a later time.                                                                                                         
                                                                                                                                
Representative Gara asked for  verification that the request                                                                    
on line  9 was associated with  the daily base rate  paid to                                                                    
foster families  ($30 for a  child without special  needs up                                                                    
to over $100 for a child with special needs).                                                                                   
                                                                                                                                
Ms. Pitney replied that the  line item was reflective of the                                                                    
per person  cost associated with the  children receiving the                                                                    
care.                                                                                                                           
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
increment  was  for  money going  to  foster  families.  Ms.                                                                    
Pitney replied in the affirmative.                                                                                              
                                                                                                                                
Representative  Gara  referred  to the  description  of  the                                                                    
increment  on the  spreadsheet that  used the  term "special                                                                    
needs." He discussed that the  number of foster children had                                                                    
increased   from  2,500   to  2,800.   He  noted   that  the                                                                    
supplemental went  towards paying for the  extra children in                                                                    
the system.  He asked  for verification  that the  money was                                                                    
not only for  special needs children. Ms.  Pitney replied in                                                                    
the affirmative.  The amount represented  the total  cost of                                                                    
the formula program associated with foster care.                                                                                
                                                                                                                                
Representative Gara  asked for  verification that  the funds                                                                    
would not go to additional  staff. Ms. Pitney replied in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
1:57:45 PM                                                                                                                    
                                                                                                                                
Representative Gara asked if  the supplemental reflected the                                                                    
current formula meaning approximately  $1.4 million would be                                                                    
allocated    to   pay    the   Permanent    Fund   Dividend.                                                                    
Alternatively, he asked if  the supplemental anticipated the                                                                    
passage of  the governor's proposed change  to the Permanent                                                                    
Fund Dividend.                                                                                                                  
                                                                                                                                
Ms.  Pitney  replied  that   the  supplemental  assumed  the                                                                    
passage  of the  governor's proposal  on the  Permanent Fund                                                                    
Dividend.                                                                                                                       
                                                                                                                                
Representative  Gara  had  never  seen  a  budget  based  on                                                                    
legislation  that had  not been  adopted.  He reasoned  that                                                                    
there was currently  a formula on the  books specifying what                                                                    
the  dividend  would be.  He  acknowledged  that the  number                                                                    
would  change if  a bill  passed,  but he  wondered why  the                                                                    
budget would  include a dividend  amount for a  formula that                                                                    
had not been adopted.                                                                                                           
                                                                                                                                
Ms.  Pitney  replied  that   the  proposal  represented  the                                                                    
governor's  budget  plan.  She stated  that  the  governor's                                                                    
budget  reflected  most  of the  governor's  proposals.  She                                                                    
spoke to  the specific  item and  explained that  the budget                                                                    
language had specified that the  amount was appropriated for                                                                    
FY  16 dividends.  She explained  that FY  16 dividends  had                                                                    
already been paid.                                                                                                              
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
increment [line 40 of  supplemental summary spreadsheet] had                                                                    
nothing to  do with the  FY 17  dividend. He thought  he had                                                                    
heard  Ms.  Pitney say  that  the  amount of  the  projected                                                                    
dividend  appropriation  was  being  changed  based  on  the                                                                    
passage of the governor's new dividend plan for FY 17.                                                                          
                                                                                                                                
Ms. Pitney answered that the  governor's proposal related to                                                                    
the Permanent Fund  Dividend change would come  under the FY                                                                    
17 amendments of $700 million.                                                                                                  
                                                                                                                                
Representative  Gara asked  if the  governor's FY  17 budget                                                                    
reflected  dividend payments  based  on  current statute  or                                                                    
based upon  the passage of  the governor's bill.  Ms. Pitney                                                                    
replied  that  it  would  be  the  dividend  amount  on  the                                                                    
governor's proposal.                                                                                                            
                                                                                                                                
Representative  Gara  thought  that  was  odd  and  did  not                                                                    
believe it had occurred in the past.                                                                                            
                                                                                                                                
2:00:56 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson did  not see the $200 million  veto in oil                                                                    
and gas  tax credits. He  wondered how the state  would deal                                                                    
with the issue.                                                                                                                 
                                                                                                                                
Ms. Pitney  answered that the plan  for the oil and  gas tax                                                                    
credits was outlined in the  governor's proposed oil and gas                                                                    
tax credit  reform bill.  The bill  anticipated the  Oil and                                                                    
Gas Tax  Fund would  cover FY  16 through  FY 18  earned tax                                                                    
credits, assuming the passage of  the reform bill. The FY 17                                                                    
governor's  budget  included  $73  million,  which  was  the                                                                    
minimum  statutorily required  amount. Assuming  the reform,                                                                    
there would  be $1  billion for the  credits expected  to be                                                                    
earned  in  the  current system,  which  the  administration                                                                    
expected to  be closed at the  end of FY 16.  Credits earned                                                                    
through the end of  FY 16 would be paid in  FY 16 through FY                                                                    
18.  There  would also  be  $200  million to  capitalize  an                                                                    
Alaska Industrial  Development and Export  Authority (AIDEA)                                                                    
oil and gas infrastructure development loan fund.                                                                               
                                                                                                                                
Co-Chair  Thompson asked  if $200  million would  go towards                                                                    
paying the  debt incurred when  the governor had  vetoed the                                                                    
$200 million  in credits.  He mentioned  the $1  billion tax                                                                    
credits that would come due  and wondered if the state would                                                                    
owe $1.2  billion. He  noted that  the state  currently owed                                                                    
$200 million.                                                                                                                   
                                                                                                                                
Ms. Pitney replied  in the negative. She  clarified that the                                                                    
$1 billion  included the $200  million in the  current year,                                                                    
$500  million to  $600 million  in the  following year,  and                                                                    
$300 million to $400 million the year after.                                                                                    
                                                                                                                                
Co-Chair  Thompson  asked  for verification  that  the  $200                                                                    
million was  the current  debt. Ms.  Pitney answered  in the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Co-Chair  Thompson referred  to  a  reappropriation of  $1.6                                                                    
million  in  the  remaining funds  from  the  Tanana  Bridge                                                                    
project  (the project  had come  in  under the  bid) to  the                                                                    
positive train control. He explained  that the previous year                                                                    
the Railroad Corporation had come  to the legislature for an                                                                    
additional $55  million. The legislature had  authorized the                                                                    
railroad to bond its own  bonds with no state obligation for                                                                    
$38 million.  The legislature had  told the railroad  to not                                                                    
make any  other requests related to  positive train control.                                                                    
However, the  current request was for  another $1.6 million.                                                                    
He  did not  believe it  made  sense to  ask for  additional                                                                    
funds.                                                                                                                          
                                                                                                                                
2:04:57 PM                                                                                                                    
                                                                                                                                
Ms. Pitney  replied that the difference  between $55 million                                                                    
and  $38  million  was  $17   million.  The  state  had  the                                                                    
opportunity to  pay for the  $55 million with  90/10 Federal                                                                    
Transit Administration  matching funds.  The reappropriation                                                                    
provided  the 10  percent state  match to  complete the  $55                                                                    
million.                                                                                                                        
                                                                                                                                
Co-Chair   Thompson  thought   the  federal   transportation                                                                    
dollars  the state  was slated  to receive  in the  next two                                                                    
years would  go towards  making bond payments.  He furthered                                                                    
that the  legislature had been  told no money would  be owed                                                                    
by the state.                                                                                                                   
                                                                                                                                
Ms.  Pitney  replied  that  they   were  talking  about  two                                                                    
different   sets  of   federal  transportation   money.  The                                                                    
payments  for  the  $38  million   would  come  out  of  the                                                                    
corporation's   annual  amount.   The  line   item  in   the                                                                    
supplemental was  outside the corporation's  normal funding,                                                                    
which had  a 90/10 match  and would allow the  completion of                                                                    
the [positive train control] project.                                                                                           
                                                                                                                                
Co-Chair  Thompson asked  for  verification  that the  funds                                                                    
could  be  used  against  the positive  train  control.  Ms.                                                                    
Pitney replied in the affirmative.                                                                                              
                                                                                                                                
Co-Chair  Neuman asked  if  the  Railroad Corporation  still                                                                    
needed the full [$38  million] bonding authority. Ms. Pitney                                                                    
answered in  the affirmative. She  stated that it was  a $55                                                                    
million completion  - the $38  million plus the  $17 million                                                                    
equaled the $55 million.                                                                                                        
                                                                                                                                
Representative Kawasaki pointed to  line 2 and surmised that                                                                    
the Division  of Legislative Audit had  requested additional                                                                    
money from the Department  of Administration (DOA), Division                                                                    
of Finance for the completion of  an audit. He asked how the                                                                    
situation had happened.                                                                                                         
                                                                                                                                
Ms. Pitney answered that the  annual payment to the Division                                                                    
of Legislative Audit  had been $300,000 for a  minimum of 10                                                                    
years. She  explained that a recent  memorandum of agreement                                                                    
specified an  increase from $300,000 to  $450,000 [the total                                                                    
bill was  $750,000]. She remarked  that it was  short notice                                                                    
given  the constraints  facing all  departments. She  stated                                                                    
that the amount  would be included in  an amendment assuming                                                                    
that it would be the cost charged going forward.                                                                                
                                                                                                                                
2:07:55 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki wondered  if the administration felt                                                                    
it was being  gouged by the legislature.  Ms. Pitney replied                                                                    
that the charge  was probably consistent with  the hours the                                                                    
audit required. The administration  had anticipated that the                                                                    
cost would  be $300,000, but  it had increased  to $750,000.                                                                    
She furthered that  it could not be  accommodated within the                                                                    
regular budget  given the short timeframe.  She believed the                                                                    
Division of Legislative  Audit was only trying  to cover the                                                                    
costs it was incurring during tighter budgetary times.                                                                          
                                                                                                                                
Representative Kawasaki referred to  line 19 related to fire                                                                    
suppression activity. He thought  the number was substantial                                                                    
[$47.5  million].  He asked  if  the  item had  been  under-                                                                    
budgeted or  if it had  been a  bad year. He  wondered about                                                                    
projected cost for the next year.                                                                                               
                                                                                                                                
Ms. Pitney answered that fire  suppression was not typically                                                                    
budgeted;   it  was   more   experience   related  and   had                                                                    
traditionally been a supplemental  request. She relayed that                                                                    
it had  been a high  fire year. Accurate budgeting  for fire                                                                    
suppression would  be fairly  difficult. She  explained that                                                                    
unused funds  allocated to  fire suppression  rolled forward                                                                    
to the next year because of the unpredictable nature.                                                                           
                                                                                                                                
2:09:49 PM                                                                                                                    
                                                                                                                                
Ms.  Pitney  noted  she had  inadvertently  missed  a  $48.8                                                                    
million ratification  of the  prior year's  fire suppression                                                                    
activity   (line  46).   She  explained   that  the   figure                                                                    
represented  the  amount  that  had not  been  budgeted  the                                                                    
previous year (FY  15). She elaborated that it  had been the                                                                    
practice  to include  the item  in the  supplemental budget.                                                                    
She reasoned that  the practice could change;  she thought a                                                                    
$40  million place  holder  on  any given  year  was not  an                                                                    
unreasonable expectation.                                                                                                       
                                                                                                                                
Representative Kawasaki  looked at  lines 29 and  35 related                                                                    
to ALMR. He  stated that the funding was  currently fixed in                                                                    
the  DOA  budget. He  did  not  know  how many  millions  of                                                                    
dollars  the  state  paid  in   maintenance  each  year.  He                                                                    
wondered  why the  item  was listed  as  a one-time  capital                                                                    
request.                                                                                                                        
                                                                                                                                
Ms.  Pitney  answered  that the  funding  would  go  towards                                                                    
software and hardware upgrades and  fixing the equipment for                                                                    
the  statewide  emergency  communication  system  ALMR.  The                                                                    
increment was  a one-time capital request.  Separately there                                                                    
were operating  funds for  ALMR in  DOA's budget,  which was                                                                    
responsible for  maintaining the  system. System  users were                                                                    
DNR, DMVA,  and many  municipalities. She stressed  that the                                                                    
increment did  not reflect  the last  cost into  the system;                                                                    
the system was expensive. She  furthered that there was over                                                                    
$30  million  in  additional   system  needs  for  upgrades,                                                                    
radios,  and  so  forth;  the requests  would  begin  in  $5                                                                    
million to  $6 million increments  in FY 18.  She emphasized                                                                    
that ALMR  was the  backbone of the  emergency communication                                                                    
system in the  state. She noted that  the administration was                                                                    
asking if alternatives existed.                                                                                                 
                                                                                                                                
2:12:49 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  did not  believe the  committee had                                                                    
ever reviewed the unallocated cuts  made by the legislature.                                                                    
He thought it felt out  of place to talk about supplementals                                                                    
before  understanding  what  happened with  the  unallocated                                                                    
cuts from the prior year.                                                                                                       
                                                                                                                                
Representative  Guttenberg pointed  to  line  16 related  to                                                                    
tobacco  cessation litigation.  He referred  to language  in                                                                    
the  description that  the administration  was studying  the                                                                    
impact  of the  supplemental  request for  an  FY 17  budget                                                                    
amendment.  He   wondered  if  settlement  costs   had  been                                                                    
received; if  so, he asked  where they had gone.  He queried                                                                    
whether additional  settlement funds received went  into the                                                                    
General Fund or other.                                                                                                          
                                                                                                                                
Ms. Pitney answered that all  settlement costs went into the                                                                    
General  Fund  or  the Constitutional  Budget  Reserve.  The                                                                    
money did not offset first the litigation cost.                                                                                 
                                                                                                                                
Representative  Guttenberg  asked  if   they  were  seen  as                                                                    
receipt  authority for  those funds.  Ms. Pitney  replied in                                                                    
the  negative.  The funds  went  straight  into the  revenue                                                                    
bank; otherwise  it would mean  an appropriation  of General                                                                    
Fund before the funds were used.                                                                                                
                                                                                                                                
Representative  Guttenberg asked  how  the settlement  funds                                                                    
were  categorized   when  they   were  received   back  from                                                                    
litigation.  He  asked  if  the funds  were  listed  as  the                                                                    
authority  to  receive  the   funds  back  from  litigation.                                                                    
Alternatively,  he wondered  if the  funds were  lumped into                                                                    
the General Fund.  Ms. Pitney replied that  she would follow                                                                    
up.                                                                                                                             
                                                                                                                                
Co-Chair  Neuman requested  a report  on the  fund including                                                                    
how much it was generating and where the money was going.                                                                       
                                                                                                                                
Representative  Guttenberg was  also interested  in how  the                                                                    
settlement funds were accounted for.                                                                                            
                                                                                                                                
Co-Chair Neuman  asked to receive  the same  information for                                                                    
the alcohol fund.                                                                                                               
                                                                                                                                
Representative Guttenberg  spoke to the additional  cost for                                                                    
external management  fees under  DOR (lines  20 and  21). He                                                                    
asked  if the  management  fees were  based  on better  than                                                                    
expected  returns on  funds. He  asked if  the increase  was                                                                    
appropriate for the returns.                                                                                                    
                                                                                                                                
Ms. Pitney replied in the affirmative.                                                                                          
                                                                                                                                
Representative   Guttenberg  asked   how  much   better  the                                                                    
performance   was.  Ms.   Pitney   would   follow  up   with                                                                    
information from DOR.                                                                                                           
                                                                                                                                
2:16:38 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  pointed to  line  9  related to  the                                                                    
increase  in   foster  care  funds.  She   stated  that  the                                                                    
description read that OCS anticipated  a 19 percent increase                                                                    
[in  the number  of children  receiving foster  care special                                                                    
needs funds].  She stressed  that the  number was  huge. She                                                                    
asked  for  verification that  the  increment  was based  on                                                                    
anticipated growth and not current foster homes.                                                                                
                                                                                                                                
Ms. Pitney replied  that the number was based  on the number                                                                    
of children who  had entered the system  throughout the past                                                                    
fall.  Based  on  the current  figures,  the  administration                                                                    
anticipated a 19  percent increase by the end  of the fiscal                                                                    
year.                                                                                                                           
                                                                                                                                
Representative  Wilson was  bothered by  the situation.  She                                                                    
stated that  following the funding increase  provided to OCS                                                                    
the previous year,  the agency had taken  many more children                                                                    
into the  system (children she  believed could  be somewhere                                                                    
else). She  pointed to an  increment on line 10  in response                                                                    
to an  increase in  subsidized adoptions  and guardianships.                                                                    
She  referred to  recent testimony  from OCS  that how  much                                                                    
extra  funding may  be  needed for  a  child was  negotiated                                                                    
between  OCS and  the adoptive  and/or guardian  parent. She                                                                    
wondered if  the increment was anticipated.  She wondered if                                                                    
a deal was  open-ended and the state received a  bill at the                                                                    
end.                                                                                                                            
                                                                                                                                
Ms. Pitney  replied that the  item on  line 10 was  based on                                                                    
the  number of  children in  the process  and the  amount of                                                                    
money  associated  with  each   of  those  individuals.  She                                                                    
explained  that as  there were  more identified  children in                                                                    
the  foster care  or subsidized  adoption systems,  the cost                                                                    
based on the formula amount increased.                                                                                          
                                                                                                                                
Representative  Wilson countered  that the  item on  line 10                                                                    
was  not a  formula  program,  but was  an  addition to  the                                                                    
formula  for  guardianship  and/or adoption.  She  furthered                                                                    
that if the  child had no special needs  the additional cost                                                                    
was  zero,  but  the  number  increased  for  children  with                                                                    
intensive  medical  needs or  other.  She  requested to  see                                                                    
actual numbers  to give meaning  to the 19  percent increase                                                                    
(line  9).  She pointed  to  line  10  and stated  that  the                                                                    
contracts  were negotiated  between  the potential  adoptive                                                                    
and/or guardian parent with OCS.  She reiterated that it was                                                                    
not  a  formula.  She  wondered how  the  numbers  had  been                                                                    
determined.                                                                                                                     
                                                                                                                                
Ms.  Pitney replied  that  she could  follow  up with  exact                                                                    
numbers.                                                                                                                        
                                                                                                                                
2:20:23 PM                                                                                                                    
                                                                                                                                
Representative Wilson  remarked on  the 19  percent increase                                                                    
in  foster children.  She noted  that  she did  not see  the                                                                    
Public  Defender's Office  listed  in  the supplemental  and                                                                    
reasoned that 90  percent of the parents in  the OCS process                                                                    
had  public  defenders.  Additionally,  she did  not  see  a                                                                    
request reflecting  a need  for more  guardians ad  litem or                                                                    
for the  attorney general's office. She  noted the committee                                                                    
had heard  the previous  day how much  more the  things were                                                                    
costing. She  wondered if  there would  be increases  in the                                                                    
areas she listed.                                                                                                               
                                                                                                                                
Ms.  Pitney   replied  that   all  offices   were  receiving                                                                    
pressures  as  General  Fund reductions  were  made  and  as                                                                    
service  requirements  were  either   staying  the  same  or                                                                    
increasing. The state  was doing the best it  could to serve                                                                    
the population.                                                                                                                 
                                                                                                                                
Representative Wilson stated that  the legislature must have                                                                    
given  the DHSS  a  lot  of money  if  the department  could                                                                    
absorb a  19 percent increase  in its workload. She  did not                                                                    
believe  19 percent  of the  state's children  needed to  be                                                                    
leaving their  homes. She was  disturbed by the  high number                                                                    
and had  many constituents  involved in related  issues. She                                                                    
believed the department needed to  come up with alternatives                                                                    
to  taking  children out  of  their  homes and  breaking  up                                                                    
families. She  stressed that  the families  did not  get put                                                                    
back together;  the impact was  seen in other areas  such as                                                                    
the correctional system. She thought it was awful.                                                                              
                                                                                                                                
Representative  Gattis  referred  to   line  20  related  to                                                                    
increased  external  management  fees in  the  DOR  Treasury                                                                    
Division. She  found the better-than-expected returns  to be                                                                    
surprising  because her  personal  investment portfolio  had                                                                    
gone down.  She wondered  about the investment  managers who                                                                    
had provided increases to funds  under DOR. Once the numbers                                                                    
were received she  wanted to explore the  issue further. She                                                                    
turned  to line  29 related  to ALMR.  She wondered  why the                                                                    
funds had not been requested in  the budget and why they had                                                                    
been included in the supplemental.                                                                                              
                                                                                                                                
Ms. Pitney replied that the  funds had been requested by the                                                                    
Department of  Public Safety  (DPS) through  DOA as  part of                                                                    
the  budget   process.  As   costs  were   scrutinized,  the                                                                    
administration  asked  the  departments to  find  what  they                                                                    
could to mitigate the cost  for the system and the necessary                                                                    
upgrade  (it was  a vendor-based  system). Subsequently  the                                                                    
departments came back with the  reappropriation that did not                                                                    
meet  the needs,  nor  did the  $2.3  million. The  original                                                                    
request  had   been  $5  million.  The   administration  had                                                                    
communicated to the departments  that due to tough financial                                                                    
times  the  departments  should determine  how  to  use  the                                                                    
amount of money to keep the system going.                                                                                       
                                                                                                                                
2:23:53 PM                                                                                                                    
                                                                                                                                
Representative Gattis  noted that the ALMR  increment was in                                                                    
her finance subcommittee budget and  she would look into the                                                                    
issue further. She  moved to line 31 related  to the Eklutna                                                                    
overpass, which she  was familiar with. She  referred to the                                                                    
increment  description and  observed that  the overpass  had                                                                    
been hit in 2010, but had  become an FY 16 supplemental. She                                                                    
remarked  that six  years had  gone  by. She  asked why  the                                                                    
funding was  being requested  at present  instead of  in the                                                                    
past.  She wondered  if the  insurance  settlement had  gone                                                                    
through a private carrier or a company.                                                                                         
                                                                                                                                
Ms. Pitney  replied that the  remaining cost was  the amount                                                                    
left  after  dealing  with   the  company's  insurance.  She                                                                    
detailed  that the  work  had been  completed  and then  the                                                                    
disagreement   had   occurred.   She  continued   that   the                                                                    
disagreement  had  been  worked through  and  the  increment                                                                    
(line 31)  was the remaining project  funding required after                                                                    
all of the settlements.                                                                                                         
                                                                                                                                
Representative  Gattis  asked  if  the  insurance  had  come                                                                    
through a  company and if the  state could have gone  to the                                                                    
company for the difference.  She reasoned that the company's                                                                    
vehicle had hit  the overpass. She asked if  the company was                                                                    
in business.                                                                                                                    
                                                                                                                                
Ms. Pitney replied that she  could provide details about the                                                                    
settlement.  The  increment  in  the  supplemental  was  the                                                                    
amount  remaining  after  reaching the  agreement  with  the                                                                    
company and its insurance carrier.                                                                                              
                                                                                                                                
Representative Gattis  understood. She was  looking anywhere                                                                    
possible to get compensation  from the party responsible for                                                                    
the damage.                                                                                                                     
                                                                                                                                
Co-Chair Neuman asked  why the company had not  paid for the                                                                    
entire  cost of  the damage.  He understood  that it  was an                                                                    
insurance settlement.                                                                                                           
                                                                                                                                
Ms.  Pitney  did  not  know the  specifics  of  the  parties                                                                    
involved, but the  amount reflected what was  left after the                                                                    
settlement.                                                                                                                     
                                                                                                                                
2:27:06 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  echoed Representative  Wilson's concerns                                                                    
related to the 19 percent  foster care increase (line 9). He                                                                    
remarked that the increase was  huge. He stated if there was                                                                    
something going on that necessitated  the increased cases it                                                                    
was  something  the legislature  needed  to  know about.  He                                                                    
noted that the  description stated there was  no increase in                                                                    
the  governor's amended  budget.  He wondered  why the  $2.6                                                                    
million request would not get  built into the base budget if                                                                    
the need would be continuing.                                                                                                   
                                                                                                                                
Ms. Pitney answered  that the amount was not  in the amended                                                                    
budget; it was an increase put in the FY 17 proposal.                                                                           
                                                                                                                                
Vice-Chair  Saddler pointed  to lines  24 through  26, which                                                                    
indicated an  increase of approximately $700,000  on airport                                                                    
leasing. The  committee had heard  from the  commissioner of                                                                    
DOT that  the department had  not modified its  lease rates.                                                                    
He  wondered  if some  airports  had  received increases  in                                                                    
lease rates  or if  the increase was  a result  of increased                                                                    
leasing activity.                                                                                                               
                                                                                                                                
Ms. Pitney answered  that "it is in  the receipt authority,"                                                                    
which resulted in the ability to utilize the receipts.                                                                          
                                                                                                                                
Vice-Chair  Saddler  asked  if   it  was  predicated  on  an                                                                    
anticipation  of more  leasing or  higher rates.  Ms. Pitney                                                                    
replied that it  was predicated on money  the department was                                                                    
collecting in the current year based on FY 16 rates.                                                                            
                                                                                                                                
Vice-Chair  Saddler asked  for verification  that there  had                                                                    
been  no change  in rates.  Ms. Pitney  could not  guarantee                                                                    
that  there  had  been  no  rate increases  at  any  of  the                                                                    
airports.  She   elaborated  that  the  increment   was  not                                                                    
predicated on  a wholesale  rate increase;  it was  based on                                                                    
rates  paid   in  the  current  year.   She  explained  that                                                                    
previously, the receipt authority  had been below the amount                                                                    
of revenue collected.                                                                                                           
                                                                                                                                
Vice-Chair  Saddler  stated that  he  hoped  the FY  17  DOT                                                                    
budget would  increase the receipt  authority on  account of                                                                    
increased leasing rates.                                                                                                        
                                                                                                                                
2:29:33 PM                                                                                                                    
                                                                                                                                
Representative Gara  made corrections related to  the foster                                                                    
care  increments.  He  discussed that  the  legislature  had                                                                    
funded additional  staff positions in OCS  the previous year                                                                    
due  to  understaffing.  Since  that  time,  the  number  of                                                                    
children in  foster had  increased from  2,500 to  2,800. He                                                                    
stressed that  the number  had increased  by 1,100  over the                                                                    
past  six  years.  He  stated   that  OCS  had  gotten  more                                                                    
aggressive about  taking children out of  their homes, which                                                                    
was something  the committee could discuss  with the agency.                                                                    
He stressed that  the number of children taken  out of their                                                                    
homes  had  been  increased  over  a  six-year  period;  the                                                                    
increase was not  related to the 27 new  positions hired the                                                                    
previous year. He specified that  the new staff had not been                                                                    
hired to take more children  out of their homes. He remarked                                                                    
that the  extra staff had been  taken up by the  increase in                                                                    
300 kids. He stated that the  fact that there were more kids                                                                    
in  the system  was terrible.  He spoke  to the  increase in                                                                    
subsidized  adoptions  and  guardianships  on  line  10.  He                                                                    
believed  the increase  was a  good thing  in some  ways; it                                                                    
meant kids  were getting out  of the foster care  system and                                                                    
into permanent homes. In order  to encourage people to adopt                                                                    
kids out  of the  foster care  system, the  state subsidized                                                                    
the adoption cost.                                                                                                              
                                                                                                                                
Representative Gara  referred to the $1.6  million increment                                                                    
for the  Alaska Railroad  Corporation. He remarked  that the                                                                    
railroad  ran  autonomously.  He believed  the  entity  used                                                                    
every single penny  provided, continued to come  back to the                                                                    
legislature for  more money, and  the legislature  never saw                                                                    
how the money was spent.  He asked if the administration had                                                                    
determined  whether the  railroad could  cover the  cost for                                                                    
the positive train control system.                                                                                              
                                                                                                                                
Ms. Pitney  answered in the affirmative.  She specified that                                                                    
the  cost had  been  $55 million;  the  railroad had  bonded                                                                    
using its  revenue for $38  million of the total.  The state                                                                    
had secured a 90 percent  (federal) match if the state could                                                                    
come up  with the remaining 10  percent. The reappropriation                                                                    
from a  completed project  allowed the  state to  obtain the                                                                    
federal  matching funds.  Out of  a $55  million commitment,                                                                    
the  railroad  was  locating  all   but  $1.6  million.  She                                                                    
explained   that  the   federal  [positive   train  control]                                                                    
requirement  was significant  and the  train system  did not                                                                    
have that many passengers.                                                                                                      
                                                                                                                                
Representative  Gara thought  there was  a project  underway                                                                    
that was building a longer  rail line to Point Mackenzie. He                                                                    
thought  completion  of the  project  would  not happen  for                                                                    
quite some time; therefore, he  wondered if that project had                                                                    
some unspent  money that  could be borrowed  to pay  for the                                                                    
positive train control system.                                                                                                  
                                                                                                                                
Ms. Pitney replied that it  was possible. She noted that the                                                                    
Point   Mackenzie  project   was   not   complete  and   the                                                                    
administration  had   looked  for   remaining  funds   in  a                                                                    
completed project.                                                                                                              
                                                                                                                                
2:33:42 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  if  the state  could loan  the                                                                    
money to the  railroad and the railroad could  pay the state                                                                    
back  in  receipts  (like  it was  doing  with  the  bonding                                                                    
portion).  Ms. Pitney  answered that  the legislature  could                                                                    
work  with  the railroad  to  determine  if the  option  was                                                                    
possible.                                                                                                                       
                                                                                                                                
Representative Wilson thought  a loan may be  a good option.                                                                    
She recalled that an Interior  delegation had used about $80                                                                    
million and  had no capital projects.  She remembered hoping                                                                    
the $1 million would come back to the state.                                                                                    
                                                                                                                                
Co-Chair Neuman  asked for verification that  the governor's                                                                    
budget  amendments  would  be  received by  day  30  of  the                                                                    
current  legislative  session (particularly  the  amendments                                                                    
allocating unallocated reductions).                                                                                             
                                                                                                                                
Ms.  Pitney replied  that the  task represented  significant                                                                    
work. The administration was progressing towards that date.                                                                     
                                                                                                                                
Co-Chair Neuman noted the amendments were needed.                                                                               
                                                                                                                                
HB  293  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:34:45 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:37:02 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
^FY 17 BUDGET OVERVIEW: DEPARTMENT OF NATURAL RESOURCES                                                                       
                                                                                                                                
2:37:25 PM                                                                                                                    
                                                                                                                                
ED  FOGELS,  DEPUTY   COMMISSIONER,  DEPARTMENT  OF  NATURAL                                                                    
RESOURCES,  introduced the  PowerPoint Presentation:  "State                                                                    
of  Alaska Department  of  Natural  Resources House  Finance                                                                    
Budget Overview" dated  February 4, 2016 (copy  on file). He                                                                    
addressed an  organizational chart on slide  3 that included                                                                    
the  commissioner, two  deputy  commissioners, and  division                                                                    
directors.  He  turned  the  meeting  over  to  Commissioner                                                                    
Myers.                                                                                                                          
                                                                                                                                
2:38:17 PM                                                                                                                    
                                                                                                                                
MARK MYERS,  COMMISSIONER, DEPARTMENT OF  NATURAL RESOURCES,                                                                    
began  with  slide 4  and  specified  that the  department's                                                                    
mission was  to develop, conserve,  and maximize the  use of                                                                    
Alaska's  natural  resources   consistent  with  the  public                                                                    
interest.  He  reported  that   the  state's  submerged  and                                                                    
surface lands  accounted for 160 million  acres (bigger than                                                                    
the State of  California). He detailed that the  state had a                                                                    
world-class resource endowment;  it ranked in the  top 10 in                                                                    
its  mineral and  oil and  gas  endowment (the  best in  the                                                                    
Arctic).  He highlighted  the  state's timber,  agriculture,                                                                    
land, and  water; the  state contained  about 40  percent of                                                                    
the  country's surface  water. He  noted that  Minnesota had                                                                    
10,000 lakes, whereas  Alaska had 3 million.  The state also                                                                    
had  12,000  rivers. He  shared  that  the state's  resource                                                                    
endowment  empowered the  state's economy.  The department's                                                                    
first  core service  was responsible  commercial development                                                                    
and  use of  state  land and  natural resources,  consistent                                                                    
with  the   public  interest,   for  long-term   wealth  and                                                                    
employment. He  detailed that the service  was very specific                                                                    
to the  economic development that  comes with the  lands for                                                                    
renewable (e.g.  tourism) or  non-renewable (e.g.  oil, gas,                                                                    
and mining) resources. He explained  that together the items                                                                    
formed  the state's  economy. He  noted that  development on                                                                    
federal land  in the state  was very restricted  (there were                                                                    
over  200   million  acres  of  federal   land  in  Alaska);                                                                    
therefore,  most development  occurred on  state land  or on                                                                    
the 44  million acres of  Alaska Native land. The  state was                                                                    
very  dependent on  its  lands for  the  development of  its                                                                    
economy. Much  of the state's  economy not  directly related                                                                    
to  the  development  of resources,  was  dependent  on  the                                                                    
associated   economic   development.   He   explained   that                                                                    
community  development in  forestry and  agriculture brought                                                                    
in  significant   money  to  local  communities   and  built                                                                    
sustainability.  He referred  to an  external study  showing                                                                    
that Alaska  was unique in  its level of endowment;  it also                                                                    
had the highest return on its land than in any other state.                                                                     
                                                                                                                                
Commissioner Myers continued to  address slide 4. He relayed                                                                    
that  people  tended   to  think  of  DNR   as  a  primarily                                                                    
regulatory  agency. He  explained that  DNR was  primarily a                                                                    
commercial, economic development  agency; it was responsible                                                                    
for  resource  and  royalty   management  and  ensuring  the                                                                    
availability of capital coming out  of the resources for tax                                                                    
purposes. He explained that the  state's tax structure was a                                                                    
product of  the state's resource development  and royalties.                                                                    
The department was very sensitive  to the state's ability to                                                                    
rationally and prudently develop its land.                                                                                      
                                                                                                                                
Commissioner Myers discussed that  DNR's second core service                                                                    
was to  mitigate threat to  the public from  natural hazards                                                                    
by  providing  comprehensive  fire  protection  services  on                                                                    
state,   private,   and   municipal   lands;   and   through                                                                    
identifying  significant geologic  hazards. He  communicated                                                                    
that  the past  year had  been the  second largest  wildfire                                                                    
year  on  history  (approximately   5.1  million  acres  had                                                                    
burned). The  largest wildfire year  had been 2004  when 6.6                                                                    
million acres  burned. He stated that  fires would increase;                                                                    
the  cost   of  fighting  fires  probably   represented  the                                                                    
department's largest  budget item.  The department  did much                                                                    
of the work  with hazards and risks  related to earthquakes,                                                                    
landslides,  floods,  coastal erosion,  volcanic  eruptions,                                                                    
and other. He referred to  a 7.1 earthquake in Anchorage and                                                                    
landslides in  Sitka as  examples. The  department conducted                                                                    
work  -   largely  through  its   geological  survey   -  to                                                                    
understand,  mitigate,   and  warn  the  public   about  the                                                                    
hazards.                                                                                                                        
                                                                                                                                
Commissioner  Myers addressed  the  department's third  core                                                                    
service: to  provide access  to state  lands for  public and                                                                    
private  use,  settlement,  and recreation.  The  department                                                                    
sold  land  for  agricultural and  public  settlement  uses.                                                                    
Additionally,  the  department  made  sure  state  land  was                                                                    
available for  things like a  small dock permits  and other.                                                                    
He mentioned  providing access across lands  and referred to                                                                    
problems with  the federal government related  to the issue.                                                                    
The  department's   fourth  core   service  was   to  ensure                                                                    
sufficient   data.  He   detailed  that   the  agency   used                                                                    
substantial  geological data  and  all types  of other  data                                                                    
necessary   to  manage   lands  and   to  work   with  other                                                                    
stakeholders   for   environmental    impact   studies   and                                                                    
permitting processes. He  pointed to a pie chart  on slide 4                                                                    
and noted that  the largest portion of DNR's  budget went to                                                                    
economic development.                                                                                                           
                                                                                                                                
2:43:26 PM                                                                                                                    
                                                                                                                                
Commissioner Myers highlighted land  ownership on slide 5. A                                                                    
map  illustrated  the  checkerboard nature  of  the  state's                                                                    
landscape;  the  state's  lands   were  shown  in  pink.  He                                                                    
explained that  connecting the lands, gaining  access across                                                                    
federal lands, and  managing the remoteness of  the land was                                                                    
not inexpensive. He  noted that the department  had to visit                                                                    
the  sites;  the majority  of  state  land  had no  road  or                                                                    
airport access.  He addressed DNR office  locations on slide                                                                    
6. The slide included a  map with office locations indicated                                                                    
by  red  dots. He  elaborated  that  the map  reflected  the                                                                    
complexity  and  variation  in   the  landscape  (from  arid                                                                    
deserts  to  temperate  rainforest); the  resources  in  the                                                                    
areas varied extremely.  The state was the  least mapped and                                                                    
most poorly understood  places in the world.  He equated the                                                                    
lack of understanding about the  remote areas of Alaska with                                                                    
the   bottom  of   the  ocean.   He   explained  that   data                                                                    
acquisition,   understanding,  evaluating,   and  maximizing                                                                    
value required DNR to do a fair amount of work.                                                                                 
                                                                                                                                
Commissioner   Myers  addressed   the   7  major   divisions                                                                    
beginning  on  slide   7.  He  spoke  to   the  Division  of                                                                    
Agriculture;  Division of  Forestry; Division  of Geological                                                                    
and Geophysical  Surveys; and the  Division of  Mining, Land                                                                    
and Water  (which had been  three separate divisions  in the                                                                    
past, but had been combined for efficiency).                                                                                    
                                                                                                                                
Co-Chair Neuman  asked Commissioner Myers to  provide budget                                                                    
numbers when going through the divisions.                                                                                       
                                                                                                                                
Commissioner Myers returned to  the Division of Agriculture,                                                                    
which had 39  positions and accounted for  about 3.7 percent                                                                    
or  $7  million  ($2.8  UGF)  of  the  department's  overall                                                                    
budget.  The  Division of  Forestry  had  234 positions  and                                                                    
accounted  for  22.6 percent  or  $43  million ($24  million                                                                    
UGF). He detailed  that 88 percent of  the division's budget                                                                    
went  to  fire  suppression;  the remaining  funds  went  to                                                                    
forest management  and timber sales for  forest harvests. He                                                                    
noted  that  the  amounts did  not  include  the  governor's                                                                    
supplemental  fire budget.  The Division  of Geological  and                                                                    
Geophysical  Surveys (DGGS)  accounted  for  4.4 percent  or                                                                    
$8.5 million  ($4.4 million UGF)  of the  department's total                                                                    
budget.  He  specified  that  it  was  probably  DNR's  most                                                                    
leveraged  division;  it  was  dependent  on  more  than  40                                                                    
percent  outside  funds used  for  research  (slide 8).  The                                                                    
Division  of   Mining,  Land  and   Water  (DMLW)   was  the                                                                    
department's  largest   division  with  205   employees  and                                                                    
accounted for $26 million ($9.6  million UGF) of DNR's total                                                                    
budget.                                                                                                                         
                                                                                                                                
Commissioner Myers moved on to  the Division of Oil and Gas,                                                                    
which  was DNR's  most lucrative  economic division  and the                                                                    
most  technical with  the highest  level of  more expensive,                                                                    
highly skilled  geologists, engineers,  commercial analysts,                                                                    
and  other (slide  9). The  division had  111 employees  and                                                                    
accounted  for 11.6  percent or  $22  million ($8.9  million                                                                    
UGF) of the  department's budget. The Division  of Parks and                                                                    
Outdoor Recreation  (DPOR) operated the largest  park system                                                                    
in  the country  with 133  positions and  accounted for  8.6                                                                    
percent   or  $16   million  ($3.2   million  UGF)   of  the                                                                    
department's  total budget.  He detailed  that the  division                                                                    
was  becoming  independent  of  state  UGF  with  volunteers                                                                    
outnumbering employees  approximately 8 to 1.  He elaborated                                                                    
that the  division was about  40 percent independent  of UGF                                                                    
in terms  of its ability to  raise money on fees  for use of                                                                    
facilities. He  relayed that there was  proposed legislation                                                                    
that would  allow the department to  sell parks merchandise;                                                                    
with  the  additional  revenue,  the  department  hoped  the                                                                    
division would become 50 percent independent on UGF.                                                                            
                                                                                                                                
2:47:30 PM                                                                                                                    
                                                                                                                                
Commissioner  Myers   spoke  to  the  Division   of  Support                                                                    
Services,  which accounted  for 6.8  percent or  $13 million                                                                    
($5.6 million UGF) of DNR's  total budget (slide 10). One of                                                                    
the division's  responsibilities was running  the Recorder's                                                                    
Office, which was  a crucial function for the  state and was                                                                    
mostly self-funded.  The division  was also  responsible for                                                                    
running   the  department's   information  technology   (IT)                                                                    
infrastructure,  human  resources,  and managing  sales  and                                                                    
other contracts. He noted  that Administrative Services only                                                                    
accounted for $2.3 million UGF,  the remaining funds went to                                                                    
IT. He moved to slide 11  and relayed that the Office of the                                                                    
Commissioner  was   a  relatively   small  portion   of  the                                                                    
department's  budget. A  relatively large  new (in  the last                                                                    
several years)  portion of the  department's budget  was the                                                                    
North  Slope Gas  Commercialization (NSGC).  The agency  was                                                                    
mostly self-contained,  but did receive direct  support from                                                                    
other  divisions such  as the  Division of  Oil and  Gas for                                                                    
work  on the  gasline. He  detailed that  the agency  had 21                                                                    
positions,  5 of  which were  filled  with state  employees,                                                                    
several were  unfilled, and the  remainder were  filled with                                                                    
contractors.                                                                                                                    
                                                                                                                                
Commissioner   Myers  addressed   the   Office  of   Project                                                                    
Management and  Permitting (OPMP).  There had been  a strong                                                                    
desire   within  the   legislature  and   administration  to                                                                    
accelerate  permitting.  The  goal was  to  make  permitting                                                                    
easier,  more  coordinated,   and  more  efficient,  without                                                                    
compromising the  process. The faster the  projects could be                                                                    
permitted, the  better it was  for economic  development. He                                                                    
continued that  the better and  stronger the  process, there                                                                    
was less  public concern and  less litigation.  The office's                                                                    
total  budget was  $7.7 million  ($912,800 UGF);  about $5.6                                                                    
million of the budget was  funded by project applicants. The                                                                    
office permitted large projects  and worked with federal and                                                                    
other state agencies to provide coordination.                                                                                   
                                                                                                                                
Commissioner Myers discussed the  Alaska Mental Health Trust                                                                    
Land Office, which  was a pass through  office that reported                                                                    
to the  Alaska Mental Health Trust  Authority (AMHTA) board.                                                                    
The office's  function within  DNR was  to manage  the AMHTA                                                                    
lands to  return the  value for  mental health  programs. He                                                                    
highlighted performance  measures showing the  mining, land,                                                                    
and  water  permit  backlog on  slide  13.  The  legislature                                                                    
allocated significant funding in FY  12 and FY 13, which had                                                                    
visibly helped  to reduce the  backlog to about  1,000 (down                                                                    
from a  peak of 2,600).  In 2015,  93 percent of  the permit                                                                    
applications were  granted within the year.  He relayed that                                                                    
the improvements went in tandem  with the Unified Permitting                                                                    
Program  with  the goal  of  creating  a single  application                                                                    
structure for permitting and processing permits.                                                                                
                                                                                                                                
Commissioner  Myers   continued  to  speak   to  performance                                                                    
measures on  slide 14.  The slide  included a  graph showing                                                                    
OPMP coordinated  projects, which had continued  to increase                                                                    
over  the  past  three  years  (primarily  in  oil  and  gas                                                                    
projects shown  in red).  He noted  the projects  were user-                                                                    
desired  and   funded.  He  explained  that   large  mining,                                                                    
transportation, and  renewable energy projects liked  to use                                                                    
the service. The UGF allocated  to OPMP went towards helping                                                                    
the department  evaluate the  changes in  federal permitting                                                                    
processes and make  state comments back when  it thought new                                                                    
federal  standards  were  problematic. The  information  was                                                                    
provided  to the  commissioner  and  governor's office.  For                                                                    
example, the process  had been used recently  in response to                                                                    
the Obama Administration's  structural permitting changes to                                                                    
things  like  mining, oil  and  gas,  and general  land  use                                                                    
management.                                                                                                                     
                                                                                                                                
Commissioner Myers addressed  the FY 16 budget  on slide 16.                                                                    
He detailed  that UGF allocated  to DNR had been  reduced by                                                                    
$7.6 million  (approximately 10  percent) and  76 positions.                                                                    
He  referred  to a  handout  provided  to committee  members                                                                    
listing  all  of  the   deleted  positions  ["Department  of                                                                    
Natural Resources  FY2016 and  FY2017 Position  Deletions as                                                                    
of February  2, 2016"  (copy on  file)]; the  handout listed                                                                    
whether people  had been in  the deleted  positions, whether                                                                    
they retired,  let go,  or moved to  another job  within the                                                                    
organization.  He noted  that the  handout  also provided  a                                                                    
breakout   of   job   classification   (i.e.   professional,                                                                    
clerical, or  technical). He knew  there had  been questions                                                                    
about  whether the  positions  represented  real bodies.  He                                                                    
asked a colleague to elaborate on the topic.                                                                                    
                                                                                                                                
2:52:51 PM                                                                                                                    
                                                                                                                                
FABIENNE  PETER-CONTESSE,  DIRECTOR,   DIVISION  OF  SUPPORT                                                                    
SERVICES,   DEPARTMENT   OF  NATURAL   RESOURCES,   directed                                                                    
attention  to the  position deletion  handout and  explained                                                                    
that the department  had removed 76 positions in  FY 16 (one                                                                    
of  which   had  been  transferred  to   the  Department  of                                                                    
Transportation  and Public  Facilities (DOT)).  She detailed                                                                    
that  41 of  the  positions  had been  vacant,  34 had  been                                                                    
filled, 22 people  had been laid off, 9  people had retired,                                                                    
and  3  took  lateral  transfers. The  department  had  also                                                                    
removed all of the funding  for the positions, which totaled                                                                    
$4.4  million. The  department  currently  had 12  positions                                                                    
slated  for deletion  in  FY  17 (at  present  2  of the  12                                                                    
positions were filled). She  specified that approximately 34                                                                    
percent   of   the   eliminated  positions   were   at   the                                                                    
expert/professional level; the  individuals in the positions                                                                    
were   highly  educated,   specialized,  and   difficult  to                                                                    
replace. She  highlighted that 39  percent of  the positions                                                                    
were  at the  technical level  and  26 percent  were at  the                                                                    
entry  level.   She  added  that   the  handout   broke  the                                                                    
eliminated  positions  out  by location  and  division  (the                                                                    
details of every position were on the second page).                                                                             
                                                                                                                                
Commissioner  Myers continued  to  address  slide 16  titled                                                                    
"DNR  FY2016   Budget  Cut  Highlights."   The  department's                                                                    
overall philosophy  in managing  the cuts  was to  avoid the                                                                    
elimination of  major programs, which included  forestry and                                                                    
agriculture. He  remarked that  the elimination  of forestry                                                                    
and  agriculture would  have nasty  effects on  communities.                                                                    
There  were parts  of agriculture  that directly  related to                                                                    
other  areas  such  as  the  invasive  plants  program,  and                                                                    
inspections for agriculture/timber  export. He detailed that                                                                    
there was codependency between  divisions and the department                                                                    
wanted to  ensure position cuts  in one area did  not damage                                                                    
other  programs.   The  department  had   decreased  certain                                                                    
capacities in programs  knowing it would hurt,  but with the                                                                    
goal of avoiding  breaking anything; the method  had been to                                                                    
go  down  to   the  director  level  and   work  the  issues                                                                    
systematically to try  to manage cuts the best  it could. He                                                                    
added  that  the   cuts  were  real  and   had  resulted  in                                                                    
programmatic  effects. In  FY 16,  4  positions including  2                                                                    
scientists  evaluating coal/geothermal/energy  resources had                                                                    
been cut  from DGGS; additionally, the  airborne geophysical                                                                    
survey  program had  been eliminated.  He explained  that no                                                                    
new airborne  geophysical data had been  collected (the data                                                                    
helped the  state understand  its mineral  attribution), but                                                                    
there  was a  small  amount of  LIDAR  [Light Detection  and                                                                    
Ranging] from  DOT and  other areas that  DNR had  helped to                                                                    
process.                                                                                                                        
                                                                                                                                
Commissioner  Myers  highlighted  that 9  positions  in  the                                                                    
Division of  Oil and Gas  had been cut by  the restructuring                                                                    
of  work  processes. The  department  had  hit some  of  its                                                                    
analytical capacity,  which made  him uncomfortable,  but it                                                                    
was a  result of  the time. He  discussed the  importance of                                                                    
understanding   the    West   Coast   market    and   tanker                                                                    
transportation  costs related  to  the royalty  negotiations                                                                    
and  reopeners,  in  terms  of "leaving  it  in  value."  He                                                                    
explained  that  reopeners  with companies  had  brought  up                                                                    
millions of dollars.  The commercial staff had  been kept as                                                                    
intact  as   possible.  He  explained   that  much   of  the                                                                    
commercial capacity  had been  used on  the gasline,  but it                                                                    
had  not   been  funded  by  the   gasline;  therefore,  the                                                                    
supplemental   budget  had   provided  funding   to  put   2                                                                    
commercial positions back in.                                                                                                   
                                                                                                                                
2:56:45 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  asked Commissioner  Myers to move  onto the                                                                    
governor's highlights.                                                                                                          
                                                                                                                                
Commissioner  Myers moved  to slide  18  titled "DNR  FY2017                                                                    
Governor Budget." He explained that  position cuts in the FY                                                                    
17 budget  resulted in a  9 percent change in  net employees                                                                    
from FY 16.  The slide showed that historically  DNR had not                                                                    
really  grown from  year-to-year  [the chart  began with  FY                                                                    
07]. The number of  permanent full-time employees had peaked                                                                    
in FY  07 and had  decreased since that time.  He elaborated                                                                    
that in  order to  make workload adjustments  the department                                                                    
had  hired  many  more  temporary  part-time  positions.  He                                                                    
communicated that DNR had  already been managing effectively                                                                    
to  workload by  not  filling full-time  positions, but  its                                                                    
staff had been  decreased by 70 positions  since 2007 (about                                                                    
9 percent full-time). The  department's total employees were                                                                    
down  by  about  100.  The   department  did  not  have  any                                                                    
increases in employees.                                                                                                         
                                                                                                                                
2:58:12 PM                                                                                                                    
                                                                                                                                
Ms.  Peter-Contesse pointed  to slide  19, which  included a                                                                    
highly  detailed matrix  showing  how  the budget  scenarios                                                                    
were developed between the FY  16 management plan and the FY                                                                    
17  governor's budget.  She  believed slide  20  was a  more                                                                    
useful  way of  looking at  the budget.  She began  with the                                                                    
bottom line,  which showed the  FY 16 management plan  to FY                                                                    
17  governor's  budget  increased   by  43  percent  in  UGF                                                                    
(primarily  related  to the  AKLNG  gasline  project), a  14                                                                    
percent  overall increase,  and  a 1.3  percent increase  in                                                                    
people.   She   explained    that   excluding   AKLNG,   the                                                                    
department's  budget  was down  7.5  percent  in UGF  and  2                                                                    
percent overall.  She specified  that DNR's budget  was down                                                                    
16.5 percent  and 8 percent  in personnel between FY  15 and                                                                    
FY 18. The  next couple of slides included  the specifics of                                                                    
the "ins and outs"; the  outs were mostly the one-time items                                                                    
that come out  for adjusted base (e.g.  Seed Potato Program,                                                                    
Mount McKinley Meat and  Sausage, the unallocated reduction,                                                                    
and  other).  The governor's  FY  17  budget resulted  after                                                                    
factoring  in  all  of  the  items and  adding  the  of  the                                                                    
governor's increments and decrements.                                                                                           
                                                                                                                                
Commissioner  Myers addressed  details  on  slide 21  titled                                                                    
"DNR  FY2017 Budget  Highlights: Reductions."  He reiterated                                                                    
his  earlier statement  that the  department  had worked  to                                                                    
avoid the elimination of any  major programs. The department                                                                    
had  looked  at  areas  where  it could  try  to  make  some                                                                    
decreases. He  began with  the Division of  Oil and  Gas and                                                                    
explained  that reductions  had been  made to  best interest                                                                    
finding, lease sale preparation,  public record requests for                                                                    
oil and  gas, communications,  and other. Two  positions had                                                                    
been cut from  the division. He noted that the  cuts did not                                                                    
mean best  interest findings would  be eliminated,  but they                                                                    
would  not be  as thorough.  There  was some  risk with  the                                                                    
approach, but  the department was  faced with  either making                                                                    
the cut or canceling lease sales,  which it chose not to do.                                                                    
The  department had  also looked  at ending  the exploration                                                                    
licensing  program, but  did  not  want to  do  that at  the                                                                    
current  time.  Within  DGGS,  the  department  had  reduced                                                                    
production and  content of the annual  mineral report, would                                                                    
no longer attend  mineral and energy trade  shows (the state                                                                    
received interest from mineral and  oil and gas companies at                                                                    
trade shows, but  it could no longer afford  to attend), and                                                                    
had  reduced software  licensing costs.  He noted  that from                                                                    
2013 there were 16 new  independent companies in the oil and                                                                    
gas arena  in Alaska since  2013; some of that  increase was                                                                    
attributable  to DNR's  ability  to  present companies  with                                                                    
technical   data   at   tradeshows  (e.g.   NAPE   and   APG                                                                    
tradeshows).                                                                                                                    
                                                                                                                                
3:01:31 PM                                                                                                                    
                                                                                                                                
Mr.  Fogels addressed  the remainder  of the  departments on                                                                    
slide 21. The governor's budget  proposed to reduce the DMLW                                                                    
stewardship  budget  by  $363,000, which  would  reduce  its                                                                    
ability  to send  employees out  into the  field to  monitor                                                                    
activities  the department  had permitted.  Additionally, it                                                                    
would  reduce the  division's ability  to maintain  high-use                                                                    
sites  such as  the Knik  public  use area  and the  Kasilof                                                                    
River. He  explained that  the department  may not  have the                                                                    
ability to  pump out the  sanitary facilities as  often. The                                                                    
Division of  Forestry would  reduce annual  road maintenance                                                                    
in some  of the state  forests. He explained that  roads may                                                                    
be   graded   every   other  year   instead   of   annually.                                                                    
Additionally,  one long-term  administrative position  would                                                                    
be eliminated.   The governor's  budget would  eliminate the                                                                    
Citizen's Advisory Commission on  Federal Areas, which would                                                                    
eliminate two positions. Funding  would be reduced for Parks                                                                    
Management and  Access; a position  would be moved  into the                                                                    
federally funded Boating Safety  Program, which would reduce                                                                    
DNR's  ability   to  issue  permits  on   state  park  land.                                                                    
Additionally, one part-time Kodiak  state parks system would                                                                    
be eliminated.                                                                                                                  
                                                                                                                                
Mr. Fogels continued  to address slide 21.  He detailed that                                                                    
the  budget  would  make  light  cuts  to  the  Division  of                                                                    
Agriculture  and   would  reduce  the   division's  seasonal                                                                    
mechanic's capacity,  Alaska Grown  Marketing and  farm site                                                                    
inspections and assistance for a total of $87,800.                                                                              
                                                                                                                                
3:03:16 PM                                                                                                                    
                                                                                                                                
Ms. Peter-Contesse relayed that  a position dealing with the                                                                    
audits  of land  sale contracts  would be  deleted from  the                                                                    
Support Services Division (slide 21).  She noted that it may                                                                    
slow  patents  for  entities  buying   state  land  and  for                                                                    
defaulted  contracts (with  individuals) on  land the  state                                                                    
was trying to  get back to resell. She  spoke to agency-wide                                                                    
reductions and  explained that DNR  was working with  DOA on                                                                    
chargeback  DNR paid  for  IT and  human  resources to  find                                                                    
efficiencies.  Additionally, the  department was  working to                                                                    
find  efficiencies in  facility costs;  DNR was  included in                                                                    
the   statewide   pilot    program   on   cross-departmental                                                                    
efficiencies for leases. She  elaborated that the department                                                                    
was trying  to find a  better way of managing  facilities in                                                                    
order  to prevent  duplication of  efforts across  agencies.                                                                    
The   department  had   also  begun   implementing  five-day                                                                    
mandatory furloughs  for about 60  senior staff in FY  16 to                                                                    
meet  the  unallocated  budget  reduction;  the  requirement                                                                    
would continue into FY 17.                                                                                                      
                                                                                                                                
Commissioner Myers noted that  the furloughs were for exempt                                                                    
employees;  it was  not currently  possible to  do the  same                                                                    
with  union   employees,  but  he  believed   it  was  being                                                                    
discussed.  He  highlighted  that the  unallocated  one-time                                                                    
salary increases  would be removed  in the FY 17  budget. He                                                                    
believed  there  was  some  expectation  it  could  be  done                                                                    
through   administrative  staff   and  staff   efficiencies;                                                                    
however,  he   saw  no  practical   way  to  do   that.  The                                                                    
department's proposal was to allow  DNR to shift from UGF to                                                                    
DGF;  DNR  had more  than  $20  million in  extra  generated                                                                    
revenue from  DGF for  things like  gravel sales,  that went                                                                    
directly  into the  General  Fund. To  sustain  some of  the                                                                    
department's programs  it wanted increased authority  to use                                                                    
DGF; if that  did not occur, it would lead  to shutting down                                                                    
a major  program. He shared  that the full analysis  was not                                                                    
complete, but he  was looking at a  significant reduction in                                                                    
the Division of Agriculture as  the least harmful of all the                                                                    
possible cuts  (the cut  would still  be harmful).  He could                                                                    
not  find further  savings  in administrative  efficiencies,                                                                    
given    what    the    department    had    already    done                                                                    
administratively.                                                                                                               
                                                                                                                                
3:05:47 PM                                                                                                                    
                                                                                                                                
Commissioner  Myers  continued  to   discuss  FY  17  budget                                                                    
highlights on  slide 22. The  budget included a  fund source                                                                    
switch  from UGF  to  DGF  for $2  million  in DMLW  program                                                                    
receipts from fees.  The department had the  capacity to use                                                                    
the strategy more on a year-to-year basis.                                                                                      
                                                                                                                                
Mr.  Fogels discussed  one-time base  budget items  on slide                                                                    
22. He  explained that that  two items had  been transferred                                                                    
to  one-time item  status  in  the FY  16  budget: the  Seed                                                                    
Potato  Program  and the  Mount  McKinley  Meat and  Sausage                                                                    
Plant.  The  governor's  budget proposed  to  reinstate  the                                                                    
items  into  the  department's  base.  The  department  felt                                                                    
strongly that the Seed Potato  Program should be included in                                                                    
DNR's base  budget - it  represented a critical  function of                                                                    
the  Division  of  Agriculture.  He  stressed  that  it  was                                                                    
essential for the agricultural potato  industry to start off                                                                    
with clean, virus-free, generation zero  seed; if it was not                                                                    
possible, seed would  come in from outside  the state, which                                                                    
would  introduce  viruses  and  the purity  of  the  state's                                                                    
potato stock would be hurt.  The department was in agreement                                                                    
that a different business model  for the Mount McKinley Meat                                                                    
and Sausage  Plant was needed.  He detailed that  by putting                                                                    
the funding at  a one-time status it had  been successful in                                                                    
forcing  the conversation  in  the  industry that  something                                                                    
different had  to happen. The  industry was  actively trying                                                                    
to  figure out  a way  to privatize  the facility.  He noted                                                                    
that past  attempts at privatization had  been unsuccessful,                                                                    
but there was significant interest  in the topic at present.                                                                    
The  department was  also pursuing  some other  avenues, but                                                                    
more time  was needed to  look at options. He  stressed that                                                                    
the  facility  was  critical  for  the  Southcentral's  meat                                                                    
industry;  without the  plant,  the meat  industry would  be                                                                    
severely damaged.  Therefore, the  plan had to  involve some                                                                    
type  of  transition to  enable  the  plant to  continue  to                                                                    
operate while a solution was  being devised. For example, if                                                                    
a  new plant  was built  in  another location,  it would  be                                                                    
necessary  to keep  the current  facility running  until the                                                                    
new  space was  ready. He  pointed out  that the  $2 million                                                                    
required  to run  the  plant came  out  of the  Agricultural                                                                    
Revolving  Loan Fund,  not the  General  Fund. He  continued                                                                    
that  even  though the  plant  averaged  an annual  loss  of                                                                    
$155,000, the  money was  merely a draw  on the  fund, which                                                                    
was  level   and  continuing  to   provide  all   loans  the                                                                    
agricultural  industry  needed.  Effectively,  the  interest                                                                    
paid by farmers who had  taken out loans was subsidizing the                                                                    
plant's  loss.  He concluded  that  the  facility was  at  a                                                                    
steady  state,   but  he   believed  everyone   agreed  that                                                                    
something different needed to happen.                                                                                           
                                                                                                                                
3:09:22 PM                                                                                                                    
                                                                                                                                
Commissioner   Myers   spoke   to  the   North   Slope   Gas                                                                    
Commercialization, which  accounted for  a large  portion of                                                                    
DNR's UGF  budget (slide  22). He  detailed that  the budget                                                                    
had been  predicated on the buyout  of TransCanada's portion                                                                    
in  the  project  and the  current  commercial  negotiation;                                                                    
approximately half  of the money  was for the  Department of                                                                    
Law  (DOL).  He  explained  that  DOL  had  contracted  with                                                                    
several   world-class   firms   and  two   lead   commercial                                                                    
negotiators for AKLNG. Based on  his experience, he believed                                                                    
it was  the best  negotiating team the  state had  ever had.                                                                    
Additionally,  there was  a significant  amount of  money in                                                                    
the  budget   for  marketing,   which  presumed   a  complex                                                                    
marketing  structure. He  referred  to conversations  during                                                                    
special session about the high  cost of marketing. The state                                                                    
was negotiating  commercial structure of marketing  with the                                                                    
producers; there were structures  that were much simpler and                                                                    
more reliant  on the project working  together. Marketing as                                                                    
a whole was the state's  preferred position; it did not want                                                                    
to be  competing with its  partners in the equity  market on                                                                    
its own.                                                                                                                        
                                                                                                                                
Co-Chair Neuman  noted that there would  be further in-depth                                                                    
discussions about  the topic  in the  future. He  noted that                                                                    
there  may  be questions  at  the  end of  the  presentation                                                                    
related to the topic.                                                                                                           
                                                                                                                                
Commissioner  Myers  highlighted  that  the  department  was                                                                    
looking   for   ways   to   cut    the   North   Slope   Gas                                                                    
Commercialization  budget,  but  it  was  dependent  on  the                                                                    
ultimate  marketing  structure,  which was  currently  under                                                                    
negotiation.  He  addressed  a pie  chart  illustrating  the                                                                    
department's operating budget by  division on slide 23. Fire                                                                    
suppression  was the  largest  portion of  the  pie at  22.6                                                                    
percent, the  North Slope Gas  Commercialization represented                                                                    
18.6  percent, followed  by DMLW,  the Division  of Oil  and                                                                    
Gas, and much smaller  portions for the remaining divisions.                                                                    
He stated  that fire suppression and  gaslines had dominated                                                                    
the  department's budget  recently. He  addressed slide  24,                                                                    
which  included a  pie chart  representing the  department's                                                                    
operating  budget by  fund category.  He  detailed that  UGF                                                                    
funded  the   things  that   generated  state   revenue.  He                                                                    
explained  that it  was  not possible  to  find matching  or                                                                    
grant money  for oil  and gas  lease sale;  however, outside                                                                    
sources would fund scientific work  and other components. He                                                                    
stated that the UGF was  a very significant component of the                                                                    
dollars  that came  back  to the  state.  For example,  DNR-                                                                    
generated revenue was about $17  for every $1 of total state                                                                    
money; if  taxes were  factored in, the  amount was  $39 for                                                                    
every $1,  which equaled about  $7.7 million coming  back to                                                                    
the state  for every  DNR employee.  He emphasized  that the                                                                    
rates  of return  were unheard  of in  any other  state. The                                                                    
department believed a better model  would be to put more DGF                                                                    
in -  money the  department was  bringing in  - in  order to                                                                    
sustain the services generating the huge rates of return.                                                                       
                                                                                                                                
Commissioner  Myers turned  to slide  25 titled  "Department                                                                    
Comparison."  The department  represented approximately  1.7                                                                    
percent of the state's overall  budget. He remarked that the                                                                    
service  part  of  government and  formula  driven  programs                                                                    
drove the budget. Combined,  the resource agencies accounted                                                                    
for a very small portion of the budget.                                                                                         
                                                                                                                                
3:13:26 PM                                                                                                                    
                                                                                                                                
Commissioner  Myers moved  to slide  26 titled  "DNR Revenue                                                                    
Generation."  He  explained  that given  the  volatility  of                                                                    
commodity  prices, the  royalty  was a  more stable  revenue                                                                    
source  than  taxes  (particularly  in  a  net  profit-share                                                                    
system). He turned  to slide 27 titled  "Revenue Actuals and                                                                    
Forecast." He  detailed that the royalty  was increasingly a                                                                    
higher percentage  of the department's  internally generated                                                                    
revenue.  He   noted  that  the  royalty   was  volatile  to                                                                    
commodity  prices, but  less so  [than taxes].  He expounded                                                                    
that  over a  decade, about  $2.5 billion  came back  to the                                                                    
state through DNR. He pointed to  the chart on slide 27: the                                                                    
blue  line   represented  taxes  and  the   red  represented                                                                    
royalties. He noted that the  chart showed $1 billion at the                                                                    
bottom;  there had  been a  significant  decline in  royalty                                                                    
revenue, but it was not nearly  as volatile as a net profit-                                                                    
share  tax  system. He  advised  that  when considering  the                                                                    
state's portfolio  of income sources, to  think of royalties                                                                    
under the current system as  one of the most stable sources;                                                                    
it was also the corpus of the Permanent Fund.                                                                                   
                                                                                                                                
Ms.   Peter-Contesse  addressed   charts  prepared   by  the                                                                    
Legislative Finance  Division on  slides 29 through  36. She                                                                    
noted  that a  portion  of the  charts  excluded AKLNG.  She                                                                    
began  on slide  29  (without AKLNG)  and  relayed that  DNR                                                                    
represented about  2 percent of the  state's overall budget.                                                                    
The chart  included General Fund  only and showed  that from                                                                    
FY 07  to FY 17, DNR  was about $8.3 million  below the rate                                                                    
of inflation. Slide  30 also excluded AKLNG  and showed that                                                                    
the  department was  down 98  positions since  FY 15  and 64                                                                    
fewer  than FY  16. She  turned  to slide  31, which  showed                                                                    
appropriations  within DNR  (no  AKLNG).  She detailed  that                                                                    
permitting  had increased  in  2012 and  2013  when DNR  had                                                                    
received  appropriations  from  the  legislature  to  reduce                                                                    
permitting.  She noted  that as  indicated in  a performance                                                                    
graph  earlier  in the  presentation,  the  effort had  been                                                                    
effective. She explained  that in FY 17  the department used                                                                    
$65 million  UGF in FY 17  compared to $65.9 million  UGF in                                                                    
FY 07.                                                                                                                          
                                                                                                                                
Ms.  Peter-Contesse   moved  to   slide  33,   which  showed                                                                    
appropriations within  DNR (GF  only, including  AKLNG). She                                                                    
pointed to  a bump in the  FY 15 management plan  when AKLNG                                                                    
had been added  to the UGF budget. In FY  16 the fund source                                                                    
had  been changed  to Instate  Pipeline Fund  (classified as                                                                    
other  funds), which  had resulted  in  a drop  in the  blue                                                                    
line,  followed  by an  increase  in  FY  17 for  the  $35.7                                                                    
million in UGF. She noted  that the fund source changes were                                                                    
reflected in the blue line.                                                                                                     
                                                                                                                                
3:17:15 PM                                                                                                                    
                                                                                                                                
Mr. Fogels  addressed the  presentation conclusion  on slide                                                                    
37. He noted  that per legislative direction,  DNR was still                                                                    
working  to  find  efficiencies  and  eliminate  unnecessary                                                                    
regulations and  statutes. He explained that  one past piece                                                                    
of  legislation had  fixed many  issues  with DNR  statutes.                                                                    
Additionally,   Representative  Munoz   had  introduced   an                                                                    
important bill to streamline  the department's land exchange                                                                    
process,  which   would  save  DNR  significant   work.  The                                                                    
department  was looking  at ways  to  streamline its  mining                                                                    
process  in  areas  from claims  to  placer  permitting.  He                                                                    
continued that  DNR was looking  at smarter ways  to conduct                                                                    
timber sales because there were  fewer staff to do the work.                                                                    
He explained  that DNR was  required to  regulate low-hazard                                                                    
dams,  but   it  was  questioning   whether  the   work  was                                                                    
necessary. The  department was also working  to determine if                                                                    
it  could fix  regulations  for water  (e.g. redirection  of                                                                    
water  around  construction  sites  took  significant  staff                                                                    
time); DNR was also  evaluating permits processes for docks,                                                                    
wharfs, erosion control structures, and other.                                                                                  
                                                                                                                                
Commissioner Myers  shared that earlier  in the week  he had                                                                    
signed a preliminary best interest  finding on a royalty oil                                                                    
sale   to  Tesoro   (the  information   was   also  on   the                                                                    
department's website).  He detailed that as  North Slope oil                                                                    
production had declined, available  oil for instate refining                                                                    
had  decreased.  He  elaborated  that  large  companies  had                                                                    
excess tanker capacity  and had commitments to  the Lower 48                                                                    
(particularly  California)   to  supply   their  refineries;                                                                    
subsequently, Alaska's  local refineries had  been crunched.                                                                    
He explained  that in the  process, the state had  taken its                                                                    
royalty oil in-kind rather than  in-value. He continued that                                                                    
the  department had  just finished  negotiation with  Tesoro                                                                    
for  a  contract,  which  would  provide  approximately  $14                                                                    
million more  in-kind; it also  prevented the  refinery from                                                                    
needing to import  more oil from the Bakken  in North Dakota                                                                    
as it had been doing.  He highlighted that Alaskan jobs were                                                                    
created, Alaskans got to use  Alaskan oil in their cars, and                                                                    
the state received about $1.95  per barrel more than leaving                                                                    
it  with the  producers. He  furthered that  the preliminary                                                                    
best  interest   finding  had  been  a   tough  commercially                                                                    
negotiated deal,  which would  go to  the royalty  board and                                                                    
then  to the  legislature  for approval  during the  current                                                                    
session. He  remarked that the  deal represented  an example                                                                    
of how  DNR was working  to use  the state's resources  as a                                                                    
multiplier to create jobs and  increase value. He added that                                                                    
it was not the only  royalty oil contract the department was                                                                    
working on. He expected that by  the end of the year, it was                                                                    
likely that 95  percent of the state's oil would  be sold to                                                                    
in-state  refineries  in-kind.  He  concluded  that  skilled                                                                    
commercial  teams were  needed  to work  on  the issues.  He                                                                    
reiterated  that   it  was  possible  to   use  the  state's                                                                    
resources as a multiplier, which was  a goal within DNR - to                                                                    
provide maximum value for  Alaskans, while providing revenue                                                                    
back to the treasury.                                                                                                           
                                                                                                                                
3:21:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman relayed  that he  had participated  in many                                                                    
discussions with  Commissioner Myers and Mr.  Fogels related                                                                    
to reviewing DNR  regulations. The effort had  been to focus                                                                    
on DNR  as a  model project in  reducing regulations;  as an                                                                    
entity, the  department had shown  it brought in  revenue by                                                                    
selling Alaska's  resources. However, there continued  to be                                                                    
a  tremendous  amount of  regulations  that  put burdens  on                                                                    
industry and  required duplicative  paperwork. He  had asked                                                                    
DNR  to bring  the  legislature  regulations the  department                                                                    
needed to continue to protect  its mission statement; but he                                                                    
wanted  to start  getting rid  of the  other regulations  to                                                                    
ensure Alaska  continued to be  a good place to  work, while                                                                    
protecting its  resources. He noted  that all  agencies were                                                                    
working on  a review  of their  regulations and  he expected                                                                    
DNR to come back shortly with some solid recommendations.                                                                       
                                                                                                                                
Representative  Pruitt   spoke  to   the  North   Slope  gas                                                                    
commercialization. He referred to  $18 million that would go                                                                    
to  the Department  of Law.  He  asked what  portion of  the                                                                    
remaining funds would go towards marketing.                                                                                     
                                                                                                                                
Commissioner Myers replied that he  did not have the numbers                                                                    
on hand, but  the number was significant.  He furthered that                                                                    
going to a FEED [Front  End Engineering and Design] decision                                                                    
in January  had been presumed; currently  the department was                                                                    
in the  process of hiring a  temporary six-month world-class                                                                    
expert  to  build  the structure.  He  elaborated  that  the                                                                    
effort had  been delayed  somewhat because  the goal  was to                                                                    
understand  that the  commercial arrangement  with producers                                                                    
impacted  the structure.  He  continued  that the  preferred                                                                    
structure  was a  much smaller  organization. He  reiterated                                                                    
that the  marketing cost  was a  significant portion  of the                                                                    
allocation.  He  noted  that  salaries  for  the  contracted                                                                    
position  approached $1  million or  more when  factoring in                                                                    
bonuses.  The position  had  not yet  been  hired, but  they                                                                    
would need  to be in place  as the project entered  FEED; at                                                                    
that  point  the state  would  be  negotiating contracts  in                                                                    
order  to  have  them  in place  at  FID  [Final  Investment                                                                    
Decision].                                                                                                                      
                                                                                                                                
3:24:03 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  stated that there had  been an option                                                                    
for joint  venture marketing. He  noted that it  was obvious                                                                    
that the presentation did not  include that option. He asked                                                                    
if the administration had determined  the state would not be                                                                    
party to joint venture  marketing. He asked for verification                                                                    
that  if the  money was  appropriated the  legislature would                                                                    
not have  another opportunity to  have a say in  whether the                                                                    
policy decision was appropriate.                                                                                                
                                                                                                                                
Commissioner Myers answered  that he had to  be careful with                                                                    
his  answer related  to confidentiality.  He stated  that he                                                                    
"would  do  handsprings" if  there  was  a four-party  joint                                                                    
venture marketing. The state's  position had been that joint                                                                    
venture marketing  was a solution  in upstream  alignment in                                                                    
gas  supply,  the gas  marketing  agreement,  cargos in  the                                                                    
downstream,   expansion,  and   other;  the   administration                                                                    
believed it was a  fundamental alignment piece. However, the                                                                    
partners  did  not  all agree  with  that  view.  Therefore,                                                                    
active negotiations were underway  and no resolution had yet                                                                    
occurred.  He furthered  that  his strongest  recommendation                                                                    
would  be for  four-party  joint venture  marketing and  the                                                                    
administration had made the point  clear in its position. He                                                                    
could  not say  what would  occur as  negotiations were  far                                                                    
from  complete  at  present.  The  other  alternatives  were                                                                    
individual  joint  venture  marketability   of  all  of  the                                                                    
producers, which  meant staff would  have to  be duplicated;                                                                    
it would  require the state  to have  a marketer in  each of                                                                    
the  organizations   (i.e.  with  BP,   ConocoPhillips,  and                                                                    
ExxonMobil). The  state would also have  to guarantee surety                                                                    
of supply, which would require  a few upstream staff to work                                                                    
with  customers. He  summarized that  it was  a much  larger                                                                    
structure,  which the  budget had  been designed  around. He                                                                    
remarked that alignment on joint  venture may not be reached                                                                    
with the  parties, which meant  the state may end  up equity                                                                    
marketing a  portion of  its gas; in  which case,  the state                                                                    
would require an equity marketing structure.                                                                                    
                                                                                                                                
Co-Chair Neuman  relayed that he  had asked  whoever oversaw                                                                    
the budget to  look at royalty in-kind  structures, law, and                                                                    
when, where, and how the appropriations would be made.                                                                          
                                                                                                                                
3:27:22 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt asked  if the  governor was  going to                                                                    
call the legislature back into special session.                                                                                 
                                                                                                                                
Commissioner  Myers replied  that he  believed the  governor                                                                    
wanted to  [call the legislature  into special  session]. He                                                                    
continued  that the  governor wanted  to have  the contracts                                                                    
negotiated (he referred to a  letter the governor had sent);                                                                    
however, during  project briefings  with the  Alaska Gasline                                                                    
Development Corporation  (AGDC) and DNR  Deputy Commissioner                                                                    
Marty  Rutherford,  the  legislature  had  also  heard  that                                                                    
negotiations  were  not  there yet.  The  negotiations  were                                                                    
tough,  but  moving slowly.  He  believed  all parties  were                                                                    
looking at  what the  alternatives may  look like.  He noted                                                                    
that  it was  too early  to say  [whether there  would be  a                                                                    
special   session],  but   at  the   current  pace   it  was                                                                    
challenging.                                                                                                                    
                                                                                                                                
Representative Pruitt  asked if  there would be  a financial                                                                    
discussion  with  the  legislature  if it  was  called  into                                                                    
special session.  He explained  that Commissioner  Myers had                                                                    
just highlighted a  very complex issue and he  was trying to                                                                    
determine if it was the only  time the issue would be before                                                                    
the  legislature.  He  wondered if  the  legislature  should                                                                    
spend more  time digging into  the issue  or if it  would be                                                                    
appropriate to wait on the funding until a special session.                                                                     
                                                                                                                                
Commissioner Myers  answered that the budget  included other                                                                    
items in  addition to the  marketing component.  He believed                                                                    
the  money for  DOL  to fund  key  negotiators was  critical                                                                    
because  the  negotiation  would continue.  Without  ongoing                                                                    
funds, the  state would not  have the ability to  retain the                                                                    
contractors at the beginning of  the next fiscal year, which                                                                    
may result in a break in  continuity if there was no special                                                                    
session. He noted  that the legislature had  hired very good                                                                    
consultants and he  was happy to work  with enalytica, which                                                                    
could  then  provide the  legislature  with  its own  expert                                                                    
judgement.  The   administration  did   not  object   to  an                                                                    
independent review.                                                                                                             
                                                                                                                                
Co-Chair  Neuman   noted  that  Representative   Pruitt  was                                                                    
looking at the issues.                                                                                                          
                                                                                                                                
3:30:11 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  stated  that  the  hardest  part                                                                    
about commercialization was  that so much of  what the state                                                                    
did  was  public,  which  held things  up.  He  remarked  on                                                                    
Alaskan  food products  and stressed  "we're killing  our ag                                                                    
industry  in  this  state." He  continued  that  there  were                                                                    
significant   rules  broken   by  the   private  sector   in                                                                    
agriculture  in  Alaska.  He  mentioned  Alaskans  producing                                                                    
fruit  trees;  he  had personally  harvested  10  pounds  of                                                                    
apples in his first crop  earlier in the year. He reiterated                                                                    
that   they  were   destroying   the  state's   agricultural                                                                    
opportunities;  they were  not enhancing  or supporting  the                                                                    
industry  and were  moving backwards.  He  remarked that  he                                                                    
loved the  oil and gas  work, but he reasoned  that everyone                                                                    
needed to  eat. He noted that  the state was getting  rid of                                                                    
the  Farm  to  School  program. He  stressed  that  everyone                                                                    
talked  about  food security,  but  he  believed Alaska  was                                                                    
going backwards.                                                                                                                
                                                                                                                                
Representative  Gara pointed  to the  department's operating                                                                    
budget by  core service on  slide 19. He observed  the slide                                                                    
showed  a $1.3  million cut  in  UGF from  FY 16  to FY  17.                                                                    
However, the  "other" fund  category showed  reductions from                                                                    
$49 million  down to $40  million and a $2  million decrease                                                                    
in DGF. He  asked why the other and DGF  cuts were so large.                                                                    
He asked for detail on the DGF cut.                                                                                             
                                                                                                                                
Ms. Peter-Contesse  pointed to slide  20 for detail.  The $2                                                                    
million  fund  source  switch  was included  in  the  FY  17                                                                    
governor   budget  decrements.   She   explained  that   the                                                                    
department had  reduced $2 million  in UGF and  increased $2                                                                    
million in designated program receipts  in mining, land, and                                                                    
water.  She  elaborated  that  the  receipts  came  in  from                                                                    
material sales, leases, and other.                                                                                              
                                                                                                                                
Representative Gara  observed that for  FY 16 to FY  17, the                                                                    
cuts to  other funds and DGF  outpaced the cuts to  UGF by a                                                                    
significant amount.  He wondered  what money was  not coming                                                                    
into  the other  category.  He surmised  that typically  UGF                                                                    
received the largest cut.                                                                                                       
                                                                                                                                
Ms.  Peter-Contesse replied  that  that  the other  category                                                                    
included the  reversal of  the AKLNG  one-time item  of $8.9                                                                    
million.  She explained  that  the  Division of  Legislative                                                                    
Finance took  the one-time items  out, which were  then seen                                                                    
in the  governor's request as a  UGF increase in FY  17. She                                                                    
explained  that it  had  been categorized  as  other in  the                                                                    
Instate Pipeline Fund in FY 15.                                                                                                 
                                                                                                                                
Co-Chair Neuman asked the department to provide the                                                                             
committee with any further analysis it may come across.                                                                         
                                                                                                                                
Co-Chair Thompson discussed the meeting schedule for the                                                                        
following day.                                                                                                                  

Document Name Date/Time Subjects
DNR FY16 & FY17 Position Deletions.pdf HFIN 2/4/2016 1:30:00 PM
DNR SLA2016 HFin Budget Overview.pdf HFIN 2/4/2016 1:30:00 PM
HB 293 FY2016 Supplemental Summary.pdf HFIN 2/4/2016 1:30:00 PM
HB 293
HB 293 FY2016 Supplemental Detail.pdf HFIN 2/4/2016 1:30:00 PM
HB 293
HB 293 FY2016_Supplemental_backup_detail.pdf HFIN 2/4/2016 1:30:00 PM
HB 293