Legislature(2017 - 2018)HOUSE FINANCE 519
02/03/2017 01:30 PM FINANCE
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HOUSE BILL NO. 95 "An Act making supplemental appropriations, capital appropriations, and other appropriations; making reappropriations; amending appropriations; repealing appropriations; and providing for an effective date." 2:25:13 PM Co-Chair Seaton invited Ms. Pitney to come to the table. PAT PITNEY, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, would be reviewing the components of the supplemental budget request. She would highlight some of the more significant items. The information packet provided to members had a list of every change presented in the "FY 2017 Supplemental Bill" (copy on file). Ms. Pitney reviewed slide 2: "FY2017 Supplemental Summary." She reported that the total supplemental request was $51.7 million unrestricted general funds (UGF) and $113 million in total. The supplemental request under review was one of the smaller requests in the past several years. Ms. Pitney continued to slide 3: "UGF/DGF/Other/Fed Summary by Department (1088)." She indicated that the slide showed a breakout of the operating supplemental request by department. The unrestricted general fund operating request totaled $51.6 million and $95 million in total funds. Ms. Pitney detailed slide 4: "Statewide Department Summary - Capital Budget (1183)." The slide showed the capital appropriations which totaled $75,000 UGF and $18 million in total funds. Ms. Pitney advanced to the detail sheet on slide 5: "FY2017 Supplemental Bill - Page 1 of 10." She would not review every item but was happy to answer any questions about any numbers she did not cover. She referred to line 2. The first request was an increase which included UGF for a health insurance rate increase. The rate would be increasing from $1346 per month to $1555 per month. In the previous year the administration had requested an amendment for the FY 17 budget once it recognized that the state's reserves were getting low and that the state would need to have a rate increase for FY 17. She continued that rather than a rate increase, there was a deposit into the working reserve in FY 16 that bolstered the reserve amount. It allowed the state to receive the same rate from July to January. The Department of Administration had put in savings measures and had increased the cost to all employees for their health care premiums. All the actions were not enough to keep the reserve healthy. Therefore, the department had to impose a mid-year rate increase which was out of the ordinary. It was the same rate that was in the FY 18 budget request. The total came to $6.0 million of which $5.3 million was UGF. She relayed that in the previous year the UGF was not provided, but many of the non-general fund components were provided for a health rate increase. It was the reason the general fund was a larger part currently. Ms. Pitney moved to the item listed on line 3. She reported that furlough days were negotiated into the supervisor union contracts. The negotiation ended after the budget was put together the previous year. The result was that the budget was reduced in accordance with the mandated furlough days. Vice-Chair Gara commented that the court system had a budget savings measure by offering their own voluntary retirement incentive plan. If a person was 3 years past retirement age they were offered 3 months pay. As a result, several folks retired generating a significant cost savings. He wondered if such a plan was in place in other departments. Ms. Pitney thought the question would be better answered another day. 2:31:41 PM Ms. Pitney scrolled to slide 6 (Page 2): "FY2017 Supplemental Bill - Page 2 of 10." She pointed to line 6. She explained that the Public Defender agency received receipts from collections for representing clients. Often those collections came from garnishing clients' PFDs. The collections were down because of the lower dividend rate. The supplemental request would replace the amount expected from collections not materialized. Representative Wilson asked when the last time the administration reviewed the criteria for qualifying for a public defender. She was aware that a formula was applied based on income. There were some clients that would qualify even though they did not have money immediately. She thought that was the reason for the $455,000 request. She wondered if the criteria needed updating. Ms. Pitney responded that the amount a defendant paid was based on a court decision. The issue concerning the criteria used by judges to determine how much should be paid was currently being addressed. She commented that conversations among the different affected parties were some of the best outcomes of the justice reform effort in the previous year. Ms. Pitney reviewed item 7, a federal grant that would allow the state to address some audit issues pertaining to commercial driver's license examiners. The state would incur an ongoing cost of $36,000 for the software that would be implemented. Ms. Pitney detailed that line 8 was an increase due to a classification study completed in December of 2016. Occupational licensing examiners would move from a range 13 to a range 14. There was also a corresponding amount in the FY 18 budget. Representative Pruitt asked for the amount. Ms. Pitney responded that it was approximately $165,000 or $170,000. She would provide the exact number later. Ms. Pitney discussed slide 7: "FY2017 Supplemental Bill - Page 3 of 10." The two items listed were technical in nature. Ms. Pitney spoke to slide 8: "FY2017 Supplemental Bill - Page 4 of 10." Lines 11, 12, 13, and line 14 on page 5 [slide 8] were supplemental requests for the Medicaid program. She recalled that in the prior summer the state relayed payments in FY 16 pushing them into FY 17 because the FY 16 budget was insufficient to cover the payments. The state essentially wrote 2 checks in FY 17. The amount requested reflected the 2 checks. The amount of money in Medicaid was about $580 million. The total would be $27 million higher with the supplemental request. She reported that the amount was just over $60 million less than it had been in FY 15. In FY 17, not counting the expansion population, there had been a 9 percent enrollment increase and a 12 percent increase in utilization. Therefore, all the reform efforts moving billing from state funding to federal funding has allowed the Medicaid program to remain steady and below where the state was in FY 15. 2:37:33 PM Vice-Chair Gara asked her to repeat her previous comments about the increase in utilization and the associated increase in costs and the comparison between fiscal years. Ms. Pitney reported that in 2017 the number of people eligible for Medicaid increased 9 percent. The utilization was up a total of 12 percent. She clarified she was speaking of the regular Medicaid program, the non-expansion program. She reported that there were reform efforts and several savings initiatives occurring prior to the reform efforts. The state was about $60 million below where it was in FY 16 on an annual basis. It was a recurring savings. Co-Chair Seaton asked if it was before or after the supplemental request. Ms. Pitney responded after the request. Representative Wilson asked for an actual number of participants. She wanted to know how many participants made up the 9 percent she mentioned. She thought the percentage was substantial. She wondered what the reason was for the substantial increase. Ms. Pitney could provide the numbers after the meeting. She thought the increase was reflective of the economy and job losses and the number of Alaska's aging population. Representative Wilson was aware there was not a cap for the regular Medicaid program. She thought that for the optional portions of Medicaid a limit could be set. She thought the legislature had set a limit. She wondered if she was correct. Ms. Pitney would have to consult with the Department of Health and Social Services. Representative Wilson wanted the information. She was under the impression that the optional programs were capped. She knew the medical portion cold not be capped. However, the dental and other programs could be capped. Co-Chair Seaton asked if Representative Wilson was talking about a dollar cap or a limitation of services. Representative Wilson thought there was a dollar cap for the optional plans. Co-Chair Seaton suggested asking HSS. 2:42:28 PM Vice-Chair Gara was confused. He referred to pages 4 and 5 [slides 8 and 9] and noted that for each line item the descriptions reflected FY 16 costs that the state delayed paying until FY 17. He indicated there were 4 items with various amounts including: $2.9 million, $219,000, $15.9 million, and $7.6 million. There were also unanticipated costs associated with more people using Medicaid in FY 17. He only saw delayed payments on the slides. Ms. Pitney responded that the savings initiatives, memorandum of agreements with providers allowing higher billing on the federal side, and utilization management initiatives put in place by the Department of Health and Social Services (DHSS) would offset unanticipated growth. The program was being managed to keep costs contained. She suggested that, had the department not had to write the checks in FY 17 from FY 16, it would have met the overall budget target. They were doing many things and would be very tight at the end of the year in meeting the department's overall costs. She reported the department believed it would "Squeak in under the wire" with the savings initiatives and the reforms put into place. Vice-Chair Gara stated that in terms of the unanticipated increase in the number of people applying for Medicaid, the state was not seeking a supplemental request because enough savings had been generated. The savings would compensate for the increase in the number of people qualifying for Medicaid and who the state was paying for. He asked if he was accurate. Ms. Pitney made one correction - 17. Vice-Chair Gara asked why the line items were 4 separate components. Ms. Pitney replied that each were different allocations within the appropriation. Ms. Pitney addressed to slide 9: "FY2017 Supplemental Bill - Page 5 of 10." She noted that the rest of the items on page 5 and the first few items on page 6 [slide 10] were smaller grants or accounting technical changes. Ms. Pitney explained to slide 10: "FY2017 Supplemental Bill - Page 6 of 10." She referred to line 24, the first capital supplemental request for the Whale Pass organizational grant. She explained that when a new city was formed it was entitled to a $75,000 grant from the Department of Commerce, Community and Economic Development. The item satisfied statute. 2:46:48 PM Representative Guttenberg asked about the money provided to new municipalities. He asked if calculations had been created for second class cities. He mentioned student enrollment counts and municipal assistance. Ms. Pitney would have to get back to him. She noted that community revenue sharing would be a factor. Vice-Chair Gara stated that the previous year the department had come to the legislature reporting they would be getting more aggressive with leveraging extra federal funds to try to replace state funds. He recalled that many initiatives had been presented to reduce the FY 17 by generating extra federal funds. Currently, more people had applied for Medicaid than anticipated (12 percent more) generating extra costs. He wondered how the costs would be offset by federal savings which he thought was already reflected in the budget in the prior year. He did not want to see the department absorb all the extra costs. He was unclear about the real costs having to do with the increased Medicaid recipients. He asked if there was extra federal savings that the department generated that was not reflected in the FY 17 budget. Ms. Pitney relayed that 9 percent reflected the additionally eligible, and 12 percent was the actual change year over year. Some of the increase was anticipated, However, 12 percent was not anticipated. She thought Vice- Chair Gara's question was complex. She would be happy to sit down with DHSS to discuss the numbers. She mentioned that among the savings initiatives, some were working faster than others generating a higher-than-expected savings. She mentioned pharmacy and travel agreements. She would be happy to have a stand-alone discussion. 2:50:46 PM Vice-Chair Gara was concerned with having a large gap for the budget in FY 17 for Medicaid. The budget in FY 18 for Medicaid would reflect the extra people. He was concerned with the FY 17 budget absorbing all the costs for the extra people. He was unsure if the comparison of the budget years would be true. Co-Chair Seaton thought there was some confusion. He clarified that Ms. Pitney was saying that in FY 17 the state had 9 percent more eligible people and the state had 12 percent greater Medicaid utilization overall. The increases were offset in FY 17 with savings that had occurred. The costs from FY 16 that were being paid in FY 17 were independent of the number of new eligible people and the utilization rate. He asked if he was correct. Ms. Pitney responded, "That is correct." Co-Chair Seaton further commented that the committee should have had 2 conversations separately because the number of people eligible and the utilization rate were not included in any of the figures. The costs were being absorbed in the cost savings generated in the current year. He thought Vice-Chair Gara was asking if the state had anticipated the questions and had reduced the budget by the amount of savings, or was the savings greater than anticipated for FY 17. Ms. Pitney responded the FY 17 budget was reduced from the FY 16 budget for savings initiatives. Many of the cost savings were going well and others were not. Independently, the Medicaid group was managing the program and managing their care utilization to limit costs where possible. The administration was asking the department to manage as tight as possible. The administration believed the FY 17 budget would be adequate to meet FY 17 costs. There was a small chance the state might have to check write into FY 18. Early on, it became apparent that the administration would have to come back to the committee. 2:54:58 PM Vice-Chair Gara thought the math did not add up. He reported that he had heard from the department that they were trying to achieve the federal savings in the budget the prior year. The department had not been able to achieve all the savings. On one hand, the state had less federal money coming in than was expected. Also, there was some portion of the 12 percent of people seeking Medicaid that the state anticipated in the previous year and put in the budget. Additionally, there were more people that received Medicaid services. It appeared that Alaska had less federal dollars coming in for federal replacement money than the state had hoped for and more Medicaid costs going out. He did not understand how there could be less federal funds and more state expenditures, without asking for a supplemental. Ms. Pitney responded that his logic was fair. The federal savings did not line up program-by-program, but lined up collectively. The state would receive a savings. The administration was watching the department items including expenditures and every check that was written monthly. The administration believed that through the department's efforts it could get through the current fiscal year with the amount of money being requested. There was a slight chance that a small amount would have to be written in FY 18. Vice-Chair Gara was frustrated because the costs were FY 17 expenses. He anticipated that there would be real FY 17 costs. He argued that more people could not be treated with Medicaid services for free with annual increases to medical care costs. He opined that there would be an FY 18 amended budget that would add costs to the budget when they were really FY 17 costs that should be paid. He thought the budget comparison between years would be skewed making it appear that the budget was increasing. Ms. Pitney acknowledged Vice-Chair Gara'S concerns. The administration was confident enough that the FY 17 budget would meet the FY 17 needs. There was a chance that all the management efforts would fall a little short. If that was the case, the administration would come back to the legislature. The administration felt confident enough. It wanted to keep the supplemental requests low while leaving the pressure to manage the program high. The administration thought it could get through the current year with the amount requested. Representative Guttenberg reported that the expansion of Medicaid brought in a new group of people, more than anticipated. Some of the projected savings was intangible. He spoke of fewer emergency rooms and better handling of chronic illnesses. He asked if there was an aspect of measuring the changes. He wondered about the effect of the new group on intangible items. He asked if the department was trying to measure the changes with the expanded Medicare [Medicaid] group. Ms. Pitney responded affirmatively. 2:59:46 PM Representative Ortiz returned to the $60 million. He understood that the state spent $60 million less for Medicaid than it did in 2015. He asked if he was accurate. Ms. Pitney answered, "Yes." Representative Ortiz replied, "I feel good about that. Thanks." Ms. Pitney advanced to slide 11: "FY2017 Supplemental Bill - Page 7 of 10." She explained that items 25 and 26 were the Department of Fish and Game (DFG) supplemental requests. The first was for a continuation of studies that began in 2013. There were 2 groups, Pacific Seafood Processors and Northern Southeast Regional Aquaculture Association Incorporated, that were funding the continuation of the studies. The second request fulfilled a necessary match and the federal funds to receive the Pittman Robertson funds that were available for Alaska. The match source would come from DFG funding. She expounded that the money was designated for several capital projects that were part of a prioritized list. Co-Chair Seaton asked whether the funding match would be ongoing or if additional federal funding had become available that had not been anticipated. Ms. Pitney reported there had been periodic capital requests for Pittman Robertson funding. The current item was a periodic request. In the past, the request had been submitted on a regular basis as part of the supplemental bill, which she had not been aware of. However, she believed the request should have been part of the FY 17 or FY 19 budget. Ms. Pitney highlighted line 30 on page 7 [slide 11]. The request was technical in nature. She explained that 2 years prior, capital project funding had been inserted because of several ongoing negotiations. The request would allow the Department of Administration to continue to use the funds in labor negotiations as necessary. Ms. Pitney continued to line 31 on the same slide. She detailed the request for an appropriation for the Alaska Land Mobile Radio (ALMAR) system. The amount of the request was $3 million. The amount would come from money originally appropriated for a car driving range at the Sitka Police Academy. The Department of Public Safety felt the money would be better spent maintaining the ALMAR system. The administration was $1.5 million short of the needed funds outside of the $3 million and was currently looking for another source for the additional monies. 3:04:51 PM Representative Pruitt asked if the money would be used to maintain or upgrade the system. Ms. Pitney responded that the money would be used for both the equipment maintenance and a refresh of the system. Representative Pruitt asked about what the legislature should expect in the future in terms of funding requests. Ms. Pitney indicated that the amount would be consistent. State records showed $5 million to $7 million being spent on the system each year. It was an expensive system used throughout the state by public safety employees. It was the state's statewide emergency communications system. Representative Pruitt asked if the state upgraded the system each year. He asked for clarification. Ms. Pitney used the example of software upgrades. They did not happen every year. However, the equipment maintenance happened every year. It depended on what maintenance was being done each year. It was cyclical. Ms. Pitney advanced to slide 12: "FY2017 Supplemental Bill - Page 8 of 10." She spoke to line 32, which would allow the state to receive a federal grant. Line 33 was a significant item. The amount of the request was $8 million for the Department of Corrections (DOC). One of the Medicaid expansion savings came in the form of the department being able to bill Medicaid for prisoners hospitalized for more than 24 hours. She noted that although the provision was working, the total healthcare costs for inmates did not materially change by being able to bill for extended hospital stays. The department was seeing increased costs because of nursing staff turnover resulting in overtime and temporary hiring costs. Higher drug costs and higher than anticipated utilization also contributed to increased costs. She reported that the department had asked for $11 million to cover the costs. The administration worked with the department to look at management action that could be taken to contain costs. The funding of $11 million included the $8 million request and cost savings resulting from tighter management within the healthcare area. Hiring nurses to provide adequate coverage would be the most effective method of reducing costs within the department. She asked the commissioner and his management team to scrutinize every cost to find $3 million in savings. She reiterated that only $8 million was being requested from the general fund. 3:10:22 PM Representative Wilson understood if an inmate was at a halfway house or on electronic monitoring they would be able to take advantage of Medicaid expansion. Yet, the Department of Corrections had reduced the number of halfway houses by about $8 million. The electronic monitoring program (EMP) had also been cut in half from 400 to 200. In terms of high medical costs, halfway houses and EMP were two avenues the state was not utilizing. She had heard stories of people walking away from halfway houses, which she considered to be a contract issue. She believed it was up to the contractor to make sure [people did not walk away]. She thought it was unreasonable to hope to see the savings by prisoners only being hospitalized for 24 hours. She imagined hospitals would want to them [prisoners] out as soon as possible to avoid paperwork. She thought the high costs were due to prisoners not being able to utilize options such as halfway houses and the EMP. She argued that further savings could not only be found in Medicaid expansion but within the prison system itself. Ms. Pitney would investigate the issue. Vice-Chair Gara was concerned with the corrections issue. The commissioner of DOC had said that the department had $11 million in unanticipated costs. The department requested an $11 million increment to deal with the shortfall. In turn, the administration directed the department to find $3.7 million in savings that was never identified in the budget in the previous year and limited its supplemental request to $8 million. He asked if he was right in his interpretation. Ms. Pitney replied, "Yes." Co-Chair Seaton stated that DOC had identified one of the problems having to do with medical facilities not identifying the times people were out [hospitalized], hence, the 24-hour period was not tracked. Therefore, there was no mechanism to bill Medicaid for the 95 percent federal reimbursement. He asked if the issue had been taken care of. Ms. Pitney responded that the staff of the commissioner's office looked at the bills to confirm the timeframe. The office was actively managing the issue. In the case where someone had stayed over 24-hours they sent it back. The office was managing the issue on a case-by- case basis. Co-Chair Seaton asked if things were now being tracked properly. Ms. Pitney responded that there was a disincentive for the provider: It was easier to bill DOC than to bill Medicaid. Also, providers received higher reimbursements if they billed DOC rather than Medicaid. She relayed that there were some built-in incentives and disincentives that she hoped to manage. She thought the issues were longer-term contract management issues. 3:15:09 PM Representative Guttenberg suggested that if the provider billed DOC they received a higher reimbursement rate than if they billed Medicaid. He wondered what rate the state received when it returned to Medicaid for billing for the same service - the higher or lower rate. Ms. Pitney asked Representative Guttenberg to repeat his question. Representative Guttenberg heard Ms. Pitney state that the provider would rather bill DOC because they received a higher reimbursement rate than if they billed Medicaid directly. He wondered if the state got reimbursed a comparable amount. He wondered which number the state received. Ms. Pitney answered that the provider received the Medicaid rate if they were billed on Medicaid which was lower than if they billed DOC directly. She added that the rate could be adjusted after the transition. Vice-Chair Gara asked if the $11 million shortfall for DOC had anything to do with withheld felon PFD funds. Ms. Pitney responded in the negative. The current year's felon funds were based on the prior year's check amount. The amount in the budget was lagging a year. Ms. Pitney advanced to slide 13: "FY2017 Supplemental Bill - Page 9 of 10." She spoke to line 37 which was a special appropriation for a class V injection well consent decree. The agreement between the Department of Transportation and Public Facilities and the Environmental Protection Agency had to do with the clean-up of how oil was collected in the maintenance stations. She addressed line 38 having to do with refinancing. There was a savings of $655 million by refinancing the Goose Creek debt. Representative Pruitt asked what terms changed in the refinancing agreement. He wondered if the state obtained a better financing rate or extended the financing for a longer time. Ms. Pitney was happy to provide more details. However, the change was made primarily because of an interest rate reduction. Representative Pruitt confirmed he wanted to see the refinancing details. 3:19:11 PM Ms. Pitney advanced to slide 14: "FY2017 Supplemental Bill - Page 10 of 10." Ms. Pitney spoke about line 39 regarding a $3 million request for the disaster relief fund. The fund balance was currently about $2 million. The amount would replenish the fund to the normal level of about $5 million. She thought that in the years before her tenor she thought the amount might have been significantly higher. Representative Wilson noted that wildfire relief was not a part of the current supplemental request. Typically, relief funding associated with wildfires in Fairbanks would appear in the supplemental request each year. She asked if, in the current year, relief funding for wildfires was paid for by the federal government. Ms. Pitney would have to check into the issue. She thought plenty of funds were available. Representative Wilson wondered how much was in the fund. She indicated there had been discussion about putting an actual amount in the fund. Co-Chair Seaton asked if it was different than the disaster relief fund. Ms. Pitney would get back to the committee. Representative Pruitt would love to see if the state returned money to the general fund for wildfire relief. He commented that the state issued its "make whole" payments to welfare recipients in October because of the Permanent Fund. He asked if the PF was reduced to a point where a supplemental request was necessary. Ms. Pitney would follow up with an answer. Vice-Chair Gara was told by a few people that the legislature would see a supplemental for fire suppression expenses in the current year. He asked if the state was using up more of the fund than normal. In other words, was the state changing its policy about the amount of reserve funds to have available for fire suppression. Ms. Pitney reported that the administration was not changing the policy. She had not received a supplemental request from the Department of Natural Resources. She would find out. HB 95 was HEARD and HELD in committee for further consideration. Co-Chair Seaton thanked Ms. Pitney and reviewed the agenda for the following meeting.