Legislature(2017 - 2018)ADAMS ROOM 519

04/03/2018 01:30 PM FINANCE

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HOUSE BILL NO. 282                                                                                                            
     "An Act making appropriations, including capital                                                                           
     appropriations,    and   other    appropriations;   and                                                                    
     providing for an effective date."                                                                                          
HOUSE BILL NO. 284                                                                                                            
     "An  Act   making  appropriations,   including  capital                                                                    
     appropriations,       supplemental      appropriations,                                                                    
     reappropriations,  and   other  appropriations;  making                                                                    
     appropriations to  capitalize funds; and  providing for                                                                    
     an effective date."                                                                                                        
1:38:02 PM                                                                                                                    
BRIAN  FECHTER, POLICY  ANALYST,  OFFICE  OF MANAGEMENT  AND                                                                    
BUDGET,  OFFICE OF  THE GOVERNOR,  thanked  members for  the                                                                    
opportunity  to present  on  the  governor's capital  budget                                                                    
request and  the Alaska Economic  Recovery Act.  Mr. Fechter                                                                    
introduced  the PowerPoint  presentation:  "State of  Alaska                                                                    
FY2019 Capital  Budget and  Economic Recovery  Act Overview"                                                                    
(copy on file).                                                                                                                 
Mr. Fechter began with slide  2: "FY2019 Capital Budget." He                                                                    
explained  that  the  governor   put  forward  two  separate                                                                    
capital appropriation  bills in the current  session. First,                                                                    
there  was  a  base  capital  budget  which  was  very  lean                                                                    
compared to previous years. It  only provided enough federal                                                                    
match  to  leverage  federal funds  and  certain  designated                                                                    
general  fund (DGF)  supported energy  projects. There  were                                                                    
also  some information  technology (IT)  improvements within                                                                    
the base  capital budget.  The second  capital appropriation                                                                    
bill  was  the Alaska  Economic  Recovery  Act. It  was  the                                                                    
governor's  "Jobs" act  comprised  of shovel-ready  deferred                                                                    
maintenance   projects   designed   to  get   work   started                                                                    
immediately and put Alaskan's back  to work. There were many                                                                    
smaller  projects  directed towards  communities  throughout                                                                    
the state,  both urban and  rural. This  appropriations bill                                                                    
would be supported by a temporary payroll tax.                                                                                  
Mr. Fechter turned to the  chart on slide 3: "Capital Budget                                                                    
Trend." He pointed  out the capital budget  had been reduced                                                                    
93  percent  or $1.8  billion  from  FY  13. It  meant  that                                                                    
important  needs such  as  deferred  maintenance were  being                                                                    
ignored,  and  the  state  was  providing  less  support  to                                                                    
communities.  As an  example, in  2015 the  Anchorage School                                                                    
District received $20 million in  state grants. In 2018, the                                                                    
district received zero. For Metlakatla,  it was $3.0 million                                                                    
in 2013 and zero for 2018.  The story was the same no matter                                                                    
what  community  was  being  looked  at.  It  also  impacted                                                                    
employment. The idea behind the  dual capital budgets was to                                                                    
get capital spending  up to a more sustainable  level and to                                                                    
support  economic growth.  He  highlighted  the red  portion                                                                    
reflecting the Alaska Economic Recovery  act versus the blue                                                                    
on the chart reflecting the base capital budget.                                                                                
Mr.  Fechter   reviewed  slide   4:  "Base   Capital  Budget                                                                    
(SB142/HB284)."  The base  capital budget  was comprised  of                                                                    
$160 million in unrestricted  general funds (UGF) which were                                                                    
matched with  designated, other, and federal  funds totaling                                                                    
$1.3  billion. Many  of the  appropriations would  look very                                                                    
similar. It was a status  quo budget from the previous year.                                                                    
It  included another  federal match  to match  the available                                                                    
federal  receipts  for  a  village  safe  water  program,  a                                                                    
federal  transportation  program,   Alaska  Housing  Finance                                                                    
Corporation  (AHFC)  dividend  supported  housing  programs,                                                                    
energy  programs, minor  deferred  maintenance programs,  IT                                                                    
programs,  and a  couple of  high priority  investments that                                                                    
would be discussed on a future slide.                                                                                           
Mr.  Fechter discussed  slide 5:  "Base Capital  Budget." He                                                                    
reviewed the  $70 million in a  Department of Transportation                                                                    
and  Public Facilities  match  which  would leverage  around                                                                    
$700 million, a  90/10 match. There was a  federal match for                                                                    
village safe water  and sewer projects in the  amount of $12                                                                    
million  leveraging  $52 million.  There  was  a status  quo                                                                    
housing program from AHFC  including health professional and                                                                    
trooper  housing  with   some  capital  grant  participation                                                                    
through  the federal  Housing  and  Urban Development  (HUD)                                                                    
Administration.  A number  of energy  projects supported  by                                                                    
excess earnings  of the Power  Cost Equalization  (PCE) fund                                                                    
were new  this year.  There was $22  million in  the capital                                                                    
program  for those  projects. Under  maintenance, the  state                                                                    
had the  Alaska Marine  Highway System  vessel certification                                                                    
program that  kept its  vessels running and  got all  of the                                                                    
required work  done to  safely sail  the vessels  in revenue                                                                    
service. There  was also a  small amount of  public building                                                                    
fund deferred maintenance that was  low compared to previous                                                                    
Mr. Fechter  continued that under  IT the state  was putting                                                                    
forward a number  of software upgrades which,  together as a                                                                    
bundle, would realize  an overall savings of  10 percent. In                                                                    
other  words, the  state has  appropriated  10 percent  less                                                                    
than what they would have  reasonably taken to implement the                                                                    
software   solutions.    He   explained   that    with   the                                                                    
implementation of the Office  of Information Technology, the                                                                    
administration  thought it  could come  under budget.  There                                                                    
were also two high  priority investments; the committee will                                                                    
receive a letter  from his office detailing  them. The first                                                                    
project   was   enhanced   9-1-1.  Outside   of   Fairbanks,                                                                    
Anchorage, Mat-Su, and Ketchikan  when a person called 9-1-1                                                                    
they were  bounced around to the  nearest available dispatch                                                                    
officer  and their  location might  be  difficult to  convey                                                                    
without the  enhanced 9-1-1 service. The  other priority was                                                                    
for $1.5  million to  go towards  AKLNG legal  and financial                                                                    
due diligence.  The deliverable item  will be a  report back                                                                    
to the legislature about the feasibility of the project.                                                                        
1:43:52 PM                                                                                                                    
Mr. Fechter continued to slide  6: "Alaska Economic Recovery                                                                    
Act  (SB140/HB282)." The  second capital  appropriation bill                                                                    
was  the Alaska  Economic  Recovery Act.  There  would be  a                                                                    
temporary  wage  tax  that  would   be  kept  at  twice  the                                                                    
Permanent  Fund  Dividend  (PFD)  and would  sunset  in  2.5                                                                    
years. The  proceeds of the  tax, $800 million over  3 years                                                                    
and $280  million in  the budget  being discussed,  would be                                                                    
directed  to  high-value  projects. There  were  many  small                                                                    
projects instead of a couple  of mega projects. The bill was                                                                    
designed  to  get work  started  immediately  and not  after                                                                    
years  of  environmental  studies.  The  school  maintenance                                                                    
appropriation  within this  budget impacted  60 communities,                                                                    
both  urban and  rural.  The administration  was looking  to                                                                    
have an  impact throughout the state.  Most importantly, the                                                                    
bill  did  not grow  government,  rather,  it took  care  of                                                                    
current liability. The idea was  that once the tax sunsetted                                                                    
in 2022,  it could  be reassessed based  on oil  prices, the                                                                    
size of  the budget, and  revenue selections. It  would then                                                                    
be decided whether to extend the tax.                                                                                           
Mr.  Fechter reviewed  the graph  on slide  7: "Construction                                                                    
Industry  Employment." He  noted  that  the legislation  was                                                                    
important  because  from  August  2013 to  August  2017  the                                                                    
construction industry had lost 3,600  jobs. He read from the                                                                    
    According to ISER, $100.0 million in reductions to the                                                                   
     capital budget results in 506 direct and 425 indirect                                                                      
     job losses. (Recall that that $1.8 billion has been                                                                        
     cut from FY2013)                                                                                                           
    Ensuring that Alaska has a trained construction                                                                          
     workforce will ensure future development opportunities                                                                     
     employ as many Alaskans as possible (additional North                                                                      
     Slope exploration, AKLNG, etc.)                                                                                            
    Employment figures have a direct link to spending                                                                        
     elsewhere in the budget (Public Assistance, Medicaid,                                                                      
    For each percentage point of job loss, the traditional                                                                   
     Medicaid population grows at an annualized rate of                                                                         
     4.04 percent                                                                                                               
Mr. Fechter advanced to slide  8: "Deferred Maintenance." He                                                                    
reported   that  the   state  had   a  number   of  deferred                                                                    
maintenance  projects within  the  Alaska Economic  Recovery                                                                    
Act.  The   state  had  a   large  footprint   owning  2,200                                                                    
facilities  including storage  sheds  and smaller  buildings                                                                    
that a person  might not think of as  facilities. There were                                                                    
just over 200 facilities over  10,000 square feet. The total                                                                    
square  footage of  space was  19 million  square feet.  The                                                                    
state  owned many  different types  of facilities  including                                                                    
classrooms, airports, offices,  laboratories, parks, Pioneer                                                                    
Homes, correctional facilities, and roads.                                                                                      
Mr.  Fechter  further  discussed  the  backlog  of  deferred                                                                    
maintenance on slide 9: "Deferred Maintenance Backlog":                                                                         
    DM appropriations of $100.0 M annually for 5 years (FY                                                                   
     11-15) has brought the back-log down                                                                                       
    Lean funding since FY 15 is causing the backlog to                                                                       
     grow again                                                                                                                 
    Without a consistent level of funding, entities cannot                                                                   
     effectively execute planned renewal                                                                                        
    Current level of funding only prioritizes life/safety                                                                    
    Failure of building systems is much more costly than                                                                     
     addressing   the   problem   early   through   deferred                                                                    
Mr.  Fechter reviewed  slide 10:  "Alaska Economic  Recovery                                                                    
Multi-Year Plan." He indicated  the chart showed information                                                                    
about  the  various  projects  within  the  Alaska  Economic                                                                    
Recovery  Act.  Investment  categories included  K-12  major                                                                    
maintenance,  University  of  Alaska (UA)  maintenance,  and                                                                    
state deferred maintenance. There  was also an appropriation                                                                    
for  the  Port of  Anchorage  that  required some  municipal                                                                    
match.  He noted  some additional  highway match  funds that                                                                    
might  become  available  should other  states  lapse  their                                                                    
federal apportionment.  There was also the  municipal harbor                                                                    
facility  grant  projects,  some bulk  fuel  upgrades,  some                                                                    
Emergency    Medical   Services    (EMS)   equipment,    the                                                                    
weatherization program, some  AHFC facility maintenance, and                                                                    
some other assorted housing programs.                                                                                           
1:48:21 PM                                                                                                                    
Mr.  Fechter scrolled  through slides  11 -  13. The  slides                                                                    
were  for members'  reference  showing  example projects  in                                                                    
some  of  the  categories.  He  highlighted  a  few  of  the                                                                    
projects on each slide.                                                                                                         
Mr. Fechter  presented a  list of other  items on  slide 14:                                                                    
"Other Items":                                                                                                                  
   Alaska Economic Recovery Act                                                                                                 
      Municipal Harbor Projects                                                                                              
          o Sitka: Crescent Harbor                                                                                              
          o Whittier: Small Boat Harbor                                                                                         
          o Sitka: Eliason Harbor                                                                                               
          o Ketchikan: Bar Harbor North Harbor                                                                                  
          o Anchorage: South Float                                                                                              
          o Whale Pass: Small Boat Harbor                                                                                       
          o Juneau: Douglas Harbor                                                                                              
          o Juneau: Harris Harbor                                                                                               
      Bulk Fuel Upgrades                                                                                                     
          o Statewide Impact                                                                                                    
          o State-wide impact                                                                                                   
      Senior Citizen Housing Development                                                                                     
      Anchorage Port                                                                                                         
          o Required Municipal Match                                                                                            
Mr.  Fechter   highlighted  that  the   impact  reverberated                                                                    
throughout the state.                                                                                                           
Mr.  Fechter   discussed  slide   15:  "Tax   Proposal."  He                                                                    
reiterated  that  the  Alaska   Economic  Recovery  Act  was                                                                    
supported  by a  temporary wage  tax. The  slide showed  the                                                                    
impact  of the  tax proposal  in concert  with the  PFD. The                                                                    
slide revealed  information if the $1,600  proposed dividend                                                                    
approved by the House Floor remained in place:                                                                                  
    1.5 percent tax on wages and self-employment income                                                                      
        o Does not tax investments, retirement income,                                                                          
          rental income, etc.                                                                                                   
    Tax is capped at $2,200 or twice the PFD ($1,258 * 2=                                                                    
     $2,516), whichever is greater                                                                                              
        o Based on a $1,100 PFD, the cap begins at                                                                              
          $146,666/year, If the PFD is $1,600 next year,                                                                        
          the cap begins at $213,333/year                                                                                       
    Targeted to generate $320.0 million                                                                                      
    Without a cap, it would only generate $10.0 million                                                                      
    Including the PFD, most Alaskans will still receive a                                                                    
     net payment from the state                                                                                                 
    Out-of-state residents will pay the highest rate                                                                         
     because they do not receive PFDs                                                                                           
Mr. Fechter  explained that the  majority of  Alaskans under                                                                    
the  scenario would  still receive  a net  payment from  the                                                                    
state when  taking the tax obligation  against the dividend.                                                                    
The  tax  cap  would  begin  at  $146,000  if  the  tax  was                                                                    
implemented in  the current  year based on  a PFD  amount of                                                                    
$1,100.  In  the following  year,  the  cap would  begin  at                                                                    
$213,000.  The  tax  proposal  would   allow  the  state  to                                                                    
increase  the progressivity  of  the tax  by increasing  the                                                                    
dividend because a  wealthy Alaskan paying at  the cap would                                                                    
receive  $1 for  every additional  dollar of  PFD but  would                                                                    
have to  pay $2  in additional taxes.  The tax  proposal was                                                                    
targeted  to generate  $320 million  per  year. Without  the                                                                    
cap, it only generated $10 million more per year.                                                                               
Mr. Fechter  reviewed the multi-colored  chart on  slide 16:                                                                    
"Tax  Proposal." He  claimed  that even  after  the tax  was                                                                    
implemented,  Alaska  would  remain the  lowest  tax  paying                                                                    
state in the nation. He  concluded his presentation and made                                                                    
himself available for questions.                                                                                                
Vice-Chair  Gara referred  to slide  7. He  asked about  the                                                                    
notion that  for each percentage  of job loss,  if reversed,                                                                    
would result in Medicaid use by about 4 percent.                                                                                
1:51:39 PM                                                                                                                    
Mr.  Fechter   responded  that   Vice-Chair  Gara   had  the                                                                    
information transposed. He  elaborated that every additional                                                                    
percent of  job loss created 4  percent increased annualized                                                                    
usage of the traditional Medicaid population.                                                                                   
Vice-Chair Gara calculated that a  4 percent decrease in the                                                                    
use  of Medicaid  would equal  a savings  of $25  million in                                                                    
state money.  He indicated that  $100 million back  into the                                                                    
capital budget would bring back  about 1,000 jobs, according                                                                    
to  the Institute  of Social  and  Economic Research  (ISER)                                                                    
report. He asked  how 1,00 additional jobs  and $100 million                                                                    
back into the  economy would relate to a  1 percent decrease                                                                    
in unemployment.                                                                                                                
Mr. Fechter replied that the  state's workforce was slightly                                                                    
greater  than 400,000  people. For  the ease  of math  4,000                                                                    
people would be a 1 percent increase.                                                                                           
Vice-Chair  Gara  suggested  that  1,000  jobs,  was  not  a                                                                    
1 percent  increase. It  would  not result  in  a 4  percent                                                                    
Medicaid  decrease.  He thought  it  would  be closer  to  a                                                                    
1 percent decrease in Medicaid use.                                                                                             
Mr. Fechter  responded that  the last bullet  was a  rule of                                                                    
thumb, not related to construction industry employment.                                                                         
Vice-Chair Gara referred to slide  5. He was not criticizing                                                                    
the  administration. Every  governor  since he  had been  in                                                                    
office had  proposed a village  safe water program  that was                                                                    
just the federal  money and the required state  match. As an                                                                    
urban  legislator,  he  was  frustrated  with  the  idea  of                                                                    
putting  the honey  bucket into  the museum  of history,  as                                                                    
proposed  by   Governor  Tony   Knowles,  which   had  never                                                                    
happened.  He  asked if  there  was  the opportunity  to  do                                                                    
something better  than what  the federal  government allowed                                                                    
the state to do. He was frustrated with the schedule.                                                                           
Mr. Fechter indicated it was a lean capital budget.                                                                             
Vice-Chair Gara  was curious how many  communities with more                                                                    
than 50 people  did not have safe water and  safe sewage. He                                                                    
would speak with Mr. Fechter separately after the meeting.                                                                      
Representative Wilson referred  to information technology on                                                                    
slide 5. She  wondered if any of the  upgrades addressed the                                                                    
public  assistance issues  the  state  had experienced.  The                                                                    
state had a  dual system resulting in  extra processing. She                                                                    
asked if the state was looking to fix it.                                                                                       
Mr. Fechter deferred to Ms. Pitney.                                                                                             
1:56:19 PM                                                                                                                    
PAT  PITNEY,  DIRECTOR,  OFFICE OF  MANAGEMENT  AND  BUDGET,                                                                    
OFFICE  OF  THE  GOVERNOR,   responded  that  currently  the                                                                    
Department  of  Public  Safety  was  using  two  systems.  A                                                                    
portion of  the capital  request would facilitate  moving to                                                                    
one  system  for  eligibility  rather  than  two.  It  would                                                                    
greatly streamline things.                                                                                                      
Representative  Wilson asked  about  the  AKLNG funding  for                                                                    
legal  and financial  due diligence  in the  amount of  $1.5                                                                    
million. She thought $12 million  had already been added for                                                                    
the  project.  She  wondered  why  the  state  was  spending                                                                    
additional monies.                                                                                                              
Ms. Pitney replied  that the funding was  for the Department                                                                    
of Revenue  and the  Department of Natural  Resources rather                                                                    
than  AKLNG.  The  Department of  Natural  Resources  monies                                                                    
would be spent  towards the royalty in-kind  (RIK) / royalty                                                                    
in-value valuation.  The funding would  not go to  the AKLNG                                                                    
project.  The funds  would  go  to DOR  and  DNR  to do  due                                                                    
diligence  and  to help  determine  whether  it was  in  the                                                                    
state's  best   interest  to  participate.  The   money  was                                                                    
specific to the agencies and not to AKLNG.                                                                                      
Representative Wilson  referred to  slide 7. She  thought it                                                                    
was difficult to understand the  jobs program. There were no                                                                    
projects listed  in the  bill. It  mentioned grants,  but no                                                                    
particular projects. She asked if  most projects went out to                                                                    
bid to Alaskan and non-Alaskan companies.                                                                                       
Ms.  Pitney  asked Mr.  Fechter  to  return to  the  project                                                                    
listing [slide 10]. She noted  that on the OMB website there                                                                    
was  a  K-12 major  maintenance  list  showing the  priority                                                                    
projects comprising  the $70 million. The  list reflected 60                                                                    
communities.  Every project  for  the  University of  Alaska                                                                    
deferred maintenance was listed as  well as the projects for                                                                    
state deferred  maintenance. She  added that  the associated                                                                    
jobs were private sector jobs.  She reported that 95 percent                                                                    
to 100  percent of the  work went out to  local construction                                                                    
companies. Therefore, the money was being kept local.                                                                           
Representative Wilson  indicated that the Port  of Anchorage                                                                    
was an  exception. The project  was $40 million.  She wanted                                                                    
to see  the jobs given  to Alaskans. However, she  was aware                                                                    
of the bidding process. She  wondered if she had information                                                                    
about   what  percentage   of  projects   went  to   Alaskan                                                                    
companies.  She  spoke  about work  in  Fairbanks  going  to                                                                    
companies outside of Alaska.                                                                                                    
Ms.  Pitney   responded  that  during  her   tenure  at  the                                                                    
University  she looked  at the  companies that  were awarded                                                                    
projects  over a  period of  9 years.  She reported  that 97                                                                    
percent of  the deferred maintenance projects  went to local                                                                    
or  in-state  contractors.  In   Fairbanks,  88  percent  of                                                                    
projects  went to  local contractors.  She  agreed that  the                                                                    
Port  of Anchorage  was  the largest  project  on the  list.                                                                    
However,  as large  as  the  project was,  it  was really  a                                                                    
series of small projects. She  thought that over 90 percent,                                                                    
likely  95 percent,  would  be in-state  hire.  The Port  of                                                                    
Anchorage would be the only exception.                                                                                          
Representative  Wilson   hoped  the  state,  not   just  the                                                                    
university, kept track of local  company hires. She asked if                                                                    
the  Department  of  Transportation  and  Public  Facilities                                                                    
(DOT) kept track. She wanted more information.                                                                                  
Ms. Pitney would get her the information.                                                                                       
2:02:55 PM                                                                                                                    
Mr. Fechter could provide the information.                                                                                      
Representative Wilson  commented about wanting to  only hire                                                                    
Alaskans. She understood there was  a process for hiring and                                                                    
looked forward to receiving the information.                                                                                    
Representative Kawasaki  referred to slide 11.  He asked how                                                                    
to know if the projects listed were shovel ready.                                                                               
Mr.  Fechter responded  that the  projects were  prioritized                                                                    
based on the K-12  major maintenance prioritization list. It                                                                    
was a recurrent  capital project in the  capital budget. The                                                                    
projects that  rose to the  top of  the list were  ones that                                                                    
were ready to go to  construction immediately as well as the                                                                    
highest life, health, and safety  need and the various other                                                                    
requirements under AS 14.10.                                                                                                    
Representative Kawasaki  referred to  slide 13. He  asked if                                                                    
the projects  listed on the  slide were singled out  as part                                                                    
of the  same prioritization as  the projects for  K-12 major                                                                    
Mr.   Fechter   replied   that    there   was   an   ongoing                                                                    
prioritization of  the state deferred maintenance  needs. It                                                                    
was coordinated  by OMB  and done at  the agency  level. For                                                                    
the  purpose  of  the  slide   he  had  chosen  some  random                                                                    
examples. It was not in the order of highest need.                                                                              
Representative Kawasaki  referred to  slide 11.  He wondered                                                                    
about the local match. He  asked if the matches were already                                                                    
available. For  example, did  St. Mary's  have the  money to                                                                    
match the state's total.                                                                                                        
Mr. Fechter  indicated Representative Kawasaki  was correct.                                                                    
The  major  maintenance  program  required  a  participating                                                                    
share. It was on a sliding  scale of 5 percent to 35 percent                                                                    
depending  on  the taxable  property  of  the average  daily                                                                    
membership of the district.                                                                                                     
2:05:27 PM                                                                                                                    
Representative Kawasaki asked if  Mat-Su already had a local                                                                    
match ready  or if  the local  match would have  to go  to a                                                                    
Mr.  Fechter would  have  to confirm,  but  he believed  the                                                                    
matching funds had to be on hand to get on the list.                                                                            
Representative  Guttenberg referred  to  slide  5. He  asked                                                                    
about  the first  bullet. He  wondered if  any of  the other                                                                    
projects on that list had any other matches available.                                                                          
Mr. Fechter  responded that it  was possible there  might be                                                                    
other  small matches.  However,  the largest  pots of  match                                                                    
funding were listed.                                                                                                            
Representative  Guttenberg   asked  about   the  information                                                                    
technology bullet. He wondered  about the automated park fee                                                                    
collections.  He asked  if a  feasibility study  of building                                                                    
infrastructure had been  done for some of  the parks farther                                                                    
out. He asked about cost benefits.                                                                                              
Mr. Fechter  believed there were  already stations  in place                                                                    
in a limited  number of locations. The intention  was to add                                                                    
more  stations  in more  locations.  It  had been  a  common                                                                    
complaint by  people who used the  state parks, particularly                                                                    
those  in passive  management, to  be able  to pay  the fees                                                                    
with a credit card.  They were definitely revenue generating                                                                    
machines. Sites  would be determined  based on  park traffic                                                                    
and potential revenue.                                                                                                          
2:08:01 PM                                                                                                                    
Representative  Guttenberg did  not  feel  his question  was                                                                    
answered. If  a person was at  a park in an  urban area, all                                                                    
that  was needed  was a  Square  or a  slider box.  However,                                                                    
farther  out, there  was  no  capacity. He  did  not have  a                                                                    
problem with  automating the system.  He observed  that when                                                                    
he   pushed    the   state   to   improve    its   broadband                                                                    
infrastructure, he was  told it was not the  state's job. He                                                                    
suggested  that by  enhancing broadband,  many other  places                                                                    
would benefit. He  thought there was a  lack of coordination                                                                    
and  understanding  in  the  governor's  office  about  what                                                                    
needed to be done.                                                                                                              
Vice-Chair Gara  agreed with the governor  about cutting the                                                                    
budget  without adopting  a fiscal  plan, which  was costing                                                                    
jobs.  He was  somewhat angered  that the  state was  in its                                                                    
current  situation. He  appreciated the  governor's efforts.                                                                    
He had discussed rural safe  water. Another issue he had was                                                                    
on slide  10 of  the presentation.  He understood  the state                                                                    
did some homelessness prevention  funding through the Alaska                                                                    
Housing Finance Corporation  (AHFC). He asked if  any of the                                                                    
community  needs  housing  investment  money  was  aimed  at                                                                    
addressing the state's homelessness problem.                                                                                    
Mr.   Fechter   indicated   that  perhaps   indirectly   the                                                                    
supplemental  housing  development   program  was  aimed  at                                                                    
increasing the  low-income housing  stock. Some  homeless or                                                                    
near-homeless  people  would  benefit  from  increasing  the                                                                    
public housing  stock in the  state. However, they  were not                                                                    
direct grants  to homeless shelters  or support  to homeless                                                                    
Vice-Chair Gara  responded that  homeless shelters  were not                                                                    
the only  way to  address the  homelessness problem.  He was                                                                    
interested   in  a   capital  budget   that  addressed   the                                                                    
homelessness problem.  He understood  that it  was difficult                                                                    
to address the issue without funding.                                                                                           
Representative  Grenn  referred  to  page  9  regarding  the                                                                    
deferred  maintenance  backlog.  He asked  what  the  future                                                                    
would look  like without  a consistent  level of  funding or                                                                    
with continuing to do only  the minimum. He wondered how the                                                                    
number would grow over the next 5 years to 10 years.                                                                            
Mr. Fechter  responded that the  future would look  like the                                                                    
past.  Fiscal  Year  2012  was a  high  point  for  deferred                                                                    
maintenance  after  ignoring the  problem  for  a number  of                                                                    
years.  The  cost  ticked  up and  up  reaching  about  $2.5                                                                    
billion. It took a concerted  effort and the state regularly                                                                    
choosing  to make  the investment  to effectively  execute a                                                                    
deferred  maintenance program.  The  small uptick  in FY  18                                                                    
could be expected  to accelerate. He thought FY 22  or FY 23                                                                    
could look similar to FY 12 in the chart.                                                                                       
Representative  Grenn  did  not  feel  deferred  maintenance                                                                    
received enough attention. It was  not sex but vital to cost                                                                    
savings and  job creation. He  was interested in  seeing any                                                                    
information regarding the following 5 years.                                                                                    
Mr. Fechter replied, "Absolutely."                                                                                              
2:13:19 PM                                                                                                                    
Representative  Pruitt  relayed   that  his  first  question                                                                    
related  to  the  base  capital  budget  and  high  priority                                                                    
investments. He wanted  to know exactly where  the money was                                                                    
coming from.  He thought that  that it was a  combination of                                                                    
seismic  funds  and possibly  general  funds.  He asked  for                                                                    
Mr.  Fechter  replied  that  it was  a  redirection  of  the                                                                    
seismic  budget  request. There  were  a  number of  related                                                                    
Representative Pruitt  asked why there  had been a  shift in                                                                    
seismic funding.                                                                                                                
Mr. Fechter deferred to Ms. Pitney.                                                                                             
Ms. Pitney  replied that  when the  administration requested                                                                    
seismic  area  work  be  done   in  partnership  with  other                                                                    
entities,  the  timing   seemed  appropriate.  Upon  further                                                                    
investigation,  the administration  had determined  that the                                                                    
timing was not  quite right. She suggested that  it would be                                                                    
better  for the  work to  be  done in  the following  fiscal                                                                    
year.  The  partnership  piece  that  would  have  made  the                                                                    
request time  sensitive was  not in  place. The  two primary                                                                    
sources  of   funding  for  seismic  work   was  the  Alaska                                                                    
Industrial   Development   and  Export   Authority   (AIDEA)                                                                    
dividend and the general fund.                                                                                                  
Representative Pruitt  asked about  the $1.5  million slated                                                                    
for the  AKLNG project. He  noted that Alaska  had something                                                                    
similar to  a "fee for service"  model. If there was  a cost                                                                    
to  the  state,  Alaska's  industry partners  paid  in  some                                                                    
capacity.   He  spoke   of   the   Alaska  Gas   Development                                                                    
Corporation (AGDC) and the state  being forced, at times, to                                                                    
expend money in  the process leading up  to construction and                                                                    
afterwards.  He wondered  if  AGDC should  have  to pay  its                                                                    
share. He suggested that AGDC pay the $1.5 million.                                                                             
Ms.  Pitney  answered  in the  affirmative.  Alaska  Gasline                                                                    
Development  Corporation  was   paying  for  the  permitting                                                                    
process out  of its  budget. The  money being  discussed was                                                                    
not to fund AKLNG. Rather, it  was to fund the Department of                                                                    
Revenue and the  Department of Natural Resources  to look at                                                                    
the project from the state's  best interest perspective. She                                                                    
mentioned  deciding between  royalty in-kind  versus royalty                                                                    
in-value. She continued that DOR  would also present on what                                                                    
was  best for  the  state. The  legislature  would make  the                                                                    
final decision about the investment.                                                                                            
2:19:04 PM                                                                                                                    
Representative  Pruitt  asked   about  the  Alaska  Economic                                                                    
Recovery  Act.  He  asked about  the  yearly  start-up  cost                                                                    
associated with the tax.                                                                                                        
Mr. Fechter  thought it was  around $15 million  to start-up                                                                    
the  tax  and  approximately  40 positions  would  be  added                                                                    
consisting of full and part-time staff for tax season.                                                                          
Representative    Pruitt   wondered    if    it   was    the                                                                    
administration's intent to ask for an extension in 3 years.                                                                     
Mr.  Fechter thought  that is  was clear  that the  governor                                                                    
wanted an ongoing revenue measure to close the budget gap.                                                                      
Representative Pruitt  asked if  Mr. Fechter thought  it was                                                                    
disingenuous to have a sunset date on the bill.                                                                                 
Mr.  Fechter replied  that there  were  competing points  of                                                                    
view. There  was the point of  view that oil would  save the                                                                    
state.  Another perspective  was that  Alaska was  in a  new                                                                    
world with low-price oil or  lower-for-longer priced oil. If                                                                    
oil prices  were at $90  per barrel at  the end of  3 years,                                                                    
the state could celebrate, and  the tax could sunset. If oil                                                                    
prices were  in the  $50-$60 range, there  would still  be a                                                                    
budget gap.                                                                                                                     
Representative  Pruitt   did  not   think  that   oil  could                                                                    
necessarily  save Alaska.  However, there  were many  people                                                                    
that thought the state could  be making different decisions.                                                                    
He suggested asking why people  have asked their legislators                                                                    
not to support the current  budget. He thought the responses                                                                    
would  be  because their  PFD  was  too  low or  that  their                                                                    
government was  too large. He  did not approve of  the term,                                                                    
"differing  points  of view"  or  that  oil would  save  the                                                                    
state. Oil  was an  important piece, but  there was  more to                                                                    
the picture.                                                                                                                    
2:22:51 PM                                                                                                                    
Co-Chair Foster  was looking  at some  of the  life, safety,                                                                    
and health related  projects. He was glad to  see there were                                                                    
a number  of projects in  the base capital budget  that fell                                                                    
under that  category. He highlighted several  items from the                                                                    
list.  He  asked Director  Pitney  to  describe her  thought                                                                    
process concerning  how she  prioritized putting  the budget                                                                    
together. He had broken down  the list into four categories:                                                                    
life,  safety,  and  health; leveraging  of  federal  funds;                                                                    
deferred  maintenance; and  other. He  asked because  as the                                                                    
House moved  forward and as  projects were added,  he wanted                                                                    
to  have  a  better  sense  of  the  type  of  projects  the                                                                    
administration  would support.  He thought  all would  agree                                                                    
that life,  safety, and health would  be at the top.  He was                                                                    
asking because  he wanted  to have a  better sense  of which                                                                    
type  of projects  were  important  in the  administration's                                                                    
Ms. Pitney responded that state  first went with the federal                                                                    
match.   The  federal   match  had   two  main   components:                                                                    
transportation  and  village  safe water.  Another  area  of                                                                    
match was  in health  and social  services for  IT projects.                                                                    
She  noted  that the  transportation  match  was 90/10.  She                                                                    
continued  that  housing  items  having  to  do  with  life,                                                                    
health, and  safety were put  in the main budget.  Some less                                                                    
direct  service components  of housing  were  in the  Alaska                                                                    
Economic Recovery Act budget.  Some deferred maintenance had                                                                    
been  moved into  the Alaska  Economic Recovery  Act budget.                                                                    
The  administration  could  size deferred  maintenance.  The                                                                    
administration's approach  was to size  deferred maintenance                                                                    
on a  large scale  to get a  significant number  of projects                                                                    
done  and focus  on the  economy. There  were high  priority                                                                    
investments  such   as  the  enhanced  9-1-1   project.  The                                                                    
administration had  placed the  early study for  the project                                                                    
in  the operating  budget. The  Department of  Public Safety                                                                    
(DPS) moved their due-diligence  up making the 9-1-1 project                                                                    
more  shovel-ready.  The project  met  some  of the  state's                                                                    
public safety  goals and addressed health  and safety across                                                                    
the state. The appropriation was  small in comparison to the                                                                    
number places  the project would  affect. She  reported that                                                                    
the two small deferred maintenance  items placed in the base                                                                    
capital  budget were  the DOC  upgrades in  Bethel due  to a                                                                    
recent break  out and  the Pioneer  Homes. The  remainder of                                                                    
projects  were placed  in the  Alaska Economic  Recovery Act                                                                    
bill. The  base capital budget  was comprised of  items that                                                                    
were  in  the budget  annually.  The  bigger investments  in                                                                    
deferred maintenance  were in  the Alaska  Economic Recovery                                                                    
Representative  Wilson asked  why there  was a  supplemental                                                                    
capital  budget. She  highlighted  $6 million  UGF and  $8.1                                                                    
million in other state funding.                                                                                                 
Mr. Fechter explained that the  $6 million appropriation was                                                                    
for  the   Alaska  Marine   Highway  System   (AMHS)  vessel                                                                    
certification.  He  thought $8  million  had  to do  with  a                                                                    
settlement with Volkswagen.                                                                                                     
Representative  Wilson  asked  if  the  administration  knew                                                                    
about the  AMHS vessel certification and  intentionally left                                                                    
it out of the budget.                                                                                                           
Mr. Fechter  responded that there  were a number  of factors                                                                    
at play. He recalled that  the M/V Tustumena had issues that                                                                    
caused it to be in layup  and needed a significant amount of                                                                    
work. As  a result,  AMHS burnt through  a large  portion of                                                                    
its  current   year  certification   dollars.  Additionally,                                                                    
certification  budgets  had  been  very lean  for  the  past                                                                    
several  years. Historically,  the  system  had received  $3                                                                    
million  -  $4  million  of deferred  maintenance  money  in                                                                    
addition  to  $12 million  -  $13  million in  certification                                                                    
monies.  Between  the  two  figures,  it  fully  funded  the                                                                    
system's  maintenance needs  for the  year. The  request was                                                                    
generated  because  of  lean deferred  maintenance  budgets,                                                                    
significant  additional  overhaul expenses  associated  with                                                                    
the M/V Tustumena, and the aging of the fleet.                                                                                  
2:28:39 PM                                                                                                                    
Representative  Wilson asked  if the  $6 million  would come                                                                    
out of the FY  18 or FY 19 budget if it  was not approved in                                                                    
the supplemental request.                                                                                                       
Mr.  Fechter  responded  that  if the  $6  million  was  not                                                                    
approved,   the  department   would   not  have   additional                                                                    
flexibility in the  current year, and it would  have to push                                                                    
its bills  out into July  1. The department  would encounter                                                                    
the same problem in the following year.                                                                                         
Representative  Wilson  asked  if  the  committee  would  be                                                                    
having another  session to go  through the projects  in more                                                                    
detail rather than in a high-level overview.                                                                                    
Co-Chair Foster  liked her suggestion and  thought something                                                                    
could be put together.                                                                                                          
Representative Tilton  referred to  the wage tax  budget and                                                                    
the Code  Blue Project.  She reported that  over the  past 5                                                                    
years,  the project  request had  been $500,000  every year.                                                                    
There was a request of $1  million in the current year which                                                                    
returned to $500,000 the following year. She asked why.                                                                         
Ms.  Pitney  responded  that the  administration  looked  at                                                                    
their significantly large  priority list. The administration                                                                    
thought  that  the  additional  $1  million  would  help  to                                                                    
address some  of the highest  priorities on the  list rather                                                                    
than shifting them to future years.                                                                                             
2:31:10 PM                                                                                                                    
Vice-Chair  Gara commented  that 4  years prior  the capital                                                                    
budget was much higher. He had  heard that a lack of capital                                                                    
projects  would result  in a  greater number  of job  losses                                                                    
into the  future. He asked  if there was a  lingering effect                                                                    
of  money  still  on  the  street  through  earlier  capital                                                                    
budgets. He  wondered about future  job losses if  the state                                                                    
did not adjust the capital budget.                                                                                              
Ms. Pitney  confirmed that  the state  had largely  used the                                                                    
money in  the pipeline from  FY 12 -  FY 14 in  high capital                                                                    
budget  years. The  projects  associated  with those  budget                                                                    
years were  currently being completed. The  state was moving                                                                    
into the low capital budget  years. The state was fortunate,                                                                    
under  the   base  capital  budget,   that  the   state  had                                                                    
maintained the transportation funding.  She reported that it                                                                    
was largely  the community projects  that had  dwindled. She                                                                    
relayed  an  example.  She  thought   it  was  difficult  to                                                                    
quantify, but OMB monitored the  state's spending on capital                                                                    
projects  on  an  annual  basis.   The  state  had  remained                                                                    
relatively  steady. However,  she  anticipated  that in  the                                                                    
following year  there would  be a  reduction in  spending of                                                                    
about $100 Million to $200  million for capital projects. It                                                                    
was  difficult  to  predict   how  the  circumstances  would                                                                    
manifest  themselves. She  relayed  that the  administration                                                                    
anticipated an additional downturn in the economy.                                                                              
Co-Chair Foster thanked Mr. Fechter and Ms. Pitney.                                                                             
HB  282  was  HEARD  and   HELD  in  committee  for  further                                                                    
HB  284  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
HB 129 Sectional Analysis ver J 2.18.2018.pdf HFIN 4/3/2018 1:30:00 PM
HB 129
HB129 Additional Document-ACS FY18 Q2 Collections Memo 2.5.18.pdf HFIN 4/3/2018 1:30:00 PM
HB 129
HB 129 Summary of Changes ver D to J 2.18.2018.pdf HFIN 4/3/2018 1:30:00 PM
HB 129
Capital Budget and Economic Recovery Overview (House Finance) -.pdf HFIN 4/3/2018 1:30:00 PM
HB 282
HB 284
HB 240 CS WORKDRAFT vD.pdf HFIN 4/3/2018 1:30:00 PM
HB 240
HB240 Explanation of Change ver D 3.28.18.pdf HFIN 4/3/2018 1:30:00 PM
HB 240
HB240 Sectional Analysis ver D 3.28.18.pdf HFIN 4/3/2018 1:30:00 PM
HB 240
HB 240 Supporting Document News Article 4.3.18.pdf HFIN 4/3/2018 1:30:00 PM
HB 240
HB 240 Supporting Document NASHP Response.pdf HFIN 4/3/2018 1:30:00 PM
HB 240
OMB Responses to 4-3-18 HFIN Meeting.pdf HFIN 4/3/2018 1:30:00 PM
HB 284 HB 282 Overview Response OMB