Legislature(2005 - 2006)SENATE FINANCE 532
02/16/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SJR6 | |
| SB98 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SJR 6 | TELECONFERENCED | |
| += | SB 97 | TELECONFERENCED | |
| += | SB 98 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
February 16, 2005
9:05 a.m.
CALL TO ORDER
Co-Chair Green convened the meeting at approximately 9:05:14 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Fred Dyson
Senator Bert Stedman
Senator Donny Olson
Senator Lyman Hoffman
Also Attending: JOEL GILBERTSON, Commissioner, Department of
Health and Social Services; CHRIS CHRISTENSEN, Deputy
Administrative Director, Alaska Court System; DAVID MARQUEZ, Acting
Deputy Attorney General, Civil Division, Department of Law; DEAN
GUANELI, Chief Assistant Attorney General, Legal Services Section-
Juneau, Criminal Division, Department of Law; SUSAN TAYLOR,
Director, Division of Administrative Services, Department of
Revenue; PHIL REEVES, Assistant Attorney General, Oil, Gas and
Mining Section, Civil Division, Department of Law; HAROLD HEINZE,
Chief Executive Officer, Alaska Natural Gas Development Authority,
Department of Revenue; JANET CLARKE, Director, Division of
Administrative Services, Department of Health and Social Services;
BILL HOGAN, Director, Division of Behavioral Health, Department of
Health and Social Services; RICHARD MANDSAGER, Director, Division
of Public Health, Department of Health and Social Services;
Attending via Teleconference: From offnet locations: JOHANNA
BALES, Program Manager for Tobacco taxes, and Excise Audit Manager,
Tax Division, Department of Revenue; NICO BUS, Acting Director,
Division of Support Services, Department of Natural Resources; MARK
MYERS, Director, Division of Oil and Gas, Department of Natural
Resources; DICK LEFEBVRE, Deputy Commissioner, Department of
Natural Resources; BILL HOGAN, Director, Division of Behavioral
Health, Department of Health and Social Services; From Anchorage:
STEVE PORTER, Deputy Commissioner, Department of Revenue; From
Fairbanks: ROD COMMBELLICK, Associate Director for Operations,
Division of Geological and Geophysical Surveys, Department of
Natural Resources
SUMMARY INFORMATION
SJR 6-FEDERAL MEDICAL ASSISTANCE REDUCTION
The Committee heard from the Department of Health and Social
Services. The bill was held in Committee.
SB 98-SUPPLEMENTAL APPROPRIATIONS: FAST TRACK
The Committee heard presentations on the requests of the Alaska
Court System, the Department of Law, the Department of Natural
Resources, the Department of Revenue, and the Department of Health
and Social Services. The bill was held in Committee.
SB 97-SUPPLEMENTAL APPROPRIATIONS/CBR
This bill was scheduled but not heard.
SENATE JOINT RESOLUTION NO. 6
Relating to a reduction in the Federal Medical Assistance
Percentage for Alaskans, and urging the United States Congress
to take action to prevent the reduction.
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this resolution, "addresses a proposed
reduction to the federal share of Alaska's Medicaid program. If the
announced reduction takes place as scheduled on October first of
2005, the estimated loss to the State in FY 06 is approximately $53
million. This resolution encourages that decision to not take
place."
9:06:26 AM
JOEL GILBERTSON, Commissioner, Department of Health and Social
Services, testified that this resolution addresses the fact that
the federal match rate for the Medicaid program is due for a
"sizable reduction" as of October 2005. The Medicaid match rate,
also referred to as FMAP, Federal Medical Assistance Percentage,
for each state is calculated based on the per-capital income of
that state with wealthier states required to contribute a larger
portion to its Medicaid costs. A limit of 50 percent was
established. For several years, this rate applied to Alaska and the
State paid 50 percent of its Medicaid costs.
Mr. Gilbertson informed that in 1997 then U.S. Senator Frank
Murkowski enabled the passage of a temporary adjustment to the
match rate the state of Alaska from 50 percent to 59.8 percent.
This generated approximately $100 in additional federal funding for
the State between the federal fiscal years 1998 and 2000. The
adjustment expired after three years at which time Senator
Murkowski was successful in securing a five-year extension, which
generated an additional $250 million for the State. The second
extension is due to expire in October 2005 and the match rate would
revert to 50 percent if no action were taken.
Mr. Gilbertson stressed the adjusted match rates are not intended
to benefit the state of Alaska without reason, but rather to offset
the higher cost to deliver health care in Alaska in comparison to
other states. Although per capita income is incrementally higher in
Alaska, health care delivery costs are significantly higher as
well. The federal government in the cost of living adjustments paid
to federal employees has acknowledged this. Congress twice
supported higher federal contributions for Medicaid in Alaska.
Mr. Gilbertson spoke to the fiscal impact to the State if the
adjustment were not extended. The federal contribution match rate
would be reduced to 50 percent. The seven percent reduction would
calculate to $53 million for FY 05, which the State would be
required to replace with general funds. He emphasized that the rate
reduction in FY 06 would only affect three-quarters of the state
fiscal year. By FY 07, the revenue reduction would equal almost $73
million. Over ten fiscal years, the total impact to the State
would be $914 million.
Mr. Gilbertson stated that this resolution requests the match rate
hold harmless the state of Alaska. He informed, "It is almost twice
the size of the second most affected state, which is Wyoming, which
sees a three-percentage point drop." The underlying formula that
determines the federal share is fundamentally flawed and does not
reflect the cost of health care. This resolution addresses this
discrepancy.
Co-Chair Wilken noted the $53 million reduction is not reflected in
the FY 06 operating budget. If Congress failed to provide an
extension, a supplemental appropriation would be required.
Co-Chair Green ascertained that the State's revenue for FY 06 would
be reduced $53 million.
Senator Hoffman understood the State's position on this matter. He
employs the same arguments to stress the high cost of delivering
services to rural Alaska. He asked the likelihood that the
extension would be granted.
Mr. Gilbertson replied that the chances are dependent upon various
factors, including other legislation. He worked for former U.S.
Senator Frank Murkowski at the time of the current extension and
reported that the process was challenging. Achieving this extension
would also be a challenge, although possible. The Alaska delegation
is aware of the importance of this funding and U.S. Senator Lisa
Murkowski has introduced legislation to address the matter.
Senator Bunde commented to the issue of reduced government
spending.
Co-Chair Wilken indicated that the matter of whether the fiscal
note for this resolution should be zero or reflect a loss of $53
million. He requested the resolution be held in Committee until the
matter was resolved.
Co-Chair Green ordered the bill HELD in Committee.
AT EASE 9:15:22 AM / 9:16:59 AM
9:17:01 AM
Co-Chair Wilken chaired the remainder of the meeting.
SENATE BILL NO. 98
"An Act making supplemental appropriations, capital
appropriations, other appropriations, and reappropriations;
amending appropriations; making appropriations to capitalize
funds; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
The Committee continued hearing presentations from departments on
the budget requests of both bills. The Committee referenced a
spreadsheet prepared by the Office of Management and Budget dated
February 7, 2005, outlining each request [copy on file].
Alaska Court System
Item: 62
Section: 16
Request Delivery Unit (RDU): Trial Courts
Supplemental Need: Therapeutic court funding coming from NCADD
$18,900, Technical Improvement grant from Alaska Legal
Services $18,100, Youth for Justice grant $7,500 and Color of
Justice grant $5,000.
$49,500 Statutory Designated Program Receipts
CHRIS CHRISTENSEN, Deputy Administrative Director, Alaska Court
System, testified that the requests would provide receipt authority
for four grants of non-federal funds. The timing is such that
approval could not be addressed through the normal budgeting
process.
Mr. Christensen spoke to the Youth for Justice grant sponsored by
the Constitutional Rights Foundation that would provide travel
funds to allow teachers to attend the 2005 Educating on Law and
Democracy Conference in Fairbanks. The Foundation trains teachers
how to teach civic courses to students.
Mr. Christensen next addressed the travel funds provided through
the Color of Justice grant. These funds would be utilized to allow
Alaskan Native students to attend a Color of Justice program in
Anchorage in 2005 to learn of career opportunities in the justice
system. The National Association of Women Judges sponsors this
program with the intent to encourage minority students to pursue
careers in the justice field. The program targets students in the
seventh through the twelfth grades.
Mr. Christensen stated the technical improvement grant is a pass-
through from the Alaska Legal Services and would provide for the
installation of six computers at superior court locations in
Fairbanks, Palmer, Kenai, Ketchikan, Juneau and Kodiak. People
involved in family law cases, such as divorce and child custody who
do not have legal representation, could access the Family Law Self
Help Center to obtain forms and other assistance as necessary.
Mr. Christensen concluded with the Juneau Wellness Project grant
that is also a pass through of funding from the Juneau affiliate of
the National Council on Alcoholism and Drug Dependence in support
of the Juneau Wellness Court. A wellness court similar to the
Anchorage Wellness Court is being established in Juneau to address
misdemeanor offenses involving alcohol.
Department of Law
Item: 40
Section: 10(b)
RDU: 1st Judicial District
Supplemental Need: Contractual costs for a prosecutor to
represent the Department of Law in the Therapeutic Courts
program
$21,400 SDPR
DAVID MARQUEZ, Acting Deputy Attorney General, Civil Division,
Department of Law, read a statement into the record as follows.
The Juneau affiliate of the National Council on Alcoholism and
Drug Dependence has applied for and received a grant from the
United States Department of Transportation, State Community
and [indiscernible] to develop a wellness court in Juneau.
These therapeutic and wellness courts are designed to reduce
recidivism rate of drunk drivers and other alcohol related
offenders. The program features a diversion in process,
treatment and monitoring through close case management.
Wellness courts have proven effective in reducing alcohol
related fatalities and injuries. The mutual goal of the
Highway Safety Program of the federal government and the
NCADD. Reductions are alcohol-related injury [indiscernible]
mission and would result in the further benefit of reducing
costs to the criminal justice system. This request is for
$21,312.50 in statutory designated program receipts from this
grant and would fund the services of approximately
[indiscernible] contractor to represent the Department of Law
in the program.
Item: 39
Section: 10(a)
RDU: Criminal Appeals/Special Litigation Component
Supplemental Need: Outside counsel for appeal costs in the
Murtaugh case related to defense of victim's rights; FY 06
lapse date.
$50,000 general funds
Mr. Marquez read a statement into the record as follows.
This is a class action lawsuit brought by several members of
the [indiscernible] of Anchorage challenging the
constitutionality of the statutory rights of victims in Alaska
with regard to disclosure and notice when contacted by defense
attorneys and their investigators. The plaintiffs argue the
victims rights statutes violate the equal protection and due
process rights of defendants and defense council. It had a
trial in Superior Court completed this past summer a decision
is expected very soon. They will result in an appeal we're
sure no matter who wins. The legislature appropriated $175,000
for the Criminal Division [to employ] outside counsel for this
case as well other matters. The original appropriation is now
exhausted. We are requesting $50,000 be added to the original
appropriation with a lapse extension to FY 06 or another
appropriation be made to achieve the same end.
Senator Hoffman asked if the requested amount is anticipated to be
the total needed for this case in the future.
DEAN GUANELI, Chief Assistant Attorney General, Legal Services
Section-Juneau, Criminal Division, Department of Law, testified
this request is to fund the total amount billed to date. It has yet
to be determined whether the Department of Law or outside council
would handle the appeals process. The trial went longer than
anticipated.
Senator Hoffman noted this appropriation would lapse to FY 06, and
asked whether additional funding would be required for FY 06.
Mr. Guaneli replied that additional funds could be required.
Senator Olson asked the cost in the event the State did not prevail
in this case and if another request were filed the following year.
Mr. Guaneli responded that the costs in question are related to the
appeal to the Supreme Court, which would be "significantly less."
Department of Revenue
Item: 42
Section: 12
RDU: Tax Division
Supplemental Need: Increased tobacco tax enforcement costs
$395,500 general funds
SUSAN TAYLOR, Director, Division of Administrative Services,
Department of Revenue, outlined her testimony into the record as
follows.
Background
· Legislature included fiscal note funding for the
Governor's initial Tobacco tax, licensing and penalties
bill that was included during the regular legislative
session in the amount of $828,100 to implement the
provisions in the new law. However, the bill failed to
pass the legislature thereby voiding that fiscal note
appropriation.
· The Governor called the legislature into special session
and during the special session the tobacco tax, licensing
and penalties bill did pass with some changes made to the
Governor's original bill. However, a fiscal note did not
pass during the special session.
· This request would fund the department's existing tobacco
tax enforcement program and reconcile the legislature's
actions.
· Based on past experience in Alaska and in other states,
the department is concerned that if it does not have an
effective cigarette tax stamp enforcement program,
cigarette bootlegging will flourish in Alaska.
· When the state of Michigan raised its tax rate, revenues
actually decreased due to lack of enforcement.
· When the state of Hawaii enacted cigarette tax stamp
legislation it hired 11 new enforcement officers. After
one year of active enforcement, Hawaii's cigarette tax
revenue increased nearly 50 percent from the previous
year.
The Department is asking for this funding to be annualized in
its FY 06 budget request.
Senator Hoffman understood it was expected that revenues would
decrease because the higher tax would cause people to quit smoking.
Ms. Taylor affirmed the intent was that cigarette consumption would
decline as a result of the higher tax; however, it was anticipated
that the increased tax would generate more revenue.
Senator Hoffman asked the amount the additional tax would generate.
Ms. Taylor listed the initial estimates of $6.3 million increase in
FY 05, $20.8 million in FY 06, $27.4 million in FY 07, and $33.8
million in FY 08 and thereafter.
Senator Hoffman noted these were the amounts that the legislature
"approved". He asked the revenue amounts if enforcement legislation
were not adopted.
Ms. Taylor deferred to the next witness.
JOHANNA BALES, Program Manager for Tobacco taxes, and Excise Audit
Manager, Tax Division, Department of Revenue, testified via
teleconference from an offnet location to the anticipated 12 to 13
percent consumption decrease as a result the tobacco tax increase
implemented in 1997. She stressed that the anticipated revenues
decreased 22 percent, which could not be justified solely from
people quitting smoking. Instead it was determined that the
additional nine percent decline was the result of bootlegging of
cigarettes. She expected the same would occur with the recent tax
increase if enforcement measures were not taken. This occurred in
other states that implemented tobacco tax increases, such as New
Jersey, which realized a 14 percent higher decrease than projected
due to bootlegging activities. An enforcement program is necessary
to prevent these declines.
Senator Hoffman asked if all six of the proposed new positions are
expected to be temporary or ongoing.
Ms. Bales expected funding of the positions to be ongoing.
Co-Chair Green asked whether collection enforcement for other types
of taxes is funded from the revenue of those taxes, in the form of
statutory designated program receipts. She asked if this could be
done with the tobacco tax program.
Ms. Taylor responded that the director of the Tax Division has
advocated for this. Currently, tax receipts are not budgeted for
receipt supported services. Ms. Taylor expressed willingness to
make necessary changes to accomplish this.
Co-Chair Wilken cautioned against the possible diversion of tobacco
funds from the school fund.
Ms. Taylor informed that a portion of the tobacco tax receipts are
designated to the school fund, a practice implanted in the
territorial days. A statutory change would be required to utilize
the revenues differently.
Co-Chair Wilken assured that the matter would be addressed.
Co-Chair Green compared this situation to funding litigation
efforts to increase royalties from oil development, as both are
attempts to increase revenue.
Senator Stedman questioned the "timing of the cash flows" with
regard to the supplemental appropriations. It "seemed to be more
beneficial" to appropriate funds in the FY 06 budget as much as
possible.
Ms. Taylor responded that the Department is currently expending
funds over the amount authorized for tobacco tax enforcement for FY
05. Staff has been hired, additional stamps have been purchased,
and a reimbursable services agreement has been entered into with
the Department of Public Safety. Therefore, the requested funds
must be appropriated for FY 05 expenditure. In addition, funds must
be "annualized or appropriated" in the FY 06 budget.
Senator Stedman asked the amount of the requested funding already
expended, and the amount anticipated would be expended before the
end of the current fiscal year. He also asked the plan if this
supplemental appropriation were not approved.
Ms. Taylor replied that the Department has spent $83,600 to date
and "projects" spending an additional $341,700 in FY 05. This
amount is higher than the requested $395,000 with the Department
intending to "manage that spending down". If the legislature did
not approve the supplemental funding request or the FY 06 funding
request, the Department would be required to reevaluate its
actions. She remarked, "We would be in a difficult spot" given the
lateness of the fiscal year. She continued, "The earlier you can
plan to manage down a shortfall the better it is."
9:39:39 AM
The Committee next addressed the supplemental appropriation
requests related to the proposed natural gas pipeline.
STEVE PORTER, Deputy Commissioner, Department of Revenue and
Member, and member of the State's Stranded Gas negotiating team,
testified via teleconference from Anchorage into the record as
follows.
First I want to thank you for your previous investment and
support of the State's team in the development of a gas
pipeline. Negotiating a contract that will result in bringing
the State of Alaska's stranded gas to market is every bit as
large a project as anyone estimated it to be. Perhaps no
estimate fully appreciated the scope of what success requires.
The tasks are huge and multi-layered, and the numbers are
profoundly large. The total sales value of just the proven
North Slope natural gas reserves would be $210 billion at a
price of $6/mmcfg.
We have a prepared presentation to support the budget request
being discussed today. However we first want to tell you what
progress has been made with the money you have appropriated to
the project thus far. SB241 appropriated $1.7 million, and
that funding was very timely. Subsequent to that
appropriation, SB283 appropriated another $10 million.
With that funding we began our research regarding the many
ways we could enhance the prospect of bringing Alaska North
Slope gas to market. The primary areas of research centered
around sharing risk through various financial structures and
different levels and types of ownership participation. Our
effort at expanding and identifying the additional options
available to us was quite successful. We called this portion
of our research "Defining the Boundaries". From that Defining
the Boundaries research we identified a number of
opportunities for sharing risk and increasing the overall
chances of moving an Alaska North Slope Gas pipeline to a
successful conclusion. Based on the issues identified we
conducted research on the following areas during what we
called the Risk Assessment and Analysis Phases.
Gas price. We obtained gas price forecasts, created our own
forecast and modeled the range of impacts that could occur
based on those forecasts. Because of the substantial
volatility of future gas prices we needed to know the risks of
what occurs in a low price scenario and the potential benefits
we would receive from gas ownership in a high price scenario.
And we needed to determine what we thought the expected future
price of gas was going to be. We also realized that whatever
price we projected we would be wrong. So our negotiation
strategy should take that into consideration.
Risk Analysis - (shipper risk)
Taking a risk position in ownership of the gas. The shipper
risk needs to be well understood by the state. There is a
substantial amount of risk in converting our rights to gas in
value to gas in kind and having the responsibility of
marketing that gas. Recognizing there are significant
potential financial impacts, both positive and negative, from
taking a shipper risk position, we have focused a portion of
our research on that risk.
Risk Analysis - (Pipeline ownership)
Taking a risk position in ownership of the gas pipeline is
substantially different from risk in shipping the gas. They
are two independent issues. We can take an ownership and
marketing position of our gas (take in kind) without taking an
ownership position in the pipeline. The opposite is also true.
We can take an ownership position in the pipeline without
taking a risk position on the gas (take in value). We have
conducted a substantial amount of research regarding owning
the pipeline. There are both political and economic reasons
for doing so. But there is the risk of owning some part of the
pipeline. That risk is compounded by the uncertainty of
ownership potentially for an extended period of time during
which any number of market changes can be expected to occur.
We also conducted research on the impacts of taking a risk
position in both pipeline ownership and as an owner and
marketer of gas.
Cost Overrun Risk
There are several issues that could result in an increased
risk of cost overrun, e,g., cost of steel (volatility of the
price of steel), labor costs (labor negotiations and strikes),
time delays due to regulatory, environmental, or logistics
problems, etc. The state must have a reasonable understanding
of each of these issues to understand the risk it would take
if it decided to take an ownership position in the pipeline.
It must also understand the potential for cost overruns as it
examines its position on tariff structure.
Tariff structure and the FERC process
As you are aware, we were quite successful in our
presentation of our positions and concerns to the FERC. They
were very responsive to our proposals. We need to spend time
understanding the recently published FERC regulations and then
apply them to what we should negotiate in any stranded gas
contract.
Tariff issues are still an important element of each of the
Stranded Gas Contract negotiations and will require additional
contractual support in determining the proper negotiating
position the State needs to take in each of these
negotiations.
Alaska State Gas Entity
If the state takes an ownership position in the pipeline, it
will also become a co-owner of a pipeline company with the
applicant. We need to determine the form of ownership in
addition to the amount of ownership. Should Alaskans be given
an opportunity to participate in the pipeline? What form of
ownership should that take? We have conducted research on
these issues and will need to continue to fund additional
research as the form and amount of ownership becomes clearer.
Pipeline Funding
If we determine that we want to take an ownership position in
the pipeline, we need to develop a plan for funding that
participation. How do the federal loan guarantees affect our
financing plan? Can we maintain our tax exempt status? All
these questions and more need to be answered in a success case
scenario.
Socio-economic Report
We budgeted $250 thousand for the socio-economic analysis
being conducted on behalf of the municipalities for the
ExxonMobil/ConocoPhillips/BP proposal. That report has been
completed and we have extended the contract for an additional
$50 thousand to support and coordinate the municipalities'
participation in the public review process. We have not
requested the contractor to complete a socio-economic analysis
of the TransCanada proposal because TransCanada has not yet
approved it as a reimbursable item.
Alberta Government
We have met with and will continue to meet with the various
Canadian government entities to see if there are ways we can
jointly support positions or actions that will have a positive
effect on the success of getting a pipeline built.
Canada Pipeline Issues
There has been quite a bit of information in the public media
regarding the conflict in Canada over ownership and rights to
build the Canadian portion of an Alaska North Slope Gas
pipeline. The issues surrounding Canadian ownership fall into
the following categories: 1) the conflict over who has the
ability/right to build the pipeline, 2) if the state has the
right to participate as an owner of the pipeline - what form
of ownership should that take, 3) legal and regulatory risks
of building the pipeline, e.g.,. aboriginal land claims etc.
Those are all issues the state will need to understand as we
move the Canadian portion of the project.
Understand the applicant's perspective on economics
This is probably one of the most important pieces of our
research. We have heard the legislature and public say "We
want to provide the applicant with sufficient incentive to
move the project forward, but no more." To come close to
meeting that standard we need sufficient knowledge of the
economic capabilities of the applicant, where their margins
are, and what the applicant has accepted as economic in other
parts of the world. What is their cost of capital? How much
risk do they perceive and how much can they absorb? What will
the credit rating agencies say about any investment they make?
What alternative investments will they be required to forego
if they make a commitment to participate in this project? And
we need to be able to apply that information to a mega project
that is so large that there are no comparable projects
anywhere else in the world. This is a large undertaking and
requires a substantial amount of analysis. Most of this work
has been done because we needed this perspective to be able to
put a proposal on the table in the producer negotiations.
Contractor support for negotiations
There are three forms of support that we have used thus far in
the negotiations: 1) negotiations support - 1) we have
contracted for and continue to use the expertise of Dr. Pedro
Van Meurs and his team to support us in the actual
negotiations. 2) Expert analysis and modeling. We have and
will continue to use analytical experts as we fine-tune our
negotiating position in each of the contract negotiations. And
3) We are now at a stage where each side's lawyers are regular
participants in the negotiations. We expect each of these
forms of negotiations support to continue. We would expect the
legal support to increase and our request for additional
funding recognizes that need.
Alternative proposal analysis
While we are negotiating with the applicants under the SGDA,
we also have a responsibility as the sovereign of encouraging
and supporting any other proposal that may bring Alaska North
Slope Gas to market. That encouragement and support generally
has taken the form of economic evaluation and analysis and
feedback to the parties to help them move their projects
forward. A good example of this support is the Alaska Gasline
Port Authority proposal. We have volunteered to review their
project proposal and give them feedback on the overall
economics of their proposal as well as express any concerns we
have with the overall viability of their project.
In addition we are supporting the work of the Alaska Natural
Gas Development Authority in their evaluation of the economic
viability of bringing Alaska North Slope Gas to tidewater and
developing an LNG project. They are also doing the leg work
necessary to make sure a spur gas pipeline to Cook Inlet will
be permitted and ready for any alternative that successfully
brings Alaska North Slope Gas to market.
Reimbursement
One of the goals of the State was to make sure we received the
maximum amount we could from project applicants under the
reimbursement provisions of the SGDA. We billed and received
in reimbursement from ExxonMobil/ConocoPhillips/BP the maximum
amount available under the Act of $1.5 million. The state
continues to be reimbursed also by Transcanada, and DNR is
tracking that reimbursement.
Now that we have generally discussed what the previous
appropriations have been used for, I would like to take a
couple of minutes to explain where we are conceptually. We
have talked about understanding risks, understanding the
applicants' economic perspective, understanding the volatility
of price and cost elements. Think of this timeframe as getting
the State to the point of being able to put a proposal on the
table with the project applicants. And we have placed a
proposal on the table in the Exxon/ConocoPhillips/BP
negotiations and received a counter proposal from them. We are
also developing a proposal with TransCanada. Each of these
negotiations will require a substantial amount of work to
bring a SGDA contract to the legislature.
In the near term the current activities in support these
negotiations will include substantial legal support in
negotiating the fiscal contracts and other associated
contracts and exhibits necessary to bring a contract proposal
to the legislature. In addition each variation of fiscal term
negotiations may require additional analytical support from
our contractors.
Once we have a contract to present to the legislature we need
to prepare a Commissioner's finding that the contract is in
the fiscal interests of the State. All of the reports we have
generated will be used to support the finding of the
Commissioner of Revenue. This finding will go out for 30 days
of public comment period along with the proposed contract. The
Commissioner will then respond to those comments and bring the
final fiscal finding and contract to you for ratification. The
process may well entail going back to the applicant for a
refinement of the agreement. The request we have placed before
you today will provide the funding for us to accomplish this
process.
If we are successful, we also must consider what happens next.
If we decide to take an ownership interest in the pipeline, we
could almost immediately find ourselves in a partnership
relationship with an applicant attempting to build a pipeline.
In order to be effective in that new entity the state
representatives need to be ready to make financial and other
decisions necessary to move the project forward timely. That
is why we have requested funding to begin to develop the
State's organization that will need to be in place almost
immediately upon ratification of any contract.
As a closing point that needs to be made, we hope everyone
understands that capital funding of state gas line
participation cannot be determined at this time. When a
determination is made regarding the type and level of
participation that the state will take in a gas pipeline, we
will come back to the legislature with a financing structure
and a corresponding appropriation request. Depending on the
level of state participation that request could be
substantial.
Thank you for your continued support of the State's
participation in the Stranded Gas negotiations.
Co-Chair Wilken noted the requests for supplemental appropriations
related to the development of a natural gas pipeline total
approximately $18 million.
Department of Law
Item: 25
Section: 7(b)
RDU: Civil Division, Oil, Gas and Mining
Supplemental Need: Legal costs for work related to the state
gas pipeline and to bringing North Slope natural gas to
market, and other oil and gas projects for FY 05 and FY 06
$9,000,000 general funds
PHILLIP REEVES, Assistant Attorney General, Oil, Gas and Mining
Section, Civil Division, Department of Law, read the following
statement into the record.
The Department of Law is dependent on a substantial amount of
assistance from outside legal council in the on-going stranded
gas negotiations.
As the senators are aware, the State is currently involved in
two, parallel negotiations under the Stranded Gas Act (AS
43.82)
Both of those negotiations contemplate a possible State
ownership interest in the pipeline project. We are thus
drafting and negotiating terms of the several legal agreements
that would be required for the State to participate as a
partner in the pipeline project.
The individual agreements will include at least:
The Stranded Gas Agreement
A Business Entity Agreement
A Project Financing Agreement
A Construction Agreement
An Operating Agreement, and
A Gas Balancing Agreement
The Stranded Gas Agreement(s) and the Business Entity
Agreement(s) [and Project Financing Agreement(s)] (currently
anticipated to form and LLC owned jointly by the Stranded Gas
sponsor company and the State] are the current focus of
intensive contract development work and negotiations at this
time.
Necessity for "Fast-Track" Supplemental Funding
The Department of Law has already expended essentially its
entire Oil and Gas contract services appropriation for fiscal
year 2004 - 2005, due to the unanticipated additional work
arising from:
· Participation in two simultaneous Stranded Gas
negotiations; and
· Consideration of State partnership in the NS gas pipeline
project, which necessitates development of the Business
Entity and Financing Agreements.
The early expenditure of the contract services appropriation
work on the NS gas pipeline has also depleted contract funds
that were earmarked for use on other, non-gas pipeline
projects. Those contract services funds: utilized on oil
royalty reopeners, TAPS oil pipeline matters, and in-state gas
pipeline matters, also need to be supplemented in this fiscal
year.
The Department of Law is therefore asking for a supplemental
appropriation of $9,000,000 for legal services on work
relating primarily to the NS gas pipeline project. (Intended
to cover needs through the end of the next fiscal year.)
Senator Hoffman asked how much of $9 million requested would be
utilized for FY 05 expenditures.
Mr. Reeves replied that the amounts are not delineated because the
projects are ongoing. A significant amount is necessary
immediately, as the Department has exhausted available funding. The
intent is to submit a proposal to the legislature during the
current session and therefore more funds would be expended in FY
05.
Co-Chair Wilken asked the consequences if the $27 million requested
for pipeline-related supplemental and FY 06 expenditure were
appropriated to the Legislative Budget and Audit Committee for
distribution.
Ms. Taylor replied that the Department of Revenue would not oppose
receiving funding through the Legislative Budget and Audit
Committee. However, the programs operate with limited staff and the
process of receiving allocations from the Legislative Budget and
Audit Committee would create an administrative burden. The
Department has developed a comprehensive tracking method to account
all expenditures. She advocated against Co-Chair Wilken's
suggestion and recommended instead that the funding be appropriated
directly to the departments. She suggested a management reporting
system could be implemented to keep the legislature appraised of
all expenditures.
10:00:17 AM
Department of Natural Resources
Item: 26
Section: 7(c)(1)
RDU: Capital
Supplemental Need: Gas pipeline risk analysis and royalty
issues
$2,500,000 general funds
NICO BUS, Acting Director, Division of Support Services, Department
of Natural Resources, testified via teleconference from an offnet
location that $1 million of this request would be utilized for risk
analysis. The Department would contract for assistance with
commercial marketing and mitigation of the ownership risk. The
remaining $1.5 million would be expended to address royalty issues.
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, testified via teleconference from an offnet
location that many of the negotiations relate to the State's
ownership and physical possession of the natural gas up to the
point of actual marketing of the gas. This mitigates risk to the
producers and owners of the pipeline. Under those structures, the
State is a "commercial entity" unlike any previous practice in
Alaska. It is important to fully understand the risks involved and
to develop a commercial structure. The State would be responsible
for the gas and must consider the conversion of uncertain royalty
rates as a net profit share and determine the capacity of the
pipeline, the amount of gas that must be contracted and marketed.
This requires the State to change the lease contracts procedures.
Item: 27
Section: 7(c)(2)
RDU: Capital
Supplemental Need: Gas pipeline corridor geologic hazards and
resource evaluation
$2,000,000 general funds
Mr. Bus explained this is a $6 million general fund request to
allow the Department to assess the geological hazards, mineral
potential and construction needs for a natural gas pipeline
corridor from Delta Junction to the Canadian border. The
information garnered from this study would aid in the design and
construction of the pipeline and would be useful for future
development, such as the proposed Alaska Railroad extension and
other public and private development. The study would include a
peer-reviewed report that would evaluate an approximate ten-mile
wide corridor.
Co-Chair Wilken noted the amount requested for this purpose is $2
million appropriated in FY 05, and $2 million appropriated each in
FY 07 and FY 08.
Mr. Bus confirmed.
ROD COMMBELLICK, Associate Director for Operations, Division of
Geological and Geophysical Surveys, Department of Natural
Resources, testified via teleconference from Fairbanks, that this
funding would allow the Division to conduct an airborne geological
study to collect data to use to compile detailed maps and identify
potential engineering problems related to the construction of a
natural gas pipeline. He understood that the proposed corridor has
not been finalized as the location of a natural gas pipeline;
however other developments would occur along the 200-mile corridor,
including the Pogo Mine and missile defense activities. Currently
geophysical knowledge of the corridor is limited and the
information garnered from the study would become public knowledge
for multiple uses. The intent is to conduct the study in
conjunction with the proposed natural gas pipeline, in the event
the pipeline is constructed along this route. The project is
anticipated to take approximately three years to complete.
Senator Hoffman asked the percentage of the affected lands are in
private ownership and what notification would be given to those
landowners of the possibility of the establishment of a 10-mile
wide corridor.
Mr. Commbellick replied the corridor crosses primarily state and
privately owned land. As with all geological mapping and field
studies, the Department would make proper contacts with landowners
with the exception of the land located near the missile defense
systems. Those lands would not be mapped in detail.
Item: 28
Section: 7(c)(3)
RDU: Capital
Supplemental Need: Gas pipeline Bullen Point Road right-of-way
permitting
$3,200,000 general funds
DICK LEFEBVRE, Deputy Commissioner, Department of Natural
Resources, testified via teleconference from an offnet location
about the request for proposals (rfp) the Department has issued to
secure professional services to undertake a study to identify a
corridor or corridors between Prudhoe Bay and Point Thomson. The
intent is to undertake environmental studies and engineering work
necessary for a possible construction of a road and permitting for
a right-of-way for a pipeline.
Item: 29
Section: 7(c)(4)
RDU: Capital
Supplemental Need: Division of Oil and Gas increased workload
for gas pipeline
$2,700,000 general funds
Mr. Myers noted earlier reference to increased risk analysis, which
involved outside consulting assistance. The Department anticipated
additional risk analysis would occur as the State develops a
commercial structure. In reviewing the workload involving the
proposed natural gas pipeline, it was determined that approximately
25 percent of the Division staff time was dedicated to this
purpose. The percentage of time is expected to increase in the
future and therefore the Division requests funding for additional
positions to address gas line issues.
Mr. Myers explained this funding request also involves regulatory
issues. The Department and the Alaska Oil and Gas Conservation
Commission (AOGCC) have regulatory responsibilities associated with
gas and oil development at Prudhoe Bay and Point Thomson. Extensive
reservoir engineering analysis and detailed economic analysis on
the physical and economic waste related to timing of production is
required. The Division must also ensure that the project has the
maximum amount of gas available.
Mr. Myers noted a legislative resolution pertaining to potential
gas hydrates. This supplemental appropriation requests funding to
add positions that would work with federal agencies to promote this
development. He detailed the geo-technical work necessary in the
proposed pipeline corridor as well as the Foothills region. These
efforts would benefit other development in these areas as well.
Co-Chair Wilken clarified the request would be utilized to
implement 13 new positions plus provide funding for the increased
workload of existing staff.
Mr. Myers affirmed and added this would be utilized in conjunction
with the funding requested in Item #26 to employ outside support.
Item: 30
Section: 7(c)(5)
RDU: Capital
Supplemental Need: Commissioner's Office increased workload
for gas pipeline
$200,000 general funds
Mr. Bus remarked that existing staff has been "working day and
night" with the deputy commissioner unable to accomplish all the
work necessary. This funding would be utilized to create two
project assistant positions dedicated to the pipeline negotiations.
One position would focus on planning and the other logistical
support during negotiations.
Co-Chair Green asked if any portion of the requested $200,000 for
FY 05 has been expended to date and whether the additional staff
has been hired.
Mr. Bus corrected the funds are requested for expenditure in FY 05
and FY 06 and would not lapse prior to the end of FY 06. None of
the funds have been expended and no new positions have been filled.
Mr. Bus commented to the productive working relationship between
the Department and the Legislative Budget and Audit Committee.
However, appropriations made to the Committee for distribution to
the Department would cause delays during the legislative interim.
Co-Chair Green asked if the proposed new positions would be
temporary.
Mr. Bus replied that the positions would not be guaranteed beyond
FY 06, but would be assured until then if this request were
granted. At the end of FY 06, the Department would re-determine the
need.
Senator Hoffman asked if the positions would be contracted.
Mr. Bus responded that the staff would be appointed to serve at
pleasure of the Governor for the period of time the funding is
available and the projects are necessary.
Department of Revenue
Item: 31
Section: 7(d)
RDU: Capital
Supplemental Need: Commissioner's Office - Work related to the
State gas pipeline and to bringing North Slope natural gas to
market
$5,300,000 general funds
Co-Chair Wilken asked this request differs from that contained in
item #30.
Ms. Taylor spoke to the need for an Alaska natural gas entity.
Several natural gas pipeline project proposals include State
participation. This entity would "Shepard the State's interest."
The funding request includes $1.5 million for that effort and $3.8
million for contractual services, as detailed by Mr. Porter.
Item: 32
Section: 7(e)
RDU: Capital
Supplemental Need: Alaska Natural Gas Development Authority
increased workload for gas pipeline
$2,170,000 general funds
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority, Department of Revenue, testified that $2
million of the requested amount would be utilized for "continuing
contractor work related broadly to the issues of in-state gas use.
Specifically, this pertains to the "spur line connecting Glennallen
to Palmer." Currently, five Alaskan contractors are preparing
applications for the right-of-way segment of this project. The
applications would be submitted by April 1, 2005 and the "process
can work through the summer and into the fall" with completion of
the right-of-way scheduled for September 1. These efforts would
secure an option to transport natural gas "into Cook Inlet". He
detailed the processes involved and created from this project.
Senator Bunde surmised that these efforts would not duplicate other
work done by the State.
Mr. Heinze responded that the Authority is not included in the
Stranded Gas Act; although as a State entity, it receives the
benefit of the knowledge obtained from other State efforts and
shares it's knowledge with the legislature and other parties. The
emphasis of the Authority is "how to do things", such as delivering
energy to rural communities. The Authority is not charged with
conducting studies, but rather with implementing practical
solutions.
Senator Stedman understood that the contract negotiations are
"fluid, dynamic and difficult to budget in advance"; however, he
questioned appropriating funding for FY 05 that would be expended
in FY 06.
Co-Chair Wilken agreed.
10:22:39 AM
Co-Chair Wilken noted written public testimony on supplemental
budget items has been received and would be included in the record.
10:23:06 AM
Department of Health and Social Services
Item: 34
Section: 9(a)
RDU: Alaskan Pioneer Homes: Pioneer Homes
Supplemental Need: Replacing unrealizable federal Medicaid
funds with receipt supported services. Lower receipts is due
to the voluntary nature of residents signing up for Medicaid
-$1,200,000 federal funds
$1,200,000 Receipt Supported Services funds
$0 Total Funds
JANET CLARKE, Director, Division of Administrative Services,
Department of Health and Social Services, testified to the efforts
begun in FY 05 to enroll the Alaska Pioneers' Homes as Medicaid
providers to offset some general fund expenditures. Resident
participation is voluntary and fewer residents opted to apply for
Medicaid assistance during this first year. This item does not
involve general funds, rather would utilize receipts paid by
residents to receive care.
Ms. Clarke noted the Department of Health and Social Services
budget subcommittee would address the issue of voluntary enrollment
for Medicaid assistance. Other nursing homes require residents
apply for all eligible assistance before receiving subsidies. This
would be considered for the Pioneers' Homes as well.
Ms. Clarke relayed that the residents of the Sitka Pioneers' Home
have enjoyed the intergenerational interaction with the Mt.
Edgecumbe students living at the Pioneers' Home. She informed that
children attending the Sitka Fine Arts Festival also stayed at the
Home.
Co-Chair Wilken commented that the language governing the Medicaid
eligibility for nursing home residents is cumbersome.
Ms. Clarke spoke to the next three items relating to Medicaid
supplemental requests. The previous two fiscal years, the
Department has presented "significant cost contained and
refinancing opportunities and very aggressive ways to try and
contain Medicaid." In FY 04 the Department reduced general fund
expenditures by "$129". In FY 05, the presented budget would have
reduced almost $67 million general funds. However, the Department
has been unable to fulfill the entire cost containment goal;
instead approximately $47 million has been realized.
Item: 35
Section: 9(b)
RDU: Behavioral Health: Behavioral Health Medicaid Svc
Supplemental Need: Medicaid caseload growth above FY 05 budget
projections. At current expenditure rate, the existing
appropriation will be gone in April or May.
$2,653,700 general funds
$3,517,700 federal funds
$6,171,400 Total Funds
Ms. Clarke informed that this program has experienced an annual
average rate of growth of 14 percent in the last "couple of years",
in particular out of state care for children in residential
psychiatric treatment centers. The Department is attempting to
control this growth rate through the Bring the Kids Home
Initiative. All components of the initiative have been implemented
to date and therefore the entire anticipated savings have not been
realized. A "gate keeping" component would be implemented on March
1, 2005 to ensure that those children sent to facilities out of
state require this treatment. In previous years, the majority of
the children covered by this funding program were in State custody;
however, currently most children involved are not, although
eligible for Medicaid assistance.
BILL HOGAN, Director, Division of Behavioral Health, Department of
Health and Social Services, testified via teleconference from an
offnet location, an implemented care coordination mechanism was
implemented as a result of SB 157 that passed in 2003. However,
this allowed for only one position, which focused on children who
have been receiving treatment out of state for 300 days or more. As
a result of renegotiating the "first health contract" two
additional care coordinator positions would be added beginning in
March 2005. The additional staffing would allow for review of the
out of state placement of 60 days or longer. Also, funding provided
by the Alaska Mental Health Trust Authority would facilitate
enhanced "gate keeping or diversion mechanism." Not only must the
Department proactively monitor the length of stay of children
already placed out of state, but also must better ensure that all
instate options are reviewed before a child is transferred out of
state.
Senator Olson asked if all the children are leaving the State for
psychiatric reasons.
Mr. Hogan affirmed, explaining that these patients have serious
emotional disturbance as well as function difficulties.
Senator Olson asked if any of the children have physical issues as
well.
Mr. Hogan replied that some have accompanying physical disorders as
well as the psychiatric illnesses. He gave an example of the
physical problems related to eating disorders.
Senator Olson asked if psychologists or "mid-level providers" would
treat the children remaining in Alaska.
Mr. Hogan answered that several types of providers would treat the
patients; some would enter group homes or small in-treatment
facilities if unable to return home. All patients would receive
ongoing psychology treatment plus family and other counseling. Also
patients would receive support, some of which would be provided by
mid-level providers.
Senator Olson understood the challenges the Fairbanks hospital has
had in securing a full-time psychiatrist. He asked if it would be
difficult to hire a psychiatrist for this program as well.
Mr. Hogan agreed it is difficult to attract psychiatrists to
Alaska. The Department is using a telemedicine approach to evaluate
and monitor patients and is expanding the instate capacity in
conjunction with the University of Alaska. There is a need to
develop staff in entry-level positions through psychiatrists.
Senator Olson asked if the Division anticipated spending the entire
$2.6 million requested for behavioral health programs in FY 05.
Ms. Clarke informed that the $72.6 has been expended as of January
2005, and projections indicate that a total of $124.5 million would
be expended in the fiscal year.
Co-Chair Green expressed concern that a "gate keeping" mechanism is
not in place given that legislation passed several years prior
provided for these measures. The intent was that a gate keeping
mechanism would be enacted before the program was expanded to
include Medicaid. She noted the number of cases in which Medicaid
funds paid for treatment for children not in State-custody and
therefore the Department had not oversight authority in the
determination of appropriate treatment. Most of these cases involve
the Denali KidCare Program. She remarked that in creating the
Denali KidCare Program, the State has allowed patients to "skirt
the process". The gate keeping issue must be addressed.
Co-Chair Green asked if the program is cross-referenced with the
Department of Education and Early Development since the states in
which the children are receiving treatment bill Alaska for the
education costs.
Ms. Clarke replied that for those children in State custody, the
departments have a contractual agreement for education costs. These
costs have remained steady. The increases are the result of
treatment for those children not in State custody. She was unaware
how the educational costs were paid for those children.
Co-Chair Green recalled an increment in a supplemental
appropriation request of a previous fiscal year requesting a
$700,000 chargeback for educational programs for children in State
custody receiving treatment out of state.
Ms. Clarke remembered that pertained to children in State custody.
Mr. Hogan furthered that not all Alaskan children receiving
treatment out-of-state have an individual education plan. For those
that do, the Department of Education and Early Development, through
deductions from the child's resident local school district, must
provide the out of state education costs. The Department of
Education and Early Development is not responsible for the
education expenses for those receiving education through their
treatment program, he would verify that Medicaid covers those
costs.
Senator Hoffman was alarmed at the increase of this program, noting
the average annual increase of nine percent. He asked the
percentage of children receiving treatment outside of Alaska who
are Alaskan Natives. Average increase annual is 9 percent.
Mr. Hogan replied that an average of 40 percent of the children
receiving out of state treatment through this program are Alaskan
Native.
Senator Stedman commented that 40 percent is substantially higher
than the general population. He spoke to the difficulty in planning
budget cycles given the substantial growth in this program and
others. He asked if the growth in this program represent an
"unraveling" of the State's social structure, or repercussions of
actions of past generations becoming more apparent.
Mr. Hogan replied that the growth in the community programs has
been approximately three and one-half to four percent annually. The
growth of the acute inpatient treatment services has been less than
three percent annually, although a larger increase has occurred in
the current fiscal year. The substantial growth "distorting all of
our numbers" is the out of state residential psychiatric treatment.
In some years, the growth of this program has been 30 percent,
although it has stabilized somewhat.
Mr. Hogan spoke to increased pressures on children and families.
The Division attempts to intervene in situations early, but is not
always successful and subsequently, some children require longer
and more intensive treatment for recovery.
Senator Stedman asked how the legislature is to obtain cost
containment if large supplemental appropriations are requested
after the initial budget has been determined. The supplemental
appropriation for this program differs from the funding requests
for a natural gas pipeline project, which would accelerate a large
capital project. This situation appears to demonstrate an "erosion
of our ability to control appropriations."
Co-Chair Wilken suggested Senator Stedman ponder this as it is
true. The Committee continually struggles with the task of
developing an appropriate budget and addressing supplemental
funding requests.
Senator Olson asked the involvement of the federal Indian Health
Services agency to assist with payment for these services for the
Native patients.
Mr. Hogan replied that the Division cooperates with Native
"partners" to develop local treatment options.
Senator Olson asked how the State is reimbursed for services
provided to patients otherwise eligible for federally paid
services.
Mr. Hogan explained the payment process for behavioral health
services provided to a Medicaid eligible person who is Native. It
preferable, both culturally and financially, that Alaska Natives
are served by Native Health organizations.
Ms. Clarke furthered that one strategy is to develop programs with
entities classified as "638" to allow the State to be reimbursed
100 percent. However, the out of state facilities are not
classified as 638, and therefore the State is unable to claim
reimbursement.
Senator Hoffman asked if the goal is to provide treatment for
Native children locally. He noted the 35 to 40 beds available in
the Yukon-Kuskokwim region and asked if this is the same number of
children currently receiving treatment out of state.
Ms. Clarke did not have details of the residency of these children.
Mr. Hogan totaled approximately 350 children receive out of state
residential treatment at any given date. Approximately 150 of those
children are Alaskan Native.
Senator Hoffman questioned the attainment of providing local
treatment if the local residency of patients is unknown.
Mr. Hogan indicated he would provide this information.
Co-Chair Wilken also requested an estimate of the number of
children who are expected to return to Alaska and the level of care
that would be required for them.
Item: 36
Section: 9(c)
RDU: Health Care Services: Women's and Adolescents Services
Supplemental Need: Feds reduced FFY 05 funding in the Breast
and Cervical Cancer screening program. The fund source change
will allow services to 1600 enrolled women that otherwise
would not be served due to federal funding reductions. Funds
will be required by late March or early April to continue the
program.
$500,000 general funds
-500,000 federal funds
$0 Total Funds
Ms. Clarke corrected that the backup material stated that the
Department did not know of the loss of the federal funds until
receipt of the grant notification in September 2004; however some
managers were aware in June 2004 that the funds would be reduced.
This request would allow the Department to continue to serve the
number of women planned. Without funds 1600 women would not get
served. She referenced the back up documentation detailing the
history of this program.
DR. RICHARD MANDSAGER, Director, Division of Public Health,
Department of Health and Social Services, added that enrollment has
accelerated across the State beyond what was anticipated if the
program were fully funded. If not funded, enrollment would stop to
allow current patients to receive services and existing funds would
not fully fund services for current patients.
Co-Chair Wilken clarified this request represents a "backfill" of
federal funds for FY 05 and again for FY 06.
Dr. Mandsager affirmed.
Co-Chair Wilken commented this should receive further review. The
legislature would be faced with making decisions regarding funding
programs that have been historically federally funded as the
federal funding is eliminated or reduced. The State must determine
whether to continue these programs utilizing State funding. These
decisions would impact future legislatures.
Senator Bunde asked the fiscal consequences to the State for
providing Medicaid-funded treatment for cancers not detected as a
result of the elimination of the screening program.
Dr. Mandsager replied that it is impossible to identify a direct
cause and effect. However, the Medicaid cost of treatment for those
with breast or cervical cancer has decreased $2,300 per case during
the same time period that the number of women receiving screening
has increased. He predicted that if the State did not invest in
screening, it would pay for increased treatment costs later. This
is a policy call that the State must make. The Division has
determined that if this funding were not provided by either the
federal government or the State, screening would be limited to
women aged 50 to 64, which is the ages recommended by the Centers
for Disease Control. The current program provides screening for
women aged 18 to 64.
Senator Olson asked if detected malignancy has increased
significantly as a result of the screening program and the
incidences of false positive and negative test results.
Dr. Mandsager responded that the rate of cancer diagnosis has
remained constant; however, the implementation of this program has
occurred incrementally and has yet to reach rural areas. If the
funding requested for FY 06 were appropriated, the program would be
expanded to the entire State.
Senator Olson asked if other types of cancer screening activities
occur through the Medicaid program.
Dr. Mandsager would provide this information.
10:59:55 AM
Co-Chair Wilken directed attention to charts indicating the
increases of the following programs of 184 percent over the past
nine years [copy on file.]
Item: 37
Section: 9(d)
RDU: Health Care Services: Medicaid Services
Supplemental Need: Unable to implement cost containment
measures as quickly or to the extent planned: e.g.,
Prescription Drug List delay, Transportation, Rate Setting,
Cost Avoidance of Medicare Covered Drugs. At current
expenditure rate, the existing appropriation will be gone in
April or May
$13,821,400 general funds
$16,888,300 federal funds
$30,709,700 Total Funds
Ms. Clarke explained this request is directly related to those
expenses the Department had expected to reduce in FY 05, but was
unable to accomplish. The Department had expected to save a total
of $41.5 mill, but was only able to realize $11 million in savings.
She noted the Department had anticipated saving $11 million in
Medicaid-related transportation costs. The projected amount could
not be achieved, although some savings would be realized. She noted
that additional savings would be realized in FY 06. The Department
had also anticipated savings through the preferred drug list, but
based on feedback from providers and patients, the entire list has
not been implemented. Additional efforts would be made though this
program to increase savings.
Item: 38
Section: 9(e)
RDU: Senior/Disabilities Svcs: Senior/Disabilities Medicaid
Svc
Supplemental Need: Unable to implement cost containment
measures as quickly or to the extent planned: e.g., Contract
Waiver Assessments, Medicaid Waivers, Reducing Respite
Utilization, Nursing Homes Preadmission Care Plans, $7,084,400
general funds and $7,606,300 federal funds = $16,690,700.
Formula growth over budgeted amount will cost $15,487,800
general funds and $20,930,200 federal funds = $36,418,100.
Primary growth is in Personal Care Attendant Services. At
current expenditure rate, the existing appropriation will be
gone in March.
$22,572,200 general funds
$30,536,600 federal funds
$53,108,800 Total Funds
Ms. Clarke noted this is the largest Medicaid supplemental item.
The Department was unable to realize $7.1 million of projected cost
containment in two areas. This item also represents program growth
above projected rates, particularly in the Personal Care Attendant
Services program. Other unrealized savings relates to the nursing
home preadmission care plans. The Department is developing detailed
information, including programs implemented in other states, which
would be shared with the budget subcommittee.
Co-Chair Wilken remarked this is a significant issue that would be
addressed further.
Senator Bunde recalled an attempt to change the Personal Care
Attendant Services program, specifically the payment to relatives
of patients for care provided to those patients. He asked if this
was accomplished.
Co-Chair Wilken directed attention to back up documentation [copy
on file.]
Co-Chair Wilken noted expenses for this program are consumer
directed, and the growth began in the years 2001 and 2002, as it
became more widely known.
Senator Bunde remarked that the State is paying people to perform
family "duties".
Co-Chair Wilken understood the program expense would be $70 million
for FY 05.
Ms. Clarke reiterated this program is growing the fastest of all
Medicaid programs. The Department requires policy direction from
the legislature on how to control these costs.
Co-Chair Wilken would discuss the matter directly with Ms. Clarke
with the Committee's permission.
Senator Olson stressed his is a strong proponent of the breast and
cervical cancer screening program.
Co-Chair Wilken ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Wilken adjourned the meeting at 11:07 AM
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