Legislature(2001 - 2002)
02/21/2002 09:36 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 349 "An Act relating to agency programs and financial plans." This was the first hearing for this bill in the Senate Finance Committee. REPRESENTATIVE FRED DYSON, sponsor, testified this bill would require the Executive Branch submit to the legislature, a budget that prioritizes the "activities and outputs" of departments. He informed he had served on the Municipality of Anchorage Assembly and that Annalee McConnell, currently director of the state Office of Management and Budget, while working for the Municipality, instituted a similar process in that body, which he said has been effective. He opined the process "has a great deal of utility" and would provide "another useful tool in our hands." Representative Dyson relayed that some concerns were raised during House of Representative hearings on this bill. He gave an example of two programs that a department determines to have equal priority. He predicted this would be rectified as the process is implemented, with an assignment of equal priority as one option. He noted law mandates some functions and that the Municipality system included a method for quantifying these programs. In addition, he noted a process was implemented for identifying programs that received significant funding contributions from other sources, such as the federal government. Representative Dyson qualified this legislation does not require the Administration to delineate the cost for each item. He shared that in conferring with Ms. McConnell, she told of frustrations with the Municipal process in the amount of time and effort spent identifying all costs for some programs that were undisputed as to their continuance. He assured this legislation does not require this expenditure of effort. Representative Dyson also referenced arguments made in the House Finance Committee and by the media that the legislature is responsible for setting budget priorities and he agreed. However, he stressed that in many instances department personnel is more knowledgeable on these issues and it is "disrespectful" to not include them in the process. He emphasized the legislation would retain the authority to change the priorities submitted by the Executive Branch. Representative Dyson summarized the purpose of this legislation is to, "respectfully get the input from the people who are delivering the services, have far more experience and frankly are better qualified to make those judgments than any of us. It's our job to set the priorities. We deserve to have the best information-best tools to make those." Co-Chair Kelly reiterated the criticism raised by the director of the Office of Management and Budget, is that some programs within one department have different but equal value. He gave the Department of Administration as an example, as it implements the Pioneers' Homes and the Permanent Fund Dividend programs. He asked if consideration had been given to a different method of prioritization to accommodate for such instances. Representative Dyson analogized the Olympic Games pointing out that if there is a tie in an event, the top two contestants are awarded gold medals and the third-place finisher receives a bronze medal. He further described the Anchorage process, which he stated was done in good faith, although "never ensconced in a law." He told how that process evolved as necessary. Co-Chair Kelly asked if the sponsor had consulted with the Department of Law about the constitutionality of this law and whether a constitutional amendment would be necessary to enact it. Representative Dyson had not. Co-Chair Kelly remarked he wanted this bill to proceed through the legislative process, but he was concerned about the separation of powers involved because "as we've seen in the past, you can't really make the agencies do exactly what you want; they can just say no and they have the constitutional authority." He ascertained that a constitutional amendment might be required before this law could be enforced. He informed he has introduced a resolution providing for such a constitutional amendment. He stated HB 349 is an example of how this constitutional amendment would be implemented. Senator Olson referenced the title of the bill and expressed concern that it is too broad and that unintended changes could be made to the bill itself. Co-Chair Kelly pointed out no changes to the bill had been made to date. Representative Dyson did not consider this a concern. He noted the bill drafter at the Division of Legal and Research Services recommended the title name. Senator Leman supported the concept of the Executive Branch prioritizing budget expenditures, but had questions about the implementation. He referenced programs that operate using funding sources other then the general fund, which may not have a higher priority, but could be treated as such because of the alternate funding. Senator Leman suggested dividing some programs into "sub- activities" to clarify their importance. He predicted the Administration would claim that all activities are important because the legislature directed the agencies to perform them. Representative Dyson referenced an example of the Municipality of Anchorage budget priority provided in the bill packets [copy on file.] He pointed out the items included "their output," which he stated make prioritization easier. He assumed most discussion would involve a few items at the top of the priority list. He asserted the Committee is "part way there already" with the utilization of the missions and measures practice as well as impact statements submitted by department. Practicably speaking, he qualified this prioritization process would be valuable for evaluating only ten to 15 percent of a department's activities. Representative Dyson expressed the intent of this bill, "is to build an even more cooperative working relationship between the Administration and the legislature." He opined this legislation is reasonable and that the process itself has been successful under Ms. McConnell's direction at the Municipality of Anchorage. Senator Ward asked if any other state practices a similar prioritization method. Representative Dyson answered yes, but admitted he did not have specific information as to which states. However, he stressed, all businesses and individuals practice some method of prioritizing expenditures. Senator Wilken shared Senator Leman's concerns about implementation and warned "I fear we're going to spend more time worrying about what is number 35 and whether it should be 45 or 25." He spoke of operating his own business and the practice of rating expenditures in categories of ABC. He explained "A" items are those expenditures that must be made, such as fuel; a "B" item might be a new truck that should be purchased; and a "C" rating would be given to "the things we'd like to have" such as painting that new truck. He suggested this system could be applied to budget request items (BRU) within the state budget. Senator Wilken next referenced page 1, lines 6 and 7, "Toward that end, each state agency shall, on a semi-annual basis, identify results-based measures…" He said this is currently provided annually and asked why it should be increased to bi-annual. Co-Chair Kelly corrected that the reporting is already done semi- annually as established in statute. Co-Chair Kelly informed that he requested an "ABC list" of the two agencies for which he serves as budget subcommittee chair. He anticipated enacting this statute and then adopting a constitutional amendment that would, "bridge the legislative and the Executive Branch." ANNALEE MCCONNELL, Director, Office of Management and Budget, Office of the Governor, testified she is very familiar with the proposed system because she developed it for the Municipality of Anchorage. She stated she knows the advantages and disadvantages of the system. She stressed those programs "around the margins" are the issue. Ms. McConnell clarified the Municipality system focuses on the level of service and whether the service should be discontinued as opposed to which services are of least important. She said this process "breaks activities into lots of sub-elements." Ms. McConnell informed that if she were to recreate this system for the Municipality, she would do it differently because of the time spent on some unnecessary efforts. She gave an example of attempting to determine an acceptable level of service for the Alaska State Troopers; whether there should be ten or two troopers, whether to include the crime lab. She stressed this is wasted energy if "you accept the premise that we are going have a public safety function." Ms. McConnell opined "the service level concept" is similar to the current impact statement process whereby the department provides an analysis of the possible impact a proposed specific budget reduction could have. She remarked this is a significantly different process then that proposed by Senator Wilken. She agreed that determining whether an item is number 35 or number 42 on a priority list is irrelevant if it has been determined that all the activities must be part of the basic structure. Ms. McConnell pointed out there are instances where the legislature could consider eliminating an entire program, which would occur through the statutory process. She said the Administration could make suggestions as to which programs should be eliminated. She pointed out that most "activities" are established in statute. Otherwise, she warned, process would involve "the silliness of" determining whether the Division of Family and Youth Services is more or less important than juvenile corrections or public health. She reiterated this is a waste of time in that it does not foster productive discussion about what level of service is acceptable in each of those programs. Ms. McConnell stressed the Executive Branch proposed budget does reflect the governor's priorities. She expressed there is an "inherent misunderstanding that we don't share priorities." In fact, she remarked, the proposed budget does reflect the opinions the sponsor characterized as the most qualified to make such recommendations. Ms. McConnell listed the Smart Start initiative and K-12 and University of Alaska education as examples of the Administration's priorities. She pointed out the legislature has a process for determining its priorities and noted there has been agreement with many of the Administration's priorities. Ms. McConnell suggested the governor's proposed budget reflects more prioritizing results then is realized. She spoke to the "phenomenal exercise" the prioritizing provisions of this legislation would entail. She compared the state budget to that of the Municipality, stressing that a municipality has comparatively limited functions and geographic area to govern. She told of the importance of public safety and nurses. Ms. McConnell recommended continuing with the missions and measures process to determine priorities and to establish the acceptable level of service. She listed caseloads and number of people served as measures. She noted that the current level of service is the level of service the public has generally determined to be acceptable. Ms. McConnell addressed the "ABC list" idea. She expressed that in theory it seems simple, but that greater issues, such as the level of service, are involved. She asked how such distinctions would be made for youth correction programs, as the quality of resources invested is apparent when measuring success. Ms. McConnell cautioned of the amount of detailed material the Committee would have to review if this legislation were enacted. She stated that information that would not add to constructive discussions about what budget changes is a wasted effort for both those who prepare the budget and for the Committee. Ms. McConnell asserted the impact statement process is more efficient. She stated this is a more direct method for obtaining the information the legislature needs to make effective decisions then generating information for "every level of state government activity in every department…in every nook and cranny." Ms. McConnell commented that the practice of categorizing programs into ABC priorities would be done with the intent that all C programs would be eliminated. "I doubt you'd want to go through that horrific pain for all C activities even assuming we could split them…and arbitrarily make a split." Ms. McConnell pointed out that not every department request is included in the Governor's proposed budget because the Office of Management and Budget determines priorities already. Co-Chair Kelly remarked that Representative Dyson is frustrated by the process. He made an analogy of performing surgery with mittens on, noting that some agency representative have been helpful but others have been resistant in offering information. He stated this is the situation in the governmental system in that the legislature does not have the authority to fire the president. He continued that because of the separation of powers the legislation could not direct the governor. Co-Chair Kelly stressed that another method should be established to obtain information so the legislature could make decisions. This prioritization, he expressed, could provide a "clearer view" in making the "mittens" less cumbersome. Co-Chair Kelly addressed the witness' statement that the governor's proposed budget is prioritized. He pointed out that the legislature has rarely received recommendations from the Administration for where budget reductions could be made. Co-Chair Kelly remarked, "we've been in a war for seven years" explaining, "we can't get the information from you; we can't get the prioritization from you; I'm sure there's things that you can't get from us." Co-Chair Kelly remarked this legislation is an attempt to "force" the legislature and the administration to "work together a little more cooperatively and in the best interest of the State of Alaska." He encouraged the witness "to get on board with this, because for one thing, you're not going to have to live with it." He continued, "Frankly this Administration isn't going to have to deal with this." However, he surmised the witness experienced the usefulness of the prioritization process for the Municipality of Anchorage. Ms. McConnell clarified she would "do it very differently if I were doing it again in Anchorage." Co-Chair Kelly responded he wanted Ms. McConnell's assistance so that she could assist in making necessary adjustments for the benefit of future administrations. Ms. McConnell noted that what Co-Chair Kelly had characterized as a "war", she considered were disagreements over whether there should be budget reductions. Co-Chair Kelly agreed there are two sides of the issue. Ms. McConnell noted that if the Administration's judgment is that increased resources were necessary, the Administration would relay that to the Legislature. She did not perceive the controversy as a war but rather a public policy difference of opinion, which is valid to discuss. She opined it is appropriate for the legislature to determine where to cut. She added that it is inappropriate to require the Administration to implement an unallocated budget reduction if the Administration has determined that reduction is unadvisable. Ms. McConnell detailed the process undertaken before any increase is included in the Governor's proposed budget, because an increase is not an easy aspect for to the legislature or the public. She pointed out these efforts have not been acknowledged and emphasized the difficulty in "keeping up with inflation" and population increases, specifically the senior population and inmate population. She indicated that the Administration would do everything possible to minimize the amount of requested increases. Ms. McConnell referenced the comments of Co-Chair Kelly regarding the "board of directors". She commented that the state is not similar to a private corporation, because in a private business, during times of economic difficulties, there is no requirement to answer to the public for its actions. In contrast, she stated, the public continues to expect the state to educate children and plow roads. She added that roads must be maintained despite the number of commuters traveling them. Co-Chair Kelly interjected that the witness had listed high priority items and he emphasized the legislature needs advice regarding those lower priority items. He stated that was the level of communication that the legislature has never been able to get. He understood agency directors do not want make reductions this way. He agreed that the state is not a corporation. He stressed the frustration is that the legislature has many of the responsibilities of a board of directors and the Executive Branch has many of the responsibilities of a manager, "yet it's slightly out of whack." Co-Chair Kelly reiterated the prioritization process could begin to bridge that gap in order to be able to operate in a more reasonable fashion. He continued, there needs to be a higher level of communication with the Executive Branch. The Executive Branch should not be able to "thumb their nose" at the Legislature. Ms. McConnell explained that the Executive Branch has proposed budget reductions in response and the Administration's advice has been disregarded. She gave the proposed budget reductions to the Department of Transportation and Public Facilities as an example where the Administration recommended closing maintenance stations located along least used roads. The Legislature has directed the Department against such actions, she said. Ms. McConnell advised that the Governor is not suggesting that the budget be cut at this point, but rather he is acknowledging that the State does have some needs for increases in the budget, to keep up with current commitments and to take on new challenges. Ms. McConnell pointed out that spending increases have not been proposed by the Administration to account for increases in population and/or inflation. She cited the Kato study, which found that between 1990 and 1997, the average increase in state spending after adjusting for inflation, was 27 percent among all fifty states. During that time period, she continued, Alaska was the only state with a reduction, which was .6 percent. She noted three states increased spending by over 50 percent. She also informed that Alaska's general funds/per capita expenditures, adjusted for inflation, are $1,100 less in the Governor's proposed FY 03 budget then in 1979 before the oil revenues were available. Ms. McConnell addressed government efficiency. She listed the Division of Banking, Securities and Corporations and their "enormous backlog" for processing corporate filings. She informed that without requesting additional funding, the Division "saved money by doing things differently so they could cut down that lag time." Ms. McConnell concluded that budget increase requests were only for those areas "we feel we have absolutely gone as far we can to squeeze the turnip." Co-Chair Kelly restated the intent is for the Administration to inform the Legislature of areas where budget reductions are possible. He reiterated that the Committee members do not know of the internal budget reductions. Co-Chair Kelly mentioned frustrations in dealing with some employees of the Administration who would not provide information. He qualified there is a "difference of opinion." Representative Dyson recommended ending the discussions on the budget reductions and return to determining whether the prioritization issue is preferred. He pointed out this legislation would require less labor then detailed cost analysis of each program. Representative Dyson acknowledged that he is not in favor of across the board budget reductions because it is the legislature's responsibility to establish priorities and determine whether an activity should be eliminated. He stressed this bill would assist the Legislature in making decisions regarding priorities. Co-Chair Kelly noted the bill is "well into the process" and he intended to hold it in Committee to allow consideration of other prioritizing methods. He indicated it is his intent to pass the bill. Co-Chair Donley voiced support of the bill. Co-Chair Kelly ordered the bill HELD in Committee.