Legislature(2001 - 2002)

02/21/2002 09:36 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
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                                                            
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                                                            
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                                                            
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                                                             
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
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                                                            
Co-Chair Donley voiced support of the bill.                                                                                     
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              

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