Legislature(2011 - 2012)HOUSE FINANCE 519
01/23/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| Budget Overview: Department of Education and Early Development | |
| Budget Overview: Department of Revenue | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
January 23, 2012
1:30 p.m.
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:30 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Reggie Joule
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Sharon Cisna; Elizabeth Sweeney Nudelman,
Director, School Finances and Facilities, Department of
Education and Early Development; Diane Barrans, Executive
Director, Postsecondary Education Commission, Department of
Education;
PRESENT VIA TELECONFERENCE
Michael Hanley, Commissioner, Department of Education and
Early Development; Mark Lewis, Acting Director, Division of
Administrative Services, Department of Education and Early
Development; Bryan Butcher, Commissioner, Department Of
Revenue; Jerry Burnett, Director, Division of
Administrative Services, Department of Revenue; Angela
Rodell, Deputy Commissioner, Treasury Division, Department
of Revenue; Bruce Tangeman, Deputy Commissioner, Tax
Division, Department of Revenue.
SUMMARY
Operating Budget Overviews:
Department of Education and Early Development
Department of Revenue
^BUDGET OVERVIEW: DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT
1:29:53 PM
Michael Hanley, Commissioner, Department of Education and
Early Development provided members with a PowerPoint
presentation: State of Alaska FY2012 Governor's Operating
Budget Department of Education and Early Development,
January 23, 2012 (copy on file). He observed that the
Department of Education and Early Development is governed
by constitutional provisions that require the department to
establish and maintain public school systems for all
children of in the state. The department's policy moves
from a school wide view to a child centered view, with an
expectation that all students will succeed in their
education and work. The department's policy is also based
on the recognition of the child's place within their
community and larger society, as well as their role and
positive impact beyond school doors.
Commissioner Hanley reviewed the Department of Education
and Early Development's mission: to ensure quality
standards-based instruction to improve academic achievement
for all students. All three branches of government have had
a chance to weigh in on the department's responsibilities
and obligation to the state's children. The first
responsibility is to develop performance standards. A new
set of performance standards have gone out to the Board of
Education. The new standards go through grade 12
(previously grade 10). He emphasized that the bar has been
raised.
Commissioner Hanley observed that the department's core
services are to provide:
· A comprehensive system of student assessments that
adequately measure how students perform in regards to
the standards;
· State accountability and oversight in a state that
relies heavily in local control; and
· Statewide education programs to support the mission of
local districts that include mentoring and
professional development for teachers and
administrators.
Commissioner Hanley observed that the department also
receives federal funds though the Division of Teaching and
Learning Support, which offers school improvement grants
along with state support.
1:33:16 PM
Commissioner Hanley noted that the department's budget is
broken down into two categories: K-12 formula funding and
agency funding. The total budget is $1.6 billion. He
observed that 95 percent of the department's budget goes to
K-12 formula funding. Agency operations make up the
remaining five percent of the budget.
Commissioner Hanley reviewed the department's total
operating budget by fund source including foundation
formula funding, pupil transportation and school debt
reimbursement and American Recovery and Reinvestment Act
funds. Fund sources were broken out: 84 percent general
funds (GF), 14 percent federal funds, and 2 percent other
funds (interagency receipts and mental health trust funds).
Commissioner Hanley noted that only two percent of all
funds in their operating budget go to personal services.
Other contractual responsibilities, commodities, and travel
account for three percent. He reiterated that 95 percent of
the department's budget goes to: the foundation formula,
pupil transportation, school debt reimbursement and
American Recovery and Reinvestment Act (ARRA).
Commissioner Hanley explained that the department employs:
332 full-time, 14 part-time, and 8 non-permanent positions.
He interjected that teachers and staff of Mt. Educumbe and
the Commission on Postsecondary Education are included in
the position count.
1:35:14 PM
Commissioner Hanley broke down funding contained in agency
operations, which exclude the foundation program, pupil
transportation and school debt reimbursement and account
for five percent of the department's total budget. General
funds account for 21 percent of the agency operations. The
majority of agency operations are federal funding (71
percent). He concluded that the state is not the main
driver of the department's agency funding.
Commissioner Hanley reviewed the Department of Education
and Early Development's structure. He pointed out that the
department's commissioner is appointed by the State Board
of Education and Early Development. There are five
divisions within the department, which includes Libraries,
Archives and Museum and Mount Edgecumbe Boarding School.
The largest component is the Teaching and Learning Support
Division, which derives from the department's core mission.
In addition, Commissioner Hanley observed that the
department provides administrative services to three boards
and commissions: Professional Teaching Practices
Commission, State Council on the Arts, and Alaska
Commission on Postsecondary Education.
1:37:38 PM
Commissioner Hanley reviewed components of K-12 formula
programs (95 percent of the department's budget). Boarding
home grants include: Nenana, Galena, Mt Edgecumbe, and
boarding for students in communities that do not have a
high school. Youth and detention programs provide
educational services for incarcerated youth. Special
schools include the Alaska Psychiatric Institute (API),
School for the Deaf and Hard of Hearing, Special Education
Service Agency, and the Alaska Challenge Youth Academy.
Commissioner Hanley expounded on the role of the Alaska
Challenge Youth Academy. The department provides the
academy with names of students that have dropped out of
school. The academy attempts to reincorporate these
students into a program that provides success. Most of the
students at the academy go on to receive Greater Education
Development (GED) diplomas. He stressed that lives have
been turned around by the program.
1:39:15 PM
Representative Gara asked if there is direct coordination
with the Division of Family and Youth Services (DFYS) and
the Alaska Challenge Youth Academy. Commissioner Hanley
indicated that the department did not have a direct
concerted effort in regards to working with DFYS.
Mr. Mark Lewis, Acting Director, Division of Administrative
Services, Department of Education and Early Development,
affirmed that there are no first hand coordinating efforts.
Representative Gara observed the poor graduation rates for
foster youth. He stressed that in many cases foster homes
are not as good as the structured environment offered at
the academy. He questioned if the department could
coordinate with DFYS. Commissioner Hanley agreed but
pointed out that most of the students at the academy are
focused on obtaining a GED not a diploma. Representative
Gara maintained that a lot of the youth under the auspices
of the Office of Children Services have fallen off and felt
that coordination would be beneficial.
1:41:25 PM
Representative Doogan referred to the $62 million for pupil
transportation and asked the formula for pupil
transportation. Mr. Lewis explained that the formula is in
statute, but he did know the exact formula. Representative
Doogan wanted to know how much goes where and if the funds
are matched.
1:42:18 PM
Vice-chair Fairclough asked if qualified school districts
received direct support from the federal government. Mr.
Lewis thought that state funds provided the main source of
funding. Vice-chair Fairclough recalled being told that
private pupil transportation could not be used in order to
qualify for reimbursement.
ELIZABETH SWEENEY NUDELMAN, DIRECTOR, SCHOOL FINANCES AND
FACILITIES, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT,
explained that pupil transportation is state funded. She
did not know of any federal funds for pupil transportation.
The dollar amount is calculated for each district,
multiplied by the number of students in the district. The
program runs under federal standards, which require
compliance with federal standards. She promised to provide
further information regarding the possibility of federal
funds.
1:45:17 PM
Co-Chair Stoltze noted that urban areas have a higher need
for funding.
Commissioner Hanley noted that education support services
represent two percent of the department's budget: the
Office of the Commissioner, Division of Administrative
Services, Division of Information Services, Division of
School Finance and Faculties, and general centralized
services such as capital projects. The State Board of
Education also falls under the executive administration
budget.
Commissioner Hanley observed that the Division of Teaching
and Learning Support is the largest component and focuses
on student and school achievement. The State System of
Support component provides coaches in intervention
districts. The statewide mentoring program provides support
for all first and second year teachers. He stressed that
the program has resulted in a higher rate of teacher
retention and student achievement. Other components include
Teacher Certification and Child Nutrition, which is a
function of the USDA. The final component is Early Learning
Coordination, which provides support for programs such as
Best Beginnings, Parents as Teachers and the pre-K program.
1:48:13 PM
Representative Wilson asked how many contracts fall under
the Teaching and Learning component. Mr. Lewis explained
that 118 professional services contracts were awarded. He
clarified that the executive branch does not contract for
employees. Each professional services contract must go
through a procurement process. There are risk management
and liability issues, and personnel rules. Vendors are
hired to perform a specific scope of work. Each vendor can
contract with multiple people to provide the service. The
department does not track on an individual basis. One
contract does not mean one person.
Representative Wilson asked for more information on the
mentoring system, which contracts on a one on one basis.
Mr. Lewis affirmed that mentors and coaches are contracted
on an individual basis. However, not all work full-time.
They are paid a specific amount for a specific scope of
work.
1:50:07 PM
Commissioner Hanley reviewed the Commissions and Boards
component: Alaska State Council on the Arts and
Professional Teaching Practices Commission. The component
represents a small portion of the department's budget and
excludes the state board.
Commissioner Hanley discussed Mt. Edgecumbe, which is the
only school run by the state. There are 400 students
located in Sitka from 110 communities across the state.
There are over 10,000 alumni (95 percent Alaskan Native).
He maintained that Mt. Edgecumbe is a model of success
Commissioner Hanley reviewed the State Facilities
Maintenance component. The component includes interagency
receipts and rent from the Gold Belt building (Juneau),
Talking Books Library (Anchorage), the archives storage
facility and library space in the State Office Building.
The department no longer rents space in the Anchorage
Atwood Building.
1:52:13 PM
Commissioner Hanley stressed the importance of the
Libraries, Archives and Museums component, which provides
public library assistance grants, and represents just over
four percent of the department's budget. This component
provides public library assistance grants to libraries and
archives across the state.
Commissioner Hanley discussed the Postsecondary Education
Commission and noted that it heads up the Alaska
Performance Scholarship program (APS) as well as services
student loans. He stressed that both programs are critical
for students to access postsecondary education.
1:53:54 PM
Commissioner Hanley explained that $6 million has been
allocated in Alaska Performance Scholarship awards. The
governor's request would add $2 million based on 2,340
estimated recipients. The average award is just over
$3,400. The goal of just under 30 percent of qualified
students was reached. He expressed disappointment at the
amount of students still leaving the state [for school],
but felt that a greater percentage would take advantage of
the scholarship in the coming years.
Representative Gara recalled a split between the
performance and merit based scholarships. He asked if needs
based scholarships were awarded. Commissioner Hanley
explained that needs based scholarships were not awarded as
part of APS. The funding mechanism is still in play but did
not affect APS. He noted that the Alaskaadvantage program
offered awards.
1:56:00 PM
DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION
COMMISSION, DEPARTMENT OF EDUCATION, clarified that the
commission received a $300 million general fund
appropriation in FY 12; all of the funds were expended.
There were slightly more than 2,000 awards in FY 12.
Commissioner Hanley continued to review the FY 13
governor's budget highlights. He noted the importance of an
aligned assessment system to measure student's progress.
There has been continual increase in costs for test
development. There is a $750.0 thousand request to meet
contractual needs to continue (Comprehensive System of
Student Assessment (CSSA). He stressed that it is a small
portion of the overall budget for the assessment system.
Commissioner Hanley observed that the Alaska Learning
Network (ALN) was begun in the past year. The network is an
on-line delivery model that will have a huge impact for
students to access additional courses and course that will
directly impact their ability to take advantage of APS. The
first nineteen courses were developed with input from
superintendents statewide. Sixteen districts are currently
taking advantage of on-line courses; twenty-two districts
will take advantage of on-line courses in the second
semester.
1:58:33 PM
Vice-chair Fairclough asked if the department was
coordinating on-line programs with the University of
Alaska; or were they handled internally. Commissioner
Hanley observed that the determent contracted with the
Chatham school district. The Chatham School District
contracted with the Wrangell School District to run the
program. The university decided not to manage the program.
Vice-chair Fairclough asked if the university was
responsive. Commissioner Hanley observed that the some
individuals were enthusiastic.
Representative Wilson asked if the cost would increase with
additional communities. Commissioner Hanley explained that
course development is the greater portion of the cost and
did not think course costs would increase.
Representative Wilson observed that the program is funded
through American Recovery and Reinvestment Act (ARRA)
stimulus funds and asked if state funds have been
identified for replacement. Commissioner Hanley noted that
different avenues have been reviewed, but he emphasized
that one of the department's vision is to recognize the
need to incorporate technology in education. A model was
put in place with ARRA funds. The goal is to continue the
model, but the department does not have the ability to
offer the program within the five percent of its agency
funds.
Representative Wilson asked if there is a plan to charge
costs to districts. Commissioner Hanley observed that there
is currently a scholarship for every student who wants to
take a course. School districts are charged $150 for every
seat. The idea is to use the learning network and schools
to support students from both ends.
2:02:02 PM
Co-Chair Thomas stressed that ARRA money would not be
replaced with general funds. He noted that ARRA recipients
were told not to look for general funds for new programs.
Commissioner Hanley acknowledged that other funding should
have been pursued, but emphasized that allowing technology
to be the equalizer of opportunity around the state has
been and remains a vision of the department.
2:03:32 PM
Representative Doogan asked the meaning of an aligned
assessment system. Commissioner Hanley explained that the
department's first responsibility is to set a goal: state
student standards. The second responsibility is to
determine if students are getting what they need to access
the standards. To that aim, the department has developed
benchmark assessments that start in third grade and
continue to tenth grade [new standards would go to twelfth
grade] in order to measure student's growth toward the
standards; to see that all the assessments are aligned with
the goals.
Vice-chair Fairclough observed that the 2011 and 2012 state
standards are out for review. She asked if the standards
meet the entry level for University of Alaska entrance
exams. Commissioner Hanley anticipated that they would and
noted that the university will be vetting the standards to
assure that they are preparing students for college without
remediation.
2:05:14 PM
Vice-chair Fairclough asked if the university helped
develop the standards. Commissioner Hanley clarified that
the university has been involved throughout the process,
which began in February 2010.
Representative Joule asked if students that pass the
standards would be able to bypass remedial classes.
Commissioner Hanley acknowledged the desire to bypass the
sub 100 level classes. The goal is to not have to take
remedial courses.
2:07:31 PM
Vice-chair Fairclough asked which courses are on-line.
Commissioner Hanley detailed classes: Spanish I and II,
German I and II, Algebra, Calculus, Alaska Studies, and a
number of math classes are among the classes offered.
Co-Chair Thomas asked if APS recipients would receive
funding for remedial classes. Commissioner Hanley observed
that recipients are taking fewer remedial classes but
acknowledged that the scholarship would pay for necessary
classes.
2:09:11 PM
Commissioner Hanley reiterated that the proposal would
fully fund year two of the Alaska Performance Scholarship
Program at $2.0 million. The department is continuing with
the state system of support as a core service of oversight
and accountability. There are currently 22 content coaches
and 1 trustee.
Commissioner Hanley spoke to the statewide literacy
program. He observed that third grade seems to be the
benchmark. Students need to be able to read by third grade.
The department wants to strengthen the early programs. He
observed that last year was the first year of a literacy
institute that provided training for kindergarten, early
education and preschool teachers.
2:11:04 PM
In response to a question by Representative Gara,
Commissioner Hanley clarified that 2.5 is the lowest grade
point average needed to qualify for APS. Representative
Gara questioned the message of shooting for a "C" and asked
if the standard might be raised. He asked if other states
grant performance scholarships at the "C" level.
Commissioner Hanley emphasized that the message is not that
shooting for a "C" is where to go. The program is tiered.
Each grade increase receives a higher level of funding. He
emphasized the higher performing students (3.5 - 4.0) would
go to college regardless of the program. He felt that the
program would help the students on the edge or the middle
the most.
2:13:42 PM
Commissioner Hanley reviewed the statewide Alaska Literacy
Program. The department recognizes that parents have a key
role in helping their children be successful and prepared
for kindergarten. The department has developed "I am ready
skills", not all of which are academic. They are being
distributed to schools, health care clinics, pediatricians
and other areas where parents gather. The $300 thousand
request would also support a ready to read program, which
is operated through the library to provide bags of books
for early literacy.
Representative Wilson suggested that the programs would be
in competition with Best Beginnings, which seems to be a
successful program. She questioned if the department had
looked into coordinating with Best Beginnings instead of
reinventing a new program. Commissioner Hanley clarified
that the department works directly with Best Beginnings. He
did not considered the department's efforts to be in
competition. The department did not create the Ready to
Read program, which is another avenue to reach more
parents. He noted that Best Beginnings provides a book a
month.
2:15:38 PM
Commissioner Hanley reviewed the Early Learning
Coordination Pre-K Program request of $700.0. This program
started as a pilot and has three years of data. He
emphasized the success of the program and noted that 78
percent of the kids in the preschool programs have
increased by more than a year's growth.
Representative Edgmon pointed out the success of the Head
Start program and educating kids at younger ages. He asked
if the department envisioned it would play a larger role in
terms of early literacy and education development.
Commissioner Hanley noted that the legislature would
dictate the department's role, but expressed support for
the Head Start program. He observed that their programs are
not necessarily academically oriented.
Commissioner Hanley recognized the value of early learning.
He observed that the goal of the pre-K pilot program was to
start with $2 million and add an additional $2 million a
year until the program reached $10 million reached.
Co-Chair Stoltze suggested some parents would prefer not to
have their children participate in early socialization
programs.
2:19:40 PM
In response to a question by Representative Joule, Mr.
Lewis clarified that $700 thousand was a one-time item that
would restore the current level of $2 million when combined
with the $1 million in the base and $300 thousand put in by
Co-Chair Hoffman for intervention districts.
Representative Gara noted that the only increase for Head
Start within the last decade occurred under Governor Palin
and questioned if the department's support is reflected in
the budget. Mr. Lewis observed that the budget supports the
governor's priorities. Representative Gara concluded that
there would be no increased funds for Head Start.
2:22:21 PM
Representative Costello asked how many third graders in
Alaska are reading at grade level. Commissioner Hanley
observed that it depends on which assessment is used but
estimated a rate of 70 percent from standards based
assessments. He recognized that the test score is not
necessarily a true recognition of proficiency. There is a
drop from the state's third grade test to the [federal]
fourth grade test: down to 40 percent.
Representative Costello asked if reading at a third grader
is linked to overall school success. Commissioner Hanley
observed that there are a number of studies and offered to
provide them at a later date.
In response to a question by Representative Doogan,
Commissioner Hanley clarified that state assessments show
standard growth, but the national tests do not show as high
a level of success. He suggested that the real level of
proficiency lies somewhere between the state and federal
results.
2:25:19 PM
Representative Doogan asked why not change state standards.
Commissioner Hanley observed that there would be new
assessments to go with new standards, but argued that there
may not necessarily be a flare in the assessment. The cut
score of 300 could be erroneous.
Representative Doogan asked how state scores compare to
nationally administered tests. Commissioner Hanley observed
that the national test is given in fourth and eighth
grades. Alaska is near the bottom when compared to other
states. Alaska is 45th in the fourth grade rating.
2:26:54 PM
Representative Guttenberg pointed to the high number of
prisoners with a third grade reading level. He surmised
that the state could lower prison population and recidivism
rate [if reading levels were enhanced]. He stressed that it
is cheaper to put students through college than to house
them [in prisons].
Commissioner Hanley emphasized that students don't suddenly
tank after third grade. He clarified that the differing
results are from different assessments.
2:29:01 PM
Representative Neuman emphasized that only seven to eight
percent of those students that start high-school achieve a
four year college degree. Commissioner Hanley recognized
the concern. Representative Neuman concluded that in light
of the "huge effort" to help students only a few students
are being reached.
Co-Chair Stoltze pointed to the importance of school board
elections.
2:31:11 PM
In response to a question by Co-Chair Thomas, Commissioner
Hanley noted that the state's ranking increases in eighth
grade. Alaska ranks at twenty-third place for eighth grade.
Representative Gara asked the plan for increasing reading
proficiency by fourth grade, in light of flat funding for
early education. Commissioner Hanley explained that the
state is working on a statewide Response to Instruction
(RTI) model of addressing student's needs where they are.
The pedagogical strategy is being changed in the primary
grades to address needs earlier. The department is
attempting to strength skills when students come into
school. Representative Gara asked how student proficiency
prior to grade school enrollment would be changed without
additional funding. Commissioner Hanley anticipated
branching out existing pre-K programs to additional
districts and continued support of Best Beginnings, Parents
as Teachers and Head Start programs. The department is also
working on the "I am ready to read" skills. He concluded
that the department is doing what it can with the tools
that it has.
2:34:11 PM
Representative Joule asked if the measured results are
showing improvements in students coming into the system at
a higher rate of proficiency. Commissioner Hanley saw
growth in all the programs. Representative Joule wanted to
see data on Best Beginnings, Parents as Teachers, Head
Start and other community based programs indicating that
they are successful.
2:36:51 PM
Commissioner Hanley observed that data from the preschool
programs show that 18 percent of the students have moved
from the bottom two quartiles to the top two; 25 percent
have moved out of the bottom quartile. Originally, 52
percent of the children in the state's pre-K program were
in the lowest quartile. These students have moved
significantly. Four percent show over two years of growth.
Twenty percent show one to two years of growth. Overall, 78
percent of the students show above expected growth.
Commissioner Hanley reviewed the department's ten-year plan
for the operating budget, which is used as a driver. The
plan anticipates increases in FY 15 - FY 22. The Foundation
Formula assumes an annual BSA increase of $100.00. The
Alaska Performance Scholarship Program is projected to be
fully funded. An annual inflation adjustment of 2.75% was
included for contractual obligations in operating costs.
2:38:55 PM
Commissioner Hanley looked at the ten-year plan highlights
for capital projects. The annual construction and major
maintenance items would remain stable and funding for the
five schools to satisfy the Kasayulie settlement are
anticipated over the next four years. He observed that 14
projects are currently being funded in the capital budget.
The department is also looking for funding for the Stratton
Library renovation and full funding for the State
Libraries, Archives and Museums Facility are included in
the ten-year projection.
In response to a question by Co-Chair Stoltze, Commissioner
Hanley clarified that the Stratton Library lies on the edge
of the Shelton Jackson campus in Sitka and was acquired by
the state two years ago. The intent is to maintain it for
future use and not allow it to fall into disrepair.
2:40:19 PM
Representative Gara observed that there has not been a BSA
increase since the last year of the Palin administration.
He questioned if the department would ask for an increase
prior to 2015. Commissioner Hanley explained that the ten-
plan is based on trends and that he did not know what
policy any given administration would promote.
Representative Gara noted off budget increases for the pre-
K program that are not carried forwarded to subsequent
years. The governor's budget is currently the same per
student as two years ago. He asked how student achievement
could be increased with a budget that would result in
teacher layoffs. Commissioner Hanley emphasized that the
department would continue to do the best it can with the
funding it receives. He did not think there was a direct
correlation between funding and student achievement but
acknowledged that it isn't possible to continue to maintain
the same level of services with funding decreases. The
department will continue to focus on its mission and core
services, and support districts as best they can.
2:42:37 PM
Co-Chair Thomas suggested that the Teachers' Retirement
System (TRS) payment be placed in the Department of
Education and Early Development's budget. He stressed that
the state pays for more than just education; [teacher]
retirement is paid by the state. The final year of the
cost differential is in the proposed budget. The TRS
funding could be included into the department's budget so
that it shows in the foundation formula or make school
districts make their own payments. He stressed that the
state is paying "massive amounts of money". Commissioner
Hanley acknowledged that the [retirement] liability is
going up.
Representative Edgmon wondered whether each state agency
would come before the committee with the same level of
detail. Co-Chair Stoltze suggested that it would behoove
other agencies to provide the same level of detail.
2:45:13 PM
Representative Joule asked whether the department had
discussed the concept of regional boarding schools.
Commissioner Hanley replied that models had been discussed.
He believed the idea was important and had a significant
amount of power if brought to communities. He believed it
was a valuable model, especially if students could remain
in their community or part of the state. He stressed the
need for local communities to identify the need and drive
the discussion. He observed that there could be some
unintended consequences involving the shutdown of smaller
schools throughout the state.
Representative Joule observed that some current schools
(Bethel, Kotzebue) are heading in the general direction. He
opined that the bulk of the work needed to be conducted by
the legislature and stressed the need to have the
administration help with the lifting.
Commissioner Hanley acknowledged the power of the Bethel
program where students come in for a semester at a time to
access courses they would not get in their local
communities.
2:48:43 PM
Co-Chair Thomas pointed out that with the current rate of
growth in the operating budget the state would have a
deficit within two years. At that time, the state will be
dependent on reserves.
2:49:53 PM
AT EASE
2:58:29 PM
RECONVENED
^BUDGET OVERVIEW: DEPARTMENT OF REVENUE
Bryan Butcher, Commissioner, Department of Revenue provided
members with a PowerPoint presentation (copy on file).
Commissioner Butcher noted that the mission of the
department is to collect, distribute, and invest funds for
public purposes.
Commissioner Butcher noted that there are four divisions
within the department. The Tax Division enforces the tax
laws of the state and collects and accounts for tax
revenues. The Treasury Division manages and invests state
funds. The Permanent Fund Dividend (PFD) Division
administers the PFD program and distributes the annual
dividend payment to eligible Alaskans. The Child Support
Services Division collects and distributes child support to
custodial parents
Commissioner Butcher expressed his enthusiasm to work on
missions and measures. He maintained that his department
would be proactive and engaged in the issue.
3:00:42 PM
Co-Chair Stoltze asked if the department is redirecting
funds or actually catching people for child support
payments.
Jerry Burnett, Director, Division of Administrative
Services, Department of Revenue noted that there is a
combination of means by which the department has increased
its child support collections. Collections from permanent
fund dividends have gone up, but the department also
collects from tax refunds, bank accounts and even safety
deposit boxes.
Commissioner Butcher noted the development of a criminal
investigation unit created from interagency funds. Criminal
investigators were merged from child support, Permanent
Fund, Tax, and Treasury divisions. He observed
efficiencies.
3:03:09 PM
Commissioner Butcher noted that in FY 11, the Tax Division
data showed that 98.5% of known taxpayers filed tax returns
and made their payments timely. In the Treasury Division
returns for 9 of the 10 funds under the fiduciary
responsibility exceeded the applicable 1year target
returns. Mr. Burnett explained that the Retiree Health
Insurance Long-Term Care Fund, which earned 21.77 percent,
missed the bench mark of 21.9 percent. Commissioner Butcher
observed the department's long term investment out
preformed the Alaska Permanent Fund.
3:03:55 PM
Representative Costello asked how target returns are set.
Mr. Burnett explained that each individual fund with an
asset allocation has a target and bench mark. He offered to
provide more information.
Commissioner Butcher discussed the Permanent Fund Dividend
Division. He observed that of the 144,056 eligibility cases
opened in 2011, 88% were reviewed by September 15 and
either closed, resolved, or awaiting information from the
applicant. He observed that providing timely information
has been a focus of the department in order to reduce
waiting time.
Commissioner Butcher noted that in the Child Support
Division collection of child support increased 3.53%,
resulting in $3.3 million more in disbursements from the
previous fiscal year.
3:05:16 PM
Representative Doogan observed problems with filling
auditor positions, which in turn have impaired the
department's ability to audit oil companies' tax returns.
Commissioner Butcher noted that the department is fully
funded for all but one master auditor position. They are
focusing on filling the position. Two commercial analysts
position were filled. The tax director's position was also
filled. The department is almost at 100 percent in terms of
the folks doing the work.
Representative Doogan asked the status of the backlog.
Commissioner Butcher explained that the department is now
on 2007 [returns], from the switch from gross to net tax
(PPT). The pace seems to be faster than the first year of
the switch (2006). He felt that they would continue to
catch up, but cautioned that the results would not quicken
until the new data management system is functioning.
Representative Doogan asked the results; is the state
getting more or less money than anticipated. Commissioner
Butcher could not respond. The first switch from gross to
net is being wrapped up.
3:08:23 PM
In response to a question by Representative Gara,
Commissioner Butcher clarified that the department has not
completed a full year of the Alaska's Clear and Equitable
Share (ACES) returns.
Commissioner Butcher outlined corporations that are under
the Department of Revenue: Alaska Housing Finance
Corporation, Alaska Permanent Fund Corporation, Alaska
Mental Health Trust Authority, Alaska Municipal Bond Bank
Authority, and Alaska Natural Gas Development Authority.
3:09:55 PM
Vice-chair Fairclough expressed a desire to meet with
Alaska Housing Finance Corporation prior to subcommittee
hearings.
Commissioner Butcher looked back at seven years of the
department's activities.
· Greater revenues were collected by the Tax Division
with an increase of 190%: FY05 $1,951,247,500, and
FY11 $5,660,500,000.
· Funds under management by the Treasury Division have
doubled with an increase of 101%: 12/31/2004
$20,448,418,000, and 12/31/2011 $41,062,345,000
· The Number of Permanent Fund dividends paid to
Alaskans increased 8%: FY05 599,243 FY12 647,549
(total estimated for 2011 dividend)
· The number of child support cases increased 4% while
the amount of child support distributed to custodial
parents increased 15%: FFY05 45,259 cases $98,644,813
disbursed F11 47,044 cases $113,330,053 disbursed
3:11:21 PM
Commissioner Butcher observed the growth in state funds
over the past seven years.
In response to a question by Representative Doogan,
Commissioner Butcher explained that GeFONSI is an acronym
for general fund other non-segregated investments. Mr.
Burnett added that GeFONSI funds include the Statutory
Budget Reserve Account (SBR), Public School Fund (forward
funding for education), Alaska Housing Capital Corporation
Funds and 100 different accounts. These are accounts that
need to be available to the legislature and fairly liquid.
In response to a question by Representative Doogan, Mr.
Burnett explained that there are some portions of the funds
that are not available for expenditure but that for the
most part the funds are available.
3:13:52 PM
Representative Costello referred to the rate of return for
the Constitutional Budget Reserve Account (CBR) and wonder
what kinds of investments are in the fund. Commissioner
Butcher explained that the fund is broken down between
short (2.64%) and long (21.13%) term investments.
Vice-chair Fairclough asked the approximate percentage of
the split. Mr. Burnett stated that the split in the CBR is
approximately 50/50 at the end of the year: $5 billion
short and $5 billion long.
Vice-chair Fairclough questioned if it were possible to
borrow money for the short term and invest in the long term
higher rate of return. Commissioner Butcher explained that
the department has been cautious in arbitrage due to
volatility.
3:16:47 PM
Commissioner Butcher spoke to the benefit of the AAA
upgrade from Standard and Poors. He observed that his
staff, Angela Rodell, Deputy Commissioner, Treasury
Division, looked at the 2003 bond deals and observed that
they could be refunded; they received a net present value
savings of $27 million savings. The state received a low
spread and high sale due to the AAA rating. He observed
that Alaskans bought $26 of the $175 million sold.
3:18:52 PM
Co-Chair Stoltze asked it the Carlson money held in escrow
earned interest. Mr. Burnett explained that the funds were
held externally from the state and could not comment on the
amount of interest earned.
Commissioner Butcher observed the statewide growth of the
department, which has had an average annual growth rate
from FY 05 to FY 13 of 6.6% (under the state average). The
department's budget is under one percent of total state GF.
3:19:45 PM
Commissioner Butcher reviewed the department's fund
sources. Permanent Fund corporate receipts are the largest
fund source at just over a third. Federal funds are just
under a quarter. The department also receives funds from
Alaska Housing Finance Corporation. The Alaska Retirement
Management (ARM) Board pension funds, nine percent are
undesignated general funds, and three percent are
designated general funds.
Commissioner Butcher looked at the department separated by
program. The Alaska Permanent Fund Corporation is the
largest at $119 million; the Alaska Housing Finance
Corporation is the second largest at $94 million. The Tax
Division is $16.2 million and the Division of Treasury is
$10 million.
Commissioner Butcher reviewed the two major initiatives
funded in FY 12: Established Criminal Investigations Unit
1,600.0 I/A; and Tax Revenue Management System Capital
Funding 34,700.0 GF.
Commissioner Butcher reviewed the Tax Revenue Management
System (TRMS), which received a $34.7 million appropriation
last session. A 3rd party project manager was brought on
board during the summer of 2011 to assist with writing a
request for proposal (RFP) to select a contractor. The
department plans to release the RFP in late February or
early March 2012. The implementation contractor should be
on board by August 2012. The department will implement a
Commercial OfftheShelf (COTS) system as opposed to
building one in house. He noted that most states use the
COTS system and indicated that it would result in savings.
There will be a phased implementation of the Tax Division's
22 tax systems and a two to five year timeline for full
implementation. He stressed the need to take the time to do
things right.
3:23:30 PM
Representative Neuman observed that the Alaska Natural Gas
Development Authority (ANGDA) is funded at $436 thousand
and asked the administration's intent for future years.
Commissioner Butcher observed that the executive director
resigned. There is an interim director and ANGA is in the
FY 13 budget. He noted that the governor has had
discussions about bringing agencies working on the gasline
together. He observed that he has worked with Daniel
Sullivan, Commissioner, Department of Natural Resources to
prevent duplication.
3:25:27 PM
Mr. Burnett reviewed key FY 13 budget changes not in the
base. The department added five project positions for the
Long Term Care Ombudsman office at $25.9 GF. The
appropriation reduces vacancy and allows development of an
online Learning Management System. The Alaska Permanent
Fund Corporation (APFC) has asked for $340.0 in corporate
receipts to provide performance based salary increases, and
increased due diligence. The corporation is not under
employee contracts; therefore market based salary
adjustments are needed. The Treasury Division has requested
$399.4 GF to manage the increased Constitutional Budget
Reserve management costs because it has grown in value and
the Power Cost Equalization Fund has also grown.
3:27:09 PM
In response to a question by Co-Chair Thomas, Mr. Burnett
clarified that each of the funds has some external
management fees. The Treasury Division manages a variety of
funds that are allocated on a cost allocation plan to each.
Mr. Burnett noted that APFC earned 21 percent in FY 11 and
is asking for additional external management fees
In response to a question by Representative Doogan, Mr.
Burnett affirmed that CBR management costs are a direct
function of increases to the fund. He added that at the end
of FY 10, the CBR was fully funded. The legislature no
longer had an obligation to the fund. The fund has been
managed with general fund dollars since so that there are
no draws from the account.
3:28:31 PM
Mr. Burnett reviewed the department's FY 13 capital
request. He observed that there are three requests for the
Child Support Services Division:
· Case Management Modernization - $1080.0 Fed/557.0 GF
(The federal government pays 66 percent of the
program);
· Child Support Computer Replacement - 134.6 Fed/69.4
GF; and
· Child Support Interactive Voice Response System -
151.8Fed/78.2 GF. The current system is no longer
being supported.
Mr. Burnett reviewed additional capital requests. The
Permanent Fund Corporation has a request for office wiring
- 50.0 PF earnings. He noted that the Alaska Housing
Finance Corporation has multiple projects totaling
109,000.0 GF/850.0 Other/11,800 Federal funds.
· $31.5 million Weatherization
· $21 million Alaska Gasline Development Corp
· $20 million Home Energy Rebate
· $8 million Homeless Assistance Program
· $7 million Supplemental Housing Development Program
· $6 million Teacher, Health, Public Safety and VPSO
Housing Loans
· $4.5 million Senior Citizen Housing Development
Mr. Burnett observed that there are also a number of
projects for internal programs to maintain buildings the
corporation owns.
3:30:44 PM
Mr. Burnett reviewed the department's ten-year expenditure
projections. The baseline for the department's operations
costs were increased by using a 2.75% annual inflation
factor. The inflation calculation does not include personal
services or investment management fees, but the value of
the various funds were modeled for the estimated fees.
Mr. Burnett observed that AHFC and APFC are large
contributors to the department's ten-year plan. The Alaska
Housing Finance Corporation's (AHFC) operations costs were
increased by using a 2.75% annual inflation factor. The
capital budget assumes that the corporation's earnings will
resume to prerecession levels. The weatherization program
assumes the state will contribute $100 million annually to
maintain the current program. The Alaska Permanent Fund
(APF) value was grown using median capital market
expectations. External investment manager fees were
projected at a cost of 26 bases points or the total fund
value.
3:32:17 PM
Mr. Burnett noted that there is a bump in the early portion
of the ten-year plan in the all funds graph due to the
inclusion of modernization of the Child Support Services
Division's information technology system and the Alaska
Gasline Development Corporation capital cost. The bump is
taken out in all operating funds because the funds are
growing. He pointed out that the general fund line is not
quite flat, but the department's general fund growth has
been below that of the state. The Tax Division is the
greatest cost of general funds; the second is the match for
child support.
3:33:41 PM
Commissioner Butcher emphasized that the Tax Division is
actively engaged in increasing the efficiency of tax
administration and timely access to information necessary
for assisting with tax policy decisions made by the
legislature. The department is working on a five year "look
back" to tie paid tax credits with what the oil industry
has provided.
Commissioner Butcher spoke to the Department of Revenue's
prudent investment practices. The department is the state's
largest investment manager. He reiterated that the state
just received an AAA upgrade thus receiving the lowest cost
of borrowing.
The department has continued to work with the Permanent
Fund Dividend Division and the Child Support Services
Division to improve their business and be in touch with the
public. The department's corporations receive national
recognition for their exemplary program management and
fiscal solvency and provide valuable services to the state.
3:35:14 PM
Representative Doogan observed that a bill was introduced
in the House that would move $10 billion from the Permanent
Fund to the general fund. He questioned what problems such
a move would occur. Commissioner Butcher agreed to discuss
the issue.
Representative Costello echoed Co-Chair Thomas' concerns
with anticipated future declines. She observed that at the
current rate of government growth the state would operate
in the red by 2015 and cash reserves would be depleted by
2025. She asked how the department is responding to the
information. Commissioner Butcher observed that the
department has worked hard to keep general fund growth low.
He emphasized that prudent management can mean more state
funds. He hoped to help move the red line further into the
distance.
Representative Costello observed that half of the CBR has a
2.6 percent growth rate, while other funds receive a
greater rate. She asked if the department would recommend
that funds be invested elsewhere to have "our money work
for us in ways that we haven't thought of in the past."
Commissioner Butcher agreed and suggested further
diversification but emphasized the need to be prudent and
conservative with investments. He recalled a move from
short-term to long-term investment that resulted in a loss
of billions.
3:40:06 PM
Representative Costello asked the best approach in terms of
the unfunded liability. Commissioner Butcher responded that
the department was working to determine the best way to
handle the unfunded liability. He looked forward to being
involved in the process. He explained that ultimately it
was a question for policy makers and the administration
moving forward.
Vice-chair Fairclough asked if there had been discussions
regarding the TRS unfunded liability. She thought the TRS
system was more unbalanced due to the 20 year and out
[teachers' retirement] provision. She asked whether
something was being done for new teachers entering the
system. Commissioner Butcher replied that the switch from
the Defined Contribution System to the Defined Benefit
System impacted TRS as much as it had impacted PERS.
Discussions have occurred on how to move forward with a
"big picture" collected issue. He acknowledged the
discrepancy between the two programs.
Vice-chair Fairclough referred to testimony from David
Teal, Director, Legislative Finance Division, who explained
that a payment of $2 billion (front loaded cost) could fix
the PERS system, but it would take $4 billion to fix the
TRS system.
Mr. Burnett explained the employer cost in PERS is 22
percent but TRS is only 12.5 percent. The employer is not
making the same contribution in TRS so there would be a
larger legislative contribution.
Vice-chair Fairclough concluded that the state makes up the
difference from 12.5 percent to 40 percent.
ADJOURNMENT
3:44:31 PM
The meeting was adjourned at 3:44 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| FY13 DEED-HFIN Budget Overview (2).pdf |
HFIN 1/23/2012 1:30:00 PM |
|
| DOR-HFIN OVERVIEW 012312.pdf |
HFIN 1/23/2012 1:30:00 PM |
|
| DEED -Overview Reaponse List of AKLN Courses - Attachment B.pdf |
HFIN 1/23/2012 1:30:00 PM |
|
| DEED -OVerview Response Alaska Statutes Pupil Transportation - Attachment A.pdf |
HFIN 1/23/2012 1:30:00 PM |
|
| HFIN EED Overview 1.23.12 follow up.pdf |
HFIN 1/23/2012 1:30:00 PM |
|
| REV-APFC-Overview Response012312.pdf |
HFIN 1/23/2012 1:30:00 PM |